HP Becomes HPQ – Ready Or Not

After all the sound and fury, HP and Compaq’s formal announcement of their merger – and the publication of the integration plans they’ve been working on for months – seemed almost anticlimactic.

Heralded by gigantic “We’re ready” ads, HPQ (their new ticker tape symbol) walked into the spotlight on Tuesday, May 7^th, with charts full of managers-in-charge, a reorganized field, and a rationalized product line.

On balance, this is more preparation than we’ve ever seen, which is precisely what Carly Fiorina promised when the idea of HP and Compaq joining forces was first presented.  A lot of thinking has clearly gone into the deciding.  Together, CEO Fiorina and President Michael Capellas and each of their teams outlined

	Who is going to run what?
	What will reporting structures look like?
	How will resources be organized to best exploit the skills of both HP and Compaq employees (presumably taking into account the fact that at least 15,000 of them are going to start to leave pretty soon)?
	Where product lines overlap, which products should survive and continue and which should merely be supported until customers can be migrated onto their declared successors?

Reorganizing

If we were rating this like a college term paper we’d give the new HPQ at least a B+ for the organizational rearrangements.  They seem to have been thought through carefully, taking into account the strengths and weaknesses of each company.  We won’t give them an A yet, because at least in public this reorganization only reaches down a few layers and the new managers will have to quickly divide up the rest of the available manpower in appropriate ways and then persuade them to behave – well, perhaps “differently” is the right word, when we take into account the cultural styles represented by HP and Compaq, especially in the field.

Rationalizing The Product Line

Most of the product line arrangements seem logical and, in fact, will solve problems for the companies that, in a few cases, they should have addressed on their own, but seemed reluctant to do so.  (No one likes to admit that the baby they designed and lavished care on is really ugly and unappreciated.) 

But HPQ was just a little reluctant to entirely finish this job, leaving some overlaps in the line to be resolved later.  This is a two-edged sword.  On the one hand, they may be able to get some additional revenue to the bottom line and please a few customers who were worrying that their favored products were selected for phasing out; on the other hand, this will cut into cost savings, increase support costs, and only put off the day when hard decisions will have to be made anyway.  We’ll give them a B here, but it’s a strong B.

We’d be amiss not to comment that in some areas they will be fielding a very strong portfolio.  We have in mind offerings like the combined storage hardware and software offering and also the high-end server line-up.

And Now The Hard Part

As we’ve said all along, the hard part will be in the execution.  Doing so much careful planning and getting off to a fast start helps here, but it also raises expectations that management has nearly everything under control.  In this soft economy, where a good day on Wall Street is almost inevitably followed by a down day of profit taking, finding IT sales growth isn’t easy, so the best-laid plans may prove hard to meet.  (Just ask IBM’s Sam Palmisano, who was forced to admit recently that IBM’s great successes in 2001 were proving to be a hard act to follow.)  In fairness, Fiorina and Capellas acknowledged the soft economy and the tough competitive market as part of the big picture.

In a recent column (http://www.msnbc.com/news/747739.asp?0dm=-137K), Allan Sloan, the Wall Street editor of Newsweek, remarked that U.S. business believes that bigger is always better.  Sloan suggested that this might not always be the case, using the WorldCom debacle and the faltering AOL Times Warner merger as his poster child examples.  Sloan went on to say that he wasn’t sure that the HP Compaq merger would fare much better.  “Much as I hate to subscribe to the conventional wisdom,” Sloan says, “the HP-Compaq combo has a disastrous feel about it. The thesis is that you can transform two dinosaurs into a nimble new beast that can outrun and outfight the velociraptors at Dell Computer. It probably won’t be pretty.”

That might be unnecessarily harsh.  But it does point to the problem.  HPQ will have to be fast on its feet and very disciplined about how it goes about executing on its plan.  What doesn’t work will need to be quickly replaced with a more suitable approach.  Can we hope that there is a Plan B ready or in the works?

Now I think it’s time to stand back and watch what happens.  The marketplace, the competition, the customers, and HPQ’s success are going to be played out in full view – and with lots of commentary.  But then, that’s always the fun of being an industry observer.

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