* Why HP's revamping of HP Services is good news for the outsourcing market
Over the past few years, HP has quietly become one of the largest players in the IT outsourcing market. Now it appears that HP is preparing to make some noise.
Last week, HP Chairman and CEO Carly Fiorina announced that the company will combine its services, software and enterprise systems groups into a single organization called the Technology Solutions Group. The new organization will be headed by Ann Livermore, who previously headed the HP Services group.
Peter Blackmore, who previously managed the enterprise systems unit, will lead the new customer organization that will focus on “deepening customer relationships” and selling the entire range of HP products and services to the existing customer base.
By moving its systems and software groups into Livermore’s HP Services unit, HP is making a clear statement that it intends to attack the services market with all of its available resources. Just as IBM’s Global Services unit has created a broad range of new revenue opportunities and helped spur growth at Big Blue, HP will look to HP Services to bring new growth to its software and systems businesses.
The decision to reorganize around the services organization follows a recent spate of major customer wins for HP Services. In the last month, HP has announced more than $1 billion in new customer contracts, including a $600 million megadeal with the Bank of Ireland. Just last week, HP announced pacts with the U.S. Postal Service ($50 million), the Romanian National Health Insurance House ($135 million), and Amcor ($115 million), among others.
HP’s merger of systems and software with its services unit could lead to even greater success down the road. The reorganization will help HP to tap the expertise of its systems and software experts for major outsourcing contracts, as well as providing HP products. The services organization will also help HP identify enterprise “pain points” and prioritize technological developments within the systems and software groups.
The reorganization should also facilitate the development of HP’s Adaptive Enterprise strategy, which outlines an architecture for on-demand, utility computing. While Adaptive Enterprise previously has been targeted toward enabling enterprises to develop their own utility computing capabilities, the merger of systems and software units with HP Services should enable the company to develop a strong utility computing service, which might be the best model for on-demand, pay-as-you-go IT infrastructures.
All of these moves make a great deal of sense, but they have one drawback: they will force HP to go head-to-head with IBM. In the past, HP has had great success in selling services that were targeted at non-IBM shops, or that complemented IBM’s service offerings. Now, HP is poised to sell systems, software and services using a business model that is very similar to IBM’s. To displace IBM’s long-established services offerings, HP must now offer better products and services at a lower price. It won’t be an easy task.
From a market perspective, however, enterprises should welcome HP to the bidding table with open arms. For many years, IBM has been the only outsourcing service provider that also manufactured many of the products it used in its engagements. Many enterprises like the idea of buying their services from the same company that makes their systems and software, but until recently, IBM was the only company playing that game.
HP’s new organization and strategy will add a new player to that arena, and the resulting competition should bring greater service innovation and lower prices to the enterprises that take bids from both vendors. From now on, it seems likely that HP Services will no longer quietly slip into customer environments, but will win most of its business in a shootout.
