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  Mick James, former Editor of Management Consultancy magazine, provides this regular column to broaden the viewpoint we provide to readers – in this issue Mick looks at what the future holds for Hewlett Packard post-Fiorina and the shifts underway in the EDS / A.T.Kearney relationship following reports this last week of a potential management buyout.
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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 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 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 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 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 Consultant-News.com

Contact Mick with your views or suggestions at:
[email protected]
 
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