Certainly, the layoffs were supposed to be over by now. Hewlett-Packards announcement of 14,500 jobs to be cut shows that its acquisition of Compaq continues to be a work in progress. Theres still opportunity in Palo Alto, but HP will have to execute.
As CEO Mark Hurd finishes the first three months of his tenure, we think his priorities should look something like this:
Continue to build a strong services business. Perhaps the most promise for HPs future is to be found in services, where the company has carried off some significant outsourcing wins, such as with Procter & Gamble. In a standards-based world constructed from commodity hardware, services capabilities can make a crucial difference.
Build up the software business. With OpenView and Insight Manager, HP has a strong franchise in systems management. The company should invest significant R&D dollars here and should consider acquisitions to build out this business—recent R&D cutbacks notwithstanding.
Build up the storage business. This was a weakness during the Carly Fiorina years. Demand for manageable, reliable and secure data storage shows no signs of abating; meeting that need is a significant opportunity, but building products that stack up well next to those from EMC and IBM will continue to be a tall order. HP should build on its strength in managing multivendor storage environments.
Overtake IBM as the top server vendor. This is perhaps the most important technology franchise for HP, and there is no reason it cant give IBM a run for its money, especially with the broad range of Opteron-based products in its portfolio. Offering Itanium servers at the high end gives HP the benefit of supporting an industry standard, but the company will have to differentiate those servers with innovative technology.
Become at least as good a vendor of PCs as Dell. If Lenovo emerges as a worthy competitor, falling to third place wont cut it. To avoid that, HP should pare down its product line and offer enterprise customers a state-of-the-art buying experience. The companys hiring of Dell CIO Randy Mott looks promising on paper, but Mott will have all he can handle in competing against his former employer.
In executing on these enterprise initiatives, HPs desire to serve the consumer market could help, as the borders between enterprise and consumer technology are thinner than ever. But with Dell challenging in printers, HP wont be able to live off fat printer-cartridge profits.
The bottom line: HP might be at a juncture similar to the one at which IBM found itself in 1993. At that time, new CEO Louis Gerstner famously said his priority was not to have a vision but, instead, to execute. Gerstner resisted calls to break up IBM, and he executed. We think Hurd would do well to take a similar view at HP. If he does, theres every reason to believe the company will survive and thrive. The IT community needs that.
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