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Q&A: HP's Ann Livermore on life after Carly

She talked of the CEO transition and efforts to boost HP's services business

By Don Tennant
April 14, 2005 12:00 PM ET

Computerworld - PHOENIX -- At the Storage Networking World conference here yesterday, Ann Livermore, executive vice president of Hewlett-Packard Co.'s Technology Solutions Group, spoke with Computerworld about life at the company after Carly Fiorina -- a life that's clearly focused on, among other things, building up HP's services business under an offshore-centric model.

What's the buzz at HP now that Mark Hurd has taken over as CEO? The buzz is good. The customer and employee reaction to Mark has been positive. He clearly has a very strong operational background and expertise, and a very deep knowledge of aspects of the computer industry. So he had a good match with the qualifications.

Did the board consult with you before hiring Hurd? The board did not discuss with any of the HP executives who the candidates were, because that's quite confidential to all of the candidates -- they're in responsible business positions at other firms. Once anyone knows, it starts spreading, no matter who the anyone is. So I think our board did a nice job keeping the candidate list confidential.

How did you learn that Carly would be leaving, and were you surprised by the news? That's really an internal HP set of things, so I don't want to go there. But clearly it was managed very well in terms of our board and the way we handled the communication.

You were widely considered a top contender for the spot. Did the board approach you at any point to discuss your candidacy? We're not making any comments on who were candidates and who weren't, or the speculation associated with it. But I will tell you I think they made a good choice.

There's been a lot of speculation about whether it would make sense for HP to split up. What's your take on that? The company is focused on making sure we create good shareholder value. [Splitting up the company] is one option some analysts like. We believe that we've got a really strong portfolio, and there's value in the portfolio. We just have an opportunity to execute better and more consistently than we have.

Ann Livermore, executive vice president of Hewlett-Packard Co.'s Technology Solutions Group
Ann Livermore, executive vice president of Hewlett-Packard Co.'s Technology Solutions Group
The focus of HP is more around maximizing the value of what we've got, and not so much on what do you choose to spin off or keep.

I've expressed the opinion in my column that HP needs a more compelling Linux strategy, and to that end it ought to acquire Novell. What's your reaction to that? If you look at HP's Linux position today, we're No. 1 in market share in both revenue and units, so we must be doing something right. Those are any numbers that you look at -- IDC, Gartner, everybody who has published a market share report.

One of the really powerful things we've done with Linux is to create a set of reference architectures. When you think about what CIOs have to deal with, one of the issues is being able to ensure that the whole stack works together. So we've done a lot of the same kind of work-around Linux as we've done around our Unix-based environments.

We have thousands and thousands of support contracts, so we've got a nice customer support business around Linux.

Where do you see your HP-UX business heading in relation to your Linux business? The market rates around Unix are in the low single digits. But the RISC market is a $20 billion market. So a $20 billion market growing at 2% to 3%, if you can take share, it's still a very attractive market. Linux is the smallest but fastest-growing segment. We're focused equally on Unix, Windows and Linux.

If it had been your call, would you have acquired the consulting arm of PricewaterhouseCoopers back in 2000 when that was under consideration? I was certainly involved in the discussions. At that point, their valuation was too high. So it was a good thing for HP not to try to consummate a deal at that point, because all of the systems integrators were at much higher market valuations, then they dropped over the three or four years after that.

What we think is happening in the systems integration market is that more and more of that work is being done offshore. So if you look at the labor pool associated with any of the big systems integration firms, the battle that they're fighting is to move to the right ratio of onshore vs. offshore resources in their business model.

Since we don't have a very large business in that [services] space to begin with, we're trying to build a business model with more of the applications work done offshore from the start. Because we don't have so much of an existing workforce in those spaces to deal with.

So we think you're going to get a much, much different model, where anything other than the customer relationship management, some of the day-to-day interaction with business executives, perhaps some of the design work that has to be done really closely with the customer, will end up being done in cost-effective, high-quality locations that aren't usually in Western Europe or the States.

When we look at HP's services business, we have progressed our business now to a point where we've got 20% of our labor [offshore] in our global delivery centers, doing work on projects around the globe. So of our 65,000 employees [in the services business], we've got 20% of them in India, China, Eastern Europe, Costa Rica, Manila -- and incredible quality levels: SEI-CMM [Software Engineering Institute's Capability Maturity Model] Level 5 quality in China and India. We're the only company that's Level 5 in both locations.

So we're building a different model. Why we don't buy a big systems integration firm is because we think the business model is dramatically shifting. And we would rather build the next-generation business model in a space we're not big in yet, as opposed to buying a company with a last-generation model.

Doing IT work offshore is an emotional issue for U.S. IT workers. How do you deal with that? From our perspective, we think one of the big advantages for HP is that we're a global delivery organization. Forty percent of my services business is in EMEA [Europe, the Middle East and Africa]. Thirty-five percent is in the Americas, and 25% is in Asia already. So our customer base is in those locations; our employee bases are in those locations. If you look long term, what employees care about and what customers care about are firms that are winning in their market space. If you're not winning because your prices and your costs aren't competitive, you lose your employees and you lose your customers. No employee wants to work for a company that can't win because their costs are too high.

We're talking to many very traditional, large manufacturers who know that they need more of their IT operations done in these low-cost centers, [and] who know they need to send finance and accounting to some of these low-cost centers, or some of their HR functions. Most of the business world has woken up to this.

But the IT workers on the street haven't. The IT industry has never stayed the same for longer than a four- or five-year period. Think about what technologies are hot, think about where the growth is, where the opportunities are. IT professionals have always needed to build new skills, build new knowledge, build new understanding. The people who have been leaders in IT, whether they're individuals at the technology level or managers, have always evolved and learned new things. That's the answer to it: You have to have people and their managers thinking about longer-term skills planning.

Carly's decision to fire Peter Blackmore and two other execs last summer when the server and storage business missed its numbers was a controversial one (see story). What are your feelings on the way that was handled? That wasn't a decision that I had involvement with. And that's appropriate, because he was a colleague of mine, as opposed to someone reporting to me.

Do you have any aspirations to be a CEO anywhere? I have one of the best technology jobs in the industry when you look at it today. So I'm pretty happy with what I've got.

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