HP: Now Comes the Hard Part

In the aftermath of Hewlett-Packards hard-won takeover fight for Compaq, Carly Fiorina and her team have done many of the right things. While theres certainly room to quibble with specific product decisions—picking Compaqs more popular iPaq handheld over HPs more durable Jornada, for example—the new HP leadership has at least told IT managers quickly and clearly which products will stay and which will go. HP officials have also done a good job of reiterating the companys support for open standards.

With the new HP launched and on its way, the companys leaders might be tempted to break out the champagne to toast their newfound No. 1 status in PCs and servers. But they should pack away the bubbly and roll up their sleeves. Its now time for the hard part. Cutting the combined work force—always part of the merger strategy—is next. But making the new company a premier enterprise services provider will be a harder and far more important task.

Despite the running start provided by the Compaq (formerly Digital Equipment) services unit, HP has a long way to go. The company has plenty of experience in hands-on hardware deployment and support, but little in delivering business process transformation services closely linked to IT. Those are the kind of services that are key to the companys future.

As enterprises look to reduce costs and deploy complex, integration-heavy applications such as CRM, many will be looking for end-to-end services. A recent Gartner report estimated that while the hardware maintenance and support portion of the IT services market will grow only by 8 percent between now and 2005, the business process and transaction management piece will grow by 44 percent.

With its $19 billion investment in Compaq, HP has bought a chance to succeed in that business. To cash in, the company must become expert, not at layoffs, but at hiring people with the expertise to build a services and systems integration company that is a worthy competitor to IBM Global Services, EDS, Computer Sciences and others. Then HP must work—for years—to compile a worthy track record in helping the worlds largest companies to achieve their business goals.