Key Reason HP's Apotheker Kicked Livermore: Services Speed

Three years after it purchased EDS for $13.9 billion with an eye to becoming a major outsourcing player, Hewlett-Packard is still struggling to break into high-growth IT services markets like application modernization, consulting, and strategic planning, and total services revenues grew less than 1% in HP's most recent fiscal year. On Monday, CEO Leo Apotheker ran out of patience.

Apotheker kicked veteran Enterprise group head Ann Livermore upstairs to a board position and removed her from day-to-day responsibilities, indicating he was no longer willing to wait for Livermore to move the needle on services. In one fell swoop he broke apart the Enterprise group, making server chief Dave Donatelli, software head Bill Veghte, and global sales leader Jan Zadak, all of whom reported to Livermore, direct reports to the CEO.

"These businesses play a vital role in our continued growth and success, and, as such, Dave, Bill, and Jan will report directly to me to help drive the overall direction for HP," said Apotheker, in a statement. Apotheker, who took control of HP in 2010 after jumping ship from SAP, said he will name a new services head, who also will be a direct report.

Additionally, Apotheker fired chief administrative officer Pete Bocian and CIO Randy Mott in the shakeup.

But the most notable departure from the executive ranks was Livermore, who joined HP 29 years ago. As head of the company's Enterprise unit, she ran a $60 billion business that accounted for half of total revenues and encompassed two-thirds of total HP staff. Livermore now joins HP's board, and will stay on as interim services leader until a full-time replacement is named.

Apotheker's silence on her departure was telling. The obligatory press release quote thanking her for her service came not from the CEO, but from board member Ray Lane. "Ann's distinguished role as a leader of our largest business, deep relationships with our most important customers, institutional knowledge of the company and its employees, and insights on the technology industry will be tremendous assets to our board of directors," Lane said.

Livermore must have been blindsided. In a May 17 conference call, Apotheker said publicly that he planned to bring a new services chief into HP, but there was no indication he would to remove Livermore's responsibilities for servers and software as well. In an exclusive interview with InformationWeek on June 7, Livermore said the search for a services chief was progressing well, and gave no sign that she knew her days were numbered.

"I think it ends up being good for HP," Livermore said of Apotheker's decision to bring in a new services head. "The enterprise business when we look at it today is almost half of HP's revenue and two-thirds of our people. So I think that being able to have that extra executive bandwidth on these businesses is a great thing for HP."

It will now be incumbent on whoever replaces Livermore to build on the groundwork she put in place—albeit at a much faster pace given Apotheker's impatience.

As Livermore noted, HP needs to become less dependent on low-margin services lines like maintenance and repair of PCs and servers, and do a better job of building its presence in the market for high-level consulting, architectural, and industry specific services, where specialists like IBM's PriceWaterhouse group, Accenture, and Cap Gemini dominate.

Indeed, HP would do well to take a page from IBM's playbook by forging a tighter connection between the intellectual property it's developing in its still formidable labs and its go-to-market offerings. "There's a lot people who like the fact that we're building a services business. We're already number two, behind IBM," Livermore said.

For Apotheker, that apparently was not good enough.