The Wall Street Journal broke the news over the weekend that HP was contemplating splitting the company into two – PCs and Printers in one company and enterprise hardware and services in another. HP confirmed the news this morning. Many on Wall Street are applauding the move, and I suspect from a financial market view, the move may unlock “untapped value” in the stock price. However, will it really make a difference in the market, particularly the global services market, which is where Everest Group’s clients live; in other words, what’s in it for the customers of HP’s enterprise services?
Each of the new companies will be over $50 billion in revenue, so there’s really no concern to be had about either of the resulting entities lacking scale. Certainly the PC/printer sector and the enterprise sector have very different growth profiles and different overall market drivers – increased focus is probably good news and discussions arising from internal competition for capital and resources should be streamlined and more reflective of each market group’s needs. It appears that each of the “new” companies will continue to leverage the strong HP brand.
Aside from those elements cited above, it doesn’t feel like a move structured to unlock value on Wall Street will result in fundamental changes in the new HP Enterprise entity’s competitiveness in the market. The struggle to compete successfully on a consistent basis with the more nimble offshore-centric players in the enterprise services marketplace doesn’t really change under a split company:
- Challenges of delivering on the promise of integrated hardware and services synergies will remain. Major changes in strategy are unlikely, and there will be temptation to pull through equipment and software on services deals.
- Underlying differences in many processes central to market success – including recognizing that products and services are indeed very different – will continue to plague both bidding competitiveness and an ability to generate attractive margins.
- Cumbersome decision-making compared to more nimble competitors will be unlikely to improve noticeably to impact customer performance.
- While the smaller HP Enterprise might be less inclined to be acquisitive on next generation assets (which are quite expensive), one wonders if they will/should enter the CSC acquisition sweepstakes (a mix of select next generation assets discounted by an overhang of less attractive traditional business)
Don’t get me wrong – I support the logic of pushing to create an entity that is more focused on serving the enterprise’s needs, especially when a boost on Wall Street will help support positive momentum and improved morale. The HP Enterprise leadership, however, needs to recognize that the split is a facilitator for determined actions, not a turnaround strategy in and of itself. They need to ensure an environment exists that unleashes both the hardware business and the services business to focus on the distinctive buying behaviors and competition in each (and not get so wrapped up in the potential integrated hardware/services that they lose sight of the forest for the trees).
Current HP Enterprise Services customers should think about how the more focused company can add more value in their services. It is unclear if the split will trigger “change of control” clauses that exist in many enterprise services agreements, but if so, customers should use the opportunity to open a dialogue about a new era for service delivery. We would not suggest using these discussions as an opportunity to squeeze HP Enterprise for price concessions, but as a way to get your account team focused on value and truly listening to your needs. Customers must ensure that plans are in place with HP to ensure distractions are minimized as the details of the split are sorted out and operationalized.
HP Enterprise competitors should recognize that this split may create a more focused, more competitive services company. While short-term opportunities may arise if HP gets distracted on select accounts. If the newly svelte HP Enterprise deals with the challenges noted above successfully, the player that arises from the split should have formidable capabilities and greater focus to take to market. Complacency will not serve any competitors well.
With the core HP Enterprise business under constant pressure from next generation disruption, the status quo is not an attractive path. Kudos to HP leaders for taking action – now the shape and sustainability of the follow-through will prove whether the arithmetic really works for the customer.
Photo credit: Jeremy Fulton