August 1, 2002 11:25 AM PDT

Trouble in HP's post-merger paradise

While still smiling in public, newlyweds Hewlett-Packard and Compaq Computer are having their first marital spats.

Although the two companies spent thousands of hours and millions of dollars on coming up with a strategy to blend two competitors into one colossus, philosophical and cultural disputes have emerged.

One current disagreement centers on how the new HP, which officially acquired Compaq in May, should run the internal computer operations of the combined company. At the premerger HP, the services and consulting group handled much of the decision-making, allowing that unit to boast to clients that it ran HP's information technology department. The IT organization in turn essentially implemented the strategy laid out by the services group.

By contrast, Compaq's IT department, headed by CIO Bob Napier, held strategic responsibility on its own.

The conflict between the two ways of doing things came to a post-merger head as HP executives retained their positions running the services group and Napier became HP's CIO.

While HP's services group appears to have the upper hand in the dispute, HP executives and an internal memo confirmed that this dispute, among others, lingers and has yet to fully be resolved.

"Unfortunately, to-date we have not been able to come to a resolution on the structure of the Managed Services-IT relationship issue," Uli Holdenried, a vice president in HP's services business, wrote in a July 20 e-mail to employees that was seen by CNET News.com. "Despite numerous discussions and attempts to clarify both the future model and the immediate go-forward actions, we are still somewhat apart in our views."

HP representatives said that, overall, the integration process is on track and added that this dispute highlights the processes that the company has put in place to resolve disagreements over integration plans.

Susan Bowick, HP's senior vice president of human resources, said in an interview Wednesday that the integration team is aware of the issue and plans to resolve it within the next day or so.

"It's significant. (But) it's not a shut-the-shop kind of thing," Bowick said.

Bowick said the issue is typical of the problems that have cropped up since HP moved its plans from the "clean room" to the rest of the company. "It's not bigger or smaller than other ones we've already (addressed)," Bowick said.

Cutting here, growing there
However, the dispute over how to run IT involves two key goals of the merger--cutting costs in the IT department and growing HP's services business.

"I feel that the implications of this decision for our (managed services) strategy are significant," Holdenried said in the e-mail. "They should not to be resolved through implementing a compromise that eventually will fail in achieving either the significant value capture goals for IT or the strategic goals of the Managed Services strategy. We have tried that and did not succeed so far."

Such disputes are rare, Bowick said. "It's a few percent of all the thousands of decisions we made."

In most cases, she said, the plans drawn out in the clean room take root, although there is a procedure to alter course if circumstances change.

One HP services executive said that the company is continuing to let services run the IT department. Juergen Rottler, a vice president who reports to HP Services chief Ann Livermore, said that the dispute has been largely settled, with HP intending to do things the way it did pre-merger.

"It was a very strategic choice by HP to outsource its IT environment and infrastructure to HP services--this was premerger," Rottler said. "So obviously as you merge you kind of have a discussion with the new part of the company."

When asked his views about outsourcing computer operations in a May interview, Napier said, "I might consider allowing somebody to fly the plane for me, but I'm going to be the one who owns the flight plan."

Rottler acknowledged that there are lingering issues.

"I won't argue that there might not be some people who are disappointed or would like to have more control," Rottler said. "(The) reality is, HP is in the services business and we've got to leverage all of the assets we've got, and HP IT is one of the assets."

Rottler said that workers will adjust to the new structure, by necessity.

"There is an element where, at some point in time, that's just tough. Get with the game, and if you can't, you probably should be doing something different."

Still, Rottler said that HP's services group will have to choose its battles.

"There is a strategic choice that companies make and then there is a migration path into that strategic choice," Rottler said. "You don't want--and I am not talking HP specifically--but you don't want the internal IT organization to be your enemy because they'll find ways to undermine your success as a services company."

 

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