“The last five years have had a heavy component of labor arbitrage,” said Ann M. Livermore, the executive vice president in charge of H.P.’s vast enterprise business. “You could move work anywhere in the globe where you find good quality labor at a good price.”
“The next five years will all be about who can best use technology to automate the delivery of services,” she said.
As far as self-serving arguments go, this one nestles right into H.P.’s wheelhouse. Before it bought Electronic Data Systems, H.P. spent billions of dollars on management software companies like Mercury Interactive, Opsware and Peregrine Systems. These companies sold products that place software on servers and storage systems, move applications around data centers and fine-tune the performance of the whole shebang using policies set by a customer.
H.P. bills this software as a sort of secret sauce for keeping data centers running smoothly.
“People make errors,” Ms. Livermore said. “Not technology. We’ll have software that will automate all sorts of things that had to be done by humans.”
It seems fair to say Ms. Livermore is not a devotee of “2001: A Space Odyssey.”
Of course, as statements like those arrive from Ms. Livermore, H.P. continues to deal with the labor arbitrage issues. It’s in the midst of laying off 24,500 people, about half of them in North America, from the the old E.D.S., while hiring people in lower cost regions.
Thanks to such cost-cutting, H.P.’s services operating margins hit 13.8 percent last quarter – the highest such mark for the company in a decade. But I.B.M. and Accenture boast operating margins nearing 15 percent for their consulting and outsourcing services businesses, while Indian companies range from 19 percent to 30 percent, according to A. M. Sacconaghi, an analyst for the investment research firm Sanford C. Bernstein.
Will automation software that helps boost H.P.’s margins also save customers money? Well, that’s the massive question of the day. Companies large and small have touted the panacea that automated management software brings for many years now without the software really living up to expectations. H.P.’s own services group seems to have a mixed opinion about how great its software products are.
Before it was bought by H.P., E.D.S. was in the process of rolling out BMC’s management software across its data centers, according to Bob Beauchamp, the chief executive of BMC.
“E.D.S. stood up and said that it would move as fast as possible away from H.P. automation software to BMC software,” Mr. Beauchamp said. “A few months later, H.P. bought them, and I don’t think they’ve said anything like that subsequently.”
Still, H.P. placed the largest order for BMC’s integration software during the company’s fourth quarter, Mr. Beauchamp said.
As H.P. has bulked up in areas like services and networking equipment, BMC has unsurprisingly made a host of closer friends. Cisco Systems and Dell, in particular, have put BMC at the heart of their software automation plays.
According to analysts, it makes perfect sense for the services and hardware companies to hit on automation tools as their next major marketing push.
“Labor costs are often the largest operating expense line item for many data centers,” said Dan Olds, an analyst with the Gabriel Consulting Group.
“Replacing labor with software automation, or at least using software to reduce the need for new headcount, is one of the easiest ways to reduce overall I.T. costs. Where you have to have labor, getting it done in places where time is cheap is also a solid strategy.”
According to Mr. Olds, H.P. has hit on a decent mix of labor and automation.
As for data center operators? Well, even the fanciest software has a ways to go before it starts doing away with administrators en masse. Still, it would seem that the major technology companies are dead set on making sure that software trumps labor eventually.
“This is the circle of life in the global economic jungle and has been happening for generations as machines do things that people used to do,” Mr. Olds said.
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