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:
- Optimize traditional environments;
- Build and manage cloud-based architectures;
- Enable seamless transformation to hybrid models; and
- 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 “?”
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:
- Stage 1: Deeper and more comprehensive offerings in current industries; and eventually,
- 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.