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HP split: Why bigger isn’t always better

Hewlett-Packard will be splitting its computer and printing businesses, and data services into two separate entities. The latter will focus on technology services such as data storage and servers.

The company said that the PC and printer business will use the name HP Inc and the services business will be called Hewlett-Packard Enterprise. According to global reports, HP CEO Meg Whitman will lead the Enterprise business whilst HP PC and printer chief Dion Weisler will be CEO of HP Inc.

In a statement on Mashable, Whitman said: “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics.”

The statement echoes those recently put out by other conglomerates going through a similar situation.

Just late last month, eBay split from its mobile payment service PayPal and turned it into a separate company. ebay said in a press statement that creating two standalone businesses best positions eBay and PayPal to capitalise on their respective growth opportunities in the rapidly changing global commerce and payments landscape.

Meanwhile, Dutch brand Royal Philips also announced that it would be tearing its lighting business from its healthcare and consumer divisions. This is in hopes of both companies being able to make the appropriate investments to boost growth and drive profitability.

Did lack of synergy lead to the split?

According to Peter Burris, vice president and research director at Forrester, it is now the age of the customer and this is changing a lot of things in the tech industry, especially for companies like HP that feature an enormous portfolio traditionally focused on hardware and maintenance services.

“The pressure is on to shift the focus to software and related business technology services, which is where customers, investors, and partners see greater opportunity and value. No one digitally disrupts by building multi-billion dollar processor fabs anymore.”

“What companies need to do is differentiate on software that improves business technology.”

Forrester vice president and research director, Glenn O’Donnell also added that customers have had a love-hate relationship with HP software for eons.

“There are great ideas there, but a failure to execute. However, there is hope. […] HP needs to fix its software business or it is toast. Too much of this unit is still aimed at an IT agenda, rather than the business technology (BT) Agenda. It needs both. It lacks products that are appealing to the business side.”

In other media reports, Peter Lehrman, CEO and founder of Axial told the Entrepreneur that “by separating businesses that are no longer synergistic or benefiting from shared ownership, you can maximise the value of each, particularly when there is a faster growing business.”

Lehrman added that for a company that consisted of “two healthy but very different models” of operation and products, (which applies to eBay and Philips as well) from a growth and shareholder-return perspective, “creating two separate entities makes sense”. Such a move allows the businesses to bank on an independent growth strategy and make investment decisions more specific to their entity.

In an article on Forbes, business writer Peter Cohan also said that the main reason corporations came together in the first place was in an attempt to lower the cost of buying of raw materials. Purchasing in bulk is a procurement benefit which allows corporations to demand volume discounts. But in the long run, this can also result in corporations making it harder for its diverse business units to compete.

Cohan explained that while for PayPal, it was clear that the mobile payment provider was out growing eBay, for HP, both its printer and enterprise business were struggling.

“Simply put, neither of these businesses are leaders in their industries. But HP is in a worse position when trying to sell to businesses than it is in going after consumers,” said Cohan.

 

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