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Promoting Shared Value Creation Within and Across Companies

Sunday, October 16th, 2011

Many companies have donated to social causes for years. For the most part, however, these philanthropic activities were viewed as nice things to do or as ways of improving the company’s image as a member of a local community, rather than as an investment in the business. Recently, however, a growing number of companies have come to recognize that advancing social causes is not only good PR, it can also be good business. Well designed and executed social programs can provide “shared value”—delivering at least as much value to the donor corporation and its shareholders, as to the recipients.

This practice, which has been aptly dubbed “Creating Shared Value”, is already being adopted by a growing number of companies. Maximizing this value, however, is not easy. It is difficult to build commitment through all levels of the organization, develop a true Shared Value culture and, especially, maintain focus and commitment in good times—and even tougher in today’s challenging economy. Most companies, therefore, need help in making a convincing business case to their executives and their boards, getting buy-in, building commitment through all levels of their companies and in understanding the ways in which partnering with other organizations can multiply the value delivered to all parties.

The last week of September saw three separate forums in which leading Shared Value proponents have attempted to provide exactly this type of help by sharing their visions, their experiences and their best practices with other companies and institutions.

One example is a webinar sponsored by FSG, a non-profit social impact consulting firm whose Managing Director (Mark Kramer) joined with Harvard Business School professor Michael Porter to explain the concept of Creating Shared Value (CSV) in a January 2011 Harvard Business Review article. After FSG set the stage by briefly explaining the evolution of corporate philanthropy toward Shared Value Creation and by laying out its Ten Building Blocks, it introduced Corporate Social Responsibility executives from three companies, each of whom provided an overview of how they made the business case and built commitments for CSV within their own companies. For example:

  • Hewlett-Packard explained the need to align and continually reinforce vision, strategy, delivery and performance across all levels of the organization, from the board to branch executives and individual employees;
  • Intercontinental Hotels demonstrate how its four-pronged model for a Shared Value sustainability program gained commitment, not just from its own executives and employees, but also from its franchisees and its customers;
  • Houghton-Mifflin Harcourt showed how aligning its social commitment with its business objective (of “selling educational achievement”) and assisting its business leaders with the tactical requirements for managing such programs allowed it to maintain its program across the regimes of three CEOs in less than two years.

Although these and a number of other companies have certainly demonstrated commitments to Shared Value, as explained in previous blogs, I see two companies—IBM with its Smarter Planet initiative and General Electric with Ecomagination—as most embodying the ways in which companies can effectively integrate social value with their own business objectives.

IBM has been particularly active in both:

  • Explaining the metrics it uses to assess the benefits of its social and philanthropic activities and the need to continually demonstrate the strategic value these efforts deliver to IBM as a means of “ensuring sustained support for these programs within its own company”; and in
  • Evangelizing the importance of aligning business and social strategies and helping all types of for and not-for-profit organizations, academic institutions and governments work together to create mutual value.

In the last week of September, for example, IBM sponsored two forums to evangelize the value of and help other companies build their own programs—both individually and in concert with other organizations:

  • THINK: A Forum on the Future of Leadership brought panels of industry leaders together with up-and-coming leaders from government, business, academia and science to examine the structural changes that will affect all organizations in the coming decades and the ways in which these organizations can, jointly and independently, reinvent themselves to improve the world in which we will all live.
  • Regional Upward Spirals: The Co-Evolution of Future Technologies, Skills, Jobs and Quality of Life in which it convened leaders from leading institutions including think tanks (McKinsey Global Institute, Institute for the Future), universities (MIT, Berkeley and Michigan State), corporations (Boeing, IBM) non-profits (IEEE and CAEL) and regional technology clusters (Washington Economic Development Commission) to examine how technology will reshape the nature of learning and jobs, the skills that will be required in the new economy, the types of jobs that will be created (and those likely to face a shortage of qualified employees) and the opportunities for leaders in all segments to work together to create the jobs, the employees and the academic/industry clusters that will be capable of addressing the needs of tomorrow.

FSG and a couple of its clients, meanwhile, is already on the agenda for another webinar that will explain the ways in which numerous companies and organizations can work cooperatively to address societal needs—an approach they call Collective Impact (see FSG’s recent book, Do More than Give) and the Winter 2011 Stanford Social Innovation Review article). This approach, as it will discussed in a November 9 webinar, depends on each party applying a common set of measures to evaluate performance and track progress.

Forums, such as those recently sponsored by FSG and IBM, play critical roles in explaining the payoff—both corporate and social—and of providing guidelines for managing such initiatives. Hopefully, we will see many, many more by FSG, IBM and many other organizations, over the next couple years.

