HP Splits Up—Tsunami or Fair Winds?

HP, split, outsourcing.Over the last 20 plus years, I have seen the industry change in waves.  The early years were all about EDS, CSC and a reluctant IBM.  Those were the days of the big deal cowboys who defined whole segments of the industry.  The last 15 years have been mostly about the Indian heritage providers who declared they had invented outsourcing and grew rapidly as result of a sudden demand in IT services, cheap labor costs and decisions made years ago in 1947 to invest in the Indian educational system.  Over the last 5 years, we have seen a variety of US-based outsourcing providers such as EDS and ACS allow themselves to be acquired into massive hardware/software centric companies like HP and Xerox as the Indian heritage providers rebranded as US providers and obligingly slowed their growth rates to match.

Today we see a split of one of those large hardware/software centric providers into two companies, HP Enterprise and HP, Inc., as the outsourcing services business at HP and other providers continues to go through a period of transformation driven by sophisticated client buying patterns, as well as an ever-increasing number of service provider options that attack, cannibalize and ultimately transform the way companies engage and select service providers. These new players don’t know that their light-touch service models are different, and they will continue to relentlessly pursue client mind and wallet share with fountains of innovation and creativity that will increase access and I think drive price down across traditional IT services.

HP Enterprise will focus on infrastructure, services, software and cloud. The legacy of HP Services and the EDS acquisition will be a big part of this company.  With $58B in revenue, HP Services will be #1 in servers and #2 in services. This business will also house the storage and networking product lines.

HP Inc., with $57B in revenue, will be comprised primarily of a very profitable printer business and a highly competitive PC business. Customers of the new HP Inc. will have similar questions to those of HP Enterprise: what is the long-term plan for this business, and if and when will it go on an acquisition spree to shore up and build out other complimentary capabilities with a goal of delivering innovation to their clients?

This announcement comes as HP approaches the fourth year of its five-year turnaround plan that has focused on innovation, reported to have strengthened its pipeline, and had significant investments their sales engine and R&D.  HP also stated they will increase their layoffs by 5,000 to 55,000 globally.  Some 35,000 of the 55,000 proposed layoffs already took place last July.

Our View:
Historically the effects of this type of split will take some time to be felt by enterprise buyers.  But this time I think the split and focus on HP Enterprise will need to move much faster to keep up with a larger market wave of client demands.  We’re operating in an environment where customers expect exceptional innovation, shorter cycle times to buy and instant feedback on how their services are being delivered.  They want it to be as easy as their experiences on eBay or stub-hub where they can sort for a product or service, verify price and rate the service all in one place.

As a founder who has grown a business of significant size, I will tell you that it’s all about developing relevant services to match customer needs and having a high-speed, low drag and sizeable sales engine.  The question now is:  Can HP move quickly to morph their Enterprise Services business to keep ahead of this wave and surf the tsunami of the new customer experience?

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