HP customers digest layoffs and reorganization

Although new Hewlett-Packard CEO Mark Hurd took the first step last week in his plan to improve the company's uneven performance -- cutting 14,500 jobs and instituting a major reorganization -- he still must decide what kind of company HP will present to enterprise customers.

HP has several choices. The company can emulate Dell by cutting costs and becoming a leaner supplier of commodity hardware. It can take a cue from IBM and sell enterprise customers on the breadth of its datacenter products and consulting services expertise. Or it can continue to try to do both, a strategy that has put HP in a unique position among global IT hardware vendors but has produced uneven profits since the company acquired Compaq in 2002.

Hurd did not address these issues last week when he unveiled the much-discussed restructuring plan that keeps the company's sales and R&D teams largely intact, while cutting jobs heavily in IT, human resources, and finance. But customers will need to digest how changes in HP's sales organization will affect their purchasing and watch for clues about the company's long-term strategy, analysts said.

"What you get is a lot of questions like that on a day like today, 'What's coming next?' " Hurd said. "Right now where we really are is focused on making HP the best HP that we're going to make it."

IBM also announced organizational changes, keying on its important Global Services business. The reordered group will focus more on "high-value" skills such as those offered by the business consulting services group that IBM formed around its acquired PricewaterhouseCoopers consulting practice.

HP raised eyebrows when it closed its customer solutions group, which sold to enterprise customers. The group's sales staff will transfer into the technology solutions group, the imaging and printing group, and the personal systems group. Dan Kuznetsky, vice president for system software research at IDC, said it is not yet clear how enterprise customers will benefit from the demise of the customer solutions group. "If each business unit has its own sales force, does every major company have multiple HPs to deal with? If so, that goes against the trend," Kuznetsky said. "Companies are looking to standardize to lower the costs of acquisition."

Not to worry, said Ryan Donovan, HP's director of corporate media relations. "Not a lot is going to change for enterprise customers. All we are doing is taking a layer out of the process," he said. "There is an enterprise layer that is part of the technology solutions group. There are still people charged with selling the enterprise segment. Client business managers will still look across the entire business and be the consultative seller."

Frank Gillett, principal analyst at Forrester Research, said questions still remain unanswered about how HP will serve its customers as it competes with Dell and IBM.

"What Hurd did not answer were questions about how does HP straddle commodity-based play and premium-based play and how will it compete against Dell and IBM," Gillett said. "We think this clarification will become clearer in the next six to 12 months."