With the vote likely to go in favor of the merger between Compaq Computer Corp. and Hewlett-Packard Co., the integration of the services organizations will soon begin in earnest.
But turning the combined services operation into a solid No. 3 player that can compete on a par with IBM Global Services and Electronic Data Systems will take a lot of thought, discipline and careful execution.
Although details about the integration effort are not yet available, HP executive Ann Livermore will lead the combined services organization as executive vice president of services. The $15 billion services organization, which will become a 60,000-strong work force (65,000 with contract workers), will be headquartered in Northern California near Palo Alto.
As HP and Compaq work to combine the two services operations, they will take care to ensure that existing customers are not affected, according to Peter Mercury, senior vice president at Compaq Global Services in Littleton, Mass. “The first principle in services integration work is not to disrupt any work with the customers. We dont want to change customer facing employees and the first line of management they work for. If we can insulate them from the organizational activities, chances are customers will hardly feel this,” he said.
“Then from a top-down perspective, well go through a selection process, assign responsibilities as quickly as possible and create a new structure,” he continued.
From that top-down view, several activities need to take place in parallel, believes Dean McMann, CEO of the Ransford Group Inc., a Houston professional services consulting firm.
“You have to stake out your space in service lines and offerings and backtrack from there to figure out how to provide those service lines. You have to figure out what industries you will offer those in,” McMann said. ” Then you have to figure out if you have the client executives and practice executives to run those service lines in a way that makes you competitive. Once those three things are working together, then you have to go to the organizational structure and map it to that world view. Its not a geographic point of view but an industry point of view. That means you have to look at the worldwide structure and map it as best as you can to this industry point of view.”
Following IGS lead
Following IGS lead
In defining the relationship of the services organization to the rest of the combined company, former Compaq Global Services executive Michael Chuli believes that HP should borrow a page from the IBM Global Services playbook and create an entirely separate business unit. “You cant let products drive your services strategy. They have to empower their countries, regions and geographies to make service decisions in lieu of product decisions,” said Chuli, now CEO of Management Services Provider Coradiant Inc. in Boston. “You need full [profit and loss] capability around the globe,” he added.
That doesnt mean, however, that service and product sales teams dont work together, said McMann. “You have to go to the product side of the house and teach the product sales people how to take advantage of professional services in the company—how to pull through services. Then you want to make integrated client teams of product and consulting people on the major accounts. All of that is what we call the ticket to the ball game,” he said.
In its integration efforts, the combined company must make clear what it intends to do in the three categories of services businesses that it is a part of: break/fix, systems integration and high-end professional services/outsourcing, asserted Chuli.
In fact, the combined company in break/fix or customer support will be “the largest in the industry at $8 billion,” said Compaqs Mercury. “IBMs maintenance business is $5 billion.” That organization is focused on system availability and performance, and the combination of the two have good potential for cost synergies, he added.
In the systems integration category, the combined operations will gain “nice synergies” thanks to HPs strength in Unix systems integration and Compaqs strength in Microsoft technologies, Mercury said. At the same time, the systems integration area will increase its presence in the manufacturing and telecommunications sectors.
Although HP and Compaq will not rival IGS or EDS in the outsourcing category with less than $1 billion in revenues, Mercury believes that they will reach critical mass, opening more opportunities for HP in distributed computing outsourcing. “In the outsourcing business, size matters. When we put the two together, well get called to the table far more often. Delivery capability and experience in total is a factor to what degree you are considered for new opportunities,” he said.
Compaq does not have a great track record when it comes to integrating services operation. Its effort to integrate the diverse Digital Equipment Corp. professional services operation and the smaller Tandem services organization with its warranty operation did not yield the results Compaq initially hoped for.
“In services four years ago, because the organizations were so different in scope and in size, the management selection approach was entirely different,” said Mercury. “This time because the organizations are so similar, it gives us a greater talent pool to choose from, and people are familiar with the structures.”
Mercury does not believe the same issues around loyalty to the old Digital Equipment Corp. company will be present in the combined services organizations of HP and Compaq. “People who worked at Digital and moved to Compaq, Digital blood ran in their veins. With this merger there wont be the same emotional trauma. Nine out of 10 CGS people will see this service story and get pumped up when they see so much attention paid to services,” he declared.
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