Silicon Valley technology giant HP will lay off as many as 30,000 more people as part of its split into two separate companies, the company told analysts this week. This comes on top of the 55,000 jobs HP has been in the process of shedding in recent years. Even so, HP is still as large as a mid-sized US city. As of May, according to Forbes, the company numbered 302,000. But what in the world do all those people do?
In an era in which WhatsApp can serve 900 million users with just 50 engineers, the massive enterprise tech company feels like an anachronism. In HP's case, its huge headcount doesn't even include outsourced labor, such as call center operators or the assembly line workers who actually build all those printers and laptops. But it turns out that the business of selling technology to businesses has long required something old-fashioned: lots and lots of people (at least for now).
The typical consumer probably thinks of HP as a printer and PC company, but it's much more than that. It's also a massive information technology consulting operation with a large portfolio of business software and cloud computing offerings. HP's forthcoming reorganization will create two businesses, one called called HP Enterprise, which will include its consulting and software businesses, and the other called HP Inc., which will continue to sell printers and PCs. The current round of layoffs are aimed at the HP Enterprise side. HP doesn't break down how many employees work in each of its divisions, but HP Enterprise is likely where the bulk of its employees work, judging in part by the size of other large IT services companies (IBM had 379,592 employees last year; Accenture had 323,000).
Forrester vice president Peter Burris says the reason companies like HP and IBM need so many workers is that selling software to enterprise customers is far different from creating software for consumers.
All 900 million WhatsApp users use the exact same app. You download it an app store, and that's that. But big companies like banks, insurance companies, and large hospitals need software tailored to their particular needs. Instead of just building the application once and selling it to a client, these companies and their clients have an ongoing relationship.
That's because IT consultants aren't just going in and telling a customer what to do. Typically, the consulting firm is involved in planning, building, maintaining, and supporting new software. That means talking with employees about what they need out of a new piece of software, working with other software vendors on integrations between products, training employees, and fielding tech support calls. And that takes a lot of people. Many of those consultants work with customers on an ongoing basis, limiting the number of different customers any one employee can work with. That's the difference between making a software product like WhatsApp and selling consulting services.
"A product sale has a clear moment where a title is exchanged," he says. "But with services, the sale happens over time. It's a process, You're literally transferring knowledge about how to solve problems."
It's easy to be skeptical about whether customers are really getting their money's worth from big companies, considering that 68 percent of all large IT projects fail. Surely there are instances of a company overselling its services, or trying to save a doomed project by simply throwing more people at the problem. You can count on large bureaucracies to add inefficiencies and bloat to any project.
That's starting to change, however. Yes, "cloud computing" is an over-broad term, but cloud-based services like Amazon Web Services and Salesforce have changed the way large companies do business. It's easier than ever for a business manager to simply buy some software and have their employees start using it immediately.
In the past, even something as simple as an instant messaging application that integrates with your company's project management system would have been an ordeal to implement. You would have had to negotiate a price for a piece of software like IBM's Sametime, set up up a new server in your data center, install software on your employees' desktops, and hire consultants to integrate your project management software with the instant messaging server.
Today, you could just sign up for Slack, a trendy workplace chat app, and start using it over the web immediately without ever having to talk with a salesperson. Slack comes with dozens of integrations with other applications right out of the box. It even has an application programming interface—API for short—that makes it easy for app developers to build support for Slack right into their own products. And Slack is hardly unique amongst new age business apps in offering easy integrations. Tools like Zapier make it easy for even non-programmers to stitch different applications together. The upshot is that, increasingly, you don't need an army of consultants to get all your software up and running and working together.
Meanwhile, open source technology is making it easier to use freely available components, freeing software developers from building the same common features again and again. Cloud services and open source software were once most associated with small startups looking to save money. But as these startups—Facebook, for example—have grown into large enterprises, they've often stuck with these newer tools, and more established organizations are following suit.
Of course not all of a company's software can be replaced by off-the-shelf apps. And there are plenty of consultants that specialize in customizing cloud applications like Salesforce. But Burris points out that there's little to no advantage to building custom software for many common business processes, such as financial reporting or accounts payable systems. A custom payroll app probably won't make your company more competitive. So there's a strong incentive to simply move over to one-size fits all business applications that can be supported in much the same way WhatsApp is.
The HPs and IBMs of the world have responded to these shifts by offering cloud services and ready-made business applications of their own. That's a big part of why HP and IBM are shedding jobs right now. "In general software companies are better for owners than services businesses are," Burris explains. "In a software business, a programmer can write a piece of code that can be used by millions of different customers and users. That intellectual property, that information about a problem, is now made available to a whole pile of people at the same time."
But the good news for the armies of consultants working for these companies is that most older companies that still have enormous amounts of data stored in old software—what people in the IT business call "legacy" systems. It will take countless hours to modernize all of those legacy systems—and, Burris says the place most of these companies are going to turn are the legacy tech giants—companies like HP and IBM—that helped build a lot of these systems in the first place.
