HP Services Massive Job Losses

HP Services Massive Job Losses

McKinsey & Co appear to be spearheading the move to eliminate between 8% and 10% of Hewlett Packard’s workforce of 324,600. Eliminating 26,000 – 34,000 jobs could result in savings of about $1.2 billion and add 50 cents to annual earnings per-share. To blame the iPad and other tablets for the decline in HP’s pc sales is one thing, but the majority of the cuts seem, from leaked reports, to be levelled at the services division. Perhaps Meg Whitman CEO, will reveal much more detail next Wednesday, whilst announcing depressed results for the second fiscal quarter of 2012. HP’s stock has dropped some 14% in 2012, and in February Bloomberg forecast sales in the current fiscal year may decline 4 percent to $122.4 billion.

So, why are those people in the know predicting at least 18,000 job losses in HPES, the outsourcing services and consultancy arm? Are there reasons to believe that the whole outsourcing industry is continuing to decline and for HP Services perhaps faster than the sales of hardware, printers and ink?

The Tier One outsourcing providers (IBM, CSC, HP and Accenture) have not faced up to the realities of their success in commoditising and standardising the IT outsourcing market. Tier One providers have been explicit in the last 4-5 years in not wanting to transfer staff, assets, and the taking on of real business risk – while the smaller competitors by contrast have largely continued to absorb these deal defining attributes albeit on smaller scale deals. So why would you partner with a Tier One on that basis?

The relentless marketing of “Cloud”, which is totally cannibalistic of existing revenues and unrepentant in halving bottom line profit, has further levelled all suppliers to commodity status and totally demystified IT for decision making client executives. Cloud offers service portability so why think long term contracts or commitment?

Commodity IT does not command a premium – nor loyalty and respect.

Clients who have experienced offshore providers know that they are always clear in what they do do and what they do not do. They look for smaller contractual commitments and are happiest when the client retains control. They thrive in master slave relationships. Clients have now taken back control and the “risks” associated with control. Strip the risk premium from Tier One pricing and there is no differentiation that compels a Tier One buying decision.

Remember most clients are now in the fourth or fifth generation of outsourcing – the large savings from transforming the services have gone. In short, outsourcing has lost its differentiation and uniqueness of yesteryear. Secondary service providers are too numerous and face consolidation but one thing is for sure … the client is back in control and loving it.

So HP’s woes and headlines of today are likely to be repeated in IBM, CSC and Accenture tomorrow.

Posted in Suppliers Comments: 2 comments


2 Responses to HP Services Massive Job Losses

  1. Eugene says:

    I work for HP

    Its great, if you manage people, in that the business, expects you to maintain costs, increase revenue, which results in losing your best tech leads, by screwing them over in annual reviews, replacing them with chargeable contractors (a standard tech lead costs 40k in wages and is charged around 80k – a contractor will be paid around 100k but i can charge the client 220-250k) bigger profit for HP and bigger rewards for me

    Yeah poor morale, but as a business, me and HP do good

  2. Hey mate, .This was an excellent post for such a hard subject to talk about. I look forward to seeing many more excellent posts like this one. Thanks.

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