Meg Whitman: HP will offshore 60% of the jobs in its ‘essential’ business unit

Hewlett-Packard will offshore 60% of its workers at its consulting unit, HP Enterprise Services, CEO Meg Whitman told investors Tuesday during the company’s annual analyst meeting.

In 2013, 36% of ES workers were in low-cost offshore locations like Manila, Philippines; Costa Rica; and Bangalore, India. By 2018, 60% of them will be low-cost offshore locations. The company is currently at 40%, the unit’s general manager, Mike Nefkens, said at the meeting.

“Three or four years ago, I never would have thought we’d need to get to a 60% offshore mix,” Whitman explained.

But if “we’re going to be competitive … we have to get to that kind of offshore mix. We have to fundamentally recreate the labor pyramid. Many of you have heard me say that our labor pyramid looks like a diamond — it needs to look like a triangle, and frankly it needs to look like a quite flat triangle,” she said.

Yet she denied the rumors running rampant inside the company that HP is hoping to sell the unit. She repeatedly called ES “essential” to the new HP Enterprise company she’ll be running after November 1. She wants consulting to help HPE sell its software, cloud, and hardware products.

The jobs that won’t be offshored are those working on government contracts, which often require the jobs go to local workers. HP has a few huge government contracts, such as running the US Navy’s Marine’s network.

So how many jobs?
We don’t know exactly how many jobs will be affected, but we can make an educated guess.

HP ES was formed in 2008 when HP bought EDS and added about 139,500 people in 60 countries to its payroll. By 2012, HP had shed about 30,000 workers from HP ES, employees told us. Since then, HP has been in the process of cutting 55,000 jobs, many from ES, and last month said it will shed another 5% before the company split into two.

After it splits, the HP Enterprise company will keep cutting. Tim Stonesifer, chief financial officer of the new HPE, expects to trim another 25,000 to 30,000 jobs. Most of them will come from ES.

HP has found other ways to shed HP ES jobs, too, such as when General Motors hired the 3,000 HP ES workers in 2012 who were running its IT department, a move GM called “insourcing.” In the past few months, HP has shifted several hundred ES workers to contract status as employees of its partners, too.

So an educated guess will put the HP ES unit at maybe 50,000 or so people by 2018 — unless HP adds headcount back with a big acquisition or a lot of hiring — with perhaps 30,000 of them working in low-cost offshore locations.

HP has promised that, when the dust settles, the unit will have profit margins of 7% to 9%. In addition to cutting labor costs, HP will do this by closing and consolidating data centers, using more automation technology, and pinching pennies elsewhere, Nefkens said.