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A Marriage but No Honeymoon

Last year, I very unkindly suggested that Hewlett Packard’s CEO, Carly Fiorina, be forced to watch endless repeats of the classic Monty Python ‘Dead Parrot’ sketch until she grasped that a merger with Compaq wasn’t the great idea she thought it was.

At first glance, the idea of an arranged marriage between Compaq’s Capellas and HP’s Fiorina, didn’t seem such a bad idea. After all both companies were struggling in the PC space against a highly aggressive Dell and Hewlett Packard had a hugely profitable printing and imaging business. Both companies were looking to leverage the economies of scale that would accompany a merger pooling their portfolios and simultaneously create a giant to squash Dell, rival IBM and partner with Microsoft, Oracle and Intel at the very top of the Enterprise.

As Compaq’s Capellas pointed out, a successful merger would see the industry consolidated down to five major players. The new HP/Compaq, IBM, Sun, Dell and EMC. Two of these, IBM and HP/Compaq would offer business a complete portfolio of products and services while the other three would offer only pieces of the puzzle.

Enterprise customers are increasingly demanding simplicity. They want to deal with fewer suppliers and are no longer keen on proprietary technologies. The world wants industry-standard building blocks these days rather than a mixed bag of liquorice allsorts and both Compaq and Hewlett Packard have recognised that take separately, their own portfolio isn’t enough to guarantee a place in a highly competitive and service oriented future.

What seemed like a good idea for Fiorina wasn’t a great idea in my mind, principally because these kinds of mergers rarely succeed. You only have to look at Compaq and Digital as an example of two cultures in collision. This acquisition arguably crippled Compaq. It lost its nimbleness, took its eye of the ball and let Dell lift swathes of its traditional market from right under its nose. Why should anyone think that a similar exercise with Hewlett Packard should be any more successful even if 15,000 jobs are cut as a result?

Integration takes time and a merger on this scale will be very painful indeed. The problem though, is that it’s to late to turn back. Whether it’s a good idea or not doesn’t matter anymore as both companies have come close to admitting that there is very little future in not merging, a view hardly likely to inspire great business confidence in either Compaq or Hewlett Packard. There’s no denying that both companies have some great products and good people but operationally, one needs to think of them as being like two huge cruise liners attempting to moor against each other in heavy seas. This industry moves extremely quickly and there’s a real danger that while the newly weds are busy setting up home, this new business will lose both momentum and message and opportunities will be lost forever.


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