Tag: HP

Why Is HP Breaking Up? | Sherpas in Blue Shirts

I’ve been blogging about why certain companies such as Accenture, ADP, and TCS are such successful service providers. In contrast, let’s look at HP and examine why it’s breaking up.

I’ve explained in prior blogs that the most successful companies have six operational elements aligned, as shown in the Everest Group assessment framework below.

Assessment framework technology service companies

In successful companies, their promise is consistent with their business model, their talent model is consistent with their promise and model. Their investments align with the talent and business models, and the portfolio they end up with aligns with the other components. In addition, they tune their go-to-market approach to maximize their advantages in these components.

HP, as much talked about, is breaking up, separating its printers and PCs division from software and services. Printers and PCs are late-stage, mature devices and represent a market that is commoditized, mature, and saddled with slow growth. Software and services give the promise of growth.

HP is taking the first steps to create better alignment in both their businesses between the functions of brand, go-to-market, investments, and the other components of the framework illustrated above.

HP’s printers and PCs business is well aligned in terms of its brand promise of high-quality, cost-effective end-user devices. Its go-to-market approach is consistent for both printers and PCs, and the portfolio is rationalized around those devices and the warranty services that support them. Its investments can focus on maintaining market share. The firm can harmonize talent to ensure it’s appropriate for a mature business. And its business model and supply chain are consistent across their offers and can be further refined and focused. So I see the break-away from software and services as a no-brainer.

HP’s software and services area is a more complicated story; here, I think they have further to go. A smaller, more focused organization will allow HP over time to refine its brand to focus on large enterprises. Its go-to-market approach can be more easily integrated. Its portfolio, which is still very diverse, will probably need further refinement over time.

Although they clearly don’t have all six components harmonized for the software and services business, the break-up gives HP a much better fighting chance to work through that. They have further work to do across all these areas – particularly in brand and portfolio. As they get a crisper brand promise into the market and a portfolio aligned with that brand, the firm’s business model, go-to-market approach, and investment choices will become clearer.

HP is still early in this reformatting of the company. But history tells us that, as they succeed in getting these aspects clarified and aligned, the firm’s performance will improve.


Photo credit: Flickr

HP Cracks Security Market with Advisory Services | Sherpas in Blue Shirts

It was back in 2013 when Meg Whitman started to highlight the importance of advisory services for HP, repeating it as part of the “advise, transform and manage” message which she regularly articulated  in interviews and briefings.  Last week, HP held an EMEA security event for analysts in Boeblingen, Germany. The thing that stood out for me was not HP’s depth and breadth of cyber security capabilities (which I had expected) but the fact that it is reaping the benefits of Whitman’s move to advisory services.

Before the advisory move, HP focused heavily on the technology aspects of the security business, either bundled with other services or as a partner to consultancy firms. Today the situation is very different with HP offering clients security assessments and audits. For example, compromise assessments typically lead to remediation and on-going engagements of $250k to $1m. Furthermore, the engagements create a halo effect driving sales and pulling through additional sales in services.

About three years ago HP started to offer standalone security services as well which were previously only offered bundled with other IT services. This move supports the advisory business and has helped the company engage with clients earlier and for longer on projects and services.

According to HP, its security services business has significantly outpaced growth in other parts of the business both in terms of revenue and headcount. This is against the backdrop of a diminishing workforce elsewhere in the company.

Security is a priority business area for HP – a core part of its new style of IT messaging, which also includes big data, mobile, and cloud. The company is investing in its capabilities:

  • In December 2014, it announced the opening of the cyber security operations center (SOC) in Boeblingen, Germany to cater for local clients. This is in addition to its 10 global SOCs
  • It is developing new capabilities based on its software assets such as Autonomy and Vertica to complement the real time analytics capabilities of ArcSight, which it uses for its security services
  • Investing in security R&D.

The addition of advisory services to HP security portfolio has changed HP’s relationship with its customers allowing it to engage with them at early stages of the investment decision cycle. It has helped HP increase the scope and length of its security engagements.

A large part of the security services growth comes from consultancy that is manpower heavy. HP already has 600 security consultants and is hiring more. This must be pushing up the cost base. The managed service benefits from automation and the headcount does not need to increase as steeply as the consultancy part. HP’s challenge is to balance recruitment and business growth and the mix of consultancy and managed services.

