Monday, April 7, 2014
HP's Journey Forward
At the recent HP industry analyst conference, a theme woven through Meg Whitman’s presentation was that HP is on a journey. She repeated several times during her speech that they’ve made progress but they still have a lot of work to do. To CEO Whitman’s credit, in the early days of her tenure at HP, she clearly set public expectations for HP’s turnaround when she stated that this was a 5-year effort. This move bought the company the time and space to work on the turnaround, while keeping investors and media at bay temporarily.
The strategies and progress-to-date shared by HP at the analyst conference confirmed that HP’s turnaround plan is still “in progress”. We saw evidence of both the progress, as well as the work that HP still has to do. HP has made progress since Ms. Whitman took over the helm in Fall 2011. Today, HP has settled down from its very public “dramas” and strategy shifts that unfolded before Whitman took over. Led by Whitman, the restructuring and refocusing efforts have stabilized HP, which puts HP in a position to move forward. Getting its financial house in order enables HP to invest in R&D and strategic acquisitions, both of which Whitman stated publicly that it is doing (R&D) and is its intention (acquisitions). And both are necessary investments for HP’s future growth and competitiveness.
However, as challenging as it was for Whitman and her team to get HP to this point, the next steps will be just as hard, if not harder to achieve successfully. Several of the challenges HP faces are part of the turnaround effort, while others are due to market and technology trends. Because of space limitations, a full discussion of all HP’s challenges isn’t possible but here are two of them.
Investors and the market are relentless in demanding continuous growth from public companies. Now that the company is stabilized, the demands for growth cannot be far behind. HP’s size and breadth of products make this a complex issue. However, for discussion’s sake let’s look at one area where HP will be challenged – its x86 server line.
The challenge is and will be delivering revenue and profit growth from its x86 line, despite the downward pressures on profit margins and increased competition. This challenge is not unique to HP, it’s a challenge faced by all U.S. server companies. IBM’s solution to this issue was to get out of this business by selling their x86 server business to Lenovo. HP will certainly face fierce competition from Lenovo and other low cost Chinese server manufacturers, as well as white box servers. Downward price and margin pressures will continue and possibly intensify.
However, HP Moonshot’s lower power consumption, lower cost, etc. servers could be one of HP’s solutions to this challenge. Moonshot is an example of HP using innovation to change the economics and form factor of x86 servers. But HP must improve its Moonshot traction in the market by more effectively communicating its value to customers.
Two years ago when HP began their turnaround journey with Meg Whitman, several technology trends were on the rise. Out of necessity and practicality, HP scaled back their acquisition activities during this period. However, in the past two years HP’s competitors were and continue to be very active with acquisitions to build up their Cloud, Mobile, Security and Big Data capabilities.
With its financial footing firmly re-established, Ms. Whitman indicated that HP will be engaging in acquisition activity once again. HP’s temporary hiatus from acquisitions could mean that HP is now playing “catch up” in these trending areas, unless HP Labs has been working overtime developing new Cloud, Mobile, Security and Big Data capabilities. It’s not clear in which of these scenarios HP finds itself in today – on par or behind. The good news for HP is that most of the large vendors’ Cloud, Mobile, Security and Big Data initiatives are still “in-progress” and the end results are still to be determined.
HP is in a much better position than it was two years ago - finding itself on firmer footing. Yes, HP has made progress and is moving forward. But the progress must continue as it heads into the next phases of its turnaround.
The question is whether HP can effectively transcend across product and organizational structures to build its cross-HP initiatives, strategies and solutions to address customer needs. During her address to the industry analysts, Meg Whitman mentioned that they are shifting the company from a product and technology focus to a solutions focus. Although this is easier said than done, and the objective is not an easy slamdunk, it appears that HP is headed in the right direction.
In any case, it is interesting to watch HP and its competitors building their new initiatives. But the ultimate judges of the success of HP's efforts are and will be their customers.