​The Break-up, starring Meg Whitman

​The Break-up, starring Meg Whitman

ARN tests the theory of shrinking to success.

Meg Whitman - CEO, Hewlett Packard Enterprise

Meg Whitman - CEO, Hewlett Packard Enterprise

During a decade serving as eBay President and CEO, Meg Whitman learned the art of selling.

But in the five years that has followed since taking the reigns at Hewlett-Packard, the formidable tech leader has changed direction, breaking the tech titan into three.

First came the much-publicised split, giving birth to both Hewlett Packard Enterprise and HP Inc, and most recently came its Enterprise Services spin off with solutions and services provider CSC, in a $8.5 billion deal.

ARN tests the theory of shrinking to success.

While the ‘less is more’ philosophy served Steve Jobs well during his Apple tenure, Whitman’s approach to growth is raising eyebrows among analysts and investors.

Mocked during EMC World 2016 in Las Vegas in May, Michael Dell stood boastfully in front of 3,000 partners, ARN included, to question the strategy of his long-time industry rival.

“They’re shrinking their way to success,” he claimed, in response to Whitman’s earlier observation of Dell’s $US67 billion acquisition of EMC; “They’re getting bigger, leveraging up, and doubling down mostly on legacy technology. While our strategy is to get smaller.”

Stepping away from the high-level slanging match however, under the watch of an executive cited by The New York Times as among the women most likely to become the first female President of the United States in 2008 - a race she looks set to lose - Whitman has cut over 85,000 jobs in five years, impacting around 25 percent of Hewlett-Packard’s previous global workforce of 350,000.

Specific to the Enterprise Services spin off, which will create a new $US26 billion services player with over 5,000 clients around more than 70 countries by completion in March 2017, 100,000 jobs will move from HPE to the CSC-led organisation, as Whitman cuts to chop and change in pursuit of growth.

“Wall Street loves a pure play and services have become commoditised, making scale essential,” said Technology Business Research Vice President, Lindy Hanson, who believes those two simple facts drove the latest IT industry merger.

In recent months, some of the largest IT vendors shifted from multiline vendors to focused firms, such as Dell shedding Dell Services as part of the company’s pending acquisition of EMC, while others broke up along industry lines, allowing concentrated efforts in specific verticals, such as CSC parting with its federal practice and creating CSRA.

“The IT services industry has been splitting and merging, bringing together companies with similar business models,” Hanson observed.

“Quarterly performance pressures to streamline operations and strategic focus and adherence to the “do what you’re good at best” principle of running a successful company drive the changes.

“With IT services, in particular, relentless commoditisation and pressure on revenue growth and margins force services vendors to acquire scale at almost any cost.”

Meg Whitman - CEO, Hewlett Packard Enterprise, rings the opening bell of the New York Stock Exchange on November 2, 2015
Meg Whitman - CEO, Hewlett Packard Enterprise, rings the opening bell of the New York Stock Exchange on November 2, 2015

As Hanson explained, this holds true in hardware as well, where combined scale provided one reason for the pending Dell and EMC merger; the loss of scale following HPE’s split from the HP Inc.

“Combined, Wall Street pressures to become purer and market pressures to get to scale possibly made the CSC-HPE merger inevitable,” Hanson added.

Change of approach

Fresh from posting its first quarterly year-to-year revenue growth in more than one year, facilitated by its focus on executing in a more agile manner on customer transformation initiatives as well as competitive displacement opportunities, such an emphasis on nimbleness has led HPE to prepare for a major shift in its portfolio and go-to-market strategy.

“The pending spin-off will position HPE to execute in a more concentrated manner on converged and software-defined datacentre opportunities from an infrastructure standpoint, but create hurdles as customers seek up-front advisory support during their IT modernisation initiatives, and as customers desire to increase leverage of “as a Service” IT delivery,” Technology Business Research Senior Analyst, Krista Macomber, added.

“Datacentre customers turn to HPE for more than turnkey appliances, working with the vendor on broader consulting and enablement in support of widespread IT transformation that spans on-premises and off-premises resources, as well as presales consulting.

