Digitalization has been of concern to Hewlett Packard Inc. (“HPQ”) for the past decade. HP’s printing business, which accounts for 38% of its total sales in 2016, is dying as its US$18bn revenue has been declining at an annual rate of 7% since 2011. HPQ’s printing business is to sell printer hardware at a discount and make profits from ink supplies. However, the profit growth stopped because digitalization resulted in decreasing demands for printing and competition not only with Japanese manufacturers but also with independent suppliers offering cheap alternatives for HPQ’s ink supplies have intensified.
To combat this declining revenue, HPQ renovated its ink supply chains by introducing “the Instant Ink” program. Under this program, HPQ monitors the ink usage of customers and delivers a new ink cartridge before they run out of ink. The customers pay a monthly fee determined by the number of pages they print per month. For example, a customer pays a monthly fee of US$9.99 for 300 pages. Customers benefit more by joining the program because customers neither run out of ink supplies nor need to keep ink inventories. They also save money as the unit cost per page is less; simple calculation shows that a customer who joins the 300-page program pay only US$0.03 per page although a customer would pay US$0.05 per page if they purchase ink supplies from retailers.
HPQ benefits from the program by minimizing in its supply chain the bullwhip effect, where variabilities in the demand order are increased as they move up the supply chain. The bullwhip effect causes poor production forecast, excess inventories or backlogs, and high costs to fix the supply-demand mismatch, such as for overtime work.  With the program, HPQ can forecast ink demand accurately as it monitors real-time data on customers’ ink usage. Matching supply to demand not only reduces the inventory level but also avoids excessive discounts offered to retailers. Moreover, HPQ can remove wholesalers and retailers from its supply chain and turn distribution margins into its own profits or lower selling prices.
To pursue long-term growth, HPQ entered the 3D printing market in 2014. The market size of 3D printers is estimated at US$5.2 billion in 2015 and is expected to reach US$21 billion by 2020. 3D printers for additive manufacturing, which HPQ is developing, is expected to lead the market growth. HPQ has established partnerships with leading chemical manufacturers, such as Dow Chemical, to develop supplies for 3D printers. HPQ estimates the total addressable market is US$10 to 30 billion.
In addition to these initiatives, HPQ should turn around its B-to-B printer business, whose revenue declined 26% in 2016. HPQ can promote its security feature and cost-saving program more aggressively. In HPQ’s pull printing system, a print job is first kept on a centralized server and then released by the user. Employees have to authenticate their print job, reducing uncollected documents on printer trays. Furthermore, HPQ should promote its scan-centric multifunction products (SCMFPs) more. Combined with the built-in optical character recognition, users can produce searchable PDFs quickly and save physical space for storage. Strengthening these products, HPQ can establish the leading position as a solution provider for documentation digitization.
It remains unclear whether HPQ can succeed in the era of digitalization. Dion Weiser, the CEO, said in the 2016 fourth quarter earnings call that “I’m pleased with the adoption of instant ink, our consumer subscription service which continued to increase with a record quarter of new enrollees.” Nevertheless, its printing revenue has decreased for three consecutive quarters. It seems 3D printing takes time to pick up as Tim Long of BMO Capital Markets says “3D printing has very high potential, but a meaningful contribution is still several years out”. The questions remain:
- How can HPQ overcome the decreasing demand for printing?
- Should HPQ focus on 3D printing?
 Assuming the customer purchases the HP950XL/951 cartridge, which costs US$104 on Amazon as of November 11, 2017 and includes black and color ink cartridge yielding up to 2,300 pages in black and 700 pages in color
 H. L. Lee, V. Padmanabhan and S.Whang (1997) The Bullwhip Effect in Supply Chains. MIT Sloan Management Review
 See note 2
 T. McCue (2016) Wohlers Report 2016: 3D Printing Industry Surpassed $5.1 Billion. Forbes
 Wohlers Associates, Inc. (2016) 3D Printing and Additive Manufacturing Industry Expected to Quadruple in Size in Four Years
 HP inc. (2017) HP Accelerates Path to Industrial 3D Manufacturing with New Jet Fusion 3D 4210 Printing Solution and Expanded Materials Portfolio
 See note 6
 S. Scribner (2017) HP Inc.: Questions for management Detuche Bank Markets Research (October 16, 2017)
 L. Lam (2017) Hype Cycle for Imaging and Print Services, 2017 Gartner
 Tim Long (2017) HP Inc.: Analyst Day Takeaways BMO Capital Markets Flash (October 17, 2017)