One of my customers called me the other day.  We have quoted them a major server upgrade.  They have specific requirements that mean that they need onsite equipment.  He called up because he was worried about HP, he was concerned that maybe they wouldn’t be around to support him in five years.  There were two key things that made him worried:

1. HP withdrew their TouchPad tablet four days after releasing it

and

1. HP announced they are looking to sell off their PC division

I presented to him my opinion on the moves, particularly around the selloff of the PC division.

Over the last ten years the PC market has become more and more a commodity item.  IBM split off their PC and notebook division.  Dell has been selling direct.  HP is under pressure to provide a low cost commodity item.  But how do they do this whilst maintaining their channel and not burning their partners?  To compete in this market they need to sell volume.  And to do this they need to sell the entire range of their PC’s and notebooks through the commodity channel, through major retail chains like Best Buy and Walmart.  They also have to be selling direct.  Both these actions are damaging to their relationship with their partners.

The other thing to bear in mind is that the PC and Notebook market is a declining market.  Without a strategy that allows you to cut costs in every way possible it is going to be increasingly difficult to compete.  Again, how do you cut channel costs without cutting the channel?

Whatever action HP takes they need to make sure they protect their brand and customer loyalty.  And to top all of this off they need to maximise their shareholders value.

So what do they do?  In my opinion I think they are taking the only action they can, to bundle up the PC and notebook division and sell it off.  What does this achieve for them?

• Quarantines their PC and Notebook products from the channel
• Frees the division to compete by selling direct and through the big retail chains
• Minimises damage to brand and customer loyalty
• Allows them to obtain maximum value for the division for shareholders
• Lets them focus on higher profit products and services

Of course, if the bundling up and sale of the PC and Notebook division is executed poorly then none of the above will be achieved and it will be an unmitigated disaster.  However, in my opinion this is the most sensible action for HP to take.

Whilst contemplating all of the above is fairly academic, there are some interesting parallels for most of us.  Most small IT businesses now have products and services that have slipped well into the commodity sector.  How do you successfully manage these?  Do you simply cut them out of your business?  Can you gain a return on your investment to build the part of your business that deals with these products and services?  What will any actions you take do to your relationship with your customers?  How do you manage your image with your customers if you cut these products and services?  What does keeping them do to your image and how do you handle that?  All of these are fairly difficult questions and whether you like it or not, simply doing nothing in itself defines your image to the customers.

Perhaps it is not so academic after all?

So what would you do if you were the CEO of HP?  And what will you do in your own business?