HP's Reinvention Around Software And Services Will Be A Tough Transition

HP's big announcement yesterday that it was “exploring strategic alternatives for its PC and mobile businesses mobile devices discontinuing, exploring options for WebOS” to focus on software and services is a bold but extremely treacherous move. While the comparisons to IBM have been bandied about on the Web all day, in Forrester’s mind this is a very different time than when IBM began that shift almost 20 years ago. The market today is very different, making it much harder for HP to execute the pivot.

The services business, especially the outsourcing segment, has stalled out. There is no better example than HP’s own services business, which has shown negative growth over the last two fiscal years. It is becoming increasingly clear that IT shops think that pursuing a cloud strategy public or private is the way to keep control and not have to outsource.

The software business may be on the same brink of fundamental change as mobile and as a service combine to change the pricing, delivery model, and focus of innovation. There is also a fundamental shift away from spending on the traditional systems of record like ERP to systems of engagement with customers, partners, and the business decision-maker. The $10 billion Autonomy Corp deal is targeted at the analytics element that will underpin many of these systems of engagement. The analytics space is getting increasingly crowded as IBM, Accenture, and Deloitte seem to acquire an analytics software firm on a weekly basis.

What will HP have to do to make this service/software play work? By Leo Apotheker’s own admission, “We still have work to do in the services area, requiring additional investments to fuel growth and reposition the portfolio towards higher value-added solutions.” The biggest hole that the company will need to fill is its lack of business/domain expertise. Its technology management-centric software offerings and its infrastructure outsourcing business leave it outside looking in when it comes to working with the business to innovate and talk about changing business models. The options here are equally ugly: buy one of the IT firm with a more viable consulting offering like Capgemini and spend years integrating it; or rollup as many as 10–20 boutiques, which is equally time consuming. The software-centric option would be to acquire some of the smaller package players like Infor. But without a major injection of business acumen, the firm’s move up market will flounder.