Would H-P enter the PC business if it wasn’t already in it today?


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It seems that Hewlett-Packard is now re-thinking an earlier decision to spin off its personal-computer division. If you remember, it was just two months ago that (now-replaced) CEO Leo Apotheker announced the decision to split the computer company into two and sell off the personal-computer division. With Apotheker now gone (and nearly forgotten), newly-installed CEO Meg Whitman is taking a second look at the controversial decision.

According to the Wall Street Journal, Whitman is “crunching the numbers of the proposal” and reports seem to suggest that HP might be better off keeping the personal-computer division, which contributed $40 billion in revenue and $2 billion in operating profit in H-P’s most recent fiscal year. But it seems that the folks from H-P are also looking at other reasons for keeping the business. According to the article:

In particular, separating the PC division would significantly diminish H-P’s buying power with component makers because H-P would lose economies of scale. It could complicate H-P’s supply chain and decrease profit margins on some products, the analyses suggest.

“If you lose purchasing power and other advantages, then a spinoff isn’t worth it,” one of these people said.

“The analysis is underway now,” an H-P spokeswoman said. “We said we would explore all options and that Meg would make a decision based on the data.”

Here’s my advice to Ms. Whitman and the rest of the H-P board. Before you spend one more minute digging through the numbers, you need to be able to answer this simple question:

If you weren’t already in the personal-computer business, would you get into it today?

It’s essentially the same aquestion that Peter Drucker challenged Jack Welch and GE to answer thirty years earlier.

Think about it. You have a mature business with declining margins that consumes significant H-P resources–resources could be re-allocated into other growing and higher margin business lines. And if the best reason for staying in the personal-computer business is you might “lose purchasing power and other advantages” if you exit, then I’d say you’ve already answered the question.

If H-P wasn’t in the personal-computer business already, I highly doubt that anyone would recommend they get into that business today. It wouldn’t make sense. So my second piece of advice for Ms. Whitman and her board is to follow the direction of her predecessor and exit the business.

Here’s the takeaway: Every so often you need to ask the same question when you look existing business lines. “If we weren’t already in this business, would we make the decision to get into it today?” The answer might surprise you.

Republished with author's permission from original post.

Patrick Lefler
Patrick Lefler is the founder of The Spruance Group -- a management consultancy that helps growing companies grow faster by providing unique value at the product level: specifically product marketing, pricing, and innovation. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.


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