Commentary
5/21/2010
08:33 AM
Bob Evans
Bob Evans
Commentary

Global CIO: Inside HP's Numbers: Mark Hurd's Top 10 Strategic Insights

As HP posts strong growth, CEO Hurd nears the end of his sweeping transformation of the world's biggest IT supplier.



Beyond the impressive financial results in Hewlett-Packard's latest quarter—including a 13% revenue increase strong earnings—CEO Mark Hurd's discussion of the results offered a range of deep insights into how his strategy for the world's largest IT company is coming together.

Through the end of last year, HP presented itself to the market as a series of big, capable, but somewhat disconnected pieces. Hurd himself packaged HP in October as "the infrastructure company" but in spite of his best efforts, that strategy at the time still seemed more aspirational than real. Here are some of the problems Hurd and HP were confronting 8 months ago:

The EDS services business was still in upheaval, the high-end server line and strategy were sketchy, the software business had yet to fully articulate its position in the cloud, the networking business was strong but narrow, and in the hugely important mobile field HP was glaringly conspicuous by its absence. (For more-extensive analysis on HP's challenges and advances over that time, be sure to check out our "Recommended Reading" list at the end of this column.) On top of all that, HP and the rest of the industry were still dealing with a frightening global recession that made the future more difficult to read.

But Hurd and his team have certainly been busy since then with operational refinements, product launches and repackaging, and two very strategic acquisitions—3Com and Palm—that have all combined to deliver a more robust and complete picture of HP's current position and future potential. In addition, the promotion of Tom Hogan to executive vice-president of sales, marketing, and strategy for Enterprise Business will drive a more-unified approach across HP's various LOBs and technologies.

As Hogan said in a recent interview, "And what we're doing now is a much better job of leveraging those assets in simple, cohesive package for our customers, and we're doing that by putting the focus on customer value instead of on point-by-point products."

So to offer further insights into how CIOs can expect to gain value from HP's products and services, here's my list of the top 10 strategic insights offered by Mark Hurd in this week's earnings call with financial analysts (with thanks to SeekingAlpha.com for its transcript of that call).

1) Global: Our Massively Mobile World. Noting that "global demographics are rapidly changing," Hurd said an emerging middle class will increase urban populations by 60 million people per year over the next two decades—and all those city dwellers will demand to be online: "This class of people will expect to be seamlessly and securely connected to the global community with mobile devices and the underlying infrastructure," Hurd said, adding that HP's ideally positioned to be the leading provider of that infrastructure.

2) Mobile: Beyond Palm. HP's planned acquisition of Palm "really has more to do with the intellectual property" than any specific products, Hurd said, because HP increasingly presents itself as offering a vast array of interconnected devices—not just smartphones or tablets. HP's "whole series of web-connected printers" need an operating system and HP would "prefer to have that OS in our case to be our IP where we can control the customer experience as we always have in the printing business, and that’s a big deal to us," according to the transcript on SeekingAlpha.com. Hurd emphasized that the Palm deal is much more than just a desire to offer a device in a hot field: it is "strategically broader" in that it allows HP to leverage its own IP across a wide range of interconnected HP devices.

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3) 3Com: Data Center To Edge. Hurd stressed that HP's ProCurve business has performed very well but has "been on the edge of wireless," whereas 3Com extends HP's product reach from that edge into the heart of the data center—a scale that's essential if HP is to fulfill Hurd's vision of truly being the "infrastructure company." And the ultimate goal for HP is to integrate all of those pieces into its "converged infrastructure" portfolio: "Our networking strategy isn't a 3Com strategy. It's not a ProCurve strategy. It's not a virtual connect strategy. It’s an all of those capabilities brought together across the HP portfolio," Hurd said.

4) Services: Huge Upside. Asked by analysts about an apparent leveling off of growth from the services business formerly known as EDS, Hurd said that HP is seeing a "very strong improvement" in future orders and, just as important, has close to completing a fundamental restructuring of the operational side of the services business that should boost future margins as well as top-line growth. "We have spent a lot of time over the past year and a half really operationalizing the business, getting underneath issues in the business, opportunities in the business," Hurd said. "These are things like how we automate and drive forward on our data centers, how we align and drive our tools strategy going forward."

