Services firm or lean commodities supplier

It is all change once again at HP, but what does the restructuring mean for the Middle East and where is the road map leading in the long term?

  • E-Mail
By  Sarah Gain Published  August 23, 2005

|~|HPB---PHOTO-1---Mark-HURD--.jpg|~|Hurd: After a thorough review of our business, we have formulated a plan that will enable HP to begin delivering its full potential.|~|Hewlett-Packard’s (HP) new president and CEO, Mark Hurd, has made significant changes since joining the company three months ago. Having separated the PC and printer groups that were combined by his predecessor, Carly Fiorina, Hurd has also separated a global sales role and a chief marketing role. He also announced HP will appoint a new CIO to run the company’s IT department that will operate independently from the vendor’s supply chain group.

After Fiorina brought Compaq into the fold, HP became the market-share leader or second-place competitor in a broad array of categories across PCs, servers and printers, however, the company was unable to translate that market share into consistent profits amid multiple structural changes and repeated layoffs. Fiorina created new groups, combined old groups and eliminated others in hopes of finding the right mix of people and products.

HP's board ultimately decided that she was not the best person for that job, and hired Hurd to focus on creating an "execution-oriented culture". Having already established a reputation for cutting costs with his former employer, NCR, analysts believe it was Hurd's pragmatism and aptitude for manipulating the bottom line that impressed the HP board.

Even before Hurd arrived at HP, the company's management had begun to address the need for cost-savings and improved efficiency. "This whole year has been internally focused for HP. Now they can focus on executing," says Sam Bhavnani, senior analyst with Current Analysis.

The company has seen several rounds of layoffs, reorganisations and executive departures over the last three years, but the latest move will undoubtedly have the biggest impact. Hurd announced in July that worldwide, HP would cut 14,500 jobs — around 10% of its total headcount — over the next 18 months as part of a global restructuring designed to save US$1.9 billion per year.

Although HP did not release details of job cuts within specific product groups, Hurd did promise to leave sales and research largely intact, with the majority of job cuts in support functions such as human resources, finances and IT, and at least a few cuts to product development groups.

“After a thorough review of our business, we have formulated a plan that will enable HP to begin delivering its full potential. We can perform better — for our customers and partners, our employees and our shareholders — and we will,” says Hurd.

According to US media reports, HP is at crossroads and the job cuts had been widely anticipated for some time as the company had already embarked on a voluntary redundancy programme for its printer business back in May.

HP seems to be moving from being a business driven by extensive research and development to a company more reliant on low-margin businesses like PCs and low-end servers. Where HP used to design its own server processors, for example, it now relies on chips from Intel and AMD for those markets.

"The company is evolving into something that [co-founders William] Hewlett and [David] Packard would not have considered or even recognised,” according to Charles King, principal analyst at Pund-IT Research but Hurd insists he is committed to HP’s current strategy of offering a broad portfolio of products to businesses and consumers.

"We are one of the few remaining hardware companies that delivers innovation that customers value and we will continue to invest in compelling products that can be differentiated in the market," he states. ||**|||~|HPB---PHOTO-2---Samer-KARAW.jpg|~|Karawi: There will certainly be a reshuffle of resources, but I really hope this will have minimum impact.|~|Now that Hurd has taken the first step to improve the company's uneven performance, he is under pressure to publicly outline his long-term strategies, defining HP as either a lean, efficient, commodity-product supplier, or an innovative consultant for major global IT departments, or perhaps both, as it has been attempting to do since its acquisition of Compaq in 2002, while fending off challenges from Dell and IBM.

"What seemed to me was missing [in Hurd’s statement] was an overarching sense of what the company is doing strategically. This was more a matter of, 'We are cutting staff and moving forward.' But 'where are you going?' was pretty much unaddressed," King says.

Samer Karawi, marketing manager for enterprise and corporate communications for HP Middle East, admits that while HP is a generalist, its long-term vision will be focused more on services and solutions, with the vendor making moves to align its resources and knowledge to specific industries, providing specialised solutions for industry verticals.

“We are moving to the level of specialised enterprise business solutions, and this is the way forward. In addition, in the Middle East, HP will continue to focus its expansion into areas where we still have very little presence,” he explains.

As part of its plan to establish offices in all Arab countries, HP is currently in the process of opening offices in Oman, and this plan is still expected to go ahead, regardless of the potential threat of job cuts in the region. No decisions about job cuts have yet been made for the Europe, Middle East and Africa (EMEA) regions and Karawi is hopeful the announcement will not impact the Middle Eastern operations.

Although Hurd’s overhaul will have a major impact at the corporate level, since only a fraction of HP’s employees are based in the Middle East, with 670 staff based at offices in Abu Dhabi, Dubai, Egypt and the Kingdom of Saudi Arabia (KSA), it seems likely the regional operations will emerge largely unscathed.

“There will certainly be a reshuffle of resources, but I really hope this will have minimum impact. Our [activities include] marketing and sales. We do not have research and development in the Middle East. Also, we have a small team of back office workers, so it seems to me this region should not be too badly hit. This is not the official forecast, of course, although it does sound reasonably logical based on what was said in the announcement by Hurd,” Karawi explains. ||**|||~||~||~|For HP Middle East, the new structure will prove relatively easy to adopt, according to Karawi. In the traditional HP structure, services have always been isolated from sales, with no alignment between the two divisions, but despite having to comply with the worldwide standard for HP operations, the Middle East’s regional operations adopted a more integrated model from the outset.

“We were ahead of the game. The Middle East was effectively a pilot for the integrated structure. We have always had good interaction and communication between the departments and this makes it even easier for us,” Karawi says.

The previous HP structure involved duplication and complexity. Hurd’s plan is expected to streamline business operations.

Karawi says cutting out the dead wood is a common sense move: “HP grew and it grew fat. For a company like ours, good visibility and control are essential, but if the company gets too big, it gets difficult. Processes get out of hand and too much time is spent in the office rather than in front of customers. The processes were very cumbersome and time-consuming, and it was inevitable that they would be streamlined,” he says.

Research firm Gartner is also in favour of the restructuring, as it expects the changes will improve not just HP’s bottom line but also its relationships with customers, viewing the strategy as a positive move for the future success.

In an online advisory, the research group stated, “The staff reductions appear to be aimed mainly at eliminating inefficiencies within the company and seem to have been targeted carefully to avoid impacting demand generation, customer satisfaction or revenue. These are positive steps toward improving HP’s performance and the experience of its customers.”

All may not be quite as positive as it seems, however. Although HP was adamant there would be “little change to headcount in research and development”, it has since cut some key research projects.||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code