today announced it is planning additional outsourcing of its PC manufacturing
facilities worldwide, in keeping with its longstanding strategy to decrease
operations costs and improve profitability. This move will
allow HP to take advantage of the flexibility (my
underlining) and cost benefits associated with using non-dedicated factories. .
In the past
decade, HP has consistently taken measures to ensure profitability in
the PC market through increased operational efficiency, expanded
build-to-customer-order capabilities and supply chain improvements. Outsourcing
PC manufacturing allows HP to focus (my underlining)
on strategic core competencies, including supply chain design, new product and
services development, supplier management and customer relationship
In the short-term,
outsourcing probably had all these consequences. In the long-term, it had an
unintended consequence, however–the fragmentation and disintegration of a
company’s supply chain.
This made entry of new
competitors into HP’s turf easier. And that’s how the company ended giving
its competitive advantage away, piece-by-piece.
Second came a string of
bad acquisitions– in an attempt to fight ‘the last war’ in a number of segments
of the technology industry — which drained Hewlett-Packard’s resources.
The purchase of Compaq Computer in 2001 was supposed to provide HP with a scale
advantage in the PC market and allow it to compete effectively against Dell Computer, IBM, and all sorts of emerging Asian
competitors. The purchase of near-bankrupt Palm in 2010 was supposed to help
the company enter the fast growing mobile devices market, which began to
replace PCs. And the acquisition of enterprisesoftware
maker Autonomy in 2011 (at a hefty price of $10.3 billion) pitted the company
against three major competitors – Salesforce.com, Oracle, and IBM.
Each strategic move,
which was followed by scores of layoffs of talented employees, helped
leadership buy time, but it didn’t help the company produce the right
innovations and catch up with emerging trends in the high technology
industries. As a commentator put it in response to one of our previous pieces
on Hewlett-Packard’s and Dell’s outsourcing strategy: “Dell and
HP both snored through the whole wireless smart device revolution of the last
decade and hitched their wagons to the PC market (which is dying). It would not
have mattered whether or not they kept their PC supply chains in house or not.
I don’t see Dell and/or HP overly outsourcing product
design/branding/marketing – it’s just that there is a lack of innovation and
vision in those areas for both companies.”
That’s why each of these
strategic initiatives turned out to be rabbits pulled out of a hat.
Now comes a split of the
company into two separate public companies: Hewlett-Packard Enterprise, which
“will define the next generation of technology infrastructure, software and
services for the New Style of IT,” according to a company press release.
And HP Inc.,”which will be the leading personal systems and printing company.”
Is it a sound strategic move or another rabbit pulled out of the hat?
Leadership thinks it is a
sound move, as it will help each company to better focus on its own industry segment,
while maintain sufficient scale: “Hewlett-Packard Enterprise will define the
next generation of technology,” so goes the official announcement.
“HP Inc. will be the
leading personal systems and printing company delivering innovations that will
empower people to create, interact and inspire like never before. This
strategic step provides each new company with the focus (my
underlining), financial resources and flexibility (my
underlining) to adapt quickly to market and customer dynamics while generating
long-term value for shareholders.”
Wall Street thinks so,
too, at least the first trading day following the announcement of the split,
sending the company’s stock 4.7% higher.
splits are back in fashion. But there is one thing that isn’t clear to me: How
each of the two corporate pieces, which maintain the HP brand name,
will eventually return to the company’s old innovation trait.
see a clear answer to this question, I’ll be very skeptical about the nature of
HP’s latest strategic move.
Chuck House, shown here with son Warren, is co-author with Raymond Price, of THE HP PHENOMENON: INNOVATION and BUSINESS TRANSFORMATION (2009, Stanford University Press). He is Exec Director of InnovaScapes Institute, which published his memoir of HP Colorado Springs, PERMISSION DENIED, in 2013. House, Chancellor Emeritus of Cogswell Polytechnical College, was also executive director of Media X, Stanford University's research program on innovation, media and technology. Previously director of Intel Corporation’s Virtual Collaboratory, EVP R/D at Dialogic, President of Spectron Microsystems, SVP at Veritas Software and Informix Software after 29 years at Hewlett-Packard in a wide variety of roles. An IEEE Fellow for Logic Analysis technology, he also was President of ACM, the world’s largest Computer Science society, and is an ACM Fellow. He holds HPs only Medal of Defiance, awarded by David Packard for "extraordinary contempt and defiance beyond the normal call of engineering duty". Other awards include Engineer of the Year, Smithsonian Wizard of Computing, Top 50 inventions of 20th century, CNN top 25 inventions of past 25 years, Intrapreneuring Honor Roll