Posted in Corporate Social Responsibility, Hewlett-Packard, IBM | No Responses »
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HP SITAS: A Growing Focus on IT-Based Business Value

Sunday, May 15th, 2011

My March 20 blog, HP Hallelujah? , asked and gave a partial answer to the question of how Hewlett-Packard could diversify from its huge reliance on hardware by building more higher value-add, more solutions-based businesses without attempting to directly position itself against more established solutions-based competitors with whom it cannot directly compete.

That blog explained one approach, by which the company is attempting to tread a fine line between commitment and incrementalism, in expanding and solidifying its traditionally limited approach to providing comprehensive IT-based solutions to its customers’ business needs, in addition to their technology needs.

One of the four primary steps (see HP Hallelujah?) the company is taking to provide more industry-focused solutions is expanding the size and capabilities of its industry-based service offerings. While it is building most of these efforts around the company’s application and business process outsourcing services, the company’s infrastructure-based Technology Services group recently announced a new set of capabilities that promises to bring a new level of business relevance to the company’s IT consulting services.

SITAS as a Business-Based Front-End to HP’s Technology Services

These new services, which HP calls Strategic IT Advisory Services, or SITAS, add six new strategy-level services to the company’s already strong technology consulting services portfolio. The most important, and for HP, the most revolutionary of these services are:

  • IT Strategy and Transformation, which assesses a client’s IT environment in the context of the company’s business needs, recommends the type of environment that will best address these needs and crafts an IT strategy and associated transformation plan;
  • Strategic Service Management, which catalogues the services an IT organization must deliver to enable the company’s business strategy, identifies an appropriate funding model for each and crafts an organizational change strategy to facilitate the delivery of business value;
  • Business Value of IT, which delineates the business value of improved business processes, analyzes the risks of improving and not improving these processes and recommends a strategy to achieve these improvements;
  • Cloud Business Readiness, which evaluates the type of services that can be most effectively delivered as a shared cloud service, assesses the potential financial savings and works with CIOs to craft a business case for presenting opportunities to business executives; and
  • Mergers and Acquisitions, where it assesses the compatibility of a target company’s platforms, crafts migration and integration strategies, validates IT-related merger assumptions and calculates the impact on the financial value of the deal.

Delivering and Selling Business/IT Alignment Value

HP Technology Consulting recognizes the quantum difference between these business/IT alignment strategy services and the deep technology-focused services that the company has traditionally delivered. It also recognizes the synergies among these different offerings and presents them as part of a broad portfolio, with the strategy services effectively offered as a front-end to its more technology-focused offerings.

This being said, it also recognizes that not all clients need or want all of these services (or are ready to entrust HP with all their business/IT alignment consulting needs). It, therefore, offers these services separately, as well as integrated into a comprehensive engagement and allows clients to choose among many different entry points into its portfolio.

It also recognizes the need for a very different type of consultant to deliver these services. Therefore, it is recruiting “senior, partner-level” consultants from Big Four-class systems integrators, training them on HP methodologies and partnering them with senior HP architects and solutions engineers. Each of these consultants has deep domain expertise, extensive understanding of and years of experience in specific industries and the ability to work with C-level executives. It has also created a dedicated global sales force to sell consulting services to HP’s 1,800 largest, most strategic global customers.

I personally find HP‘s progress in moving toward more industry-aligned value propositions and business-aligned services to be particularly gratifying. First, I, along with a number of other analysts, have been urging the company to take such actions for the last decade. (See for example, my 2010 reports, HP Goes Vertical and Addressing HP’s Industry Solutions Talent Gap). True, it is taking the company much longer than many of us had wished to take such actions and some still believe it is far too little, too late. I, however, applaud these steps (although I wish HP had begun taking them years before) and even see value in its very gradual entry into the brave new world of IT-based business value. I anxiously await its next moves.

Posted in Hewlett-Packard, IT Industry Trends | No Responses »
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HP Hallelujah?

Sunday, March 20th, 2011

Hewlett-Packard is an infrastructure company. Always was and always with be. Its plan to retain this focus was emphasized in Leo Apotheker’s maiden public presentations on his objectives for the company. As emphasized and reemphasized over HP’s two-day recent Analyst Conference, its strategy consists of four objectives that are intended to provide a “seamless, secure, contemporaneous experience for a connected world. These are to:

  1. Optimize traditional environments;
  2. Build and manage cloud-based architectures;
  3. Enable seamless transformation to hybrid models; and
  4. Define and deliver the connected world, from the consumer to the enterprise.

On one hand, consistency is a virtue. HP recognizes its strengths and the danger of overreaching its capabilities and its franchise, as by presenting itself as a “business solutions company”—a positioning that a number of analysts, including myself, have long urged the company to aspire. HP, however, correctly understands that attempting to portray itself a business solutions company would create unrealistic expectations and invite customers to compare HP with competitors, like IBM and Accenture. This would, of course, be a losing proposition.

