HP’s recent announcement that it would split the organization into two distinct business units has spurred quite a number of interesting channel discussions. Debates are popping on social media sites and in blog posts from a host of solution providers and vendor executives considering the cause and potential effects of the company’s actions. Some skeptics suggest that it’s just the first step of what will eventually become HP’s demise, while many tech and Wall Street experts support the move proposed by chief executive officer Meg Whitman. Each camp, as well as the company’s stockholders and stakeholders, will surely continue to debate this controversial strategy for several years — or at least until the company’s first annual financial reports come out. As with any big shift in organizational strategy, unless the monetary situation changes quickly, analysts and executives will be arguing about the impact of the HP split for quite some time.
The big question surrounding this IT industry news is “Why?” When many business experts continue to promote greater economies of scale and shared administration and services, how can an organization thrive by going in the opposite direction? Bigger is almost always touted as the better option when it comes to business growth, so this news left quite a few people scratching their heads.
Divide and Conquer
Whitman has said splitting the high-end computing side of Hewlett-Packard Enterprise off from the PC and print side of HP Inc. will help each company focus on its own industry segment. One plus one doesn’t always equal two: When the company’s portfolio appeals to two distinct audiences, even when they overlap at times, the marketing and sales messages can get blurred. For HP, the needs of their enterprise and consumer electronics customers don’t always mesh, and the business side of the house is where the growth is.
Whitman’s move to separate the two groups seems natural when compared to IBM’s moves over the past 10 years. After selling its personal computing business to Lenovo in 2005, Big Blue followed up by handing them its x86 line of servers earlier this year. IBM is repositioning itself as a software/cloud and enterprise technology organization — very similar to the new business-oriented division Whitman proposed.
Will HP be better off for the split now that each new organization can pay more attention to its own particular audience? When one division uses significantly more resources that its counterparts and still comes up short, it drags down the entire organization. The diminishing PC and printer markets may be the root of Whitman’s rationale. By allowing that product group to focus on its concerns, she is freeing the enterprise team and its resources for battle with IBM and other big and small tech contenders.
Countering the Argument for Scalability
For those who have listened to any business expert in the past 50 years, dividing an organization makes little sense. After all, bigger allows a more efficient use of company resources. While HP’s press release suggests these two distinct entities will “maintain sufficient scale,” they will require their own individual management, HR and financial teams. Infrastructure and administrative costs will surely rise, and the “total HP” bundle sales are no longer a given. Will the enterprise division automatically promote its former printer products, or create more beneficial alliances with other vendors?
Each group will need to focus on its own bottom line and stakeholders, so the revenue opportunities they previously shared may diminish. If both can use their separation to build stronger outside sales alliances and grow their markets, that’s a win. But they’ll have to convince potential supplier partners and formal rivals that the two HP organizations are truly no longer connected.
Independence and the trust they need to build new alliances will take time, though each company’s executive team will surely do everything possible to speed that process. A split on paper or even a separation of people and facilities rarely dissolves the relationships between the entities. Former employees often maintain a certain level of corporate pride and may own stock in the other division. Those issues typically resolve themselves over time, but the delays and other impediments can be costly.
A similar case was made for eBay’s recent spinoff of PayPal. While the payment company received almost half its revenue from transactions through the online auction site five years ago, it had dropped to less than 30 percent. The benefits of eBay’s purchase of PayPal in 2009 may have made perfect sense in 2009, but experts suggest the relationship may have hindered its alliance opportunities and growth. Even after the spinoff or split has been completed, some potential business partners may be cautious about developing a strong bond until a sufficient amount of time has passed or they receive stronger assurances that the organizations are truly independent.
Whitman’s “divide and conquer” plan running two separate organizations with two management teams may prove to be a saving grace for each entity. The real question relates to how solution providers can apply any lessons learned along the way in their own business. While the CompTIA channel business training resources may be easier and more practical, gaining a greater understanding of IT industry trends can be quite enlightening.
Brian Sherman is principal consultant at Tech Success Communications, an IT channel business development and marketing firm. He served previously as chief editor at Business Solutions magazine and senior director of industry alliances with Autotask. Contact Brian at [email protected].
