Is the HP Band-Aid being re-applied?

No sooner did they rip it off, they put on another one...

We gave Léo Apotheker a strong benefit of the doubt when he recently ripped off HPs proverbial Band-Aid and made a series of tough announcements that could steer HP on a more coherent enterprise path. Sadly for Léo, his board is clearly in a position where they are unhappy with the progress made under him and want to bring in a very different personality in eBay’s Meg Whitman.  Coming so soon after the quickfire announcements last month, this can only indicate the HP board are divided on whether Léo was doing what they wanted for the business.  They may also have felt that Léo was making decisions without consulting them. Bringing in Whitman indicates they need a strong personnel leader and a consensus builder to repair their fractured leadership and try and come up with a strategy with which they are all comfortable.  Whitman is unlikely to be a strategist – she is the type of personality to reset the current position of the firm – and could possibly even reverse some of Léo’s recent decisions (although Autonomy seems like a done-deal).

HfS Research’s COO and SVP of IT Services Research, Esteban Herrera, elaborates further on the situation…

Here at HfS, we do, however, watch one of HP’s businesses very closely—its outsourcing unit. Phil has blogged in the past about the confusion and challenges faced by HP, and let’s face it, it’s never easy to run a company that big, that diversified, and that volatile.  There are rampant rumors emanating from several sources that Léo is out and Meg Whitman is in. I don’t know if Mr Apotheker will survive this crisis, but its clear that the outsourcing business has been neglected by two successive CEOs. Within the same week, different HP executives told us that “BPO would be their growth engine” and that “BPO was an afterthought, a business we’d rather not be in.” Within the same week.

Here’s a simple prescription which probably will not save anyone’s job but will likely save HP and its services unit. Instead of spinning off PCs (or in addition to it), spin off services. EDS was once a proud brand and completely dominant. It had its issues, but clarity of mission was not one of them. A lot of the talent that rules our industry was groomed there. HP should package its own services unit with what’s left of EDS and sell it back to the Perot family—hey, I’m not suggesting anything that hasn’t been done before!

I’ve written, somewhat harshly, that HP/EDS represents the past of the outsourcing industry. But it doesn’t have to be that way. The installed base is enormous, and they would love to have a reason not to switch providers when the contracts come to term. But right now, IT buyers are nervous—they see a rudderless division of a troubled company that is insisting on 40-year old commercial models while sticking its head in the sand to avoid modernizing the way services are delivered.

Finally, HP’s problems are not all Léo’s doing. This is an obviously dysfunctional board—they might as well invite WikiLeaks to their supposedly “secret” meetings. There is discord about the direction this company should take, and it is being aired publicly by one or more members of the board. Not even St. Meg of California can fix that.

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2 Comments

  1. Chuck
    Posted September 23, 2011 at 11:38 am | Permalink

    So would you also spin off the cloud capability at the same time? At what level?
    As you move up the cloud strata to higher value functions, you are definitely in the refined air that EDS was focused — it’s just today that is typically bundled with an underlying infrastructure foundation. It would be a real problem for HP to separate out the cloud capabilities from the services space.
    It is easy to say what doesn’t appear to be working, but much harder to define a business model that will be accepted by the marketplace and still be considered innovative. The financial and research focus does need to shift in HP. A company that has leadership that uses financial models and measures from a product perspective will have difficulty understanding the services industry.
    Throwing the baby out with the bathwater is unlikely to be a good decision. EDS was having trouble going it alone for a reason. Many of those reasons still exist.

  2. Posted September 23, 2011 at 2:07 pm | Permalink

    Um, what cloud capability? Our enterprise buyer network does not go to HP for their cloud offerings, by and large. But whatever they have should go with the services unit.

    EDS was indeed caught in the past, and arrogantly so. But it had the muscle and the installed base to make the shift, under the right leadership. Yes, it seriously needed to modernize and be turned around. It needed to embrace new technologies, new delivery mechanisms, offshore, etc. And it desperately needed fresh talent to replace the droves of retirees it was losing. But there were more pieces to pick up, especially with its big relationships, than there are today as part of HP. HP didnt know the services business, so it slashed costs. This may have been necessary, but it also failed to invest and made the unit an innovation laggard.

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