On the other hand, HP’s continued focus on infrastructure products and services presents some big risks. True, the rapid transformation from legacy, client/server and Internet-based IT environments to a Web-centric architecture will create big opportunities for trusted infrastructure providers who can help clients make the migration to tomorrow’s public, private and especially hybrid cloud-based environments. This focus, however, also presents a number of big risks. For example:

  • The continuation of Moore’s Law, combined with trends toward resource virtualization and the use of public, on-demand cloud environments will reduce result in the sharing of resources across applications and companies;
  • Purchases will be increasingly consolidated among fewer companies (especially huge service providers) who will qualify for bigger quantity discounts and enjoy great bargaining power (HP, for example, claims that the largest of these customers already purchase more servers than the entire country of Brazil!);
  • The growing commoditization of hardware (as with the proliferation of standards-based architectures), the emergence of strong off-shore competitors (such as Lenovo and Huawei) and the rapid growth of offshore IT services (due to emerging countries move into higher value services) will further intensify margin pressures.

What then is HP to do? How can it effectively navigate between the two broad risks of positioning itself against companies with whom it cannot directly compete and of becoming too dependent on a slower growth, declining margin infrastructure business? By proceeding very carefully

Toward an Industry Solutions Commitment

HP must tread a fine line between commitment and incrementalism. That’s where the “Hallelujah” comes in. After 30 years of following HP, I am, for the first time, beginning to develop confidence in the company’s subtle, still unspoken recognition of these risks and a broad—again unspoken—recognition of the need to address them by providing more comprehensive solutions to its customers’ business needs, in addition to their technology needs.

There are several examples of this recognition and, much more importantly, the company’s efforts to play more strategic, business-focused roles in addressing the needs of the company’s 1,800 global accounts with which the company has the deepest and most extensive direct relations. These include growing focuses on:

  • Formal organizational and P&L ownership of HP’s industry IP. While vertical efforts never had a formal home in HP’s horizontally-aligned business groups, HP has designated its Enterprise Services group (under Senior Vice President Sean Kenny) as the home for five of HP’s Industry-specific solutions and delivery efforts around which the company owns particularly deep application-level intellectual property (IP);
  • Industry-based sales. All client teams for HP’s 1,800 largest accounts are now led by industry veterans and staffed by representatives who are being specifically trained (at HP’s new Sales University) and compensated to engage in consultative discussions around customers’ unique industry and business needs and the sales of comprehensive, pan-HP solutions;
  • Industry-specific intellectual property. HP is making big new investments in enhancing and marketing IP-based solutions (such as its Agilaire airline passenger management solutions), adapting public sector solutions (like its defense command, logistics and smart card solutions) for use in commercial markets and extending geography-specific solutions (like its U.S.-centric MetaVance solutions) for use in other countries. Even IPG (Imaging and Printing Group) is going vertical, with its Open Extensibility Platform having attracted partners with more than 80 industry-specific solutions. HP Labs, meanwhile, is now working on some industry-focused applications of technologies including CeNSE (Central Nervous System for the Earth), as in its work with Royal Dutch Shell and probably, in the future, around smart, sensor-based buildings and public infrastructures; and
  • Industry-aligned services. BPO and application services (as opposed, say to ITO and Technology Consulting) have a particular need for industry-based expertise. The vast majority of BPO sales and project team members have particular industry focuses and Application Services teams are expected to be close to 100% industry-trained by year-end. While neither teams plan to create business consulting practices, both are actively hiring Business Analysts with deep knowledge of industry-specific business processes. Even the company’s traditionally horizontally-focused Technology Consulting organization now leads the company’s work in industry segments such as digital hospital.

That explains the “Hallelujah”, but what about the “?”

Ongoing Challenges

Although HP certainly appears to be making progress in upgrading its value proposition to provide higher-value-add and more industry-aligned services, HP has sung this song before. While remnants of previous industry focuses remain, few have resulted in significant IP, achieved critical mass or maintained strong corporate commitment.

One of the reasons for this is that HP is organized strictly as a horizontal organization. All P&Ls are organized by product line and the sales organization, until recently, has been overwhelmingly horizontal. While EDS used to have deep industry capabilities (sales, consulting and IP), much of this was lost during the 1990s, when EDS did not have the resources required to invest in them.

Even so, important remnants of HP’s industry focuses remain (as in communications, media and entertainment; financial services; and electronics manufacturing). EDS brought more (especially in Medicare, but also in areas including transportation, defense and insurance). HP has since consolidated five of these its industry efforts in which it owns particular application and business process assets [healthcare, financial services, transportation, CME (communications, media and entertainment) and public sector] under the company’s Enterprise Services group (in which the former EDS business is housed). Other, less IP-intensive, less services-led industry initiatives (including electronics, automotive, aerospace and retail/consumer goods) remain under product-based Enterprise Business groups.

