Where is HP headed?

Every year HP holds an industry analyst summit that includes everything but PCs and printers. While in the past HP has made quite a tidy profit with ink times are changing. The PC industry is also moving into a new era where margins are shrinking as well. So, increasingly, HP is looking to its server business, its software, and its services businesses to keep the company moving forward.  Having just spent two days at this meeting, I would love to say that I could encapsulate everything that I heard — and didn’t hear. You simply can’t be everywhere at once. So, instead, I will give you some of my observations on where HP is at this point in time.

I think that HP is at a crossroads. Today it is the largest technology company. This is a wonderful opportunity because size gives customers comfort. You don’t have to worry that a $100 billion plus company will wither away. On the other hand, it provides a challenge. When you are this big, you have to act big and bold. You have to set a leadership agenda that the market and the customers take note of.

I wish I had the time to tell you all of my observations but instead I will try to encapsulate my observations and conclusions in ten key points. If I miss something, you will have to forgive me. So, I’ll start by mentioning seven different points worth mentioning. I’ll then conclude with some general observations.

Point Number One.  Be Top Dog in Selected Markets. HP’s overall strategy remains consistent: it’s objective is to be either number 1 or 2 in each product category it participates in.  While HP has made some strides in achieving this lofty goal, it is still a work in process. For example, HP has achieved leadership in hardware — both in PCs, servers, and storage.  In fact, the company is doing a very good job in the blade market (that’s all I’ll say about hardware since I didn’t have time attend those sessions).  In services, HP’s bold move to buy EDS is a work in progress. EDS is obviously a big player in the services market — especially data center and process outsourcing.   The question is how well HP will transition EDS from a standalone company to become a part of HP.  Software, which I’ll discuss in more detail later, has the potential to be big but still has a way to go before becoming the number 1 or 2 player.
Point Number 2. EDS is larger than HP’s printer business. With EDS as part of the portfolio, the amount of revenue from printers and ink has started to diminish. In fact, HP executives proudly announced that EDS is as large as  HP’s printer revenue. Not only did EDS give HP a boost in overall revenue but it has been able to bring new customers into the HP fold.  It will be interesting to watch how EDS evolves under the HP umbrella.  Initially after the acquisition, EDS was positioned as an HP company. That will be changing this year as HP moves to integrate EDS into HP.  HP describes EDS’s value as owning the run time environment. In other words, outsourcing.  EDS will be charged with outsourcing infrastructure, process, and applications.  HP has taken its traditional consulting services business and aligned it with its software business. The combination of EDS and the strengthening of the consulting business will help HP gain credibility with customers.
Number 3. Procurve chases Cisco in network management. While HP has been in the networking business for decades, it has been a well kept secret. Because of HP’s tight partnership with Cisco, HP has been wary of appearing to compete. However, it appears that HP is now willing to take on Cisco in the networking switching arena. It should be interesting to watch as  Cisco takes on HP in the server business.

Number 4. The software business is (still) important. HP has long had a love/hate relationship with software. HP has selected management and automation to focus its software business. Therefore, it has proclaimed that it wants to be number one in data center automation, functional testing, service and software for ITSM (Information Technology Service Management).  HP has also made a commitment to what it calls information management and business intelligence (records management, backup, etc. and NeoView — data warehousing . The Knightsbridge consulting organization has been melded into this group, adding a lot of implementation knowledge. Service Oriented Architecture is included in the software group primarily with a strong focus on governance, risk, and compliance. HP has evolved its OpenView platform into a business service management business that it calls Business Technology Optimization. Within this framework is all of the management technology ranging from service optimization to network management. The integration of the Opsware technology into the fold has been complicated but it appears to be coming together as part of the overall data center management and cloud initiatives

Number 5. HP does the cloud. Like all the other vendors in the market, HP wants to be a big cloud player. HP defines the cloud as the next evolution of the Internet in which everything will be delivered as a service from basic compute services to power and business process. HP considers its Opsware acquisition from last year as the credential it needs to claim leadership in the cloud.  HP has a broad definition of the cloud and plans to approach cloud services from a broad perspective. It’s strategy is still evolving as we speak. The nacent management team seems to be smart and ready to move. But it is still early days.    Like other major vendors, HP would like to be the arms merchant to vendors who will resell cloud services to end customers. Clearly, the cloud strategy is a work in progress. But HP is thinking about the right issues as it makes its way into this important emerging area. HP’s intent is to leverage its software assets to create a common framework for its cloud strategy. HP anticipates that it can leverage EDS’s expertise to gain a cloud framework that it can leverage with customers.

Number 6. HP expands Software as a Service. When HP acquired Mercury it also picked up a growing SaaS business. The company is planning to continue to focus on this arena both in the enterprise market and the SMB market. SaaS offerings will continue to focus both on the testing and the remote monitoring markets. Most of these services are focused on the upper end of the SMB market.  Just today, HP announced what it called Cloud Assure, a SaaS offering intended to help SBMs prepare to adopt the cloud. It provides services that scan and validate the performance and security of applications.

