Hewlett-Packard's decision to freeze staff pay increases will scupper its much-hyped plans to develop a services arm to rival IBM Global Services, industry experts predicted today.
Peter Foster, principal analyst at IT services watcher Ovum Holway, said that the pay freeze would seriously hamper the company's ability to attract the calibre of staff necessary to grow its services division: "With other companies in the sector fairly buoyant, there is not much chance of HP attracting people with the right skills."
The pay-freeze announcement follows a series of cost-cutting measures that have seen HP lose some of the lustre off its image as a model employer. Earlier in the year, HP told its staff that they would be required to take unpaid annual leave.
At that time, John Williams, marketing manager for internet services and support at HP Europe, said that taking unpaid annual leave was preferable to job losses.
In July, HP announced that it was cutting 6000 jobs; a further, unspecified number of job cuts were made last week.
The ongoing merger with Compaq is seriously damaging HP's credibility as an IT services provider, added Foster. He explained that the merger would add to the headcount in HP's services division, and most of the extra staff would be concentrated in IT support, rather than the key area of outsourcing.
"The merger with Compaq will damage HP's credibility as a services firm by strengthening the perception that it is a hardware vendor," said Foster.
Since taking charge of HP, chief executive Carly Fiorina has sought to bolster the services arm of the company, in recognition that services offered a significant prospect of growing revenues.
HP increased the prominence of its service offering by promoting it as a separate division. It also tried to acquire PricewaterHouse Coopers last November. Following the failure of the PwC acquisition, HP had promised to make smaller acquisitions, and grow its services arm organically.
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