Although HP had already been building an industry-aligned sales force for its largest accounts (see my May 16, 2010 and May 23, 2010 blogs and associated report), the EDS acquisition provided HP with sufficient depth and scale of industry capabilities to justify assigning a specific group (HP Enterprise Service) and executive (Kenny) responsibility for managing most of the company’s industry-specific consulting, delivery and IP development and maintenance activities. These industry capabilities are complemented by broad industry skills across HP’s Global and Corporate Account sales teams.

Giving these industry initiatives a specific home in the HP organization is certainly an important step in creating a sustained corporate commitment to industry solutions business. HP’s hiring of Leo Apotheker as CEO is another. While he does not have direct experience in running a hardware company, his previous career at SAP has certainly given him a deep appreciation of the value of deep industry skills, unique IP and industry-based go-to-market activities in creating a strong value proposition.

Creating a specific home for and providing executive sponsors for these industry initiatives is certainly a good start. But, if this commitment is truly to be sustained, these efforts must begin to pay off—as by generating significant revenue growth and margin—within two to three years. If not, executive commitment, not to speak of financial support, will wane.

IF HP does see success in these industry efforts, it will certainly expand them. This expansion will occur in two stages:

  1. Stage 1: Deeper and more comprehensive offerings in current industries; and eventually,
  2. Stage 2: Expansion into additional industries (including some of those currently under other parts of the HP organization), as Enterprise Services demonstrates success in current markets and as customers request additional HP offerings.

This being said, one cannot expect too large or too vocal of a commitment to industry solutions. Regardless of how successful HP’s new forays prove to be, HP must and will continue to be focused and organized around horizontals. After all, the vast majority of HP’s revenue will always come from horizontal markets, success in which requires huge scale and very tight financial management. Just as importantly,

HP’s long-term success in these markets will, therefore, depend on a gradual, focused entry into verticals, a long-term commitment to nurturing and funding this business and a champion with the power required to protect it from HP’s overwhelmingly horizontal corporate culture.

Posted in Hewlett-Packard, IT Industry Trends, IT/Business Consulting/Outsourcing, Vertical Strategies | No Responses »
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HP’s CEO Dilemma: How to Rebuild HP’s Culture While Growing its Business

Sunday, September 5th, 2010

Hewlett-Packard has had some bad luck with CEO’s. Carly Fiorina and especially Mark Hurd have certainly made contributions to the company. Although I am still not convinced that Fiorina’s acquisition of Compaq was best for HP, she certainly created a marketing vision and boosted the visibility of a company that was generally lacking in both. Hurd meanwhile, provided the financial discipline and accountability that HP so desperately needed and approved some key acquisitions that have dramatically enhanced the scale and value-add of HP’s software, networking and especially its services businesses (see my 2009 report, “Can HP TSG and EDS Transform Each Other?). This being said, I still puzzle over the recent acquisition of Palm.

But while both CEOs provided their own types of value, both proved to be largely incompatible with—and fundamentally disruptive to—the HP culture. Fiorina was too shameless of a self-promoter for the traditionally collegial organization and did not provide the type of discipline the company so desperately needed. Hurd provided discipline in spades. Unfortunately, his no-prisoners style alienated and demoralized employees and his lack of focus on—and lack of funding of—marketing perpetuated one of the company’s greatest, oldest weaknesses.

There’s no question. HP’s culture certainly needed disruption. The company had become too bloated, complacent and sclerotic. But was it really necessary to destroy so much that was good in the company? So much that defined a unique organization?

I don’t know the real answers to these questions and I don’t intend to dwell on the past. But the questions of HP’s needs and culture do bring up a number of other questions that are fundamental to the board’s critical decision as to who to select as the company’s next CEO.

We have heard all types of speculation on the most likely candidates—everyone from Mark Andreessen to Steve Mills and Ann Livermore to Vyomesh Joshi. Such speculation, however, is putting the proverbial cart before the horse. Before HP can even begin decide who it wants for a CEO, it must decide what it needs from a CEO.

To decide this, it must first ask and answer a number of fundamental questions. Among the most important are:

  • What kind of company does HP really want to be in the future?
  • What are the qualities that it most needs in a CEO?
  • Where should it look for its next CEO—and the one after that?

Questioning HP’s Future

HP is really multiple companies. It currently divides itself into three separate, essentially product-focused groups, each based on different classes of technology and solutions. One is focused on enterprise computing products and services (primarily servers, switches/routers, software and services), one on printers (from consumer through commercial) and one around personal systems (primarily PCs, and a dabbling in PDAs). I, however, look at the company’s divisions a bit differently—more as a 2×2 matrix (see below figure), with the:

  • Horizontal axis representing whether the value-proposition is based primarily on product features and price (as it is for PCs, PDAs, industry-standard servers, basic printers and so forth) or a service-based solution to an underlying customer need (as with enterprise servers, enterprise services and commercial printing and imaging systems); and the
  • Vertical axis representing the target market and whether the people that influence and make the purchase decision are individual consumers or businesses.

