The in thing: Outsourcing

Ann Livermore's job just got more interesting.

Livermore, who has been head of Hewlett-Packard's services unit for the past three years, earlier this month took on the added responsibilities of the company's high-end computing business.

Before the restructuring, designed partly to sell HP's range of products more effectively to large organizations, Livermore was in charge of a unit bringing in about $12 billion of HP's roughly $73 billion in revenue in its last fiscal year. Now she's the head of divisions that accounted for about $28 billion.

Of course, this promotion to lead what HP calls its Technology Solutions Group still could be seen as small potatoes by Livermore. After all, she was viewed as a top candidate to take HP's CEO post several years ago. But Livermore, a 22-year HP veteran who speaks with a hint of her native North Carolina accent, says losing that position to Carly Fiorina is "ancient history."

For now, Livermore says she's pleased to be leading HP's charge in areas such as business process outsourcing (BPO). The company recently entered this budding field, which involves farming out tasks such as payroll and invoice processing, by winning a contract with Procter & Gamble to handle finance and administration duties.

CNET News.com recently spoke with Livermore about the company's new structure, its BPO strategy and her own role at HP.

Q: Why the change in organizational structure?
A: The Technology Solutions Group will include a broader portfolio of businesses for HP. It includes our storage business, our server business, our software business and also our services business. A lot of the focus is on how do we continue to drive market share and leadership in each of the individual categories and yet at the same time how do we take advantage of the power of our portfolio when we are competing against some of our more focused competitors who might not have the strength and capabilities of HP.

It sounds a little bit like IBM's strategy. They are trying to market themselves as if they are able to do everything at once.
HP is definitely not trying to be like IBM. We want to position ourselves as a different kind of player, a different kind of partner in

HP is definitely not trying to be like IBM.

the industry. I think one of the big differences is around our partnerships with systems integrators and software companies. If you look at the way HP partners with Microsoft, with BEA, with Oracle, with Accenture, with Deloitte, it is very different than IBM would. And we believe that the power of those partnerships is a big differentiator for us in the market. The sales organizations in all those companies are working along with HP, and we are both generating business for each other. So if you think of the power of the R&D investment or the power of the sales investment when you are working with those kind of companies, it is tremendously different.

With this change in the structure will there be layoffs?
No. We are trying to do three things. We are trying to accelerate growth and to be able to have our sales teams be able to more easily sell the overall portfolio that we have and bring that to the marketplace. The second thing that we are trying to do is just to simplify our structure and our organization. After we have been operating in this model for the first two years (after the Compaq acquisition) as a merged company, there were some things we thought we could do to simplify processes and also to simplify the structure a little bit.

The third thing is that by having our sales teams integrated together, it allows them to sharpen their customer focus even more.

In the last two quarters the services growth lagged behind the company's overall growth.
If you look back at the last quarter (ended Jan. 31), what you saw is very different growth rates depending on the segment of the services business. So the consulting and integration business in our first quarter had negative growth.

Down 10 percent.
Yeah, down 10 percent.

But in managed services--and that is outsourcing--you guys had 27 percent year-over-year growth. What is going on there?
There's a couple of things. One is that HP has really been able to establish as the new "tier one" player. So we are getting really good market reception to HP, and we are winning bigger deals than we have won before.

If you look more broadly at the market, there are four things customers are looking for that we are able to provide to them as an outsourcing contract. They are looking for cost reduction: How can they reduce the cost of managing and operating their IT environment?

The second thing they are looking at is quality levels, how can they

We are winning bigger deals than we have won before.

improve the quality levels and service levels that they are delivering. Often if they are a global company, they may have certain geographies where they cannot provide the service levels as high as they would like. Maybe they are having problems in Asia; maybe they are having problems in China; maybe they are having problems in Eastern Europe. Very often, the companies or customers are having problems in the area of their businesses growing the fastest, but that has the least maturity.

