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HPE To Spin Out Its Huge Services Business, Merge It With CSC (cio.com)
itwbennett writes from a report via CIO: Hewlett-Packard Enterprise announced Tuesday that it will spin off its enterprise services business and merge it with IT services company Computer Sciences Corp. (CSC) to create a company with $26 billion in annual revenue. The services business "accounts for roughly 100,000 employees, or two-thirds of the Silicon Valley giant's workforce," according to the Wall Street Journal. In a statement, HPE CEO Meg Whitman said customers would benefit from a "stronger, more versatile services business, better able to innovate and adapt to an ever-changing technology landscape." Layoffs were not a topic of discussion in Tuesday's announcement, but HPE did say last year they would cut 33,000 jobs by 2018, in addition to the 55,000 job cuts it had already announced. The company also split into two last year, betting that the smaller parts will be nimbler and more able to reverse four years of declining sales.
They spun of 2/3 of the company? The enterprise services? They already spun out all manufacturing to HPQ. What's left? Reselling VMWare?
This has a rotten smell to it. Seems to me HP is being slowly dismantled for money. A great company slowly being flushed down the toilet by short termist used car salesman types.
I wonder if that will be allowed.. Won't the new company have a near monopoly on incompentent consultancy, generally being bloody useless?
I come from one of those hippie countries with socialized healthcare, and doctors' income is usually not really a concern here.
What we did was kicking frivolous lawsuits out of the window where you could sue a hospital for a few billions based on "mental anguish" or similar bullshit, lowering their insurance bills and enabling them to provide FAR cheaper rates.
We also made a distinction between necessary and elective treatment. Reattaching a severed finger is necessary. Moving your nose a few inches up because you think it's not pretty enough is not. The former is paid by your insurance, the latter not.
And finally we got free routine check ups, the older you get the more frequent they get. Our insurances quickly caught on that it's A LOT cheaper to prevent some diseases from happening than to cure them.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
It's restructuring. It's what company managers do when they notice that their revenues plummet and they somehow try to hold on to their comfy chairs, which they could not if it seems like they do nothing to deal with the plummeting revenue.
Once they notice that they can't do anything sensible (usually after spending a million or two on consulting, which usually makes me wonder what the fuck these goofballs are doing if they need someone telling them what to do any time a serious decision that goes beyond choosing the correct iron on the golf course is due), they need to do SOMETHING to appease shareholders.
Restructuring is perfect for this. One, it looks like you're doing something, two, it makes you look like you know what you're doing and three, it may cost whatever it costs because, hey, restructuring takes time and costs money, everyone knows that. But afterwards it's going to be SO much better that the new revenue boost will easily recover this in a year. Two, tops.
And two years later, you have a new CEO.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
On a lighter note, a topical joke:
A new CEO is examining his new office. In a drawer, he finds a note and three sealed envelopes. The note says "Hello, dear successor. You find here three numbered envelopes. Every time your numbers look bad and the board wants your head, open them, in order, and do what you find inside."
Well, not even a month after he took the helm, he creates his first huge blunder. Desperately he opens the first envelope and reads
"Blame your predecessor"
He does at the meeting and the board is appeased. Everything keeps going ok for a while until his numbers start to plummet and the board wants answers. He opens the second envelope and reads
"Restructure"
He does, everyone's busy restructuring and nobody can identify who is to blame for the increased costs. But after a while, restructuring is pretty much done but the increase in revenue is not coming in. Desperately he opens the third envelope and reads
"Prepare three envelopes"
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
I come from one of those hippie countries with socialized healthcare, and doctors' income is usually not really a concern here.
Doctor's income has very little to do with the skyrocketing cost of health care here in the US. In fact a huge portion of doctors don't actually have take home pay much different than a well paid software engineer. An internal medicine doctor in solo practice can work 70-100 hours per week and maybe take home $80-150K/year when all is said and done. Other doctors do better financially (particularly specialists) but the big drivers for health care costs are demonstrably not doctor's salaries. Those doctors who do make bigger salaries tend to be economically far more valuable than their take home pay.
The big drivers of cost (in no particular order) are perverse treatment incentives relating to insurance, high drug costs, uncontrolled hospital billing, ridiculous administrative burden, lack of modern and interconnected computer systems, fraud, lack of a single payer entity, torts and actions to protect from torts, overuse of expensive medical equipment, and a few other things. Salaries of staff is a consideration too but it's not even in the top 10 problems driving health care costs. In fact there is a shortage of adequately trained staff in many parts of the country.
What we did was kicking frivolous lawsuits out of the window where you could sue a hospital for a few billions based on "mental anguish" or similar bullshit, lowering their insurance bills and enabling them to provide FAR cheaper rates.
And what do you do when you really do get screwed by an incompetent hospital? I'm quite sure that happens just as often as it does here in the US. What is your recourse when something goes horribly wrong?
We also made a distinction between necessary and elective treatment. Reattaching a severed finger is necessary. Moving your nose a few inches up because you think it's not pretty enough is not. The former is paid by your insurance, the latter not.
That is no different in the US. Elective cosmetic surgery is rarely covered by insurance except for cases related to reconstruction following an accident or serious illness. Your botox injection will not be covered by any insurance that I am aware of. My wife is a physician in a dermatology practice and they make a ton of money from elective cosmetic procedures not covered by insurance. (Vanity literally has a price)
And finally we got free routine check ups, the older you get the more frequent they get.
