HP cutting jobs, focusing on the future

On Monday HP executives 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' cost structure to its own, 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 no surprise


Monday's meeting, hosted by CEO Mark Hurd and senior executives, had a dual purpose: to 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.


Not surprisingly, the integration plan 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.


One aim of the workforce reduction is to get rid of superfluous capacity in corporate support and other functions, and is not primarily due to the shifting of services resources. The company expects to save US$1.8 billion (€1.253 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 staff 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 areas, aiming to identify synergies and potential cost savings: customer experience, portfolio alignment, workforce, internal IT integration, real estate, procurement savings and organizational integration. These areas are where the critical questions around standardizing and automating the HP-EDS global service delivery model lie - more details are expected by the end of this year.


The workforce reduction is no surprise - although it is substantial, and letting go of people in a slowing economy is never enjoyable.


But it's encouraging that HP committed to reinvesting savings from integration into its workforce (rehiring 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.


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 centres; 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 - 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, in some cases HP 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 pursuing more complex services deals. HP plans to apply a similar strategy with EDS: align the cost structure to "˜the HP way' then go to market aggressively.


With over 30 acquisitions under its belt in the past three years, HP is treading familiar ground. Customers are eager to see whether HP's execution matches its confidence.


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. It was clear from Monday's meeting that it will take six to nine months for the first real signs of progress from the integration to emerge.


John Madden, Research Director, Ovum Summit