After intermittent speculation going back almost a decade, Hewlett-Packard Co. (HPQ) has announced that it will split into two separate companies: Hewlett-Packard Enterprise, and HP Inc. The split is projected to be completed by the end of HP’s fiscal 2015, which is 31 October 2015.

Hewlett-Packard Enterprise is expected to “build upon HP’s leading position in servers, storage, networking, converged systems, services and software as well as the company’s OpenStack Helion cloud platform,” while HP Inc. will be built around the more commodity-oriented PC and printer groups. In short, HP Inc. will retain the company’s current logo and continue the company’s legacy cash-cow business (albeit with planned expansion into 3D printing and various “creative” efforts focused on portable computing devices), while Hewlett-Packard Enterprise will be the large customer-oriented, Cloud-catalyzed, integrated services provider enterprise Master Brand.

Current HPQ CoB and CEO Meg Whitman will be President and Chief Executive Officer of Hewlett-Packard Enterprise; Pat Russo has been named as Chairman of the Hewlett-Packard Enterprise board. Interestingly, Whitman will also be the chair of the HP Inc. board, with Dion Weislerto to be President and Chief Executive Officer of HP Inc. The two companies will each be publicly traded, and are being positioned as being “independent” from one another despite the strategic, C-level-plus-board-level overlap with Whitman.

Saugatuck sees this split as significant in two ways: One, obviously, because it is a significant strategic move by one of the oldest and most influential Master Brands in IT. The other, because it shines a brilliant spotlight on how the IT business has changed in very sweeping and fundamental ways over the past several years, and how much it is still changing. HP’s split should help other providers to better understand just how vast the scope of IT business reinvention is becoming, and how much can be needed for provider firms as they struggle to adapt to, then stay abreast of, core IT market change.

Saugatuck sees this split as very good for HP for several reasons on many levels. For one, HPQ almost desperately needed to re-invent itself in order to stay relevant. It has struggled, as organizational structures impeded and almost prohibited cross-group strategy and innovation, and rewarded cost-cutting over vision, investment, and operational improvements. This helped retard HPQ’s ability to fully exploit the shift to more Cloud-first, hybridized business models and portfolios as buying patterns shifted.

Saugatuck see this split as a very natural alignment for HP’s traditional business groups. The “enterprise” side clearly combines the products and expertise to pursue the Cloud-first direction and trend of enterprise IT overall; the printer and personal systems side play a more adjunct role in such an environment. The past three years of re-thinking and reinvention under Whitman have helped to make this alignment possible – although it is by no means complete, and given ongoing market dynamics, its success is far from guaranteed.

That success will be enabled only by continued reinvention and re-thinking. The greatest danger for the two “new” HPs is that they will continue to operate under previous business models and organizational structures, with the attendant established HPQ org-think in place. They both need new thinking that has not yet been made apparent. Simply (although not easily) separating into two logical groups will not save either part of HP. The company should not approach personal systems and enterprise IT as it has for decades; it needs to quickly learn and execute real behavioral change. Otherwise: Well, some readers may be familiar with the planaria worm, often studied in junior high school biology. If you train one such worm to swim in a pattern, then split it into two halves, both halves will become separate entities – but both will also continue to swim in that established pattern.

Realistically, we see little immediate impact on HPQ customers and partners, because the various groups have operated so independently for so long that there should be little change in how outside entities work with them. Of course there will be inevitable challenges in areas such sales coverage and “ownership” of some customer projects or relationships. There may be more integration of offering lines, compensation, development, etc. within the new HP Enterprise especially, but that will take time to implement and refine. Meanwhile, both new firms must figure out how to continually rethink what they are, what they must do, and how they should do it. This split should be only the beginning of more nimble, responsive vendors.

Even so, the two HPs will continue to be massive Master Brands, influencing and supporting extremely large business IT ecosystems. At their current revenue rates, both can be expected to be in the Fortune 50 range. Given the combination of ecosystems, market presence, and cash flow, and (again) the fact that they have been operating almost as de facto separate entities for many years, we do not expect either company to suffer significant loss of presence or influence, or their abilities to support partners and customers.

We can say the same about HPQ’s long-time enterprise IT Master Brand brethren IBM, MSFT, ORCL, and SAP. We won’t say that they are “too big to fail,” but we will say that each will, or must, continue to adapt and rethink what they are, what they do, and how they do it. The Cloud-first, Cloud-catalyzed business IT reality demands continual innovation and improvement by providers and user enterprises. Enterprises will continue to rethink and reinvent their own businesses, and how/where/why they do business. And the first few stages of Cloud IT adoption have made it very clear that enterprises are more willing than ever to consider and buy from new and different IT providers.

That is why changing/improving/expanding the mindset(s) of the new HPs is so critical. Had you told HP server and storage sales teams 10 years ago that their biggest rivals would include a web-based retailer (Amazon), what reaction would you have seen? This split of the company does offer it the opportunity to divide and conquer competitors…and, itself.

Originally published by Saugatuck Lens360 Blog on October 6, 2014.

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