Tag: HP Enterprise Services

HP Rebooted | Sherpas in Blue Shirts

With continued momentum in its turnaround strategy and a raft of announcements at HP Discover, the technology giant appears reset and rebooted. Its strategy to focus on products and services supported by cloud, analytics, mobile, and security, the so called “new style” of BPO and IT is paying dividends with a number of new contract wins. At the same time, HP’s cost cutting measures are increasing profitability, as commoditization pushes prices and revenue down.

HP Discover week saw a raft of announcements from the company including:

  • Disaster Recovery as-a-Service Agreement for HP Helion OpenStack in partnership with Symantec
  • Expanded consulting and support services including HP datacenter care and HP consulting for software-defined infrastructure
  • Enterprise services for Office 365
  • A new HP Enterprise Services contract to support business expansion by Ted Baker, awarded to HP Enterprise Services and its partner, OCSL

These announcements follow the publication of HP’s FY14 results on November 20, which showed HP’s turnaround to be on track.

Focusing on HP Enterprise Services, the FY 2014 operating margin of 3.6% reversed the downward trend of the previous two years but revenue at $22,398 million continued to shrink (-7% y/y). There is still some way to go before the new style of services help halt the revenue decline. There is a legacy of older style services contracts that HP Enterprise Services will have to handle for now. Not all clients are ready for change but some are and the proportion will go up steadily over time as more organizations upgrade and transform their capabilities. HP Enterprise Services is making progress by winning contract renewals and expansions based on its new style of services. It won 11 out of 12 deals that it bid for against competitors such as Accenture, Capgemini, Genpact, IBM, and Wipro in 2014 to date. The wins included three contract expansions, four renewals and, four new logos.

The strategy to focus on new style of IT and BPO is to continue enhanced with new commercial models. The focus on HR, F&A, customer engagement, and digital is to continue with HP taking more advantage of state of the art technology such as service delivery automation (SDA). Cloud, big data, mobile, and security are inherent to the new style of IT and BPO. These, HP can support on its software-defined infrastructure which should give it a clear advantage over some competitors.

It is a no brainer for HP to flex its technology muscle and to focus on the so called new style of services. The question is why it took so long for this to become a strategy for the company. It is thanks to Meg Whitman’s ability to mobilize HP that the strategy has been implemented and the turnaround is working. She has been able to do what her predecessors failed to do – set the course and get buy-in internally. Other measures have included a renewed salesforce armed with enhanced offerings to go to market with and a reorganized group to support sales.

Next is the planned split of HP, as part of which it will be divided into two separate companies:

  • Hewlett-Packard Enterprise will deliver technology infrastructure, software, and services
  • HP Inc. will deliver personal systems and printing

When the split is completed the new companies will be able to focus on their core strengths and growth. The challenge for HP is not to let the task of separation distract senior managers from supporting sales and ensuring that the ship remains on course.


Photo credit: Juan Ignacio Sánchez Lara

The Facts About the Recent Service Provider Restructurings

In the past year, multiple global service providers have engaged in restructuring initiatives that will significantly alter their business model and fundamentally change the competitive landscape. Some of these restructurings include:

sp_restructuring_2

Numerous providers have also announced plans around changing operating and talent models. For example:

  •  Workforce rationalization
    • HP has announced ~55,000 job cuts since 2012 in a move toward workforce rationalization
    • IBM’s company-wide employee count dropped in 2013 for the first time in a decade as a result of massive lay-offs
  •  Increased offshoring leverage, particularly in India
    • Capgemini plans to increase share of India to 50 percent of overall firm’s headcount by 2016
    • Atos has announced plans to double its employee strength in India by 2016

While this is not the first instance of service provider restructuring, this time is unique because multiple firms have announced programs at essentially the same time. In addition, there is speculation that other global majors will launch business portfolio restructuring initiatives (i.e., carve-outs, leveraged buyouts).

Why is this happening now? The reasons are relatively straightforward. First, many global providers have experienced reduced profitability in traditional “non-core” businesses. This, coupled with increasing competitive intensity and the shifting competitive landscape is resulting in pricing pressures. Second, next generation capabilities (e.g., social media, SaaS, analytics, and cloud) are poised to become the next growth engines, and all leading players are channelizing their investments in these areas. Finally, most global players are moving toward rationalizing their portfolios for focused investments, due to strained management bandwidth and focus.

But these initiatives will create multiple impacts beyond the obvious strategic objectives. Consider this: over the last eight quarters, the operating margins of the leading global service providers (Accenture, Aon Hewitt, Convergys, CSC, HP Enterprise Services, IBM Global Services, Unisys, and Xerox Services) grew the most in Q2 2014. This restructuring trend will likely continue as some of the long-term benefits translate into improved profitability for global service providers.

Improved profitability of global majors will also impact buyers and other service providers. We anticipate increasing focus by offshore-centric service providers on inorganic growth by acquisitions. They are also likely to scout for more collaboration opportunities to build capabilities, particularly in next generation global services. We also foresee buyers aggressively monitoring provider investments to evaluate sourcing model decisions (i.e., build vs. buy).

Interestingly, one of the unintended after-effects of these restructurings is that the offshore-centric service providers have witnessed better revenue growth than the global majors, and thus have improved in their relative rankings by revenue. For example, TCS recently overtook CSC in terms of overall revenue. And other offshore-centric providers are also bridging the revenue gap with their global counterparts. While this ranking reshuffling has been occurring for some time, the global major’ restructuring initiatives and focus on profitability (sometimes at the expense of revenue growth) has further accelerated this trend.

For more details on these restructuring initiatives and their impact on the global services industry, and other information on leading service providers, please refer to our Market Vista™ Q3 2014 report.

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