Finding the New HP Way

Michael Vizard

With the abrupt resignation of Mark Hurd late last week as the CEO of Hewlett-Packard, questions this week will inevitably turn to the challenges facing the company as it begins the process of looking for a new leader.

When you consider all the fundamental change taking place these days, the challenges facing HP are both myriad and complex, but not necessarily insurmountable. The question is, can an HP that is already pretty divided internally come together to drive the innovations needed to compete across a range of business segments that to one degree or another are under siege.

Under Mark Hurd's tenure, the part of the HP business that shined the most was services. HP was always considered a laggard in services, but with the acquisition of Electronic Data Systems (EDS), services became a major profit and revenue center for the company. But even here the company faces major challenges.

No one is quite sure if the growth in HP services represents net new revenue in the HP ecosystem, or whether the company simply moved revenue away from third-party IT services companies that traditionally partnered with HP in order to compete with the likes of IBM. Obviously, some portion of that services revenue is net new, but IT services that routinely brought HP into deals are more wary of HP than ever.

More important, however, is the fact that the economics of IT services is fundamentally changing in the form of cloud computing. Increasingly, many customers want IT delivered as a service. While EDS is a leader in the hosting business, first Amazon and now IBM are seen as the major drivers of cloud computing in the enterprise. And as this trend evolves, HP is quickly discovering that customers don't have the same appetite for long-term hosting contracts they did when HP acquired EDS.

The second major challenge facing the company comes in the form of a trend known as data center convergence. HP this year regained its leadership in server sales. But the inevitable rise of data center convergence in the enterprise will challenge how HP brings products to market. In fact, many would argue that Cisco has assumed much of the thought leadership in the data center with the launch of its Unified Computing System (UCS) that brings server, storage and networking resources together under a common framework. HP has responded with the BladeSystem Matrix and a Converged Infrastructure strategy that should blunt Cisco's marketing efforts. But there is no doubt that HP now appears to be reactive in the data center space, especially given Cisco's close relationship with EMC and its VMware subsidiary.

And now IBM is pushing a Flex architecture that essentially mirrors everything that HP is trying to do with its Converged Infrastructure architecture, while Dell moved to acquire Scalent to provide similar levels of flexibility.

The Cisco server invasion naturally led to HP's acquisition of 3Com. While HP has been in the networking space for years, most of its focus here has been on the small-to-medium business segment. 3Com added some much-needed data center class networking expertise. But the integration of 3Com with HP in terms of new product development is still a work in progress and it will be many years before HP gains the credibility needed to really challenge Cisco in enterprise-class networking.

On the other end of the enterprise spectrum, the PC business is best described as trench warfare. HP is holding its own against traditional rivals such as Dell and, more recently, Acer. But Apple is reinventing the mobile computing business with the arrival of the Apple iPad and HP appears to be fumbling. First there was a Slate offering that would run a version of Windows 7 to compete against Apple. Then there was to be a version that would run Google Android. Then HP turned around and bought Palm, which will deliver a device to compete with the Apple iPad at some unspecified future date.

Even HP's vaunted printer business is under attack as rivals such as Epson and Canon get more aggressive. HP isn't in real danger of losing its dominance here any time soon. But every time HP loses a printer sale, the downstream revenue derived from printer cartridge sales tends to disappear with it.

While Hurd has confronted all of these issues head on, cost cutting within the company has sapped morale. It's hard to say how much the loss of morale within a company that has thousands of employees that are still mourning the loss of the 'HP Way' affect product innovation and ultimately the bottom line, given that HP's rivals are dealing with many of the same issues. But a ranking of 2.3 for the company on Glassdoor.com, a site that tracks the opinion of employees within companies, and an approval rating for Mark Hurd of only 34 percent, indicates that there is still a tremendous amount of dissension within the HP ranks.

The next leader of HP is going to have to be a person of extraordinary ability. For all the talk of the leadership capabilities of the HP management team, right or wrong, every major company in the enterprise IT space today-IBM, Dell, Oracle, Microsoft-is held together by one firm hand at the top. And given the past history of dissension in the HP ranks, now might not be the best time to experiment with an alternative management approach.

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