Why Michael Dell needs to listen to HP's Mark Hurd
Filed under: Company News, Technology, Hewlett-Packard, Dell, IBM
In August 2008, Hewlett-Packard (HPQ) bought Ross Perot's first company, Electronic Data Services, or EDS, in a deal worth $13.9 billion. It then proceeded to slash thousands of jobs. Now that deal is paying off in spades for HP. On Monday, Dell (DELL) announced that it would pay $3.9 billion for Ross Perot's second company, Perot Systems (PER). Michael Dell would do well to learn from HP's CEO Mark Hurd about how to make his latest deal pay off.
The reason? HP claims that its services operating margins have improved since the deal closed and it has held onto 199 of EDS's top 200 accounts, according to the New York Times.
And it's getting new accounts. HP, which said on Wednesday that it would rename its EDS unit HP Enterprise Services, recently closed 32 deals worth over $100 million and its customer service scores rose since the deal closed. HP is even beating competitor International Business Machines (IBM) to the punch -- winning a $1 billion outsourcing contract for British insurer, Aviva.
How did HP do it? Hurd led a brutal cost cutting campaign. He eliminated the jobs of 25,000 EDS workers, cut salaries by at least 20 percent; and moved EDS executives from their comfortable offices into six-by-six-foot cubicles.
And despite the grumbling from employees who stress the importance of management continuity, HP is winning new business because its lower costs make it competitive with India-based competitors. With the lower costs, HP can make a profit charging lower prices. And it's using those lower prices to win new deals.
And with EDS, HP now has the breadth of sales and technical staff it needs to compete with IBM for the biggest deals. Not only that -- EDS is more likely to recommend HP hardware to clients than it did before it was part of HP.
So what should Michael Dell take away from HP's success? Here are three ideas he should keep in mind:
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Get competitive on costs. Price matters for winning technology services deals. You can't have a competitive price if your costs are higher than those of your competitors. So figure out who you'll be competing with and lower your costs at least to their level -- if not lower.
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Focus on customer retention. Find out who the most profitable customers are, meet with their executives and find out their concerns and hopes for the acquisition. Do what's necessary to keep those customers comfortable during the acquisition integration period.
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Boost customer satisfaction. Cost cutting can lead to changes in staff so be prepared when you cut people to put a competent replacement in place to maintain client satisfaction levels. And once staffing stabilizes, push your people to pinpoint sources of customer dissatisfaction and eliminate them.
This may sound easy and obvious but it remains to be seen whether what Mark Hurd so nicely pulled off is something that Michael Dell can emulate.
Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
9-23-2009 @ 12:32PM
Fred said...
Peter,
While well thought out, your comments miss the mark. The outer picture at HP is one of profit and success; internally its a vastly differnet story.
All those job, salary, and benefit cuts have driven employees to do as little as possible. Morale is low, and while short terms gains are being realized, the long term will suffer. Talk to HP customers about how happy they are, ask them how they feel about their support. It's not good.
Mark Hurd is neither groundbreaking nor innovative. He is following the managment theory of the day of increasing shareholder value via buying companies, slashing jobs, and counting that as growth. Its neither organic, nor visionary.
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9-23-2009 @ 1:01PM
widollar said...
FRED SAID: "Mark Hurd is neither groundbreaking nor innovative. He is following the managment theory of the day of increasing shareholder value via buying companies, slashing jobs, and counting that as growth. Its neither organic, nor visionary."
Fred you told like it really is, good job!
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9-23-2009 @ 1:16PM
walker said...
brilliant: cut 25000 jobs, and wages by 20% to compete with India...
going for the lowest common denominator is not winning, it's breaking even at best (look at television...) Hailing moves like this is counter-productive to getting this country back on its feet.
here's an idea: keep jobs that require fluency in English (not a nativist rant, just personal experience with 'tech support from Tim(ithithriathan)' and others) and problem solving skills (not just reading from a script) in this country. Pay a decent wage and the economy grows.
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