While bonuses are probably a little thin these days in the IT sector, it is a fair bet that Randy Mott, Hewlett-Packard's chief information officer, is going to be getting a pretty big one this year. That's because HP has finished up its three-year revamping of its IT operations more or less on schedule, removing $1bn in costs from the HP ledger.
In July 2005, HP hired Mott away from rival Dell, just before announcing it was making 14,500 job cuts to get its costs in alignment with sales. (When IBM's services business hit a bump earlier in the year, IBM also fired 14,500 to realign itself in the same month, a weird coincidence). As the former CIO at Wal-Mart, Mott knows a thing or two about running the IT operations of a large operation with a heavy emphasis on retail and Web commerce, and HP provided Mott with a $15.3m compensation package to come into HP and revamp its IT.
Historically, IT vendors have been pretty inefficient users of IT gear, not the least of which because they can get IT gear at cost from inside their own organizations. HP was no exception, and chief executive officer Mark Hurd admitted as much when he took the helm in March 2005.
When Mott took over as HP's CIO, the company had 85 data centers, and over the past three years, it has consolidated all of its operations down to a "six pack" of three redundant, highly virtualized data centers. The goal when Mott started was to move from 25,000 servers sprawled across those 85 data centers to around 14,000 machines in those three mirrored data centers. HP also chucked two-thirds of its 6,000-strong application portfolio, a legacy of the many companies it has acquired and disparate divisions.
HP had hoped to get the count down to 1,500 and then push it even further, perhaps down to 1,100, but has settled down to 1,500 as the IT transformation project ended. A big part of the consolidation has been a wider embrace of an SAP ERP system, which Hurd bragged about last week when the company reported its fourth quarter of fiscal 2008 financial results.
As part of the consolidation effort, HP became the first customer for its NonStop-based Neoview fault-tolerant data warehouse product, which came to market in April 2007. Hurd, as the guy who used to be in charge of NCR's Teradata data warehousing business (which was spun out of NCR in January 2007), is a big believer in data warehouses, but apparently only one. By which I mean HP has consolidated 762 data warehouses and data marts down to a single data warehouse running on a Neoview NonStop cluster. HP has 32,000 people using this data warehouse today, and expects the number to grow to 50,000 employees in the next twelve months.
HP did not provide a final server count as the IT project finished, but did say today that it has cut the number of servers in use at the company by 40 per cent while boosting the processing power in its iron by 250 per cent (that means by a factor of 3.5). A 40 per cent reduction in the servers would mean it has around 15,000 boxes today. The company also said that it has cut its networking costs by 50 per cent over the three years while tripling network bandwidth. (Keeping CPU capacity and network bandwidth more or less in balance makes sense.)
Because power and cooling are big issues in
press releases data centers these days, HP bragged that it has reduced its annual power consumption at its data centers by 60 per cent between the middle of 2005 to now. Which probably means the Environmental Protection Agency will be giving Mott a gold star. The six data centers currently have 342,000 square feet of capacity and can expand to more than double that.
But here's the bottom line - in fact, two of them. The changes that HP has done have removed $1 billion in costs out of the company, and that is real money. In fact, internal IT spending will drop from about 4 per cent of fiscal 2005's $86.7bn revenue to a projected under 2 percent of fiscal 2009's revenue. HP is projecting revenues for fiscal 2009 to be in the range of $127.5bn to $130bn, thanks in large part to its acquisition this year of outsourcer Electronic Data Systems. Cutting IT spending was obviously low-hanging fruit in terms of cost cutting at the company, particularly considering the low-cost of experts, hardware, and software.
However, transforming HP's own IT operations had an unknown opportunity cost, too, since the people working on the HP transformation could not be deployed doing such work for others. But the IT effort is undoubtedly being used as a training mechanism for future HP engagements with its customer base to transform their inefficient IT operations. And that is where the six-pack data centers and massive application and server consolidation will pay off on the bottom line a second time for HP. The company has not, by the way, said what all of this transformation has cost.
None of the figures cited above include the EDS acquisition. That will be a whole nuther can of worms. Now that I think about it, it might have made more sense back in July 2005 to have outsourced the whole HP IT transformation project to EDS and then bought the company when the project was done. ®