Recent software moves by Hewlett-Packard point to business optimization future

Hewlett-Packard (HP) has taken a number of steps to emphasize the importance of software for its future, but not necessarily as an applications vendor.

The 2005 acquisition of Peregrine nicely complemented the asset-management capabilities of HP Software's IT management platform, while the more recent deal for Mercury Interactive deal brought in application life-cycle management, governance, and testing.

“HP's software strategy is to be the clear leader in end-to-end enterprise IT management, helping our customers tightly align IT priorities with changing business requirements,” says Thomas E. Hogan, HP's senior VP, Software. Combining the former HP OpenView platform and Mercury “will integrate the many building blocks of enterprise IT management into one solution for the entire IT life cycle—from planning through deployment and operations.”

It's generally believed the decision to focus on software—and to make HP Software a substantial business—came from CEO Mark Hurd, who previously spent time with data warehouse supplier Teradata.

Software is now a $2-billion business for HP.

The big-picture goal is business technology optimization, according to Mark Leake, HP's director of strategic content. “It's about using IT to improve overall business performance in terms of enhanced customer satisfaction, increased sales, faster inventory turns, and shorter product development time lines.”

All of these metrics are largely driven by IT, though historically IT has measured itself by application uptime and network availability, which are one step removed.

As an example, Leake cites HP Software's Business Availability Center. Based on Mercury Interactive technology, the center sets up multiple perspectives for IT management.

“You can see, in an integrated way, what's happening from the end user's view, and from the network view,” says Leake. “But most important, you can see what's happening at the process level, with insight to underlying business components. So if a server is down or a database is slowing, you can see the impact in terms of order backlogs.”

In the past, all those views were disconnected—“silos within silos,” Leake calls them—which made diagnosing, fixing, and tracing the impact of IT problems much more difficult.

Business technology optimization means manufacturing CIOs run IT like a business, and better align IT to the business. For example, HP's IT management tools can track all the requests coming into IT, allowing managers to assess business demand. Beyond determining appropriate resource levels, this insight means IT can avoid backlogs, respond to the needs of internal customers, and define areas where they can be proactive.

Similarly, portfolio and asset management tools ensure applications and infrastructure are prioritized and rationalized across the business. Testing and life-cycle support capabilities gained from the Mercury acquisition also will pay dividends for HP, especially in environments built around SAP enterprise systems.

Testing is the No. 1 cause of delays, and a huge expense for ERP implementations and upgrades. HP Software today automates validation, functional, and regression testing. Automated testing offers considerable savings in costs and work hours, given the huge number of changes to ERP systems that are dictated by the business—e.g., adding new suppliers, alterations to business processes, or establishing plant-floor connectivity.

In May, HP announced another enhancement to its SAP-related offerings. Built on a service-oriented architecture to support version 3 of ITIL, the Manufacturing & Distribution Industries Business Services Management (MDI BSM) solution delivers visibility into the software and services underlying supply chains.

Manufacturing Insights' Parker sees real opportunities for HP in playing the role of “strategic integrator, where they deal directly with manufacturing CIOs to deliver more value to the business.”

Parker thinks HP is effectively positioned no matter how CIOs answer the “build versus buy” question. “They have great strength in data-center outsourcing, for example, but HP's hardware and software also are viable options for companies that want to build their own IT capabilities,” he says.

Looking at HP's current customer list—among them, GM, Airbus, and Proctor & Gamble (see secondary story)—it's notable that large global clients are notoriously demanding in terms of the required resources and capacity, while HP is intent on running them lean. And the size of such deals means a bad quarter could hurt results for the company as a whole.

But such massive deals, with all the risks they entail, are “few and far between,” points out Dana Stifler, an analyst with AMR. “HP's real strength is lining up IT outsourcing deals in the $100-million to $1-billion range and knocking them down. This is where the market is today, and HP can do deals this size in its sleep.”