The HP Business Matrix

When you look at it this way, HP must decide whether the company’s real value-add and differentiation lies primarily in:

  • Being a products company (such as Dell) or a solutions company (like IBM);
  • Focusing primarily on business customers (like IBM) or consumers (like Apple), and/or
  • As a technology portfolio company (like IBM used to be, or what GE has long been).

Although each model certainly has advantages and drawbacks, I (of course) have very definite opinions as to:

  • Which is best suited to HP’s current strengths—products (primarily business products, with consumer a distant second); and
  • Where its greatest opportunities lie—all classes of business solutions (from SMB through large enterprises).

But whichever model HP selects as its primary strategic focus, it should decide before it begins compiling a list of CEO candidates. It must then identify the qualities that are required for a CEO of that specific type of business and identify a pool of candidates with the inclination, skill set and perspective that are best suited to that business.

It should then measure these candidates against such critical filters as:

  1. Who best shares—and can most effectively communicate (both to HP employees and customers)—the vision of what HP aspires to become and how it will get there;
  2. Who has the experience in and a unique ability to effectively market and organically grow this business; and
  3. Who can best maintain the discipline imposed by Mark Hurd while simultaneously identifying and fostering a new unifying corporate culture and reviving the morale that was lost over the last decade. [The original HP culture is too far gone to resurrect. The new culture must somehow integrate the remnants of what is left to the old component cultures (HP, Compaq Digital, EDS and so forth) into something that is totally new.]

The need to redefine HP’s culture and morale all brings up some even more fundamental questions:

  • Why, when each of HP’s last three CEOs were forced to leave, did the company have to go back to square one to identify a successor; and
  • Why, after assessing all the options, could the board not find anybody within the company who was capable of taking the reins? Why was it forced to run the risk (realized in both of the previous cases) of introducing a “foreign antibody” who did not understand, was generally incompatible with and who ended up diminishing the company’s culture and morale?

Has HP’s board ever heard of the concept of succession planning? Why does it not practice the type of functional and geographic rotations that are so central to the employee development practices of other world-class corporations? Will the company ever again be in a position to choose from a list of highly qualified internal candidates who truly understand and are compatible with the company’s culture—whatever that culture is determined to be?

This all leads to an even more fundamental question about succession plans. Is it time for a succession plan for the HP board?

Posted in Hewlett-Packard, IT Company Strategies, IT Industry and Companies | 3 Responses »
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Addressing HP’s Industry Solutions Talent Gap

Sunday, May 23rd, 2010

This blog is an overview of the findings of my new report (hot link to offering page) in which I examine the talent requirements and recruitment and development efforts that will underlie HP’s effort to develop the type of more industry-focused value propositions and service-led go-to-market approaches discussed in my previous blog and report, both titled “HP Goes Vertical”.

My “HP Goes Vertical” blog, describes how Hewlett-Packard is likely to use EDS as a vehicle for gradually transforming the company’s entire enterprise IT operations:

  • From a horizontally-focused, engineering-centric IT products and solutions company;
  • To a consultative, industry-focused solutions company that helps customers envision and apply IT as a solution to pressing business needs.

This transformation will entail an equally momentous change in the company’s need for talent. It will have to retain tens of thousands of current employees, hire thousands of new people and radically change how it trains, goals and compensates these people. These changes are likely to forever alter a corporate culture that has been 44 years in the making.

Transformation to a Services-led Workforce

Selling horizontally-focused IT product and solutions requires a deep knowledge of product capabilities and competitive differentiators as well as how modernized, efficient IT infrastructures can improve performance and reduce costs. Designing, implementing and managing these solutions require not only deep technical skills and experience, but also change management and some level of cultural skills.

Although the sale, design, implementation and management of industry-specific business solutions certainly require similar capabilities, they require much more. While technical skills remain at the center of an IT solutions engagement, these skills tend to take a back seat to deep industry and business process skills in a business solutions engagement.

Rather than leading with product capabilities and TCO, business solutions account executives typically enter accounts with well-defined points-of-view as to how the customer’s specific industry is changing and the requirements for success relative to new market, competitive and extrinsic conditions. Just as importantly, they must be able to engage in these conversations not just with the types of IT executives with whom most IT companies are used to working, but also with senior business executives.

These industry-specific solutions perspectives, however, cannot stop at the sales level. They must be infused throughout the organizations, through people that architect, build and support industry-specific solutions, and through those who define and prioritize target markets and identify and communicate compelling value propositions.

A small percentage of HP’s senior sales people and consultants (especially in CME and financial services) had such capabilities. They are, however, in a small minority. EDS had more—although not to the level of competitors like IBM or Accenture.

Enterprise Services as HP’s Business Solutions Incubator

The combined HP/EDS company has already begun to marshal its best business solutions-based talent across all groups, identify those industry segments in which it has the strongest capabilities and most compelling value propositions, and identify and assign the best qualified salespeople to the most promising accounts in each of these segments.

