HP Ethics and Compliance: Driving Operational Efficiency
This paper examines Hewlett-Packard's "Driving Operational Efficiency" initiative, launched in 2006, which sought to reduce operating expenses through real estate consolidation and workforce restructuring. Drawing on HP's 2009 and 2010 Annual Reports, the paper analyzes the financial planning implications of large-scale layoffs—including the elimination of approximately 9,000 positions from initial restructurings and 25,000 from the EDS acquisition—along with the associated costs, projected long-term savings, and potential risks to sales growth and employee morale. The paper concludes by framing HP's strategy within Michael Porter's Value Chain framework.
- Driving Operational Efficiency: Overview of HP's 2006 restructuring and layoff initiative
- Initiative and Financial Planning: Short- and long-term financial impacts of restructuring
- Initiatives and Cost: Data center consolidation and long-term cost savings
- Initiatives and Sales: Workforce reductions and effects on revenue growth
- Risks and Financial Effects: Regulatory, morale, and operational risks of restructuring
- Summary: HP strategy framed through Porter's Value Chain
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What makes this paper effective
- The paper grounds every major claim in direct quotations from HP's official Annual Reports, giving its financial assertions strong evidentiary support.
- It balances short-term cost impacts (severance charges, facility write-offs) against long-term strategic benefits, providing a nuanced financial picture rather than a one-sided analysis.
- The conclusion ties the operational details back to an established academic framework—Michael Porter's Value Chain—elevating the analysis beyond descriptive reporting.
Key academic technique demonstrated
The paper demonstrates source-anchored analytical writing: each section opens with a clearly defined concept, supports it with direct quotations from primary corporate sources, and then interprets those figures in the context of broader business strategy. This technique is especially effective in business and ethics papers where credibility depends on verifiable data.
Structure breakdown
The paper is organized into six thematic sections that follow a logical progression. It opens by describing the initiative itself, then moves through financial planning implications, cost analysis, sales impact, and risk assessment before concluding with a synthesis that connects HP's actions to Porter's Value Chain model. Each section is self-contained but contributes to a cumulative argument about the strategic rationale for HP's restructuring program.
Driving Operational Efficiency
Launched in 2006, Hewlett-Packard's (HP) initiative "Driving Operational Efficiency" aimed 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 was "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). In brief, these workforce restructurings involved 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 that must be considered. For HP, the financial impact of these initiatives would be, in the long run, to reduce costs through streamlined operations. However, in the short run there were cost and expense increases, particularly as they related 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 anticipated 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 positive effects on revenue growth and expense control were expected to increase shareholder value in the form of higher earnings per share. Restructuring charges would result in the material impact of increased expenses on the income statement as both cash and non-cash charges. HP effectively planned for the phasing in of these initiatives over a multi-year time period and 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 also the anticipated long-term cost reductions that would result from operational efficiency. Looking at the consolidation of real estate locations and core 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 are ultimately balanced against cost incurrence, and HP appears to have found the right mix.
References
Hewlett-Packard Website. (N.D.). Driving Data Center Transformation. Hewlett-Packard Company. Retrieved January 26, 2011 from
Hewlett-Packard 2009 Annual Report. (2009). Hewlett-Packard Company.
Hewlett-Packard 2010 Annual Report. (2010). Hewlett-Packard Company.
QuickMBA. (N.D.). Strategic Management: Value Chain. Retrieved January 26, 2011 from http://www.quickmba.com/strategy/value-chain/
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