HP may have just ripped off its own Band-Aid, relieving the agony quickly and avoiding a slow and painful journey at a time when the economy sits on a knife-edge.
Today marks a jolting and sobering inflection point to a global mega-business that was in serious danger of developing multiple-personality disorder.
We’ve been trying to figure out what HP’s game-plan is for sometime now, as it attempted a multi-faceted series of strategies that go after hardware, software, infrastructure, mobility, consumer technology, IT services and BPO markets. Oh, and there’s Cloud in there somewhere too.
Quite simply, HP loves the high-margins of the enterprise IT business and has been trying to find its sweet-spot. With Léo Apotheker taking the helm, we even predicted a potential move to acquire SAP could be on the cards, especially with the defection of a host of senior SAP executives onto Léo’s team. That may even still happen in the future, but much less likely in the near-term with the current seismic changes going on with the business.
Today’s announcements have been a bold move to redefine the business, as it spins off its PC, Touchpad and WebOS mobile businesses. It also announced its intention to make a $10bn acquisition of enterprise information retrieval software firm, Autonomy. So in one full swoop, the firm is moving away from consumer electronics and defining its future strategy as an enterprise IT systems, software and services provider.
While the IT industry is scoffing with amusement at the quick u-turn made on its tablet strategy (in fact, there’s a TouchPad ad running as I type), its apparent exit from consumer IT and the high price-tag of Autonomy, let’s actually give Léo some credit. He needed to make some tough decisions, and do them quickly. And in the process they’ve stated their reduced earnings outlook. Yes, HP may have just ripped off its own BandAid, relieving the agony quickly and avoiding a slow and painful journey at a time when the economy sits on a knife-edge.
In one full swoop, Léo’s sent his firm on a path where we can actually understand what HP’s game-plan is all about. If HP had continued down its confused previous path, it would surely have faced being broken up and spun-off into all sort of assortments and flavors. Let’s be honest – could we really see HP giving Apple and Google a run in the consumer space? Was HP really in the right shape to lead PC sales in a fast-commodotizing market?
Meanwhile, they’ve clung onto their enterprise IT and services businesses and are slowly rolling out some meaningful strategies that can leverage their global presence, their industry strengths and massive footprint of enterprise clients.
Provided the firm can now structure its units successfully, HP has now chosen its path to go after IBM in the enterprise arena. A smart acquisition or two to bolster its enterprise services presence, a well-executed management and business re-organization, a cohesive and clear marketing plan, and we may yet just see this company start to fulfill some of its potential.
Posted in : Business Process Outsourcing (BPO), Cloud Computing, IT Outsourcing / IT Services
[…] that such a significant amount of surgery was required allowed HP to get bad news out the way. As Phil Fersht over at Horses for Sources succinctly put it: HP may have just ripped off its own BandAid, relieving the agony quickly and avoiding a slow and […]
Very good insight. I agree with your views here – better for HP to get the bad news out quickly and focus on the future. Plus, the Autonomy acquisition really strengthens their software business.
It is refreshing to read a balanced appraisal of the situation than the amount of negativity from other market commentators surrounding these announcements.
Alain Schaeffer
Balanced piece – good clarity here, Phil.
HP’s clearly choosing to go after the IBM enterprise business. They have a lot of work to do, but seems like Leo is definitely taking the Bandaid route!
Stephen
Phil,
It takes a brave CEO to make U-turns on decisions such as discontinuing the TouchPad, but clearly HP needs some strong direction. Am also curious as to the choice of Autonomy, as opposed to an SAP or SFDC, but it’s Leo’s first major software play, so I’ll give him the benefit of the doubt. It certainly does position HP well against IBM in the integration space.
Yesterday’s announcements will either make-or-break Apotheker’s reign.
Kieran Dempsey
Phil,
Interesting piece.
I was under the impression HP has also been looking to make acquisitions in the IT services business and has been talking to some of the Indian majors. Do you anticipate something happening there?
Ramesh
Great insight. Funny how so many were quick to go for Leo’s jugular, but when you take a minute to digest the announcements, you realize he’s quickly trying refocus the HP business. To admit you’ve made some wrong decisions in the past and move to correct them is a sign of strong leadership IMHO.
Vince.
[…] Recognising that such a significant amount of surgery was required allowed HP to get bad news out the way. As Phil Fersht over at Horses for Sources succinctly put it: […]
Phil,
While Apple and Google may be sniggering, you can bet your bottom dollar that IBM won’t be very pleased with this renewed direction,
Mike.
Autonomy may have been pricey, but it’s a step in the right direction for HP as it focuses on the enterprise business. A profitable, stable software business which they can readily exploit. HP has a lot of work to do, but this may have been the turning point,
Hugh Johnson
[…] Fersht from Horses for Source has a very good take on their […]
In a single stroke, Léo Apotheker has managed to both focus the business and throw it into a period of uncertainty. Interestingly, there are a few valid parallels to IBM and their transformation under Gerstner. However, the lack of discipline within the HP organization over the past year (or perhaps over the past decade) indicates a systemic problem that needs to be addressed now, not later. Can it be addressed in a positive manner? I believe so. But it will require some decisive moves, and the completion of their pending multi-acquisition strategy (yes, there will be more than one).
