| | By Mick James
While a royal wedding
looms in the UK, the talk
in consultancy has all
been of divorces and
splits. First there was
Carly Fiorina’s sudden
exit from the CEO seat at
HP, then the announcement
that EDS was discussing
at least a partial MBO
with the top brass at
A.T. Kearney.
HP is playing its
cards very close to its
chest after Fiorina’s
departure, promising to
take at least four months
to find a new CEO. The
successful candidate will
probably be someone who’s
prepared to follow a
board-determined
strategy, rather than a
visionary with their own
agenda.
Whatever happens, it
must be the end of the
attempt to grow HP into a
rival to IBM, which at
one point saw the firm
toying with an $18bn
price tag for PwC.
Recently the company
seemed to be getting very
close to BearingPoint,
but the fact that the
Compaq merger is now
widely seen to have been
a failure marks the end
of HP’s acquisitive
streak.
In any case, the
practice of sticking
together companies to try | |
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| | and take on IBM has a
long and inglorious
history. You want Ford,
you’d settle for
Volkswagen but you end up
with British Leyland.
In HP’s case, the
process has been
intensely destructive of
brands. Brands such as
Digital, Compaq, Tandem,
even—which in the mind of
the older CIO at least
are synonymous with the
idea of respectable
opposition to IBM. It has
subsumed them into an HP
brand which simply cannot
accommodate such a broad
church. HP also found
itself in the
strategically weak
position of fighting a
war on two fronts—against
IBM in the enterprise
space, and against Dell
in commodity desktops and
servers. It could never
work.
Could the hardware
brands follow IBM’s PC
business into the hands
of Chinese entrepreneurs,
leaving the printing and
imaging business alone
under the HP banner? IBM
has finally woken up to
the fact that the
commoditisation of
computing was good for
IBM as well as the world
at large. When IBM
formally launched its
Consulting Group in 1992
the perennial question | |
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| | was “aren’t your
consultants just salesmen
for IBM kit?”. When
customers realised that
the kit was all the same,
it made them not only
more receptive to buying
IBM services, but even to
including IBM kit in the
deal. It was all cheap
and interchangeable, so
why not? The final step
for IBM was to let
someone else enjoy the
wafer thin margins on PC
manufacture.
It might seem this is
the end for HP in
consultancy, but maybe
not. While I suspect it
may swiftly back out of
the outsourcing I think
there is a major
opportunity in the SEM
space which it has been
neglecting at its peril.
Before buying Compaq the
company had a carefully
nurtured channel of
resellers and VARs
dealing with the SME
market. The Compaq deal
brought an obsession with
beating Dell that
threatened all that by
developing direct sales
channels and switching
the focus from
value-added quality to
margin-busting quantity.
HP should leave Dell
alone and nurture its
incredibly valuable
skills. Wrapping an
essentially dull item | |
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| | like PCs in services,
support and finance
creates business assets.
There’s a huge reward for
whoever really cracks the
SME consultancy market,
and HP (possibly with
some assistance from open
source software) could
still be the ones to do
it.
A potential buyer for
HP’s outsourcing business
could of course be EDS,
flush with the cash it
gets from selling A.T.
Kearney back to its
partners. This is a move
as long overdue as
Charles and Camilla’s
marriage—the only
excitement being how they
will actually manage it.
The two companies have
been leading an
increasingly arm’s length
existence, with the
separation of management
structures, reward pools,
and the relocation of
A.T. Kearney to its (and
arguably consultancy
itself’s) spiritual home
in Chicago. The central
paradox of the EDS/
Kearney relationship was
that if it was too close
the Kearney brand
suffered, too distant and
it offered few benefits
that couldn’t be better
achieved through
partnerships. The
economics of turning
Kearney partners from | |
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| | high-salaried corporate
execs back into risk
sharing owner-managers
must be uncontestable
after the last few years.
What will be
interesting to see, if
they ever indeed emerge
to light, are the details
of the buy-back. I doubt
the Venture Capital
community are that
interested in consulting
firms at the moment, so
there’ll probably be a
fascinating mixture of
earn-outs, return of EDS
options and borrowing.
It’s also a great
opportunity for Kearney
to extend the ownership
of the consultancy deeper
into its own ranks and
break the stranglehold of
the partnership culture
once and for all. A great
opportunity—but I’m not
holding my breath.
All views expressed
in this article are those
of Mick James and do not
necessarily reflect the
views of
Top-Consultant.com and
Consulting-Times.com
Contact Mick with your
views or suggestions at:
mick.james@top-consultant.
com
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