The third point is around managing risk. How do you ensure you have the business continuity, and if you have any security issues that those can be addressed? The fourth area has to do with being able to be flexible and adapt quickly. They wanted someone to help them be able to change their IT environment more quickly based on changes that are happening in the marketplace.

Do you hear the argument that IT is just getting too complicated for us to handle and we do not want to worry about this?
Some customers will say that they believe they cannot keep up with the change and all the technologies and knowledge they need to manage the environments. I guess that is similar to saying it is too complex and they want to have someone who is more of an expert and has the critical mass and the scale advantages to take it over and manage it for them.

You just started moving into business process outsourcing as of last month. Why did you go and offer P&G the finance and administration service?
We wanted to participate in the BPO market in one focused area. One of the things that you will see over and over again about the HP services strategy is we will pick an area and we want to be deep and strong in that area as opposed to being wide and thin. We took the same approach with business process outsourcing. We chose one segment, finance and administration, and we are building off the best practices and the transaction processing engine we created inside HP for HP.

You mentioned that you can handle 4 million invoices per year. You are outsourcing HP's own finance and administration operations into the services unit?
Yes. Just like we do outsourcing of IT operations, and finance and admin for P&G, the CIO at HP has outsourced IT operations to HP Services, and our chief financial officer has outsourced financial transaction processing for F&A to HP Services.

How long has that been happening?
That just happened back in November. So in both cases, we took resources that had been inside HP, just like you do in an outsourcing deal, and transferred them into HP Services. So I have part of the finance and admin team from HP who are now in our BPO practice.

What makes this an interesting market to you? Don't you risk having lower margins with some of the transaction processing? Doesn't it involve a lot of people, actually, at some point looking at pieces of paper and figuring out what to do with it?

We think that one of the next big waves in the service industry is around business process outsourcing.

We think that one of the next big waves in the service industry is around business process outsourcing. We believe that there is a human component to it in terms of your point of taking a lot of people, but much of the benefit comes from automation.

Tell me what you are automating, for example.
Well, you automate the way you do the transaction processing. So how you use document management systems, how you use the database and archiving and search capabilities, how you automate work flow processes. There is a lot of automation that can be done to something like a finance and admin process.

Do you expect to go into other arenas also, besides finance and administration?
We are focused on the finance and administration area. We are going to continue to build that out. There are a few areas that touch finance and admin that some people call finance and admin, and some people do not, like employee reimbursement services. Some people do that out of HR. Some people do that out of finance and admin. Some aspects of payroll, some people do that out of finance and admin and some people do them out of HR.

So those things that are gray around the edges we'll include, because it is important for customers who have that grayness. But we are going to stay focused in that particular area.

Can you give me any kind of targets for the amount of business you expect to do in BPO this first year?
We have not put out a specific financial target associated with it. We have a couple dozen request-for-proposals that we are participating in right now and pursuing those opportunities that are well-qualified leads. We are approaching it more like a start-up would. You are going out and you are fighting hard for your first businesses.

How are you going to offer these things in terms of the work force? Are you doing this out of your lower-cost facilities in India or China?
Our hub is in Bangalore. We also have some of the work being done out of Guadalajara, and we also have a site in Singapore. We have one more location in Spain.

I was curious about what it was like to not get the top spot at HP. You were in the running along with Carly. Can you talk about what that experience was like, and do you hope to run a company like HP at some point? Is that one of your ambitions?
For me that is ancient history. I think Carly by far was very clearly the best possible candidate the board could have chosen to run HP when they made that selection. We have made just unbelievable strides. We were able to successfully do the biggest merger in the history of the technology industry and completely reposition the company as a result of it. That takes a really strong CEO. I feel great about the decision that was made for her to be the CEO because I think it has been a good thing for the company overall.

And I feel like I have got one of the best jobs in the industry. When you look at the combination of things that I am responsible for right now inside of HP, it is hard to see a combination of things that have more growth opportunity for the business or more potential shareholder value creation than what we have got inside of the new Technology Solutions Group.