The most fascinating aspect of this move is the disruptive impact on the soon-to-be-jettisoned HP business units – the influence of their potential ownership changes on the US and global workforce, and the dynamics of how HP will rework its future workforce. Is bigger better? Not always. At the same time, HP is opening itself up to a new level of competition (granted, they could not compete with all of their prior competitors on all the different front lines, but the question of whether they can compete with their new, focused competitors is still unanswered).
The outcomes, while predictable, are far from certain.
As you put it, yes, they have pulled off the bandage, but the question remains, can they heal the wound, maximize their opportunity and minimize the risk of scar tissue?
Provocative post – well done.
– Fred
@Fred: you sum up their challenges well. You raise a good point about whether “bigger is better” and the new competition they will face. Personally, I see this as a refocus on markets where HP can be competitive (or has the potential to be, if they can execute well). Clearly Apple and Google in the mobility space is formidable and I don’t think Gerstner has lost any sleep over the decision to shed the ThinkPad. I am not an expert in integration software, but moving into the unstructured data space? Sounds like an opportunity to me for a services giant… remember when Leo bought Business Objects at SAP, and all the flak he took for it? My gut is to give him the benefit of the doubt – Wall St have been trying to shoot him down even since he joined, and now he’s come out fighting,
PF
@ramesh – I wouldn’t write that possibility off. Sense HP has been put off by the insane multiples of offshore providers – combined with the fact Leo’s DNA is in enterprise software. Having said that, a market correction and some downward movement on these Indian stock prices could change that.
PF
HP has the opportunity of either creating exceptional shareholder value – through generating exceptional customer value – or continuing to erode shareholder value by being late to market and bureaucratic to engage with.
Moving into the software business, augmented by a services and equipment offering, is potentially a game-winning play (the HP print business has been and continues to be both a market leader and a huge cash / value generator).
The really big play HP could make in this move is to trump Microsoft, Oracle and IBM by offering attractive rather than onerous software licence and contract arrangements – assuming a fair product set coverage at all technical layers of the enterprise from database all the way up to the cloud. If HP was customer friendly in their licence agreements it could clean up. Many of my firm’s global clients are frankly at the end of their rope about the uneven contracts which the ‘majors’ are offering and the huge cost escalations which arise. If HP decides to listen to clients and tailor their licence offering around what clients want / need both architecturally and commercially they will generate a huge business and will eat a chunk out of the other majors. However HP’s history of being customer-centric is not good as anybody who has had dealings with them will testify with the huge tribes of staff that they bring to every meeting, with most seemingly having no role and then not apparently giving any real client contribution or value.
As a first step HP needs to clearly elucidate how its software strategy relates to its other businesses in the outsource space of joined up / bundled services which corporate clients require – it has not done this as yet. Another danger in the dash for coverage of the software footprint is that HP becomes another Marconi ending up buying secondary technologies for premium prices. A big question HP needs to face is “what does the HP brand stand for…” without a clear vision it risks sitting alongside Dell and Nokia as brands that are increasingly eroding in the minds of corporate IT and services buyers and their advisors.
My corporate clients are looking for HP to weld innovation, in software, to flexible commercial contracts and to take out a dozen layers of management so that they can achieve speed, value and market advantage – otherwise HP will fail in its strategic move into software.
David von Ackerman – Partner, Head of Outsource Advisory Strategy, Synergos Partners
Great and insightful post. Mark Hurd spoke eloquent wall-streetize and as a result was their darling even though he did more to destroy HP than most will ever know. It is too early to tell if Leo’s strategy will work but I agree with you, they are on an understandable path. Now all they have to do is execute.
In my opinion, the concept of core competency is being overstretched. If printers can be cash generator for HP, what is the reason that it is falling behind in the hardware business.
In these times what corporations like HP and Dell are failing to understand is the importance of consumer orientation. Their used to be a time when enterprises were the first investors in innovation. No Longer, and this is increasingly seen with the Apple Phenomenon.
IBM succeeded because it entered the services market when the demand was just taking of.
What HP also needs to ask itself is what is the market share that it enjoys in the enterprise solution domain, and will it be able to compete effectively as a new entrant.
Mrinal Singh
twitter: mrinalasingh
Blog: blogs.ittoolbox.com/emergingtech/trends/
LinkedIn: http://www.linkedin.com/in/mrinalsingha
[…] can ask many questions as to why HP’s new CEO made such a dramatic reversal of Léo Apotheker’s decision barely two months’ ago. There’s nothing wrong with making “180′s” […]