I bet you never even knew the computer technology giant HP was short for Hewlett-Packard!

Originally founded in 1939 by Bill Hewlett and Dave Packard, HP has announced that the company will split into two businesses, separating its computer and printer business.

However, both divisions will still be under the “HP” brand. Such a decision is compelling because you’d expect if a company would split, it would be into two different companies under a different name and will run its own course. Therefore, it is interesting to explore why HP has made the choice to split if there weren’t many explicit private benefits to offer.

CEO Meg Whitman claims that splitting will give them the “flexibility they need to adapt quickly to market and customer dynamics”. This suggests that HP was suffering from diseconomies of scale, which are problems that hinders efficiency after a company has grown too large. In this case, I believe that there were troubles with communication between the company hierarchy as both the computer and printer business had to act as one, causing decision making to be slower and not for the best of both divisions.  

With the split, both companies are now smaller in size and the managerial burden is lessened. This means that both companies can make faster and correct decisions because there isn’t a large hierarchy and also because they are more focused on their one market, which as Meg Whitman has said, should allow HP(s) to adapt quickly.

Both HPs can now adopt a focus differentiation strategy to target specific segments more effectively.

Another benefit that HP can have is that by splitting, they are now effectively two separate companies and can be listed as such. This means that if both goes public, their IPOs may arguably gain more financial capital than if they were one company.

There are many complications with large company restructures such as this one. A major disadvantage to all stakeholders are that many jobs are lost in this process. This reduces the company size, creates unemployment and the government gets less tax revenue, effectively lowering economic activity.

Another problem is that both HP is smaller in size but also increasing in costs. Both companies still have to play for administrative and marketing costs that it previously had to only pay as one company, which may have justified letting employees go to make up for the increased cost. The companies now are also smaller in size, which may lose economies of scale for purchasing components.

Only the future will tell whether this decision would lead to a new era for HP computers and HP printers or cause its downfall.

http://www8.hp.com/us/en/hp-news/press-release.html?id=1809455#.VFmCr_ldX0Q

http://www.forbes.com/sites/panosmourdoukoutas/2014/10/07/hps-split-a-sound-strategy-or-a-rabbit-pulled-out-of-a-hat/