Siebel Systems' Strategic Partner HP (NYSE: HPQ) plans to reduce its workforce by by 14,500 employees, (or about 10% of its staff) and modify its U.S. retirement benefits programs. The move was taken to simplify HP's organizational structure, reduce costs and place greater focus on its customers. The company expects to save $1.9 billion annually as a result of these changes.
Beginning in fiscal 2007, HP expects approximate ongoing annual savings of $1.9 billion, composed of $1.6 billion in labor costs and $300 million in benefits savings. In fiscal 2006, HP expects savings of between $900 million and $1.05 billion.
"I think we know what we are doing," said Mark Hurd, HP chief executive officer and president in a conference call after the announcement.
HP plans to simplify its organizational structure by embedding sales and marketing efforts into the business units. The company will dissolve the Customer Solutions Group (CSG) - a standalone business group responsible for sales to enterprise, small and medium-size businesses and public-sector customers. It will merge the sales function directly into three individual business units - Technology Solutions Group (TSG), Imaging and Printing Group (IPG) and Personal Systems Group (PSG).
"I don't have a very high affection for matrices. We like to have accountability," continued Hurd. "While I know the head count numbers set the headlines, it's not how we approached it. We approached it by trying to eliminate multiple decision makers."
Headcount-reduction plans will vary by country, based on local legal requirements. The majority of staff reductions will come in support functions, such as information technology, human resources and finance. The remainder will be made inside the business units. To facilitate these reductions, HP will offer a voluntary retirement program in the United States. Reductions in sales positions will be minimal. There will also be little change to headcount in research and development.
In addition, HP is modifying its U.S. retirement programs. As of January 2006, the company will freeze the pension and retiree medical-program benefits of current employees who do not meet defined criteria based on age and years at the company. Instead, HP will increase its matching contribution to most employee's 401(k) plans to 6 percent from 4 percent.
These changes will not affect benefits currently received under such programs by retirees or eligible employees who are longer-serving and close to retirement age. Additionally, existing employees will retain the benefits they have already earned.
Following the dissolution of CSG, Michael J. Winkler, 60, will retire from his position as executive vice president of CSG, after nearly 10 years at HP and Compaq and more than 35 years in the IT industry.
Cathy Lyons, a 26-year HP executive, was named executive vice president and chief marketing officer. Todd Bradley, formerly president and chief executive officer of palmOne, was named executive vice president of PSG. Randy Mott, formerly chief information officer at Dell and prior to that at Wal-Mart Stores, Inc. for 22 years, also joined HP as executive vice president and chief information officer.