Culture Clash: Can Hewlett-Packard Really Integrate PricewaterhouseCoopers?

For Hewlett-Packard, the logic of acquiring PricewaterhouseCoopers massive consulting business is clear. Corporate customers in the Internet economy need integrated packages of hardware, software, consulting, and support services; they don’t have time to figure out the best systems and pull everything together themselves.

IBM’s transformation into a “solutions” provider is the envy of the industry. Hardware, software, and telecom competitors such as Compaq, Microsoft, Sun, Cisco, Lucent and many others are racing to beef up their services offerings in similar fashion, through a dizzying array of acquisitions, partnerships, and reorganizations.

But HP has never been able to fully make the transition from hardware to service provider, despite a number of attempts in recent years. Grabbing a 30,000 strong army of consultants with mega-clients around the globe could put HP into the top tier of technology and e-business services providers in one fell swoop.

The Securities and Exchange Commission is pressuring PwC, along with the other big five accounting firms, to split off its huge consulting arm to lessen the dangers of conflicts of interest with auditing clients. The stock market slide last spring made going public a less appealing option for PwC’s consultants, so selling out to HP may be their best move.

Despite the logic, HP will likely confront major challenges in successfully bringing the two companies together. First, acquisitions in the technology business are notoriously difficult. Compaq swallowed Digital more than two years ago and still suffers from indigestion. Lucent’s integration of the telecom consulting leader Ascend was similarly difficult. Cisco’s track record of successful acquisitions is the exception that proves the rule. And these are all technology companies buying technology companies. Integrating an enormous organization rooted in the buttoned-down world of New York management consulting and big five partnerships may well prove a cultural challenge beyond the capacity of the original Silicon Valley pioneer. PwC hasn’t even finished integrating its own legacy firms, Price Waterhouse and Coopers & Lybrand.

Second, HP’s internal culture remains locked in the box mentality. For all the creative energy of new CEO Carly Fiorina—and the pre-HP Fiorina was instrumental in convincing Lucent to give more weight to services—HP’s massive new advertising and branding campaign highlights the idea that “we invent great products.” Customer service is one of HP’s shining stars, but the professional services group has remained a best-kept secret.

The key issue, of course, is people. Professional services is all about people, and people notoriously flee from acquisitions. PwC and the other big five have already suffered a brain drain to the newer e-consulting firms and dot com startups. HP has always had a great reputation as a place to work, but the double culture clash may well overwhelm the kudos from work-life award givers.

What about an alternative? HP and PwC could combine their respective consulting groups and move toward a spinoff IPO of a whole new professional services firm. HP did recently spin out Agilent from a series of medical products, testing and other divisions. But professional services are the new crown jewels of the computer firms. How do you spin off the future?

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