Going back to the lab

HP is going through some big changes, but according to its regional MD, the company will emerge stronger, easier to deal with and more focused on internal R&D.

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Going back to the lab Eyad Shihabi, managing director, HP Middle East: HP’s innovation drive will focus on three areas: cloud, security and information management. (ITP Images)
By  David Ingham Published  June 21, 2012

HP is going through some big changes, but according to its regional MD, the company will emerge stronger, easier to deal with and more focused on internal R&D.

It’s the world’s largest IT company by revenue and still churns out decent net profits, but HP’s senior management thinks there is room for improvement. In a series of announcements over recent months, the industry behemoth has outlined plans to merge business units, reduce headcount and sharpen the company’s focus on research & development (R&D).

According to Eyad Shihabi, managing director, HP Middle East, the comprehensive changes will ultimately benefit the people who matter most: HP’s customers. “We have a very strong portfolio, whether it’s on the hardware, infrastructure, software or services side,” he says. “The optimisations are going to bring benefits back to our customer. We are looking at moving some of the savings into investment [in R&D] and at the same time, we are looking at improving the way we do business.”

In an effort to make HP more efficient and more profitable, the company is taking a number of steps. Amongst the first of these was the decision made earlier this year to merge the printing and personal systems groups (the latter responsible for PCs and laptops).

Together, these groups account for US $64 billion in revenue and each entity is number one in market share in its field. Merging them allows HP to eliminate overlap, focus on reducing SKUs and, according to Shihabi, simplify the way it deals with partners and customers.

Elsewhere in the company, HP has merged its different marketing units and the company is taking other steps to simplify supply chains and reduce the number of people customers have to deal with. The most significant announcement of recent months, however, is the decision to lay off 27,000 people, around 8% of HP’s workforce, over three years.

HP has already made significant layoffs in recent years, albeit under different CEOs. This time, however, management has been keen to emphasise that the savings made will allow it to increase its research & development budget.

In recent years, HP has relied on acquisitions to fill gaps in its portfolio and increase its services capabilities. For the foreseeable future, HP says it will now focus on digesting those acquisitions, building on them and innovating from within.

“We spent 4% of US $127 billion [in annual revenue] last year on R&D,” says Shihabi. “We believe we should be allocating a little bit more.”

After the headcount reductions are made, HP expects to save up to US $3.5 billion per year. R&D spending should subsequently increase to around 5% or more of turnover.

Research investment will focus on three key areas: cloud, security and information management. As an example of where HP might go in its R&D efforts, Shihabi points to already-announced initiatives like Moonshot and Odyssey.

The objective of Moonshot is to massively increase data centre efficiency. According to a statement, future systems based on the technology could consume 89% less energy and occupy 94% less space than currently. The first Moonshot products are expected to ship in the next two years.

Odyssey is an effort to bring high availability technology currently specific to HP-UX systems to PC servers running Linux. “We are going to be the first people in the industry creating a high availability Linux infrastructure,” says HP’s regional MD.

Although they may not grab front page headlines, initiatives like Moonshot and Odyssey would help deliver on CIOs’ key objective of delivering IT services more cost effectively.

Shihabi, who used to be a CIO himself, says that IT budgets regionally, as everywhere else in the world, remain under severe pressure. While keeping costs down, the CIO is also increasingly tasked with finding ways to create new business opportunities for the organisation.

The challenges are formidable and HP’s goal is to help IT managers on what Shihabi describes as a journey. “Before they embark on this journey we draw a roadmap for them,” he explains. “They can see how effective they are going to become, how much cost they are going to be getting back and most are not looking at reducing costs for the sake of it.

“They are looking at how they can take this cost and invest it into other areas of the business. We are talking to CFOs, to COOs, to CEOs. This is not a technology discussion any more, this is ‘How I can become more competitive?’,” he adds.

Cloud computing, naturally, looms very large on HP’s horizon. Shihabi stresses that as HP evolves its cloud offering, with initiatives like Moonshot and Odyssey, it will remain committed to open standards.

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