Saturday, October 18, 2014

Forbes a week later

HP And EMC Call Off Merger Talks--Structural Issues Remain
Forbes, October 16, 2014
Ben Kepes, Contributor

Citing unnamed sources Reuters reports that HP and EMC have ended merger talks with an agreement not to progress. The deal, had it gone through, would have created one of the biggest technology vendors and potentially helped shore up the fortune of two beleaguered companies. It would have also introduced massive confusion and duplication on the two companies.
Activists had been pushing for EMC to explore new options, meanwhile HP had announced plans to split its own organization into two separate businesses.

This is an important development within the context of widespread legacy vendor splits – in an interview at the DreamForce conference yesterday, Venture Capitalist and HP board member Marc Andreessen stated his view that practically every legacy technology vendor (and he defined legacy as anyone over 20 years old) will split itself up in an effort to find a degree of agility and chase innovation. Notably both HP and eBay EBAY +0.15%, companies that Andreessen is a director of, are splitting themselves up.  (irony: I was giving a speech in San Francisco that day, 'forgot completely about the DreamForce conference' which meant that my choice of King Street, and then 3rd to go cross-town put me at the Convention center where 'everything' was jammed, took 40 minutes to get to Market St).

The broader context of all of this is, of course, the disruption and dis-aggregation that is apparent in the industry. The growth of cloud computing and the attendant toxicity on the revenue streams of traditional technology vendors result in serious pressure to innovate. The structural makeup of these organizations – optimized for supply chain efficiency and monolithic product and service delivery, is a direct impediment to agility.  (Agility here can be defined several ways.  One, of course, is innovation, and often that is what is meant by these words.  But it is far more than supply chain efficiency and monolithic product and service delivery that get in the way--this is a huge psychological barrier for most managers, a topic we deal with regularly)

An HP/EMC merger would have done the opposite of encouraging agility and instead created a complex franken-vendor that would have been left standing still trying to sort out internal issues and unable to respond to market forces.

Activists may not like this – but I believe that in the age of dis-aggregation, disintermediation and a new way of delivering enterprise technology, this is the best outcome for both businesses. Of course issues remain – HP’s split will help, but not cure them. For EMC it is less clear – what it does with regards its ownership of VMware (and startup Pivotal) is unclear. Problems certainly exist, but this merger would have only introduced new ones into the mix.

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