Security services still account for only a small part of HP’s overall business (less than 2% of the total revenue). The company is working on creating more brand awareness and increasing its share of the security services market in some key geographies including the US. The business will always be relatively small compared with HP’s other major service lines of ITS and BPS. However, the success of the advisory model in this segment shows the way forward for other HP businesses. HP’s recovery could accelerate if those also gain a halo effect from advisory services and pull through additional sales.

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.

OneHP and Progress towards Profitability and Growth | Sherpas in Blue Shirts

At HP EMEA analyst summit in London last week, the company highlighted progress towards strategic plans and targets. Key messages included:

  • Progress with implementing OneHP
  • Stronger sales
  • Better leveraging of HP technology and software IP with continued focus on the “New Style of IT”
  • Growing the advisory part of advise, transform, and manage

Under the moniker of OneHP, the different divisions within the group have been working more collaboratively to share skills and assets better. This strategy was further emphasized during the analyst summit with representatives from various divisions co-presenting sessions.

Stronger sales is a key initiative across the business. This has been achieved to some degree in EMEA already but there is still more to do; Q2 FY 2014 results showed that EMEA, which accounted for 38% of the company’s revenue had experienced growth of 4% compared with a decline of 6% in Americas and a growth of 1% in APAC year-on-year. However, growth was driven by hardware while services revenue shrunk. HP Enterprise Services (HPES) in particular, saw the biggest negative growth within HP group, of 7% year-on-year globally. HPES profit margin of 2.5% in Q2 2014 was up 100bps on previous quarter but unchanged year-on-year.

HP Enterprise Services

Focusing on HP Enterprise Services (HPES): the management presented a brighter outlook for sales than previous quarters with 400+ new clients added in 2013 and a very large deal in the pipeline. Signs of progress on strategic objectives included:

Sales restructuring: HPES has changed its sales structure with 29% of sales force deployed on proactive/new sales rather than scope extensions/renewals sales up from 4% in 2013. HPES has enhanced its sales collaboration tools to improve planning and execution. It is also improving account management. To enhance its sales HPES is hiring top talent as well as building a global practice to meet market demands.

New Style of IT: Delivering solutions for the new style of IT, comprised of capabilities for cloud, mobile, big data and security.  Examples of success in this activity include the Norfolk County Council contract which was won in 2013. Contract deliverables have included a cloud-based information hub for data sharing to enable public services work better in partnership with each other. HPES is also delivering desktop, data center and other infrastructure services to the council. The OneHP component includes the use of Autonomy and Vertica, as well as HP’s technical skills around cloud, desk top, virtualization and infrastructure capabilities.

Increasing advisory services: This is to enable HPES to engage with clients early, to help articulate requirements better and specify the solution that can draw on OneHP, to also increase higher margin services. An example of this is HPES’ contract with Seadrill which included advisory services to plan vacating a data center in six months and migrating 31 applications to the cloud, including some transformation. The advisory service appears focused on identifying potential innovation or transformation opportunities or helping clients define a solution as part of an on-going service. Carving a modernization niche for its advisory services, in this style, could help HPES potentially avoid coming into direct competition with major consultancies that would sell their services on a vendor/technology agnostic ticket and with SI partners that may be HP resellers.

Other measures underway include developing more vertical capabilities, becoming more business requirement-focused and continuing to reduce costs.

Overall, the focus of the event was heavily on IT with BPO limited to a short part of the HPES deep dive session. HPES maintains that BPO is an important part of its business and it is currently bidding for a new major contract in the UK government sector. My take is that BPO has become something of a quandary for HPES. Although it values the business and wants to grow it, other activities appear to get the higher share of resources. Yet, we live in the era of increasing digital channels and automated processes. HPES’ IP and access to vast technology resources should position it to do well in this market. Some of its IP such as Vertica, Autonomy, and multiple content/document management software can be used to deliver analytic-based or more automated digital BPO services. HPES also has a whole load of vertical capabilities, such as banking, government tax and revenue, and healthcare, that it can take advantage of to leverage platform-based BPO sales. HPES is taking a good hard look at these assets. A comprehensive strategy for growth of the BPO line could bring all the different components together to target emerging demand for a new style of BPO such as analytic-based services (e.g. revenue assurance, fraud and error, and risk management).

HP – In the MooD for F&A Visibility | Sherpas in Blue Shirts

I recently had a briefing with HP Enterprise Services about HP BPO Flight Deck, a visual F&A performance monitoring and reporting tool focused on processes such as order to cash, source to pay and record to report. The flight deck is based on MooD software, which produces visual performance reports based on an enterprise business model that is built to reflect the client’s organization. This typically includes interrelationships between components and processes. HP is offering the tool as part of its BPO proposition in every deal, to engage with clients on transforming processes from the earliest stages of a procurement cycle.