So, what’s next?

As I have indicated, HP is a complicated, multi-dimensional company. On one hand, it has been able to innovate over the years, sometimes well ahead of the market. I remember spending days with HP in the early 1990s talking about a future where a customer could get computing capacity on demand. But over time HP has become a much bigger company with a large and complex portfolio of offerings.  At the same time, HP is very focused on being a provider of IT services, hardware, and software.  It has no desire to be a business management or a business consulting organization.  While HP  is most  comfortable in the hardware arena,  it is making important strides in this part of the business.  It is finally pushing its networking business and taking on Cisco directly.  The data center business seems to be well positioned to appeal to the IT operations management group that has been its traditional constituency.  The software business, on the other hand, is still at a transition point. While HP has done extremely well with its performance management and testing business, it has had a hard time creating an overall software portfolio. Opsware is clearly being used to provide the foundation for cloud computing but it will take some more time and cycles for this platform emerges as a power.

I think the most important acquistion that HP has done is really EDS because it brings in a new set of customers who would have never considered HP in the past. EDS also brings in a wealth of home grown enterprise software technologies, frameworks, and best practices that will help mature HP’s software portfolio. In my view, there will be more aquisitions to come for HP. I suspect that most will be in software and will have to fill the gaps in data management and security. HP is still learning to be comfortable in its skin as the biggest IT company in the market. It will have to work hard to maintain that position by executing big and buying big.

  1. April 1, 2009 at 6:23 pm

    “You don’t have to worry that a $100 billion plus company will wither away.” I miss the days when this was true (or rather could still be thought to be true)…

    Not that I have any worry about HP going away anytime soon. HP Software at least (the part I know well) is very strong.

  2. EDSemployee
    April 3, 2009 at 8:03 am

    I think the article on HP misses the point of what is happening. Contrary to say 10 years ago, HP today is “spreadsheet managed”, with a management focus on costs and solely on costs.
    Mark Hurt and his team is destroying the company, HP as well as EDS, by creating short term shareholders value (mind you: not stakeholders value). In French it says “Après moi, le déluge” and that is exactly what this Ohio cowboy is doing. He will make the short term profits and leave when the deluge starts (or just before – he may be that smart).
    It is sad analysts are not critical on the way he handles both strategy and the numbers. It seems they have not learned anything from the crisis striking our societies …

  3. April 5, 2009 at 5:29 pm

    EDSemployee,

    Along the lines of William’s comment made on April 1st, large companies tend not to fail completely. Companies like HP, IBM, Microsoft, Wal-Mart and GE can sweep – and have swept – expensive errors in judgment under their corporate rugs. Errors that would have buried smaller competitors. Some of the people involved “move on to pursue other opportunities”, but the companies remain.

    Having written that, you just described [at least] the past 25 years of business in a nutshell…a period defined by an obsession with short-term shareholder value at the expense of long-term company and customer value. A mentality newer to, but certainly not unique to, HP.

    I believe you overestimate the influence of industry analyst over executives at the top. Perhaps you were referring to financial analysts – a group I believe companies would do well without. It’s not that financial analysts have not learned from the crisis, but that they played a key role in it with their emphasis on – and expectations of – unrealistic growth.

    However, before we hop on a pulpit and lambaste today’s executives for their behavior, we must first look in the mirror. Most of us are implicated, are we not? As retirement plans and other investments ballooned, did we complain? As unemployment declined and paychecks fattened, did we complain?

    Too many of us have been willing to step on the throats of others on our way up our ladders. Some can plead ignorance, but not all.

    Regarding HP, Judith, I suspect there was quite a lot of overlap with HP and EDS customers on some level. You and I will never know. I definitely cannot write that “EDS brings in a new set of customers who would have never considered HP in the past.” Do we have any evidence to support such a claim?

    I will write that two years ago (following HP’s March 2007 analyst event) I had planned to write about HP’s commitment to its customers. I bought into the enthusiasm shown at the event. Later that year I changed my mind based on the lack of hard evidence – HP failed to provide a single customer reference following several months of delays. Since then I have been watching cautiously for evidence that HP is indeed committed to the success of its customers.

    Today what I see is a company still wasting resources and cycles. A serious disconnect between marketing and sales, between the company and its customers. Ask the regional field sales reps how much of the corporate marketing they actually put to use without modification. And, the launch of (some) products that have no hope of ever becoming class-leaders.

    What I would LOVE to see is an HP with a genuine renewed commitment to its customers. An HP that listens to its front line employees. And an HP that doesn’t waste its time on products that are anything less than class-leading. That’s the HP I want to write about it.

  1. April 1, 2009 at 11:00 am

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