HP needs to be broken up

HP needs to be broken up

“HP has lost its soul” so said Leo Apotheker on 11th March 2011. Yesterday that statement became all too apparent.

Wall Street gave a “thumbs up” to the leaked HP board meeting story that sees the hapless Leo fighting to remain CEO. Stock pushed up more than 7% initially. A fillip for shareholders who have seen the stock price halve since Leo arrived.

However, investors who celebrate this ‘third CEO power struggle’ are likely to be disappointed yet again. A real opportunity exists to rebuild this once powerful market leader, but on past performance it will be beyond the wit of the Palo Alto mafia who even as we speak are rumoured to be selecting Meg Whitman, CEO of eBay. Stop. Wrong move.

But the damage has been done! HP cannot easily come back from this new blow without a radical rethink of their strategy.

HP’s troubles stem from the original bedrock product company getting into services. The two major divisions have always been at loggerheads. The facts are that print via ink supplies, makes all the money. HP Enterprise Services, the IT outsourcing arm and acquirer of EDS, are the poor cousins receiving little serious investment, top executive attention or strategic recognition. In fact, if you have ever visited, you could be forgiven if you thought that HP only does product sales.

This product fixation, in no small way, accounts for why the acquisition of Autonomy was so badly received by the US market analysts. In fact, if this drama plays out fast enough we just might see this “acquisition” decision being reversed. HP will be the poorer for it, but at least Autonomy will survive without the trauma of being side-lined by two ‘warring parents’.

The only solution for HP’s woes is to finally listen to the wisdom of the market and to split the company into two. Longer-term, the jewel in the crown is the services arm. HPES has within it, a reasonable number of the crème de la crème outsourcing executives, who could, without the current ‘poor cousin status’, take the outsourcing service provider to new heights. Clients could at last feel more “understood and loved” and not at the short end of investment decisions and petty procurement cuts. Faith in a new executive and overt client TLC will help the rejuvenation of existing relationships and might be enough to stave off some of the numerous mega deal renewals due with the next two years, without the need to go to competitive retender. More importantly with a new form of stability, HPES will more easily get to the top of tender lists.

HP investors – it is about time you make your voice hurd. Editor’s note: that should be heard.

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