Ethics and Compliance: HP Ethics

Ethics and Compliance: HP Ethics and Compliance: Hewlett Packard Ethics and Compliance: Hewlett- Packard Driving Operational Efficiency Launched in 2006, Hewlett- Packard's (HP) initiative "Driving Operational Efficiency" looks to streamline and consolidate business operations in an effort to substantially reduce operating expenses year over year, while simultaneously improving productivity.

Specifically, the company advanced efforts "to reduce real estate costs by consolidating several hundred HP real estate locations worldwide to fewer core sites, and a multi-year process of examining every function and every one of our businesses and functions in order to optimize efficiency and reduce cost" (Hewlett- Packard 2009 and 2010 Annual Report.

Part of this dynamic is "a workforce restructuring program relating to the acquisition of Electronic Data Systems Corporation ("EDS"), a workforce restructuring program in fiscal 2009 relating to product businesses and a multi-year restructuring plan in the third quarter of fiscal 2010 relating to enterprise services business" (Hewlett- Packard 2009 and 2010 Annual Report). Succinctly these workforce restructurings involve considerable layoffs in an effort to reduce operating costs year over year. "Restructuring charges independent of the EDS restructuring are approximately $1.0 billion, including severance costs to eliminate approximately 9,000 positions and infrastructure charges.

For fiscal 2010, a restructuring charge of $650 million was recorded primarily related to severance costs" (Hewlett- Packard 2009 and 2010 Annual Report). Initiative and Financial Planning With any significant restructuring measures there are financial planning ramifications which must be considered.

For HP the financial impact of these initiatives will be in the long run to reduce costs through streamlined operations however, in the short run there are cost and expense increases particularly as they relate to employee severance packages, and charges related "to vacating facilities or ceasing using equipment before the end of their respective lease term or asset life, and the costs and timing of other activities in connection with these initiatives" (Hewlett- Packard 2009 and 2010 Annual Report).

Looking at the EDS restructuring, HP anticipates the plan "to be implemented over four years from the acquisition date at a total expected cost of $3.4 billion. The restructuring plan includes severance cost to eliminate approximately 25,000 positions" (Hewlett- Packard 2009 and 2010 Annual Report). These costs are significant however, the long run expectation of the positive effects on revenue growth and controlling expenses are expected to increase shareholder value in the form of higher earnings per share.

Restructuring charges will result in the material impact of increased expenses on the income statement both as cash and non-cash charges. HP has effectively planned for the phasing in of these initiatives over a multi- year time period, and has adjusted earnings guidance to reflect these incurred costs. Initiatives and Cost A discussion on costs must encompass not only the restructuring charges mentioned previously, but the anticipated long-term cost reductions that will result from operational efficiency.

Looking at the consolidation of real estate locations and cores sites, HP "consolidated 85 data centers into just 6; driving key initiatives in areas such as energy efficiency, capacity utilization, 24x7 resiliency and service automation. As HP's transformation effort demonstrates, consolidating local and regional data centers can bring substantial benefits. These include lower costs and higher availability; simpler, more cost-effective operations; and automation of routine management functions" (Hewlett- Packard Website. 2011). Cost savings is ultimately balanced against cost incurrence and HP seems to have found the right mix.

Initiatives and Sales The streamlining of operations, consolidation of real estate holdings, and workforce restructuring are primarily cost initiatives designed to effect and control expenses. That said top line revenue growth depends on increasing productivity from technological innovation and employee efficacy in implementation. Organic sales growth does depend on a committed workforce who has the tools and support requisite for success.

A potential obturation to sales growth may involve the significant decrease in employees: 9,000 as the result of the 2006 restructurings, and 25,000 resulting from the EDS restructuring (Hewlett- Packard 2009 and 2010 Annual Report). Certainly, as revenues become sustainable out of the global economic downturn there will be rehires and workforce expansion however, the timing of these actions must be coordinated with an overall HP global growth plan.

Risks and Financial Effects As the HP Annual Reports indicate "there are significant risks associated with our workforce restructuring programs, including potential delays in the implementation of those programs in highly regulated locations outside of the United States, particularly in Europe and Asia, decreases in employee morale, and the failure to meet operational targets due.