HP Cutting Jobs, Focusing on The Future

• Posted: Sunday, September 21, 2008
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• Author: pradhana
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• Filed under: Business Analysis

By John Madden, principal analyst at Ovum

HP executives on Monday unveiled more details of its EDS integration strategy, including plans to eliminate 24,600 positions or 7.5% of its combined global workforce during the next three years. At the same time, HP laid out its plan to dominate the enterprise IT market by leveraging its extensive product portfolio and its now stronger services capabilities. HP faces a balancing act of aligning EDS’s cost structure to HP’s while at the same time maintaining service levels and demonstrating innovation in new solutions. It will be a daunting but not insurmountable challenge in the midst of continued market uncertainty on future IT spending.

Workforce changes, although substantial, are no surprise

Monday’s meeting, hosted by CEO Mark Hurd and senior executives, had a dual purpose: provide more information on the EDS integration and, more importantly, show how all of HP’s software investments, R&D, product and solutions development, as well as the EDS deal, have positioned HP for future growth even in a slowing global economy.

The integration plan, not surprisingly, captured most of the headlines. As HP’s outsourcing unit transfers to EDS, and parts of HP’s consulting unit move to either EDS or HP Software, HP expects nearly half of the 24,600 positions will be eliminated in the US during the next three years. A goal for the workforce reduction is the elimination of redundancy in corporate support and other functions, and is not primarily due to the shifting of services resources. The company expects to save $1.8 billion annually once the process is complete.

The process will be led by an integration planning office with 500 full-time and 1,000 part-time resources at its disposal, with 250 integration projects and some 10,000 integration milestones as part of a multi-year plan. The integration planning office is focusing on seven execution areas, aiming to identify synergies and potential cost savings: customer experience, portfolio alignment, workforce, internal IT integration, real estate, procurement savings and organization integration. In these areas are critical questions around standardizing and automating the HP-EDS global service delivery model – more details on which are expected by year end.

The workforce reduction is no surprise – although it is substantial, and letting go of people in a slowing economy is never enjoyable for any company. What’s encouraging is that HP committed to reinvesting integration savings into its workforce (hiring back up to 50% of those positions over three years) to ensure it has the global footprint it needs, sending an important message to customers concerned about how the reduction will affect their HP/EDS contracts.

HP cues up its strategic priorities

As part of Monday’s presentation, HP reviewed four areas driving IT transformation: shifting IT funds from operations to innovation through standardized, optimized and automated platforms; modernizing data centers; taking advantage of virtualization and leveraging the “information explosion” within enterprises.

HP executives were quick to point out that HP, with EDS, has the scale and capabilities to offer customers multiple deployment options for its services across these trends: either on site, outsourced, or increasingly through so-called cloud services. In fact, it was EDS’s outsourcing scale and expertise that made it such an attractive acquisition target.

According to Hurd, HP in some cases was unable to bid on large, multi-year projects because it simply didn’t have the resources. HP pulled back on its outsourcing efforts shortly after Hurd’s arrival to ensure the right cost models and operations were in place, before actively pursuing more complex services deals. HP plans to apply a similar strategy with EDS: align the cost structure to “the HP way,” and aggressively go to market.

With some 30-plus acquisitions under its belt in the past three years, HP is treading on familiar ground. Customers are eager to see whether HP’s execution matches its confidence for making this deal work. Gunning for a dominant position in IT transformation is consistent with how HP has attempted to position and market its capabilities in the past year, and HP has expertise in all of its target areas. But what was clear from Monday’s meeting is that it will take six to nine months for the first real signs of progress from the integration to emerge.” PR-Ovum

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