Market disruptions are the catalyst for change, but change cannot be driven solely by belt-tightening - it calls for extreme efficiency and innovation.
This was the main message delivered by Tom Hogan, HP's senior VP of software operations. Hogan delivered the keynote address, titled “Adversity creates advantage”, at HP Software Universe, in Vienna, Austria, yesterday afternoon. The annual event, on from 9 to 12 December, is attended by close to 3 000 partners, customers and media from EMEA-region countries.
Hogan used the backdrop of the current “challenges and uncertainties in the business economy globally” to paint the picture of how technology professionals should react to the crisis, and why HP's newly-consolidated software and services business is well positioned to weather the imminent cuts in IT spending.
“Unlike the macroeconomics of days past, I don't think there can be any doubt today that we operate truly in a global economy,” said Hogan. “The bad news is none of us are immune from the challenges. The good news is everybody is dealing with the same issues. Trying to reduce cost and spending is a reality for most companies.”
Hogan shared data collected by IT research company IDC, indicating predictions for global IT spending growth have dropped from 5.9%, before the turmoil, to 2.6% after the turmoil. “This is the global blended number, which means that markets like US, Japan and Western Europe have forecast to be flat or even contracting year-on-year.
“Unfortunately for all of us, in any scenarios, we won't return to the growth rates of 2007 for another three years. We are collectively going to spend $300 million less on technology over the next three years.”
Change is good
Hogan then asked the question: “Is belt-tightening, when things get tough or uncertain, the right answer or the only answer?”
HP Software wants its customers to believe the answer to this is “no”.
Hogan said that, firstly, market disruptions like the ones we are experiencing are the catalyst for change - change in leadership both good and bad; and, secondly, that a change in leadership cannot occur or be driven solely by belt-tightening or cost reductions.
“Material changes in market leadership have to have some element of innovation and differentiation in the marketplace. Some companies use the time of crisis to change and innovate, while also driving efficiencies to outmanoeuvre competitors and move up the ladder.”
He said tech professionals can be best in class in execution in operational efficiency, out-save and out-value their competition. They can also innovate and bring differentiated applications and services.
“But the best case scenario: you are one of the few companies that are able to do both - to deliver world-class efficiency in your operations, while - at the same time - innovating and driving value and change.”
Encouraging overachievement
Hogan said in tough times CIOs need to aim for “extreme efficiency”.
“You overachieve under spending pressures, leveraging technologies like automation, virtualisation, centralised services, etc - the goal is to overachieve and self-fund a pool of dollars at this time that most people are not paying attention and focusing strictly on cost.
“Our recommendation to our clients is to overachieve on the efficiency agenda, but create dollars that you all control and manage, and deploy that to opportunities for innovation, new ideas and differentiations.”
Aggressive M&A
To deliver on the promise of extreme efficiency, HP has been on a journey of strategic mergers and acquisitions (M&A) for the past three years, said Hogan. “HP has spent roughly $20 billion on strategic M&A on software and services.”
The acquisition trail started with the buyouts of IT management software vendor Peregrine (2005) and quality assurance Israeli-based business technology optimisation vendor Mercury (2006), with the most recent acquisitions of document and records management company Tower, and EDS, with its “enormous reach, scale and capability in outsourcing of IT”.
HP also consolidated “a big consulting capability” into HP Software. “That's what drove the brand change to HP Software and Solutions, which was very market-driven,” said Hogan. “You want us to deliver a solution, not products.”
As a result, HP Software has grown from $1 billion to $3 billion in revenue in three years, “basically going from a break-even business to industry-normal operational margins. This has become the fastest growing, most profitable line of business in HP.”
He concluded: “The journey is not completely dependent on consolidation and M&A. HP continues to spend almost $500 million annually on internal R&D in the area of software and solutions. We will continue to make that investment.”
To see graphs depicting HP's M&A and R&D activity and financial performance, click here.
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