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Is HP committed to IT outsourcing?

Stephanie Overby | Sept. 3, 2012
HP had little to offer in the way of good news last week.

HP had little to offer in the way of good news last week. The company reported an $8.9 billion loss the largest in the company's 73-year history driven by a $10.8 billion write-down related to its 2008 acquisition of IT service provider EDS and severance costs associated with recent layoffs.

It may not have come as a shock to current customers who have absorbed a steady stream of unsettling news from the $127 billion company in recent years, from executive turnover to the planned layoffs of 15,000 professionals in its enterprise outsourcing division.

"The problem here is not the individual developments. It's the compounding effect of all the developments over several years now," says Bryan Britz, research director in Gartner's ITO and Support Services group. "The only constant has largely been uncertainty. Uncertainty and risk are not desirable qualities in IT outsourcing."

HP's prioritization of cost-cutting and shareholders over service delivery and customers has already caused some outsourcing clients to jump ship. "It feels a bit like HP is so focused on their internal financial profile and stock price that they're forgetting about the customer-centric focus that got them [and EDS] to a leadership position," says David Rutchik, partner with outsourcing consultancy Pace Harmon. "The pure-play Indian providers, in particular, are picking up many of these disaffected HP customers as the Indian providers are showing a much greater willingness to be flexible in meeting specific end customer concerns."

[Related: IT Outsourcing: What HP's Latest Strategy Change Means for Customers]

"We talk to HP customers all the time and their main concern is the direction the firm is taking, not the current performance managing their day-to-day IT and business services needs," adds Phil Fersht, founder of outsourcing analyst firm HfS Research.

Wait ... There's More

Things could get worse for HP and it customers before they get better. The company's pushback of its big analyst summit to October could mean more executive layoffs and cost-cutting in the short term, says Fersht. The move may signal "fear of having nothing positive to say, and the analysts throwing HP under the bus," says Fersht, adding that HP recently let go some members of its analyst relations team.

While the hit HP is taking on its $13.9 billion EDS buy is huge, that shouldn't be the biggest worry for the company's IT services clients. It "sounds like a big deal, but it ultimately just says they paid too much for EDS," says Rutchik. "That's an issue for yesterday and not particularly relevant for their market position moving forward."

The biggest customer concern is HP's ability to manage through its workforce reduction and retain the talent needed to deliver on outsourcing customer expectations. "This is especially true in light of HP's desire to improve profitability in its IT outsourcing (ITO) business. They have put safeguards in place to minimize the risks of losing key personnel to early retirement without effective knowledge transfer," says Britz. "At the same time, the simple fact remains that the employee base at HP has endured several years of difficult conditions due to the seemingly constant uncertainty. I'd be concerned about HP's ability to develop and retain the next generation of workers that it will need to successfully deliver a next generation of ITO services."


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