HP Faces Changed World

Opinion: CEO Mark Hurd restructures HP amid a changed IT landscape.

One argument Id made against the previous Hewlett-Packard administration (that would be the Carly Fiorina era) was the difficulty of competing in a broad spectrum of market segments ranging from consumer electronics to high-end enterprise system consulting. Could a company, even with HPs heft, take on Sony, Dell and IBM and still fuel growth, continue to invest to innovate, and find profits and comfort in No. 2 market positions?

The answer from Fiorina was that HP could compete in all those segments by finding efficiencies in one of them (say, consumer electronics) that could be transplanted and incorporated into other segments, such as enterprise systems. The answer from Fiorinas replacement—HP President and CEO Mark Hurd—is a variation on the Fiorina strategy. The company will continue to participate in all current market segments, but it will do so in a more efficient manner with fewer people and a company structure that dissolves blurry lines of responsibility, matrix reporting and anything else that keeps managers separated from carefully defined performance metrics.

As Hurd said in last weeks conference call, during which the company announced a restructuring along with 14,500 layoffs, he will continue to focus on HP "as it is today" rather than exit some market segments. While the HP market mission remains the same, the world in which the company operates has changed considerably, especially in the last five years. Some of those changes continue to challenge a strategy that tries to take on lots of segments; other changes support that broad strategy.

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In the traditional enterprise desktop, laptop and server space, HP faces an ever-growing Dell, which—unless it stumbles over its own growth—will continue to get even bigger. HP also faces China-based Lenovo, which is charging into the U.S. market fortified by its purchase of IBMs PC business, and a Toshiba that has (re)found itself as a company that makes a good laptop.

Slugging it out on the low end with Dell and Lenovo would not be a pretty sight. The opportunity for HP is in becoming the first major PC company to be serious about security rather than pass along Microsofts best efforts. Dell—which now sells everything from personal music players to digital televisions to printers to desktops and servers to service and financing—is starting to resemble the HP Fiorina once envisioned. The difference is that Dell continues to adhere to a direct model.

In the services area, HP faces not just IBM Global Services, which is quickly morphing into a business as well as an IT services organization, but also the rise of outsourced and offshored service organizations. While IBM and HP have joined the race to move their service organizations to countries such as India, India-based companies such as Infosys and Wipro are now building their presences in the United States. For vendors, service revenues were once the source of strong revenue growth and high profits, but those profit margins are now being squeezed as competition increases.

On the hardware side, HPs printer business has enjoyed a long, extremely profitable run and is now becoming more competitive as Dell and traditional printer vendors cut costs and prices.

All these developments lead to the question of whether the current cuts and restructuring will be sufficient for HP. The company has a deep technical bench and a strong track record in software development and integration. However, a technical bench is no longer sufficient to compete in the current marketplace. The road from technical innovation to a product in the marketplace still too often is measured in years rather than months. And trying to remain competitive in as many segments as HP continues to participate in is not going to get any easier as the Lenovos, Infosyses and even the Googles of the world continue to revamp their offerings.

By spinning HP into three distinct groups—Technology Solutions, Imaging and Printing, and Personal Systems—Hurd is providing financial and market visibility to groups that must meet the financial metrics required or may eventually find a more comfortable home as either stand-alone companies or part of a company other than HP.

Editor in Chief Eric Lundquist can be reached at eric_lundquist@ziffdavis.com.

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