Deconstructing Hewlett Packard: More Clues to Indigenous Productivity

Remember the game show, Name That Tune? (Look it up…)

What if I told you that the basic rubric from that game show – naming a song in fewer notes than your opponent – was useful for predicting all kinds facts about trading and other financial businesses.

Tell me your trading strategy and AUM, I can tell you how many employees you have.

You are an investment bank with 30,000 employees, I can guess your total technology budget.

The list of triangulations like this are actually quite long…

Seem strange? Here’s some insight:

As many of you know, Alphacution is studying the engines of productivity for the full spectrum of financial services firms – and many of their supply chain counterparts – by measuring, modeling and analyzing technology spending patterns and other operational data. Though still relatively early in the game, this research mission has already given birth to a standardized benchmarking framework – “T-Greeks” – that allows us to quantify consensus behaviors within a community of similar entities and determine who is leading or lagging relative to that consensus over various points in time. Moreover, this framework, at least so far, seems to be without peer. In some ways, this journey feels like what it must have felt like in the manufacturing sector before Six Sigma. Today, all stops on the financial services spectrum are undergoing their own lean and agile revolution.

The point of this preamble is to underscore the fact that a necessary aspect of our research mission is the development of a fair amount of new terminology; new language that describes concepts and outcomes with greater precision than existing language. And, yes, a fair number of new obtuse acronyms come with the territory, as well.

For this post, we want to focus on the concept of indigenous productivity. Oddly enough, we have used other terms to describe the same or similar concepts. Technical leverage and technical signatures are two such examples. (Maybe this is our experiment in throwing things against the proverbial wall to see what sticks.)

The analytic, revenue per employee (RPE), is among our favorites. We have calculated it – over time – within all of our models. What we discovered already is that each business type has a fairly predictable RPE level and range. And, generally, the higher the RPE, the more technology is playing a role as the engine of productivity. This is where we arrive at the concept of indigenous productivity; the idea that each business type has a general level of automation in its workflows that yields a fairly predictable level of RPE.

What follows is one of the more fascinating examples of this concept in action: In the chart below, we illustrate the RPE level of Electronic Data Systems (EDS) – remember them?! – from 2000 until its acquisition by Hewlett Packard (HPQ) in 2008, the RPE of the combined companies from 2008 to 2015, and finally, the RPE’s of Hewlett Packard Enterprise (HPE) and HPQ after their separation in 2015.


This scenario illustrates our point about indigenous productivity: The hardware business generates high RPE. Though elevated due to pre-split “window dressing”, these figures are consistent with the recent RPEs of firms like Intel, Dell and Lenovo. By contrast, the service side of the business generates low RPE. These figures are also temporarily elevated, but are consistent with RPE levels for Unisys, Atos, CSC and PwC. The combined business represents the weighted-average RPE of the two business types – which is higher, but roughly comparable to IBM. These types of similarities have been found in all types of businesses we model.

Now, one last thing: You will notice that there are no numbers on the chart. We have them – and our clients have access to them. Sometimes we share important numbers for free. But, for the purposes here, I wanted to get back to the point about language. Not only is Alphacution creating some new words, there is also a visual language in development here, as well. What is the “shape” of HP’s productivity? What is the shape of IT services productivity versus hardware productivity?

As you begin to learn the meaning behind a few new words – and the context surrounding a few simple shapes – you, too, could learn to name many tunes in just a few notes…

By | 2018-02-28T16:32:26+00:00 May 16th, 2017|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact:; Follow: @alphacution.