When Bill Redington Hewlett and Dave Packard started their business on New Year’s Day in 1939, they had an initial capital investment of $538. Selling electronic test equipment from a one-car garage, they came to the conclusion that their combined expertise would be far more valuable together than separately.
Now, 70 years later and with annual revenues of $111 billion, Hewlett Packard has announced plans to split the PC and printers business from its enterprise products and services business. So why has Hewlett-Packard (HP) now decided that two companies is better than one?
Approaching the fourth year of a five-year turnaround plan, the company has successfully hit targets and so it may seem a strange decision to break up now. Despite years of claiming to be ‘better off together’, HP will now be divided into HP Inc (PCs and printers) and Hewlett Packard Enterprise (solutions and services).
Overseeing the split into two Fortune 50 companies worth $57 billion each is Meg Whitman, CEO at HP since January 2011. She previously served as CEO at eBay between 1998 and 2007, when the company was re-organised and split into 23 separate business categories.
Whitman announced, “The decision to separate into two market-leading companies underscores our commitment to the turnaround plan. It will provide each new company with the independence, focus, financial resources, and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders.”
The reasons for the HP split are surely the same as the changes to eBay now over a decade ago – to be versatile and agile in a rapidly changing industry. Breaking up the product divisions may remove the powerful ‘single source’ supplier title but it also enables each separate company to focus more clearly on emerging markets to gain real competitive advantage.
So who does the separation benefit? According to Whitman it will be the customers that reap the rewards as they will benefit from improved products and technologies as a result of accelerated innovation and targeted investments. As both businesses focus on their respective markets, they should also become easier to deal with.
“In short, by transitioning now from one HP to two new companies, created out of our successful turnaround efforts, we will be in an even better position to compete in the market, support our customers and partners, and deliver maximum value to our shareholders.”
Expected to be complete by October 2015, will the transition enable the company/companies to adapt better to ever changing market dynamics and customer needs? Will the split help HP to improve its struggling commercial business and recapture top spot in the PC industry from new leaders Lenovo? Only time will tell.