Although HP has some such talent in all parts of its Enterprise Business Group (not to speak of in its Imaging and Printing and Personal Systems Groups), the vast majority of such capabilities reside in the company’s Enterprise Services team, which houses most of the EDS business and people.

Given this, I believe HP will use this organization—particularly its sales and service delivery arms—as the company’s Business Solutions Incubator. This incubator would:

  • Create, market, sell and support the company’s initial service-led industry solutions;
  • Identify and disseminate consistent, repeatable best practices that could be applied across all industry groups; and most importantly
  • Develop the people most capable of architecting, building, selling and supporting them and then, disseminate best practices and people out through other parts of the organization.

Among this group’s primary talent development responsibilities would be to:

  • Define the type of talent it will need—especially across its service sales and service delivery teams;
  • Identify current employees that are most capable of filling key roles and create accelerated development and mentorship programs to help develop their skills;
  • Determine the talent—both new graduates and people with experience in other companies—that it must recruit from the outside; and
  • Restructure sales and service delivery career paths, metrics, incentives and compensation structures to create a large supply of such people.

Once it begins to “incubate” a critical mass of such professionals within the company’s services sales and service delivery arms, it must rapidly disseminate this talent out through all parts of the HP Enterprise Business organization—initially Software and Technology Services and ultimately Hardware. Once the group is on track to accomplish all this for the company’s initially targeted industries, it would probably lead the process of identifying and prioritizing HP’s move into additional verticals and sub-verticals.

Posted in 21st Century Careers, Creating the 21st Century Workforce, Globalization, Immigration and Offshoring, Hewlett-Packard, IT Company Strategies, IT Industry and Companies, IT Industry Trends, IT/Business Consulting/Outsourcing, Job and Career Opportunities, Skills Requirements, STEM Careers, Technology's Impact on Job Skills, Vertical Strategies, Workforce Trends | No Responses »
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Hewlett-Packard Goes Vertical

Sunday, May 16th, 2010

This blog is a brief overview of the findings of my new report  in which I interpret and detail HP’s enterprise services and industry-based go-to-market plans. My next blog will provide a similar overview of how these initiatives will change the company’s talent recruitment and development efforts.

Eighteen months ago, IT hardware giant Hewlett-Packard announced its plans to acquire IT services giant EDS in a transaction valued at $13.9 billion. For EDS, it was something of a distress sale. One may look at Hewlett-Packard’s motivation for acquiring EDS in one of three very different ways, it viewed it either:

  1. Opportunistically, as a depleted and undervalued asset that HP could resuscitate and convert into a strong revenue and profit engine;
  2. Tactically, as a relatively separately managed vehicle for supporting and generating additional revenue streams from HP’s product business; or
  3. Strategically, as the engine for transforming an IT products company into a business solutions company.

The real motivation was certainly a combination of all three.  As I discussed in my March 28 blog “The Services-Led Verticalization of the IT industry”, it is becoming increasingly apparent that HP has big plans for the acquisition. It sees it as creating a beachhead for evolving HP’s Enterprise Business Group:

  • From a horizontally-focused, engineering-centric IT products and solutions company;
  • Toward an increasingly consultative, industry-focused solutions company that helps customers envision and apply IT as a solution to pressing business needs.

Leveraging Capabilities Into Strengths

Although both companies have long had their own individual industry focuses, neither exactly dominated their respective companies. HP’s product line and the vast majority of its services capabilities were intentionally horizontal. The company’s primary goal had always been to create standardized, high-volume hardware that could be used in any industry, and to use its services organization to adapt that hardware to the needs of IT organizations and, especially, to support the products that were already in place. Its industry focuses were generally pretty limited.

Although HP did have particularly strong capabilities, and even proprietary intellectual property in Communications, Media and Entertainment (CME), and more limited capabilities in some aspects of Financial Services, Manufacturing. Energy and Public Sector, these were an exception to the company’s overwhelmingly horizontal activities.

EDS’s value proposition, meanwhile, was largely horizontal due to its history and because about two-thirds of its revenues were attributable to IT infrastructure outsourcing. This said, however, the company also had a significant application development and outsourcing business and some pockets of strength in business processing outsourcing. These translated into relatively strong industry capabilities in sectors including healthcare, insurance, transportation and defense.

EDS, meanwhile, by definition, had a services-led sales model, since its entire value proposition was based on the value its services capabilities could provide to the customer. HP’s services portfolio, in contrast, was dominated by maintenance and support services (which still account for more than 40% of HP/EDS’s combined services revenues). These and many of the company’s infrastructure consulting services were used primarily to enable and add value to the company’s product sales. The exception were some of the company’s industry consulting (as in CME and Financial Services) and application modernization capabilities, which were more likely to lead sales efforts.

