Business Happens—Embrace It!

Business happening is making headlines with HP. The computer and IT giant’s share price has plummeted after announcing it would exit the PC and tablet computer business. The company’s rationale: Ability to improve focus on higher-margin cloud and business software solutions “with an emphasis on enterprise, commercial and government markets.”

Exiting the PC market is especially huge, because spinning-off its Personal Systems Group means HP will part with a long-standing investment that made it the biggest PC maker in the world after acquiring Compaq for $25 billion in 2002.

What does it all mean? Pundits are going wild: An acknowledgement of a failed strategy? PSG is bleeding money? New management and thus a new direction?

Based on what I have read, HP fell into what Clayton Christensen describes in his book The Innovator’s Dilemma, where “well-managed companies that have their competitive antennae up, listen to their customers, and invest aggressively in new technologies still lose market dominance.”

“HP is fleeing upmarket, away from a core that it will abandon to device makers,” writes Horace Dediu, an independent analyst and founder of Asymco.com in a piece he wrote both for his Asymco blog and the HBR Blog Network. “HP management conceded that the disruptive impact of the iPad forced their hand but that hand was already quite weak from a decade of over-serving the market. The last decade offered plenty of opportunities for incumbent PC companies to adjust to the realities of mobility. However only one computer maker made the transition.” Dediu was referring to Apple’s grasp of the PDA market in 2001.

While HP’s exit from the PC business is a tough “business happens” lesson – but I herald their ability to make a tough call and exit a business they no longer see as core. In fact, I am not surprised that HP wants to shift their “core” focus to providing IT solutions.  HP has long been a leader in IT outsourcing – landing huge deals with GM last year and P&G in 2004.

Focusing upmarket is what Christensen calls “skating to where the money is.”

I appreciate the guts it takes for a company to recognize it no longer has a competitive advantage and then to refocus efforts where it can have significant competitive advantages. As the IT space matures, HP will be in a good position to convert traditional outsourcing deals to highly strategic Vested deals. In fact, I have long been a fan of HP’s George Kimball who moved from Baker & McKenzie to HP. Kimball wrote the highly influential Outsourcing Agreements: A Practical Guide.

I hope the folks at HP will use this reaffirmation of their core competencies to focus their attention and help take IT outsourcing to new heights. In particular – I hope they realize much of the industry has hit a plateau with what I refer to as watermelon scorecards where service providers are hitting their SLAs yet not helping their clients achieve much-sought-after Desired Outcomes.

In Vested Outsourcing, the essence of Business Happens is the ability to react flexibly, innovatively and efficiently to the vagaries of the marketplace. HP learned the lesson the hard way as business happened to the PC side of the business.

I also hope HP will apply the lessons in The Vested Outsourcing Manual on how to structure relationships with its partners and clients that embrace change. If it can, HP might just be able to reinvent itself as it focuses on its newly defined “core” of IT services, and bring much-needed innovation to the IT outsourcing sector as well.

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