HP hits new high

HP is ready to ride the wave of unprecedented demand that major information technology vendors are witnessing in the Middle East. As managing director for HP Middle East, Joseph Hanania heads up a team of almost 700 — one of the largest IT companies in the region. Offering an extensive product and solutions portfolio to customers of all sizes, HP is on course to produce record Middle East revenues in its current fiscal year and break the US$1 billion sales barrier for the first time in the region.

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By  the Gitex Times Staff Published  September 26, 2005

|~|interview1.jpg|~|The Middle East IT market is the place to be, according to HP Middle East’s Joseph Hanania.|~|Gitex Times: What are your views on the current information technology spending climate in the Middle East? Is the growth we are experiencing sustainable? Joseph Hanania: I believe that the Middle East is going through a growth phase, the likes of which it has not witnessed in the last 40 to 50 years. Couple that with high oil prices and all the ingredients are in place for the IT market to grow. I don’t know how sustainable this will be, but everyone is trying to ride the wave while it happens. This includes companies from many different sectors. We have seen telcos and banks in the region producing record profits and this is creating investment momentum. Some people are saying that the financial markets in the Middle East are in a bubble phase and that it will burst. I tend to believe that a few people will be hurt when it bursts. It will be a little bit ugly, but I believe the rate of growth will dip, not change direction completely. The investments that HP has made in human capital, knowledge and infrastructure and everything that exists around these areas has been the best way to ride that wave. HP has the ability to move faster and that is being reflected in the numbers that we are producing across the Middle East region. GT: So how strong has the growth been in the Middle East for HP? JH: We finished the first half ending April 2005 with historical records in terms of revenues and profits in the Middle East — top line and bottom line growth. That was very good and it was a reflection of the investments that we as a team have made and the performance of all the HP staff. We have a team of 700 people now in the Middle East and every single person deserves credit for those results. GT: Will you continue to expand the headcount given what you said earlier about the ‘bubble’ in the Middle East? There have also been global headcount reductions announced at HP by new chief executive officer Mark Hurd, so what impact will that have? JH: HP announced that it was reducing its worldwide headcount and I think that Wall Street looked on this in an extremely positive way. Since Mark Hurd became HP chief executive officer in April, Wall Street has seen much more value in HP and this has been reflected in the stock price. They had been waiting for HP to dust off some of its plans and actually do these things. The decision to reduce the workforce had been taken a long time ago but not actually executed. Mark Hurd is executing what needs to be executed and in terms of reducing the workforce, HP is doing this in an incredibly respectful and fair way. HP is making sure that people are taken care of and receive the right compensation, the right recommendations and are given time to find new jobs. I have never seen a company approach this in such a professional way and HP has shown that it is very conscious about the welfare of its staff and also its social responsibilities. GT: So how do these global decisions impact the Middle East operation of HP? Will there be any cutbacks in headcount in this region? JH: I don’t think so, and this is because of the strategy of investment and growth that HP has in the Middle East. We will not invest in additional staff until the numbers are made. In other words, I don’t invest on promises I invest on actual data. Let’s say we have a person that is supposed to produce ‘x’ amount in revenues. Now he is bringing in ‘x’ plus ‘y’ but we will not bring in a new person until the person is actually bringing in ‘x’ plus ‘x’. I don’t want to bring staff in and have to take them out of the organisation a year later — that is not a sound business strategy. Our record in this region shows that we have not brought people in and then been forced to take them out through a wrokforce reduction. Some people are taken out of the organisation because of performance-related issues, but we have to do that. When we do this, you can rest assured that we have tried everything possible to help the people first. We don’t invest in people unless we know the business is there and this is all about looking long-term as opposed to short-term. HP creates markets, it does not just respond to the market. It is all about how we can create an ecosystem of opportunities that in turn drive additional opportunities for HP.||**|||~|interview2.jpg|~|Hanania says HP Middle East is investing in its human capital, but only in areas where it knows there is sustainable business growth.|~|GT: So the revenue has to be in place already to justify the addition of a new employee at HP Middle East? JH: Yes. By the time we bring a new employee in, we have generated enough business to give this new employee a complete sales quota. HP measures how much revenue and profit each individual needs to bring in to reach overall sales, profit and cost targets. As long as we operate within these guidelines, we reduce the possibility of having to lay people off. GT: Earlier this year Carly Fiorina decided to merge HP Personal Systems Group (PSG) and the Imaging and Printing Group (IPG) into one super size unit. Now Mark Hurd has come in as chief executive and decided that they remain separate. Do you know why has the original decision been reversed? JH: I think there are different management philosophies and I am Pnot privy to all the data that Mark Hurd has at his disposal. As an external observer, I can say that the value of a company lies in the perceived value that customers have and the way that this shows up in the financial figures. Wall Street has clearly told HP, ‘we think you are a great company. We love the way you think and invent but we don’t like the way you execute. You make the decisions but we don’t always see you execute them internally’. What this shows is that there is still some value in HP that will be unlocked by executing some fundamentals and making the company more efficient. The challenge comes when a company reaches a plateau of efficiency. GT: Is that when the ability to create opportunities becomes important? You mentioned ‘creating markets’ earlier. What did you mean by this? JH: HP segments the market into three distinct areas: consumers, small and medium businesses and enterprises. We have workforce, targets and go-to-market models targeted at each sector. At the enterprise segment there is further subdivision into specific industries. Telecommunication is one vertical in this region that is critical for growth. We also work in various other sector such as financial services, the public sector, oil and gas, travel and tourism and also with manufacturing. We offer enterprise customers a group of solutions, methodologies, architectures, implementations and designs that can be deployed over a period of time, allowing them to embark on the journey towards becoming an adaptive enterprise. As customers start off on this journey, they start seeing more efficiency, speed, security and availability in their information technology systems and most importantly start seeing a reduction in costs that demonstrates a real return on IT investment. This level of return improves as customers journey further down the adaptive enterprise route and HP can prove it. ||**|||~|interview3.jpg|~|The adaptive enterprise can be a reality for end user organisations in the Middle East, says Hanania.