“HPE’s go-forward path over the next one to three years will centre on avoiding missteps in execution by working closely with channel partners, service provider partners and customers to navigate this transition.”

With the pending Enterprise Services spin-off, and the ongoing commoditisation of datacentre hardware, Macomber believes HPE is becoming “increasingly pressured” to reverse steep software revenue declines and position the software unit as a core profit driver for the company.

However, for Whitman this will be challenging as HPE Software navigates the ongoing industry transition to subscription-based software purchasing models, and competition with CSC’s ISV partners to drive pull-through and synergies.

Macomber believes positioning as a high-value partner to CSC will increasingly influence HPE’s success as it works to deliver on end-customer demand for comprehensive, software-driven solutions wrapped with value-add services.

Coming less than a year after both CSC and HP split into two businesses looking for greater efficiency and agility, executives at both companies are painting this move as a logical conclusion of corporate strategies.

Whether planned or not, the result for customers is another consolidation in the IT services landscape that they will need to navigate, following the recently announced sale of Dell Services to NTT Data, while competitors are looking at a “new” pure-play contender in the field.

“Calling this a marriage of convenience might be a step too far, but describing it as a marriage of equals, both with rocky pasts, is closer to the truth,” Ovum Research Analyst, John Madden, added.

“Both CSC and HPE Enterprise Services have spent the last few years getting their financial houses in order, streamlining services delivery capabilities, revamping portfolios, and shifting delivery to more overseas locations (while cutting overall headcount), all to achieve cost efficiencies in an increasingly margin-squeezed services market.

Meg Whitman - CEO, Hewlett Packard Enterprise, and Pat Russo, Board Chairman, Hewlett Packard Enterprise, on the NYSE trading floor
Meg Whitman - CEO, Hewlett Packard Enterprise, and Pat Russo, Board Chairman, Hewlett Packard Enterprise, on the NYSE trading floor

“HPE Enterprise Services, in particular, has purposely jettisoned what it viewed as low-profit infrastructure services deals (which competitors have subsequently picked up) to focus on higher-value applications services, analytics, and digital transformation projects.”

Next steps?

In recent months, CSC announced an array of acquisitions to expand its portfolio of innovative next-generation solutions and offset its faltering legacy IT business.

Conversely, HPE has largely eschewed Merges and Acquisitions (M&A) investments over the same period, apart from its February acquisition of Switzerland-based Trilead, favouring organic portfolio development to regain scale following its recent corporate split.

“The companies’ divergent M&A approaches will require decisions to be made as to how the combined entity will leverage inorganic investments,” Hanson observed.

“Given the elected leadership, we expect the company will adopt an M&A strategy in-line with CSC and remain acquisitive to fill remaining holes in its portfolio and drive continued international expansion in regions such as LATAM and the Nordics.”

Going forward, Hanson believes the next steps for CSC and HPE Enterprise Services will be “difficult and slow” as the companies integrate and synchronise businesses.

However, any projected successes of the new provider will only materialise if the integration is swift and successful, and if customer communication is clear and on point.

Looking ahead, the new entity will have some 95 datacentres to rationalise and consolidate, for example, if it is to deliver $US1 billion plus in cost reductions as promised.

“HP, to put it mildly, has stumbled in some instances on integration in the past; the bungled EDS integration resulted in the loss of customers and in-house talent, and nearly collapsed HP’s services business,” Hanson added.

The vendor, however, rebounded from that experience with several solid integrations via acquisition, with both CSC and HPE appearing to handle recent splits reasonably well.

“Delivering regular and consistent benchmarks to its client base on pre- and post-integration plans will be essential if the new company is to avoid losing customers wary of the inertia and confusion that this kind of consolidation can bring,” Hanson added.

This article was originally published in the June issue of ARN Magazine.

Follow Us

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags DellemcMeg WhitmanHewlett Packard EnterpriseCSC Services


Show Comments