The Forbes view

HP's Split: A Sound Strategy Or 

A Rabbit Pulled Out Of A Hat?

Panos Mourdoukoutas, Contributor

Anyone following HP’s corporate developments closely in the last three decades has seen many rabbits pulled out of a hat.

First came outsourcing, which was supposed to cut cost and limit corporate size.

A press release by HP back in 2002 says it all:

“Hewlett-Packard Company 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 management.”

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.

Obviously, corporate 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.

Until I see a clear answer to this question, I’ll be very skeptical about the nature of HP’s latest strategic move.