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HPE plots next move on services

HPE’s financial results suggest it has not had a good time in the IT services and outsourcing business. Will it be third time lucky?

When HP completed the acquisition of Compaq in 2002, it also gained a valuable technical services arm, the former Digital Services business.

It later purchased outsourcer EDS, which became Enterprise Services at HPE. Through a joint venture, it is now offloading this business to CSC, and embarking on its third attempt at IT services under a new business arm called HPE Pointnext.

In HPE’s latest results, its software services business reported a 4% increase in revenue for the first quarter of 2017, but Enterprise Services (ES) declined by 11%. This may be due to what chief financial officer Tim Stonesifer called “challenges in the UK public sector” during the earnings call, which was posted on the Seeking Alpha financial blogging site.

In April 2017, the ES business will be moved over to CSC. In the earnings call, CEO Meg Whitman said this would enable HPE to become more open to working with systems integrators and outsourcers that would previously have been direct rivals.

“We are pursuing alliances very aggressively. When we owned ES, we did some business with Accenture, Capgemini and the Indian firms, but they were always quite wary of us because they viewed us as owning a competitor. As ES gets spun off, there is a lot more opportunity for us to do business with those partners, which should mitigate the decline,” said Whitman.

Pointnext’s raison d’etre is digital transformation. Two decades ago, it would have been business process optimisation, then business transformation. “Digital” is the latest buzzword outsourcers and systems integrators now use to drum up new orders.

Focus on digital innovation

HPE Pointnext’s senior vice-president and general manager, Ana Pinczuk, wrote in a blog post: “At HPE, we want every organisation to have the opportunity for success in today’s digital world. Success these days relies on moving quickly to disrupt, or run the risk of being disrupted.”

The new business involves three core areas of focus: advisory and transformation services; professional services; and operational services.

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HPE’s UK managing director, Marc Waters, described the strategy as resetting and reshaping the business. “We make hybrid simple, power the intelligent edge, and we have the expertise to make it happen,” he said.

Waters claimed the company’s objective is to deliver innovation for digital transformation projects, either working directly with its customers or with existing systems integrators. Speaking about a recent deal, he said: “We worked with Accenture, where we provided the plumbing for the infrastructure.”

He said HPE would curate new technologies and set out frameworks and technical architectures in partnership with customers.

One of its direct customers is GE, which is building an industrial internet based on its software platform, Predix. “Our partnership with GE on the industrial internet brings advisory from Pointnext,” said Waters.

HPE wants to shift IT to a consumption model, where it claims it can offer the economics of the cloud on-premise.

A flexible capacity model

Herbert Rastbichler, Emea general manager for technology services support, said: “We have a clear differentiator with a flexible capacity model for everything – storage, network, compute – all on-premise. One of our large global customers analysed its seven largest workloads and worked out that it could run six of them cheaper on-premise.”

HPE clearly has a vested interest in promoting its on-premise hardware over cloud-based architectures. Its main cloud partner is Microsoft with Azure. It integrates into Amazon Web Services (AWS) via a hybrid infrastructure running HPE Helion.

Theoretically, a Windows server workload can be moved to Azure relatively easily. Newer versions of the Windows Server operating system are built to support migration to Azure.

Speaking to Computer Weekly recently, Jon Forster, consulting senior IT adviser at Moray (Fitness First Group), said: “When you go from an on-premise Microsoft environment to Azure, you can do so because you are fundamentally using the same technology.”

So if Microsoft is simplifying hybrid IT, CIOs need to consider where HPE fits.

Making digital transformation work

A lack of ability to execute digital transformation strategies appears to be one of the problem areas for many organisations.

According to The Hackett Group’s annual Key Issues Study, 80% of business leaders agree that enterprise digital transformation will fundamentally change their company’s operating model. But far fewer are confident the enterprise and their own function have the strategy, resources and competencies to execute the transformation.

This is perhaps the real opportunity HPE is hoping to capitalise on. So long as IT departments remain resource constrained and continue to focus on core business systems, there is less time to develop new initiatives such as digital transformation projects.

But the CIOs and CTOs Computer Weekly has spoken to understand the need for IT to work with the business to take a lead on digital transformation projects.

Outsourcing huge swathes of business know-how failed in the 1990s and 2000s because digital transformation projects need to be driven internally. The IT landscape has changed, and while HPE Pointnext may have the buzzwords that tick the all the boxes to make it to the shortlist of an IT tender, CIOs today will want proven execution plans.

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