By By Laurie McCabe, AMI Partners, Vice President, SMB Communications Research
Just seven weeks after pulling the plug on CEO Carly Fiorina in February, HP’s board of directors moved quickly to install Mark Hurd, former NCR chief, at the company’s helm. According to HP, while the board agreed with Ms. Fiorina’s vision, they disagreed on how to structure the company to execute that vision. In a move that arguably substitutes substance for style, the board chose Hurd because of his demonstrated success in executing strategy and in quickly improving NCR’s operations.
As noted frequently in the press, Hurd certainly faces many challenges in his new role. One of the most difficult areas that Hurd must tackle is HP’s position in the SMB market. Historically, HP, in tandem with its channel partners, has been a leader in selling PCs, printers and servers and related services to SMBs. However, HP increasingly finds itself in a value-volume dilemma in the SMB market-facing strategic as well as execution challenges.
Through its Smart Office strategy and offerings, HP positions itself as a broad solutions provider for SMBs, and underscores how it can help SMBs keep their data secure, increase growth and reduce costs. In addition to offering SMBs PCs, notebooks, servers and printers, the vendor provides wireless, networking and security offerings, and a smattering of industry-specific solutions. HP also maintains that it creates value by owning and integrating its own printer technology with its other solutions, and emphasizes that its large channel network helps provide SMBs with better service and support.
There’s nothing wrong with this value proposition-just like there’s nothing wrong with motherhood and apple pie. But, it leaves HP with a somewhat muddled, undifferentiated position in the SMB market. In the volume PC, notebook and printer areas, HP most often must battle with Dell, which has continued to erode HP’s market share in the PC, notebook, server and industry-standard server markets through its direct business model. For example, Dell grew its notebook business by 37% in
the U.S. in its fiscal 2004. In the process, Dell has become the PC industry’s gold standard for price leadership, ease of doing business and profitability.
Now, Dell is quickly encroaching into printer territory-HP’s hallowed cash cow. Leveraging its direct sales synergies and operational efficiencies, Dell is pushing printer prices down, and automating replenishment for printer consumables-arguably
the only profitable part of the low-end printer business.
Meanwhile, HP is up against IBM on the value side of the SMB equation. In contrast to HP, IBM is concentrating on applying its large-enterprise industry, service and solutions expertise to SMB customers’ requirements. IBM’s focal points for these endeavors include its WebSphere middleware stack, its Linux and other open source software (OSS) initiatives, and new IBM Global Services offering geared towards SMB needs. By recruiting SMB-centric ISVs and solutions providers to develop on its
middleware, services and open source technologies, IBM is creating a focused channel to sell through its own high-value, high-margin infrastructure solutions and services to SMBs.
Lacking an infrastructure platform to sell through, HP has little reason-or ammunition-to woo the software developer community. As a result, HP has not developed a clear story about what its role will be-if any-in providing business and industry-oriented solutions to SMBs. While HP could use Linux and OSS cards to pursue this type of agenda, it hasn’t done so in any visible way to date.
In addition, HP’s broad-based approach is, by definition, angled more towards SB than MB requirements. IBM, in comparison, has concentrated more on the MB space. While both SB and MB are very lucrative, high-growth markets, HP’s story leaves a noticeable gap for MBs-who often have industry-specific and business solution requirements that extend beyond broad-based Smart Office offerings.
Mark Hurd will find that HP is increasingly stuck in the middle, between Dell’s well-tuned volume play in the SB market, and IBM’s solutions and services-driven MB initiatives. Hurd will need to create a more focused and differentiated perception for HP in the minds of SMB customers.
In the commodity product area, HP offers a competitive line-up of horizontal SMB PC, notebook, printer and server solutions, but can HP supply these commodities any better-or as well as Dell? HP needs to better articulate exactly what “outside the
box” differentiation it provides to SMBs, whether in terms of price, ease of purchase, ongoing service or support to battle Dell effectively.
In addition, Hurd must evaluate how sustainable HP’s partner-centric model is in the commodity product arena. Partner services can indeed add value for customers, but Hurd must move HP beyond extolling generic partnership virtues to clearly
define how, when and where its partners create benefits for SMBs-and motivate and reward partners accordingly. Hurd will also need to move HP past its inflated belief that owning printer technology provides it with a real edge in the SMB market-or risk having Dell repeat its PC and notebook success in the printer space. By applying the benefits of its direct model in the consumables area, as noted above, Dell has
the potential to derail HP’s most profitable business.
Meanwhile, Dell can conceivably gain an advantage over HP by partnering for instead of building its own printers. By sourcing printers-to Dell specifications-from multiple vendors, Dell could potentially stimulate increased innovation and
competition-and cherry-pick the results. Much of the above boils down to execution, and Hurd’s capabilities as a results-oriented manager should help him to start zeroing in on these issues-provided he can cut through HP’s legendary culture issues. But Hurd-not noted as a vision guy-will also need to determine HP’s strategy beyond the commodity end of the SMB business. Will it play or sit out beyond the broad horizontal product and solution area? And how will it fill the now noticeable positioning gap for mid-market customers? While HP could take a number of routes in the service and software areas, Hurd’s most difficult challenge will be to
determine which approach will create the best top and bottom line opportunities for HP for sustained differentiation in the SMB market.
Although Hurd has only been on the job a few weeks-and it’s much too early to predict the outcomes-his ability to fortify SMB execution, and create a more compelling, ongoing SMB strategy will be critical indicators of his capabilities down the road.
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