The intention is to help clients increase visibility of F&A performance across the organization to manage operations better and to help with achieving business outcomes. Views can include specific initiatives such as electronic invoicing or dynamic settlements. HP also highlights the application in multi-sourced outsourcing deals, with HP BPO Flight Deck used to measure and monitor service provider performance as well as outcomes and issues. Other features include trending information and scenario-based planning capabilities, e.g., what would be the knock-on effect on processes if certain factors were altered.

This tool could potentially addresses the kind of F&A issues that Everest Group’s buy-side clients often highlight to us, including:

  • The need to get a broader and yet in-depth view of what is going on in the organization, what is broken and what needs changing
  • To get clarity and identify choices that support the organizational vision, strategy, framework, scope and approach
  • How plans are progressing and if an implementation or new F&A initiative is meeting its objectives

Getting that end-to-end view of processes is not easy though. One of the biggest challenges that organizations face is getting their data in order. Data challenges typically include:

  • Data from disparate systems having different definitions and formats making it difficult to compare and contrast information
  • Poor data quality – data that is simply not maintained, out of date and/or erroneous

HP and MooD have worked together to address some of the typical data integration issues that organization face when seeking this kind of end-to-end view of operations. The offering includes pre-built data dictionaries, templates and ready-built connectors for major enterprise systems and their reports.

Deployment can be done by degrees starting from a consulting engagement to map out the enterprise business model, and data taken for a sub-set of processes. A hosted proof of concept can be built, if required, before the full deployment is taken live in the client’s production environment. The software can also deal with data quality issues as part of its extract, transform and load (ETL) processes which include automated checks and fixes for standard types of issues, such as different date formats or typing errors in standard terms.

With HP BPO Flight Deck, HP aims to address many of the data challenges that organizations face when going for global process views but at the end of the day, organizations still have to get their data practices in order to be able to make the most of such tools. That said, in these days of intense global competition in business, there are strong drivers, such as year-on-year efficiency and profitability improvement targets, for coordinated group-wide action for every organization to improve its data. Many organizations are also proactively looking to gain end-to-end views of their F&A operations.

HP’s product addresses growing demand and adds an edge to its F&A offerings with the flight deck and its price built into every deal. It also supports HP’s strategy to provide a new style of BPO, based on data and performance analytics.

HP’s challenge is to help potential clients build the business case for the technology. As part of this, it highlights the case of an oil company that saved circa $23m in the first six months of deploying a similar MooD-based tool for its IT. HP believes the savings were possible because the client’s management team got visibility of problems and was able to take immediate action to fix them.

HP BPO Flight Deck has been deployed at one major client in the U.S. and is currently being implemented for another client in the UK.

HP’s Most Difficult Challenge Has Yet to Hit | Gaining Altitude in the Cloud

To date the cloud has not been a major disruption in the traditional outsourcing market. Rather, cloud has attacked the rogue IT or departmental processing market. But we believe that this tide will now turn inward onto the enterprise space, where HP and other infrastructure players live.

How will HP take on cloud disruption? We at Everest Group believe that it is highly likely that over the next three years 30 percent of the existing workloads will move out of the traditional outsourcing space and shift to cloud models. If this proves true, the substantial turnaround work that HP has done to date will not prove adequate to stem this new source of competition and disruption.

The results to date 

As shown in the figure below, CSC, Dell, HP and IBM have significant portfolios of asset-heavy IT infrastructure outsourcing deals. The statistics below clearly evidence the fact that the asset-heavy providers are losing share to asset-light players.

Asset heavy ITO players losing share

So far, the primary attack on the traditional space has been the RIMO (Remote Infrastructure Management Outsourcing) talent-only model.

Performance progress

When Meg Whitman took the reins as CEO, HP started the long process of turning around its business. Recommitting to the services space, she appointed Mike Nefkens as EVP and Enterprise Services general manager a seasoned veteran of EDS who quickly made progress in improving morale and in addressing customer satisfaction issues in existing service accounts. Market share losses slowed and HP reemerged with more competitive offerings and a can-do attitude.  But have they fought the enemy to a standstill only to find they have a new front with a more deadly enemy.

Like a stone dropped on glass, RIMO competitors smashed the asset-heavy business. What will the new disruption of cloud do to it if — as we predict — it drives a 30% + run-off of workloads?


Photo credit: Don Debold

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