Opinion: Users May Benefit From HP Cuts

The dust is still settling from the shock wave that hit Hewlett-Packard last month, when new CEO Mark Hurd announced the company would be laying off 14,500 employees--nearly 10 percent of its workforce--as part of a massive restructuring. Such wide-swath cuts often signal big problems in a large organization, and some HP customers were understandably troubled by the announcement. But take a closer look at HP's strategy: There's reason for optimism.

Although HP hasn't divulged details on the cutbacks, it did say most of the layoffs will be in back-office operations, such as IT, finance and human resources. It's possible that customer support will be affected, but so far, HP's service groups don't appear to be a primary target. HP plans to save about $3 billion over the next two years after factoring in changes to its generous pension program--moves that could affect morale but that won't disadvantage HP.

About half of the near-term savings will drop to the bottom line, which will surely please frustrated shareholders. The other half will be invested in new opportunities and to "offset competitive pressures," Hurd said. Clearly, HP doesn't just want to cut costs--it wants to become more efficient. As it increasingly competes in low-margin markets, such as PCs and network equipment, HP is discovering that the most cost-efficient company is usually the winner. And after digesting Compaq, HP found some trimmable fat in the combined organization.

More important, HP will be changing its business processes. According to Hurd, the company plans to improve customer service by removing intermediate decision makers and "handoffs," shortening the interval between the creation of an idea and delivery to the customer. In addition, HP's recent hiring of former Dell CIO Randy Mott as CIO could do more to increase efficiency than the layoffs. Mott has much experience in implementing supply chain efficiencies at Dell, and at Wal-Mart before that.

HP also said it will be pressuring its channel partners to bundle HP equipment into their sales, so expect your HP reseller to push some network switches with your next desktop order, or some iPaqs or printers with your next server order. While the new program may earn some incentives for loyal HP customers, some resellers may decide to cut their ties with HP, depending on the penalty for opting out of the program. Find out where your HP reseller stands.