HP's Apotheker Mounts Massive Technology Services Transformation

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Hewlett-Packard CEO Leo Apotheker Tuesday launched what he is calling a "significant" technology services transformation in a bid to drive higher-margin, technology services sales growth.

As part of that transformation, HP has launched a search for an executive vice president of enterprise services reporting directly to Apotheker.

HP is also combining its technology services group with its successful Enterprise Servers, Storage and Networking (ESSN) business.

"We are about to engage in a significant transformation of the services business," he said during a conference call with Wall Street analysts on Tuesday to discuss the company's second fiscal quarter results.

The technology services-ESSN combination gives no nonsense ESSN Executive Vice President and General Manager Dave Donatelli a hand in the enterprise services business. "The ESSN business has made great improvements over the last several years," said Apotheker. "The next change is to create greater go-to-market leverage with our own products."

HP is also establishing a new higher margin business solutions group to create more strategic industry-specific services for customers.

Apotheker said the $126 billion computer giant will also make additional investments in consulting services, application modernization, business analytics and mobility. Finally, Apotheker said HP will add sales and technical talent and business development staff to its services organization.

The services charge comes nearly two years after HP spent a whopping $13.9 billion to acquire services giant Electronic Data Systems in a deal that was aimed at going head to head with the likes of IBM Global Services and other services giants.

"We had a solid strategy for services, but we didn't invest in the parts to support the strategy," said Apotheker in what appeared to be a critique of former HP CEO Mark Hurd's cost-cutting tendencies. "Instead, HP focused on maximizing its shorter-term margins. We have over-executed operationally and under-invested strategically."

That short-sighted services focus, Apotheker said, impacted HP's "ability to create sustainable [services] growth for the long term." HP simply never shifted its services mix to higher-value, higher-margin and higher-growth areas, said Apotheker. HP's services business grew only 2 percent in the second fiscal quarter ended April 30.

"You have seen it in our historical results," Apotheker said of what he called HP's short-sighted services strategy. "Our margins have expanded quickly and significantly, but revenue is not growing as fast as it can or should." In its fiscal year 2010, ended Oct. 31, 2010, HP's services business posted revenue of $34.93 billion, up slightly from $34.69 billion in the 2009 fiscal year.

Even with customers demanding more Business Process Outsourcing (BPO) and applications services capabitlies, Apotheker said HP's services mix has remain unchanged over the last several years. What's more, he said, outsourcing agreements have been "heavily weighted" toward longer term outsourcing deals.

"We have a choice: HP can continue executing for some time along these same lines or we can grow the value of our services business by better aligning our services strategy with the company strategy," said Apotheker. "I have decided that we are not going to just talk about our future. We are going to aggressively execute on our strategy and make some needed changes."

NEXT: HP Reaches Out To Enterprise Partners To Grow Its Services Business

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