The combined company’s goal is to integrate and gradually expand its industry-specific capabilities in a way that will enhance the value it can deliver to individual companies and more effectively appeal to business executives, who control growing shares of their company’s discretionary IT budgets. It is training more of its sales representatives on– and dedicating them to–specific industries and has tapped a disproportionately large number of EDS account executives to manage relations with the combined company’s 200 or so largest, most strategic enterprise accounts.

Steady as She Goes

Given the scale of the combined companies, these transformations will be a massive effort. And if not handled properly, will be incredibly disruptive to the organization and demoralizing to many of the employees who had thrived in HP’s traditional engineering-based culture.

The transformation, therefore, will be gradual and only partial. The EDS business, which has been integrated directly into the Enterprise Business unit, will initially serve as the hub of HP’s services-led sales activities and of much of the combined companies’ growing industry-specific business solutions marketing efforts. These efforts, however, will be gradually filtered into the rest of the TSG business, as through integration of a more services-led, solutions-based approach to sales, a growing integration of both HP’s and EDS’s legacy vertical marketing efforts and the creation of more industry-based intellectual property.

This leads to the next question. Where will all of HP’s industry-focused, services-based solutions talent come from? How will recruiting priorities, training efforts and career paths change? What impact will it have on both companies’ traditional corporate cultures? These questions are addressed in my next blog and report, “Addressing HP’s Industry Solutions Talent Gap.”

Posted in Hewlett-Packard, IT Company Strategies, IT Industry and Companies, IT Industry Trends, IT/Business Consulting/Outsourcing, Vertical Strategies | No Responses »
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The Services-Led Verticalization of the IT industry (and what it says about the future of the industry and its need for talent)

Sunday, March 28th, 2010

I feel that I have just witnessed history. Well, maybe not the type of “Capital H” History that one normally thinks of, like the fall of the Berlin Wall or the Red Sox 2004 World Series victory, but at least a “small h” history.

This month, I attended two IT analyst conferences. For those who do not typically attend these events, some vendors, such as Hewlett-Packard (March 9 and 10, 2010), hold them annually. Others, like Dell (March 24, 2010), schedule them only occasionally. But regardless of the frequency, these events are typically intended to provide previews of the vendor’s new strategic initiatives. The vendors typically preview such big new initiatives with industry analysts to assess reactions and tune their presentations before taking them to audiences (like financial analysts and especially customers) that vote with dollars, rather than reports.

Two things were historic about the HP and Dell conferences:

  1. Both companies emphasized big, corporate-wide focuses around delivering business solutions that are tailored to the needs of specific industries; and
  2. Both highlighted dramatically expanded roles for their services organizations in delivering new types of business (in addition to traditional IT) services and increasingly, in leading the respective company’s solutions-based go-to-market efforts.

Why are these announcements so historic? Because both HP and Dell have traditionally been product-focused companies that presented broad, technology-focused horizontal value propositions that are applicable to customers across all types of industries. They have traditionally led their marketing programs and sales efforts primarily on the basis of the strengths of their products, their price-performance and the ways in which these products, combined with related technology services, would improve customer IT environments.

Don’t get me wrong. Both companies will generally retain their traditional IT solution-based go-to-market and business models. Both will continue to rely primarily on horizontal value propositions and product-led sales.

However, both companies have recently made major acquisitions of big business and IT service companies. HP completed its acquisition of EDS 18 months ago and Dell just closed its acquisition of Perot Systems in November 2009. These acquisitions, and the new directions they are enabling, represent huge turning points not only for the vendors themselves, but for the IT industry as a whole.

The reasons? Both HP and Dell had been notable holdouts in an industry that has, over the last five years, steadily migrated from:

  • Value propositions that emphasized the IT value of their offerings, to propositions that emphasized the value these solutions can deliver to the business;
  • Horizontal marketing and go-to-market models that emphasized the value the vendor’s IT solutions could offer to all companies, toward more vertical, industry-focused models that identify business needs that are specific to individual industries and portray vendor-specific points of view as to how the vendor can address these needs; and from
  • A product-led sales model that focused almost extensively on technical sales to the customer’s IT organization, to more of a services-led sales model in which more business-value-focused account managers engage as closely with the customers’ business executives, as with their IT executives.

Both companies used their March analyst briefings to highlight the growing roles of their services organizations (Dell, in fact, launched its conference with a presentation by its top services executive) and their growing focus on business-based, industry-focused value propositions (HP, for the first time, dedicated one of its keynotes to solving industry problems and Dell repeatedly emphasized Perot’s particular focus on healthcare).

The Services-based Future of the IT Industry

HP and especially Dell’s migrations from their traditional product-based, IT-focused, technical value propositions to more business-based, services-led models provide a validation that the IT industry is maturing, that value propositions must be increasingly targeted and that vendors must increasingly focus their sales efforts on business executives who lead profit centers, rather than on IT executives who lead increasingly financially-constrained cost centers.

