Automation – The HP way and the new competitor for your job
HP announced today that it plans to reduce 9,000 employees in their enterprise services business unit and automate the service offerings to their customers. The task will involve consolidating data centers, management platforms and automate delivery to their customers including data center management. Over the last 18 to 20 months HP has been integrating EDS into their platform and has eliminated a number of job roles. HP had announced that it would layoff 24,600 people when it made the EDS acquisition. The new announcement of the 9,000 job cuts is in addition to the one announced earlier.
As services move from dedicated infrastructure support to cloud based, automated, remote management and delivery model, automation would continue to play a key part in the delivery of solutions. Meaning that human touch and interface required to offer services to end customers will continue to taper down.
The internet, telecom have already created a global network where delivery from low cost location is an integral component of any service offering. There are tools available today and the infrastructure at very cost effective prices to find talent at remote location and deliver to clients remotely. Not just remote infrastructure management type of work but other work involving IT application, development, Operational processing. That is evident by the rise of the outsourcing industry across the globe and in India. What HP seems to be preparing for is the next stage of global delivery, automation which will further reduce the number of people needed to deliver services. HP is doing this trying to anticipate the industry move to a new operating model of cloud computing, virtualization and trying to build a more automated, lean organization for delivery.
Specifically on the outsourcing/offshoring side another factor which affects firms like HP is that the deal sizes where the larger firms needed an economy of scale to win , deliver and profit is reducing. After the financial crisis last number of years, companies are making very few 10 year, large scale transformation deals and more cautious and short term in their dealings with service vendors. So larger deals which support the scale of say an HP are going to be less the norm and more an exception. I do think that this may also effect how mPhasis which was acquired by EDS before they got acquired by HP operates. mPhasis will be more integrated into the new HP and will not be able to remain a standalong entity. Given that HP is a major client for mPhasis this seems more of a given than an option for mPhasis.
Federal government and State Government with all their deficit are in the same boat when it comes to doing large purchases.
I was in a recent conference where people were talking about how to promote certain areas in the south to be the preferred destinations for data centers. A take away with data centers is that creation of data center should not be equated to creation of jobs, or replacement of jobs which may have been lost in some other industry. Large data centers require limited set of people to run and manage the operations. So setting up data centers or preferred locations for data centers is less dependent on talent availability and more on cheap power, telecom and higher local tax subsidies. Basically large data centers are good source of tax revenues ( after a number of years when the subsidies run out!), political grandstanding and not technically large scale job creators. So as the world moves to the cloud, service providers like HP, IBM have the capability and will continue to build capabilities to deliver services with lower headcount globally. Productivity gains have always resulted in being able to do less with more and firms tend to do to save cost and as the business demand changes this get more critical.
So the combination of cloud, global delivery models, automation will continue to challenge the US corporate to find ways to create jobs stateside. HP has indicated that they plan to create around 6,000 jobs but majority of those will be in sales and client delivery. Wonder if the corporate America structure for service organization over the next 5 years is going to look like a pure sales organization where the delivery is either automated or happening from low cost locations ?
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