Hewlett-Packard and Seeing the Bigger Picture

Back in August, Hewlett-Packard announced a complete overhaul of their business by lessening the company’s reliance on PC and splitting the company in two. The Chief Executive Officer at the time, Leo Apotheker, wanted to lessen the company’s reliance on PCs as tablets and cloud services have started becoming more popular. In many ways the announcement made sense as Michael Gartenberg, an analyst at Gartner Inc. stated “The hardware business has become a difficult business. In many ways it’s a commodity-driven business. This is a major strategic shift for HP.”

Fast forward two months and now there is a new CEO in town and she is looking at the change in a whole new light. According to the Wall Street Journal, Meg Whitman, the new CEO has been looking at the numbers and things don’t seem to be as cut and dry. The new analysis shows that the company might be better off keeping the division which contributes $40 million in annual revenue. The reasoning, however, goes beyond the revenue numbers. Separation would lessen the company’s economy of scale and diminish their buying power AND leverage with their supply base. The supply chain could also become more complicated and decrease profit margins on their other products as well.  Some feel that because of this, the spin-off isn’t worth it.

Let’s take a look at this situation beyond a cost perspective and focus on Value.  HP sold 14.9 million PCs in the second quarter of 2011 alone, which means they are a huge player in the marketplace – particularly with their suppliers.  That scale gives them leverage that can and should go way beyond cost.  They should be using that leverage with their suppliers to help them manage risk, increase innovation (which should impact H-P’s top line not just their bottom line), expand their product offerings, etc.  H-P should be using this “leverage” to help move away from being viewed as a commodity to their customers and start viewing themselves as a “Value” provider.  When approached from a value perspective H-P would be foolish to exit the PC market.

So what, if any, is the lesson here? For one, it shows just how far reaching and influential the supply chain organization can be.  In times when we constantly hear that sourcing and supply chain organizations are losing their influence, H-P shows that there is still some bite left in those functions.  I wonder whether Supply Chain even had a seat at the table when the original decision was made.  I guess they do now, which is a VERY good thing!