HPs New Challenge

With internal issues resolved, company looks outward.

On my way down to Atlanta for Hewlett-Packards HP World event recently, I realized my questions about the company had changed nearly as fast as the integration of HP and Compaq. Previously, those questions focused on internal issues. Could the two very different companies be melded? Could the HP-Compaq combination sort through all overlapping products and managers and decide which to keep and which to jettison? Was there a culture that would accept the innovation-driven Californians and the heads-down, hard-charging Texans?

The answer to that set of questions was largely yes, with much credit to HP Chairman and CEO Carly Fiorina and the "clean room" team charged with making the merger work. Today, HP has a rationalized product line, and the managers who steer the company have bought into the Carly vision of high tech and low cost equaling success.

HPs new mantra of tech and cost was repeated time and again in Atlanta as I interviewed, along with Senior Editor Jeff Burt, many of the senior managers in the companys enterprise operations.

Give credit to Fiorina for getting one very big job done on time and under budget. But now an even larger question arises for HP: Is the new company big enough to take on most of the major technology vendors throughout the industry? This is no idle question or one that can wait to be decided. Consider:

On Aug. 11, Fiorina was in New York hosting the introduction of 158 consumer products. The competitive set in that arena includes huge Japanese vendors, feisty Korean companies and just about any company that wants a piece of the consumer market. That is a big undertaking for any company, but it is just one segment where HP wants to dominate.

The week after HP execs dismissed Dell as simply a distribution company unable or unwilling to make the research and development investment required to get it in the true technology elite, Dell took direct aim again at HP. The company announced a new round of price reductions, from 6 percent on desktop units to 22 percent on network servers. Then HP touched off a share sell-off on the heels of a disappointing earnings report, which included a note that the companys personal computer unit had again slipped into the red. By contrast, Dells recent earnings report was stellar.

Is Dells position unassailable? No, but its a mistake to discount Dells strategy of waiting until a market hits a standardized tipping point and then applying its manufacturing and distribution muscle.

Just as its a mistake to dismiss Dell in the computer business, its a mistake to dismiss IBM in the services business as a current leader ready to price itself out of the market. Those days are done.

So that leaves HP secure in the printer business (for now) but taking on some of the biggest companies around in each of the segments in which the company needs to prosper and grow. Just as software integration is one of the years strongest themes in the overall technology industry, integration is also one theme the new HP believes will play to its strength. The partnerships built in consumer electronics will play to its strength in computer sales and services. The technologies used to develop products in the narrow-margin, high-production consumer electronics arena will come into play in the enterprise business. The partnerships built with companies not part of the IBM/Dell/consumer giants group can be integrated into HPs strengths.

HP has a broad line of products spread thinly across the marketplace. To accomplish its mission, I think three things are required. The first is to make sure that partners are not partners in name only. Those companies must feel they have an input into HPs strategic direction. The second item is to encourage some dissent within the ranks. After the bitter merger battle, the idea of encouraging diversity of opinion could be tough to take on. But Ive never seen a company grow that didnt encourage a vocal debate regarding strategy and tactics. The third thing is to be ruthless not only in capitalizing on markets where the company is finding success but also in walking away from businesses where playing first or second is not likely.

Whether the Fiorina formula will add up to success for HP will depend on accomplishing as much externally in as short a time as the company has already accomplished internally.

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Eric Lundquist can be reached at eric_lundquist@ziffdavis.com.