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HP's PC biz braced for SAP hell

Server fiasco redux?

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Exclusive HP's customers should prepare for round two of the company's product ordering fiasco. Insiders have revealed that the very same problems which crippled HP's server business last year will likely hit the PC operation. The reason? The business side of the house can't play well with the IT staffers.

HP stunned investors and customers last August when it revealed that a botched roll out of a new server ordering system cost the company $400m in lost sales. Under a project code-named Genesis, HP is currently figuring out how to bring the same SAP-based ordering system to the PC side of the house. The problem, however, is that management didn't learn from past mistakes and is once again trying to force a real-time ordering mechanism onto systems not ready to handle the code.

The Register interviewed several people within HP for this story - all of whom spoke to us on condition of anonymity.

"There is a very intelligent group that knows how SAP works and knows how to get a project like this done quickly," said one source. "But this expertise is being squashed by an IT management group that says: 'You don't know what you are doing.' It's the same management group that was in charge of the server project."

The pain of HP's server collapse is still being felt. For months, customers complained of delayed orders, incorrectly configured systems and often duplicate orders. HP staffers at one point had to hand-label shipments of servers since their ordering system could no longer do the work. Now, one source has revealed that HP will likely have to take another charge - on the order of tens of millions - when it reports first quarter earnings. The charge will cover lost inventory - HP simply has no idea where some of its server hardware went.

SAP Rising

HP kicked off the Genesis effort hoping the SAP system would improve its ability to handle direct sales. The software makes it possible to order custom products, allowing HP to compete better with direct order king Dell. Should the plan work, HP would likely see a big payoff if its Fusion server project is any indication.

"As much pain as Fusion caused us, and we lost lots of business because of it, it's paying off big time now," said one source. "Before, when a customer ordered a 'configure-to-order' model, we had to open up existing boxes and remove drives, processors and memory. It was just that our supply chain was so messed up. We had to tear apart machines that were already built just to accommodate an accounting system.

"Now we have the facility to build a server from a bare chassis and add CPU, memory, etc., to a customer's specification. As much as we got dinged in our Q3 sales, it ended up being a good thing in the long run."

Our sources, however, point to a cultural divide within HP that is letting history repeat itself. Numerous staffers warned HP not to roll out the server SAP system until it had been more thoroughly tested. The IT Management team hid critical problems from the business side of the house and then made it look like the business team insisted that it be pushed out anyway.

Now, those same managers - most of them pre-merger Compaq - are trying to shove Genesis out before it's baked. The business managers have already pulled Gensis away from the IT staff, our sources say. This is resulting in problems at HP's Houston plants and potentially at a plant in Brazil where the SAP system is being considered.

"One of these managers wants to keep an old application in the new system just because he wrote it," a source said. "They're trying to cram a legacy shipping system into a real-time ordering system. The legacy stuff just doesn't work the way it needs to."

When the server disaster hit, some pundits called on HP to hire an outside operations chief - someone who could step in and place tighter controls on the company. Another source has indicated that might not be such a bad idea due to the massive disconnect between management and reality.

Bad blood

"HP is traditionally very methodical, over-cautious and slow," said a former high-ranking HP staffer. "Compaq folks are the opposite. There is this obsession with being very aggressive and risky.

"They're coming from a PC organization and aren't used to handling complex configurations. You have to understand how a business runs, how customers order, how material is purchased. This is detailed knowledge you have to have of the operations. They don't understand that."

Some of these problems stem directly from the top - CEO Carly Fiorina - said the same source.

"Carly is very, very aggressive in how she sets her goals, and she doesn't like to hear 'no'. I think people try to tell her about the problems, but you don't get anywhere. That kind of percolates its way down to the rest of the company and is sort of a disease."

It's no secret that bad blood has existed between the old HP hands and Compaq staffers for a long time. In fact, HP staffers are notorious for complaining at length about the company's problems since the merger closed. The fissures, however, between these groups now seem to be resulting in serious operations problems and not just vocal attacks.

It's somewhat shocking to think that HP fired three top executives to make amends for the server gaffe but has kept the two main people in charge of the project on board and now placed them in charge of Genesis. That decision could crush another quarter if Genesis ends up being the horror the insiders describe. Ironically, HP - great promoter of the Adaptive Enterprise - can't adapt.

To that end, the Wall Street Journal today reported that HP is considering moving some of Fiorina's work to other executives.

"Under the reorganization plan discussed by the board at San Francisco's Park Hyatt Hotel, three HP executives would gain more day-to-day control," the paper reported. "They are Vyomesh 'VJ' Joshi, who leads HP's printing and personal-computing division; Ann Livermore, head of services and enterprise computing; and Shane Robison, the chief technology and strategy officer, people familiar with the matter said. One person close to the situation said Ms. Fiorina initially had resisted the moves, but by the end of the session had agreed with directors and was on good terms with them."

HP still has time to correct its mistakes. It could take a long, hard look at how Gensis is progressing and get better communication going between the managers and IT staffers. If it doesn't do this, it might be time to order a PC. There's a good chance you'll get two for the price of one in the mail. ®

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