Hewlett-Packard: The Flight of the Kittyhawk (A) Custom Case Solution & Analysis

Evidence Brief: Hewlett-Packard Kittyhawk Program

1. Financial Metrics

• Initial Investment: Approximately 25 million USD allocated for the 1.3 inch drive development.
• Revenue Target: Corporate expectations set at 100 million USD within 24 months.
• Product Pricing: Target price point of 250 USD per unit for the 20MB model.
• Market Projections: Initial estimates suggested a potential market for small form factor drives exceeding several million units annually by the mid 1990s.
• Unit Capacity: 20MB at launch, with a planned migration to 40MB within 12 months.

2. Operational Facts

• Form Factor: 1.3 inch diameter, significantly smaller than the then standard 1.8 inch and 2.5 inch drives.
• Development Cycle: Compressed 12 month schedule, compared to the standard HP 24 to 36 month cycle.
• Manufacturing Site: Boise, Idaho, utilizing existing Disk Memory Division infrastructure.
• Technical Specifications: Required high shock resistance for portable applications and low power consumption for battery operated devices.
• Organizational Structure: A dedicated project team within the Disk Memory Division, granted relative autonomy to mimic a startup environment.

3. Stakeholder Positions

• Bruce Spenner (General Manager, Disk Memory Division): Championed the project as a way to capture the next wave of disruptive technology based on the Clayton Christensen model.
• Rick Rudman (Project Manager): Focused on meeting the aggressive 12 month launch window and managing the technical trade offs between size and reliability.
• HP Corporate Management: Provided funding but maintained high expectations for rapid revenue growth to justify the investment.
• Potential Customers: Apple (for the Newton PDA), Nintendo (for game consoles), and various manufacturers of mobile computing devices.

4. Information Gaps

• Detailed competitor cost structures for 1.8 inch drives during the same period.
• Actual consumer willingness to pay for the 1.3 inch form factor over slightly larger but cheaper alternatives.
• Firm long term purchase commitments from anchor customers like Apple or Nintendo at the time of project inception.
• Reliability data for the 1.3 inch drive under real world consumer usage conditions.

Strategic Analysis

1. Core Strategic Question

• Can HP successfully create and dominate a new market for miniature disk drives by applying high end organizational processes to a disruptive innovation?
• How should the Disk Memory Division balance the need for immediate corporate scale revenue with the uncertain adoption rate of a radical new technology?

2. Structural Analysis

Analysis via the Disruptive Innovation Lens:

• Kittyhawk represents a classic disruptive technology. It offers lower performance on traditional metrics (capacity and cost per megabyte) but superior performance on new metrics (size, weight, and power consumption).
• HP failed to identify a stable lead customer. By trying to serve everyone from PDA makers to cash register manufacturers, the team over engineered the product, adding cost and complexity that the primary disruptive market did not value.
• The HP overhead structure and revenue requirements are fundamentally mismatched with the low margin, high volume nature of the emerging small form factor market.

3. Strategic Options

Option A: Narrow Focus on the Handheld Gaming Market

• Rationale: Gaming requires the ruggedness and small size Kittyhawk offers, with less sensitivity to cost per megabyte than the PC market.
• Trade offs: High dependency on a single industry; requires significant volume to reach profitability.
• Resources: Direct engineering collaboration with one major partner like Nintendo.

Option B: Pivot to Industrial and Embedded Systems

• Rationale: Medical devices and industrial controllers value reliability and small footprints over price.
• Trade offs: Slower growth and smaller total addressable market than consumer electronics.
• Resources: Specialized sales force and longer qualification cycles.

4. Preliminary Recommendation

Pursue Option A. HP should have abandoned the attempt to make Kittyhawk a general purpose drive. By focusing exclusively on the handheld gaming or PDA segment, the team could have stripped out unnecessary features, reduced unit costs, and aligned their manufacturing ramp with a specific product launch cycle. The current path of seeking 100 million USD in revenue by being everything to everyone is a recipe for operational fragmentation.

Implementation Roadmap

1. Critical Path

• Month 1: Terminate all non essential feature development to freeze the design for a single lead customer.
• Month 2: Negotiate a volume based pricing agreement with one anchor client to guarantee 60 percent of initial capacity.
• Month 3: Reconfigure the Boise manufacturing line for high volume, low complexity assembly.
• Month 4 to 6: Execute alpha and beta testing exclusively within the lead customer hardware environment.

2. Key Constraints

• Revenue Expectations: The 100 million USD corporate target is the primary constraint. It forces the team to pursue large but immature markets.
• Technical Ruggedness: Achieving the shock resistance required for consumer portables without increasing the price beyond the 250 USD ceiling.
• Organizational Inertia: The tendency of HP to apply high margin mentalities to a product that requires a commodity cost structure.

3. Risk Adjusted Implementation Strategy

The strategy must move from a big bang launch to a phased rollout. If the lead customer (e.g., Apple Newton) fails to gain traction, the team must have a pre approved plan to pivot to the industrial segment within 90 days. Funding should be released based on hitting unit cost targets rather than total revenue milestones. This protects the parent company from over investing in a market that does not yet exist.

Executive Review and BLUF

1. BLUF

The Kittyhawk project will fail unless HP immediately resets its expectations. The team is attempting to force a disruptive technology into a sustaining innovation business model. Trying to hit 100 million USD in revenue within two years has forced the team to over engineer the drive for too many applications, making it too expensive for the very markets it was meant to create. HP must choose one niche, strip the product of all non essential features, and accept that the initial returns will be small. Failure to do so will result in a total write down of the 25 million USD investment within 24 months.

2. Dangerous Assumption

The most consequential unchallenged premise is that a mass market for 1.3 inch drives exists at a 250 USD price point. There is no historical data to support that consumers value portability enough to pay a 300 percent premium on a cost per megabyte basis compared to 1.8 inch or 2.5 inch alternatives.

3. Unaddressed Risks

• Flash Memory Acceleration: The analysis ignores the rapid price decline of solid state flash memory. If flash prices drop faster than Kittyhawk unit costs, the 1.3 inch drive loses its only competitive advantage: cost per megabyte at small capacities. (Probability: High; Consequence: Terminal)
• Lead Customer Failure: The strategy relies heavily on the success of the Apple Newton. If the host device fails, Kittyhawk has no secondary volume market ready to absorb production. (Probability: Medium; Consequence: High)

4. Unconsidered Alternative

HP should have considered spinning Kittyhawk off as an independent subsidiary or a joint venture with a consumer electronics partner. This would have removed the HP overhead burden and allowed the team to operate with a cost structure and revenue expectations appropriate for a startup. Maintaining the project inside the Disk Memory Division ensures it will be judged by the wrong metrics and starved of the right kind of patience.

5. Final Verdict

REQUIRES REVISION. The Strategic Analyst must return a plan that specifically addresses how to survive the 100 million USD revenue mandate while flash memory competitors emerge. The current recommendation to focus on gaming does not solve the underlying HP corporate pressure problem.