|~|GT: That sounds great, but can you really drill down to some specifics involved in this journey towards the adaptive enterprise? JH: The journey has very structured and specific activities that need to happen. First off you have to understand the IT environment that you are dealing with and standardise where possible. Standardisation allows companies to drive down costs and drive up efficiency because it allows better interaction. Companies then look to modularise and then move on to virtualisation. Adaptive enterprise is not a methodology and topology for all companies. For those that are already efficient, the benefits may not be that great. What we have noticed though is that most enterprises have grown in a very unstructured and unplanned way. It has not always been easy for them to predict what the business requirements will be and sometimes the development may have faced budget constraints. This can result in an IT environment that is extremely inefficeient, very expensive and hard to sustain and maintain. This is where the adaptive enterprise kicks in — it brings order to the IT spaghetti. And out of order you end up with better security, performance, availability and efficiency and a reduction in cost that frees up money to invest in other enablers that will support the business even more. The appetite for adaptive enterprise topology is increasing in the Middle East and we are definitely doing more work in this area now that we were one year ago. GT: Elsewhere in the world, the end game of adaptive enterprise involves full business process outsourcing (BPO) and concepts such as HP’s utility datacentre (UDC). Are these feasible concepts in this region? JH: In the Middle East as far as UDC is concerned, in the true sense of the word, there isn’t any. By this, I mean an independent UDC providing a service to many different customers. We don’t have that and the issues are firstly experience and secondly the commercial laws. I think that governments around the region are starting to realise the importance of developing commercial laws because it is a limiting factor. The commercial laws have not been modified to reflect changes in business processes and the way that people conduct transactions. Governments are waking up to the challenge but it is not an easy or fast process. Today if you asked me what is the single biggest limiting factor to direct foreign investment in this region I would say the commercial laws. They need to be updated, developed and become much more transparent. These cannot be fixed overnight but there are signs showing that governments are interested in doing this, because they see the value of direct foreign investment in terms of the creation of jobs, the rise in GDP and all the other positive economic factors. GT: What are the current limitations with the commercial laws in the region? JH: Let’s say you want to open a UDC and offer that service to multiple customers. Those customers want to know that their data is protected and that if something goes wrong, they know they can do something about it. They are not going to give you data about their customers because they do not know how you are going to deal with it and there are no laws in place to say how. These are the laws that need to be enacted. UDC in its true sense is maybe the ultimate goal. The fact that we do not have one yet in the region does not mean we have not been successful in the steps leading up to it. HP has done many IT consolidation projects already. We have also worked with customers on availability and security assessments as well. GT: How does HP change its approach to reflect the levels of maturity of each market? How do you approach a market that is only now starting to open up such as Iraq? JH: We already do run rate business in Iraq — PCs, notebooks, low-end servers, printers and cameras for example. This continues to increase month-by-month. As far as enterprise projects in Iraq, we have heard a lot, engaged in many discussions but there have been no decisions yet. Much of this is to do with budgets and the fact that ministries are still being formed. Run rate revenues are increasing and we are giving this business all the support it requires. We are pleased with the partners we have appointed and they are delivering the services required around the products. In the enterprise space, we are making sure that we are engaging with key customers. There have been some substantial deals in the Iraqi telecoms space and HP counts all three operators as customers. This is as close to enterprise projects as you get in Iraq. There is a huge project pending for the central bank but nothing has been awarded or decided yet. GT: How important are alliances that HP has with other major vendors in terms of developing the Middle East IT market even further? JH: These alliances are critical. If you look at business partners such as Oracle, Microsoft and SAP, these are partnerships that start in the labs. We optimise our solutions for their technology and they do likewise. This carries on with the field engagement that occurs and also the follow-up after implementation. With Oracle and Microsoft these alliances have been very strong in the Middle East and we are pleased to see SAP starting to make significant investment in the region. GT: Do you expect overall IT spending in the Middle East to continue climbing and how does HP’s growth in the region reflect this trend? JH: The total market size for 2005 as estimated by IDC is US$5.6 billion. Last year the market was worth about US$5.1 billion so we are talking about growth of 10%. In the first half of our fiscal year ending April 2005 in the Middle East our sales growth was 29% — basically we achieved three times the overall market growth rate and this shows the confidence level that the customers have in terms of what we are doing. GT: So is HP Middle East on course to crack the US$1 billion sales barrier for this year? JH: I will give you an estimate. For this financial year ending October 2005, I think HP Middle East will end up at about the US$1.2 billion to US$1.3 billion sales mark. In a market worth US$5.6 billion, that is not a bad place to be.||**||

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