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EDITORIAL: Reinvention capers

EDITORIAL: Reinvention capers

There's a strange irony reading reports in the press of HP boss Carly Fiorina's message to the Australian business community and politicians.

When in Australia last week, Fiorina said that, in essence, we need to focus on reinventing our top businesses from a whole-of-company point of view. It's not enough to simply add technology to the equation and expect it to revolutionise the entire company without also considering how to improve fundamental systems, processes and employee reward schemes.

She also believes reinvention revolves around the constant search for cost reduction and return on investment. Maybe the "invent" slogan should actually be "reinvent" - but I digress.

The irony is Carly's comments coincide with rumours of HP's planned merger with the consulting business of PricewaterhouseCoopers (see our Lead Feature, page 37).

The ambitious plan (worth $US18 billion) will see HP attempt to swallow a proverbial whale.

Just like Australian business must undertake a complete rethink to succeed, HP must reinvent to meet aggressive share price-driven plans.

According to reports by my US colleagues, HP's services revenues in 1999 hit $US6.2 billion, or 15 per cent of revenues.

In contrast, competitor numero-uno IBM is kicking its butt on the services vs hardware revenues ratio. Its services figures for 1999 represented $32.2 billion last year, or nearly a third of the company's overall revenue.

Fiorina wants to increase services to represent 30 per cent of revenues within three to four years, explaining the significance of the PwC rumours.

Another challenge would be integrating 31,000 PwC consultants worldwide with HP's own army of just 6,000. Sounds a bit like the Compaq-Digital saga all over again, doesn't it?

But, of course, the tough nut to crack is Wall Street and those temperamental rating agencies.

According to one IDG report, Standard Poors has placed HP's credit rating on watch, due to the high cost of the acquisition. Meanwhile, a Wall Street securities firm, Bear Stearns, was one to applaud the move but warned the integration challenge would bring HP's stock under pressure.

So what does all this mean for the future of the Australian channel?

The first observation is that hardware manufacturing is no longer the high-growth ticket item of old for vendors - and we all know enough about that, given hardware margins in the channel.

Another is that vendors will mirror channel trends where services continue to become a larger chunk of revenues.

The real worry is to take a look at the big picture. Joining IBM, other big-name hardware vendors with indirect channels - such as Compaq, Cisco and Sun Microsystems - are developing solid services arms.

The impact of the revolutions inside each company will be felt on ground level through each vendor's go-to-market model. So expect more controversial channel restructure announcements.

All this will help to polarise resellers around three main types of business in Australia: Top 100 corporate and government, serviced by outsourcing/professional services giants and large Australian integrators like Powerlan; SME resellers with strong procurement services; and retailers.

Any company caught in between is either talking mergers, acquisitions, or "strategic realignment". The other option is fade away into obscurity.

What's your view? Is this HPs only chance to tackle IBM?


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