While customers increasingly squeeze IT department budgets and impose shorter and tighter return requirements on IT projects, vendors will have to focus their efforts on those line-of-business executives who can marshal required discretionary funds required to fund projects that address pressing business problem and promise to yield demonstrable, measurable business value.

Although there will certainly continue to be huge, cross-industry, horizontal transformations of IT infrastructures, such as migrations to cloud-based infrastructures and service delivery, services-based software and, increasingly, mobile wireless clients, most companies have already made their big IT investments and have already achieved most of the “easy” gains associated with automation. Product—especially hardware—revenue gains will become increasingly difficult to come by and services will play increasingly critical roles in growing vendor’s revenues, smoothing revenue streams and increasing margins.

These services organizations will play increasingly critical roles not only in delivering on IT vendors’ value propositions, but also in leading vendors’ engagement with—and promoting the value of—these vendors’ solutions to their customers. They will be increasingly aligned around four primary centers of gravity:

  1. Industry-focused business services, some of which may be billed separately, but more of which will play demand-creation roles, as by being integrated into vendor marketing organizations (to identify pain points, develop points of view and work with product teams to develop business solutions) and sales teams (to lead engagements with customer business executives and budget holders);
  2. IT consulting services to architect and deliver solutions and manage transformations of customer environments;
  3. Support services to maintain customer environments, ensure customer satisfaction, identify new sales opportunities and provide profitable, annuity revenue streams; and
  4. Managed/outsourcing services which will increasingly integrate and subsume the roles of all three of the previous services organizations and increasingly become the primary design center, customer engagement arm (for both go-to-market and ongoing support), delivery vehicle and revenue/profit engine for virtually all IT companies.

I will discuss the prospects for and implications of these changes in HP in a forthcoming blog, tentatively named, “HP Goes Vertical”.

The IT Industry’s Changing Talent Requirements

The transformation of IT vendors from products-focused technology companies to business-solutions services companies will fundamentally change their requirements for people. Sure, IT companies will continue to require all of the same skills that they currently employ. But, unless they grow very quickly, they will need fewer of these people and more—in many cases, many more—new people with different skills.

I will discuss these new talent needs, at least from the perspective of HP, in another forthcoming blog, tentatively titled, “Addressing HP’s Industry Solutions Talent Gap”. In brief, however, these new-generation IT companies will require fewer technology specialists across virtually all parts of their organizations—product engineering, IT consulting, support, and especially marketing and sales.

Although all of these vendors will certainly require some IT specialists in all of these areas, they will have rapidly growing needs for people who truly understand their customer’s business needs.

They will, for example, need people who understand enough about these needs to identify the markets for and lead the development of business solutions. They will have particular needs for new types of consultative account executives and salespeople—people who understand enough about their customer’s specific industry and business needs to ask penetrating questions designed to uncover the customers’ deepest, and in some cases least well recognized or articulated pain points. They must, however, also understand enough about IT and the vendor’s product line to demonstrate which, if any of the vendor’s solutions are best suited to addressing that pain and to restate the customers’ need in a way that leads them to recognize the suitability of the vendor’s solution to their need.

These vendors will also need people who can delve into these needs much more deeply than account executives can or should do for themselves. They will, for example, need business and business process consultants. Not necessarily the type of senior consultants that are the hallmark of the management strategy firms, but those with a deep sensitivity to the needs of business and at least a few years of experience in analyzing and architecting business solutions.

These consultants would certainly support marketing and sales in their demand creation roles and in some cases, serve as the vendor’s primary contact to line-of-business executives. The consultants would also:

  • Serve as intermediaries between customers and product/solution design engineers;
  • Architect business solutions to address customer needs; and
  • Ensure that the ultimate solution actually delivers the business benefits that have been contracted for.

But while IT vendors will certainly have much greater needs for the type of “T-shaped” people who can understand the true needs of their customer’s business and determine and articulate the ways in which the vendor’s technology can address that need, the vendor’s needs will be dwarfed by their customers’ needs for the same type of people. These customers will require the type of IT people who understand almost as much about their own company’s business needs as their IT needs and business people who fully understand how IT can address their business needs. After all, customers who lack such people on staff will be less capable of anticipating, justifying, driving, implementing or effectively using the solutions the vendors are trying to sell.

The real challenge—for both vendors and customers alike—is that there simply aren’t enough such people to go around. And, with fewer and fewer U.S. and European students studying the type of STEM (Science, Technology, Engineering and Math) disciplines that are required to make these links between business and technology, these shortages are likely to get much worse, before they get better.

As I have argued in many previous blogs and reports, IT companies MUST take a much more active role in creating such people.

Posted in Hewlett-Packard, IT Company Strategies, IT Industry and Companies, IT Industry Trends, IT/Business Consulting/Outsourcing, Other IT Companies, Vertical Strategies | No Responses »
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