HP Getting Heat From Major Financial Customers

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Representatives of JPMorgan Chase and Black Rock are expressing concerns about Hewlett-Packard’s management decisions and viability following revelations about the Autonomy acquisition fiasco and ongoing management struggles to return the company to stability and growth.

Representatives of JPMorgan Chase Co. and Black Rock Inc., two large and influential financial institutions, are openly expressing concerns about Hewlett-Packard Co.’s management decisions and viability following revelations about the Autonomy acquisition fiasco and ongoing struggles to return the company to stability and growth.

While major customer criticisms such as these are just the tip of broader concerns among clients and partners, they’re often a catalyst for substantial action and change.

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HP products and services are not at issue; both JPMorgan Chase and Black Rock say they appreciate the products provided by HP. The issue is the underlying stability of the company, management’s ability to make sound and strategic decisions, and future business development that will ensure constituent service delivery.

Poor management and the consequences of poor business decision-making, they say, will ultimately affect customer confidence and relationships.

"You really want to understand what your reliance on vendors is and how that puts delivery service at risk," said JPMorgan Chase CIO Richard Anfang, as reported by Reuters at an IT conference produced by Waters magazine. "Where do you have single points of failure, where do they not have resiliency – everything from a Verizon central office switch flooding during the hurricane to accounting scandals with HP. You need to think about your vendors and manage the execution risk."

Customers and partners have quietly expressed concerned about HP’s management and strategic direction since the near-meltdown in the summer of 2011, when HP abruptly withdrew from the tablet market and contemplated getting out of the PC business. At the same time, HP acquired Big Data software vendor Autonomy for $11.7 billion despite internal dissention and external criticism.

Since then, HP has struggled to right the company to a stable position. The latest incident to erode confidence is revelation of accounting irregularities related to Autonomy, which prompted an $8.8 billion write off related to the acquisition. In the last year, HP has written off more than $20 billion related to bad acquisitions.

"I like [HP’s] equipment, and I would like them to continue being a supplier, but I need them to be a better company," said Black Rock CIO Scott Condron at the conference.

Tough talk is never easy to hear, especially when it comes from customers that spend tens of millions of dollars a year on products, services and support contracts. HP has heard such criticism and concerns from other major customers and partners. John Chambers, CEO of Cisco Systems Inc., has been unusually vocal about HP’s predicament and the challenges facing his peer, HP CEO Meg Whitman. And many HP partners have expressed concerns about the company’s direction and inconsistency in go-to-market strategy and execution.

The customer criticism, such as those by JPMorgan Chase and Black Rock, means the market is getting frustrated with the slow and inconsistent pace of change and the lack of definable milestones that reflect progress.

This isn’t necessarily a bad thing. History has shown major financial institutions and their fat IT budgets are tremendous motivators for big IT companies struggling with thorny issues. In 2000, a group of major banks and financial institutions sat with Microsoft Corp.’s Bill Gates, then CEO, warning that if the software security issues weren’t fixed, they would find a different supplier. Gates was already getting the same pressure from federal customers that worried about the integrity and security of government data and systems.

The result of customer pressure prompted Microsoft to launch its famed Trustworthy Computing Initiative, a crash program that stopped production on all Microsoft products for months while it retrained developers, ISVs and partners on secure coding techniques. The program delayed the launch of Windows XP by months, but the result was a more secure operating system. Trustworthy Computing went on to become the Security Business Unit, producing more secure software and security products.

HP isn’t oblivious to customer sentiment, frustration with its performance or aggravation among supporters (customers and partners alike) with its slow pace of change. The Autonomy accounting fiasco and the war of words with former Autonomy CEO Mike Lynch is propping the latest wound open, which only complicates its ability to change perceptions. Perhaps a little pressure from the companies that write big checks will motivate faster change.

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