One of the fascinating technology company stories of the last decade is that of IBM. Or more specifically, the leadership of CEO Sam Palmisano and his ability to turn the juggernaut of a PC manufacturing company into a lean, mean software services machine. The following is a choice quote from the NYTimes article on Palmisano’s term as CEO that describes the transition IBM underwent:
The pursuit of excellence in those four dimensions shaped the strategy. To focus on doing unique work, with its higher profits, meant getting out of low-margin businesses that were fading. I.B.M.’s long-range technology assessment in 2002 concluded that the personal computer business would no longer present much opportunity for innovation, at least not in the corporate market.
The hub of innovation would shift to services and software, often delivered over the Internet from data centers, connecting to all kinds of devices, including PCs. Today, that is called cloud computing; when I.B.M. started promoting the concept several years ago the company called it on-demand computing.
IBM managed to turn itself around and change the bread and butter of the company in relatively short order, considering the size of the supertanker the company had since become over the years. But at the time, it certainly wasn’t clear to a lot of outsiders that selling off the PC business to China-based Lenovo was the right choice. Leaving the top spot of PC manufacturing didn’t seem to make much sense, as why would you forfeit market leadership? To pursue greener pastures, of course.
But there’s another company out there that had been toying with the idea of selling off its PC manufacturing business. And they, too, happened to be considering this move at a time when they dominated the PC business as well: Hewlett Packard. Before he was ousted, former HP CEO Léo Apotheker made some major changes to the company, including a controversial decision to spin off or sell the company’s Personal Systems Group (PSG) – the consumer PC manufacturing division.
Apotheker was replaced by former Ebay CEO Meg Whitman in September, but the finality of the PSG decision was not resolved until over a month later at the end of October. Whitman announced that “together we are stronger” and cited several reasons why the move would have been bad for HP’s other business units. Notably, however, no mention was made of the strength (or lack thereof) of the PSG division on its own merits.
So while HP is keeping its PC manufacturing business around for now, the logic and success story of IBM’s emancipation from the hyper-competitive PC manufacturing business must still be a siren song for HP. The company may be numero uno in the PC manufacturing business in the present day, but with a mobile-centric computing future fast approaching, the dominance of the traditional PC manufacturer may not be secure for the long haul. HP’s decision to make WebOS open source (essentially giving up on the platform as a money-maker) and cessation of tablet and smartphone products that were imported during the Palm acquisition last year do not bode well for the flexibility of the company moving forward.
In the strictest sense, HP’s decision to hang on to the PSG division is a prudent move. But lasting impact and wisdom of the decision is contingent upon the time frame. And while the PSG division is the biggest asset in the PC manufacturing arena, it could quickly become the biggest liability should tablets and smartphones supersede the traditional personal computer. HP may have the strongest hand this round, but when the game changes, they won’t want to be left holding all the wrong cards.