Next up are Software, Printing, PCs, the Microsoft relationship, high-end servers, and that feel-good feeling:

5) Software: Clarity Of Purpose. Asked if a recent spate of acquisitions in the software sector would trigger reactions by HP, Hurd emphasized that HP Software is focusing intently on "the management space" for servers, PCs, storage, networks, and security. Saying the acquisition referred to by the analyst (SAP buying Sybase) is "frankly not that intriguing to us" because it's outside HP's core interest, Hurd said HP will stay focused on "this whole automation management place where we think it directly affects our converged infrastructure business on one side, and also helps automate our services on the other." He then listed three strategic objectives for HP Software: key elements in data-center transformation; key components for HP's converged infrastructure strategy; and vital pieces inside HP's own drive for maximum IT efficiency.

6) Printing: Retail And Services. What was intriguing in HP's discussion of its stalwart imaging and printing business was the dramatic shift in emphasis from the sale of consumer and business printers—although they're still clearly very significant—to the focus on managed printing services and HP's booming photo-kiosk deal with Wal-Mart. In the quarter ended April 30, HP installed 2,400 of those kiosks in Wal-Mart stores and expects to hit 7,000 by the end of the year. On the printing-services side, CFO Cathy Lesjak said HP had "multi-million dollar wins in every geography across diverse industries including financial services, telecommunications and transportation," according to the transcript. Hurd noted that "the importance of those two businesses for us are, those are long-term businesses. Management services, five-year contracts, retail photo kiosks nine to ten years, 100% connect of supplies for those products and they are becoming, beginning to be a meaningful part of our portfolio." Whoever thought of HP printers as a long-term annuity business?

7) PCs: Driving HP's Supply Chain. This one's a little wonky but it reveals a key reason why HP has stuck with its PC business even though the products themselves are no longer regarded as deeply strategic enterprise tools—and, in fact, are under serious pressure from smartphones and tablets. Hurd said that inside HP itself, its PC business is the companywide engine for procurement and supply-chain efficiency: "Remember for us, we think about the PC business more broadly than we do the PC business just in isolation. The PC business really is the procurement arm for almost the entire company from a product perspective. We leverage the common parts across almost all of our infrastructure, so for us we think about it not just in the context of operating performance, but the leverage and the position it gives to the entire company."

8) Microsoft: Mobile Eggshells. Hurd spoke enthusiastically about the potential for HP to own its own operating system and IP to be leveraged across a huge range of interconnected HP devices, and while that's all great for HP, what does it mean for HP's broad and deep partnership with Microsoft, which has more than a passing interest in mobile operating systems? In addressing the role the Palm OS will play in trying together HP smartphones and printers and more, Hurd struggled a bit to address the potential impact on Microsoft: "And again, I don't want to tell you that we’re not going to have—Microsoft is probably one of the best relationships we've got in our company, and they're still extremely important." No doubt they are—but it's telling that Hurd felt he had to address that situation.

9) Servers: High-End Potential. This one's vital because while IBM has spent much of the past year reinvigorating its high-end servers with dramatic new capabilities, HP's been active in the midrange but rather silent on high-performance systems. With its new Superdome units coming later this year, Hurd said that "we’re introducing a new business critical system" that will reflect the company's belief in "a combination of we think very strong growth in the industry-standard server blade market combined with Virtual Connect . . . . We feel very good about the new product release." An HP press release describes it as the "industry's first mission-critical converged infrastructure in one platform" ranging "from x86 to Superdome 2." And did Hurd say he "feel(s) very good" about that new product? Yes he did—and that leads us to our final point:

10) Mark Hurd Feels Good.: On 14 separate occasions during his initial presentation and then the Q&A with analysts, Hurd said that he and/or HP "feel good" or "feel very good" about the company's Q2 achievements and future prospects. While not exactly the sort of metric you can pump into a spreadsheet, it's nevertheless something of a barometer into the mindset of Hurd, who's not one to toss around happy-talk without a very strong basis for feeling that way.

RECOMMENDED READING:

Global CIO: Hewlett-Packard Attacks Innovation Gridlock That's Killing CIOs

Global CIO: Hewlett-Packard CEO Hurd Shifts Strategy Toward Services

Global CIO: Hewlett-Packard CEO Hurd's Strategy: The Infrastructure Company

Global CIO: IBM Claims Hardware Supremacy And Calls Out HP's Hurd

Global CIO: Hewlett-Packard's Hurd Creates Growth Engine In R&D

Global CIO: Hewlett-Packard's Hurd Says Bad IT Means A Bad CEO

Global CIO: Why Hewlett-Packard Must Articulate Its Enterprise Strategy

Global CIO: An Open Letter To Hewlett-Packard CEO Mark Hurd

Global CIO: Hewlett-Packard Recruits Microsoft To Raid Sun's Customers

Global CIO: Oracle Dumps HP After Co-Creating 'Most Successful Introduction Ever'

GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

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