Integrating Services to Be Key

HP's Livermore to lead effort for services merger with Compaq; plans to minimize customer impact.

With the vote to merge completed, Hewlett-Packard Co. and Compaq Computer Corp. are eager to begin the integration of their services organizations. Details of the integration effort are still scant, but sources said HP services chief Ann Livermore will lead the combined unit as executive vice president of services. The $15 billion services organization, which will become a 60,000-member work force (plus 5,000 contract workers), will likely be headquartered near Palo Alto, Calif.

As HP and Compaq work to combine the two services operations, theyll take pains to minimize the impact on customers, 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. 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.

"Then, from a top-down perspective, well go through a selection process, assign responsibilities as quickly as possible and create a new structure," Mercury said.

Several activities must take place in parallel, said Dean McMann, CEO of Ransford Group Inc., a Houston-based professional services company.

"You have to stake out your space in service lines and offerings and backtrack from there. You have to figure out what industries you will offer those in. Then you have to figure out if you have the executives to run those services in a way that makes you competitive. Then [you] have to go to the organizational structure and map it to that worldview," McMann said.

In defining the relationship of the services organization to the rest of the combined company, former CGS executive Michael Chuli said he 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. [The companies] have to empower their countries, regions and geographies to make service decisions in lieu of product decisions," said Chuli, now CEO of management service provider Coradiant Inc., in Boston. "You need full [profit and loss] capability around the globe."

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 salespeople 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," he said.

In their integration efforts, its also vital for HP and Compaq to make clear what they intend to do in the three categories they serve: break/fix work, systems integration and high-end professional services, and outsourcing, said 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 has good potential for cost synergies, he said.

In the systems integration category, the combined operation will gain "nice synergies," thanks to HPs strength in Unix systems integration and Compaqs strength in Microsoft Corp. technologies, Mercury said. At the same time, the systems integration area will increase its presence in the manufacturing and telecommunications sectors, he said.

Although HP, of Palo Alto, and Compaq, of Houston, will not rival IGS or Electronic Data Systems Corp. in the outsourcing category with less than $1 billion in revenues, Mercury said he believes they will reach critical mass, opening more opportunities for HP in distributed computing outsourcing.

Compaq does not have a great track record when it comes to integrating services operations. Its effort to integrate the diverse Digital Equipment Corp. professional services operation and the smaller Tandem Computers Inc. services organization with Compaqs warranty operation did not yield desired results. "In services four years ago, because the organizations were so different, the management selection approach was entirely different," said Mercury. "This time, the organizations are so similar, it gives us a greater talent pool, and people are familiar with the structures.

"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," Mercury said.