They're not free. You just pay for them with tax dollars instead of insurance premiums. I agree that they are a good idea and I think the US does it in a retarded way but let's not pretend it's free just because you didn't get presented with a bill when you left the office.
This seems like a pure financial engineering transaction, but I wonder about the long term health of "IT Services" firms like CSC. I have worked both on the services and the "serviced" side doing various tasks over the years. The services firms cut every single corner they can to provide just enough service to avoid losing their contract; it's frustrating not being allowed to do something for a customer because it might make us less money but be more efficient. The companies hiring them use them as an excuse to wash their hands of anything IT related, dump staff, etc. without having to pay severance or take massive charges against earnings. And in the end, neither side ends up doing anything useful. I just wonder if companies have finally woken up to that fact and aren't just buying whatever the IT services sales guys tell them to anymore. I have seriously never heard of or experienced any good results of an IT outsourcing...it always puts the two companies at odds with each other.
The only long term future I see for these kinds of companies is with government agencies. Agencies in most countries basically aren't allowed to spend agency money on in-house resources. It's always assumed that services companies provide more value for taxpayers' funds, but we know that's not the case. I think that now that companies can offload lots of their day to day IT to cloud providers like Amazon or Microsoft, there will be fewer places for the CSCs of the world to ply their "best practices" trade. It'll be the totally lazy companies that want nothing to do with IT, or agencies that have no choice but to outsource.
I'm amused that HP is unwinding basically all of the mergers that they did to get so big. So many executive decisions like this are basically made by some 26 year old MBA from McKinsey or Booz Allen Hamilton, rather than the executives themselves. Granted, someone may have seen the writing on the wall for CSC/EDS/IBM/Accenture and others, but I doubt that. Like I said originally, it's probably financial engineering to squeeze out as much money as they can from HP before destroying it completely. IBM of late is famous for this.
I used to work for a fortune 500 company who farmed out all server operations to CSC... I was on a core applications support team and would often need to work with CSC to spin up new servers or do restores or refreshes. I would say that 1 in 3 times the results of a request were actually what was expected. Most of the time something would go wrong and we would have to go into damage control mode.
There was one time where we requested some new servers be brought up.... which they did... by reformatting production servers... I was always amazed at the novel ways in which CSC would screw things up.
I got the impression that CSC probably had some competent people, they would have to in order to architect and maintain that level of server infrastructure, but we (the customer) never got to talk to those people. We dealt with the drones.... who were less than impressive.
My eyes reflect the stars and a smile lights up my face.
So many companies go through the same sequence of events:
1) Build a successful business selling hardware
2) Customers ask for help with infrastructure and applications
3) Build a successful consulting business supporting hardware sales
4) Brilliant MBA notices consulting has a much higher profit margin than hardware
5) Company outsources hardware business and focuses on consulting
6) Pipeline of customers needing consulting dries up because they no longer buy hardware from company
7) CEO panics, has massive layoffs
8) New CEO looks around and sees that company no longer has a product to sell
Doctors are supposed to pay for malpractice insurance which takes a big chunk out of the doctor's paid. In order to keep $80k~$150k/year, the real gross income for doctors is much higher than that (could be about double).
Not as a general proposition. The amount you pay for malpractice insurance varies by specialty and by location but it very rarely doubles the cost of a doctor. Something between $10K-30K/year is fairly typical. Larger practices and hospitals can typically get better rates than smaller ones. Some specialties like OBGYN in certain locations can get socked with outrageous malpractice insurance fees due to the tort laws in that area. Most of the doctors I personally know about pay somewhere between $10K-15K per year. Substantial but not back breaking.
Specialty doctors can easily earn $300-600K/year. Good money and it sounds like a lot but as a percentage of health care costs is actually quite minor. Lst time I looked at the statistics, doctors salaries accounted for single digit percentages of the overall cost.
As a results, a doctor visit (seeing a doctor) becomes higher charges.
Not necessarily. In many cases doctors cannot charge whatever they want. If the patient is a medicare patient, is indigent, etc the doctor or hospital may be limited in their ability to pass on increased costs. The notion that doctors can just pass on every increase isn't really true. Typically the profit a doctor's office makes depends heavily on their ability to negotiate with and work around insurance companies. Most insurance companies use medicare to determine rates they will pay for specific services.
So all in all, insurance companies are making money off you all.
Of course they are. There would be no reason for a private insurance company to exist if they weren't making a profit. The only way to avoid that is to have a government run health care system because the government is the only entity that entirely lacks a profit motive. (yes this even includes not-for-profit hospitals and the like) But since the idea a government run health care system gives republicans hives (despite the fact that we already de-facto have one with medicare) we have this Frankenstein monster of a system instead that only insurance companies could love. Idiotic but it's not going to change any time soon.
Meg Wittman has to go down as one of the worst CEO's in history. HP, the once proud company, is being reduced to a steaming pile. So now EDS is being spun off, which HP massively overpaid for in the first place. This is after Meg triumphantly declared that HP was going to be a huge player in the "services" market.
Same mistake that IBM and DELL made. Another hardware vendor tries to become a services player and falls flat on its face.
Pretty soon HP will be reduced to a company with some patents and selling printers. Meanwhile Meg feathers her nest in anticipation of the golden parachute jump. But before that happens thousands more will lose their jobs and the company continues to be gutted.
Bill and David must be rolling in their graves.