Commentary: Keeping HP customers happy

by Frank Gillett, Ted Schadler and Simon Yates, analysts

Despite criticism of the deal from investors, Forrester believes that the merger between Hewlett-Packard and Compaq Computer was the right move and that HP is successfully integrating the two companies' operations and product lines.

However, the difficulties of converting merger synergies into marketplace advantage eventually caught up with CEO Carly Fiorina. What's next for HP? The new CEO's first priority must be to compete effectively against both Dell and IBM--otherwise, he or she will have to reorganize HP for a breakup.

		Special coverage HP looks beyond Fiorina With its embattled CEO out, the focus turns to finding a replacement and setting the company's course.

Forrester spoke with HP's chief finance officer and interim chief executive, Bob Wayman, and with Mike Winkler, executive vice president of the customer solutions group, to get more details on the company's post-Fiorina strategy. Wayman confirmed that the board is sticking to the strategy of pursuing consumers and enterprise customers with a difficult mix of commodity and premium products.

HP's printer customers are clearly happy, but the board--and the new leader they seek to hire--will have to answer difficult questions from its other three core customer categories:

• Enterprise data center: How can the company match IBM and fend off Dell and Sun Microsystems? HP has successfully integrated a diverse systems business but struggles to compete with IBM's blend of technology, consulting and industry expertise.

Letting users choose whether to buy direct or from distributors doesn't help HP win against Dell's brutally effective direct-sales model. And it's not that Dell is unbeatable. For example, in just a year, Sun has become a big seller of Advanced Micro Devices' Opteron-based servers.

• Enterprise PC: How can it set itself apart from Dell in a meaningful way? HP's Goldilocks messaging--that IBM is high-tech/high-price, Dell is low-tech/low-price and HP is just right--has users rolling their eyes.

An integrated HP can offer the market's broadest portfolio of desktops, laptops and handhelds, and can heavily discount client hardware when companies buy higher-margin servers and services. IBM won't be able to claim this, once it completes the sale of its PC division to Lenovo, and Dell can't really claim it at all.

HP can differentiate itself from Dell on features that appeal to enterprise buyers such as reliability and platform stability throughout the refresh cycle, but Dell shines in account management--and ultimately, relationships are the key to customer retention.

• Consumer business partners: Will the company remain focused on the digital home? Fiorina spearheaded HP's entry into digital entertainment and drove its "radically simple, better together" consumer strategy.

HP's consumer business partners and customers--including Apple Computer, Best Buy, Comcast, DreamWorks, Intel, Microsoft, Starbucks, Verizon Communications and Walt Disney--need to hear that HP is still committed to the digital home and will continue its leadership on standards and technologies for copy protection, device interoperability and content distribution.

© 2005, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.