Saturday, August 27, 2011

Committing Corporate Suicide - Hewlett-Packard

Many iconic brands of our times have struggled to propser or even survive in the last decade. Some have successfully transformed themselves: Apple under Jobs and IBM under Gerstner to name a few…Some have gone bust or bought out.

I have managed businesses of various sizes – hardware, software or services around the world but I have yet to witness a “strategic” restructuring program as poorly-planned, disruptive, disorganized, and suicidal as HP’s. Having closely followed HP as an arch rival back at Xerox, I must note that Leo Apotheker’s appointment by the Board could be the last “nudge” into a deep abyss for the company.

HP primarily consists of Imaging & Printing Group (IPG) providing consummer and business hardware and supplies worldwide generating over 20% of sales and about two-third of operating margins. In other words, HP is the biggest printer company on earth.

Personal Systems Group (PSG) sells desktop and notebooks PCs for commercial customers and consummers worldwide accounting for 35% of total sales. Technology Solutions Group (TSG) generates 45% of revenues. Within TSG, software accounts for only less than 5% of sales where Leo wants to bet the future of all HP by paying a ridiculous premium of 11 times sales for Autonomy. HP Services is largely EDS, a big deal done by previous CEO Hurd about two years ago.

On March 14th, Leo annonced at the HP Summit 2011 that he was betting on cloud services and software, including WebOS coming from another big acquisition – Palm again under Mr. Hurd's leadership. Leo revealed that WebOS would be the future operating system in all the 100 million devices devices that they intend to be selling.

I remember the TouchPad demo given by an old friend and brilliant marketer Marge Breya who now heads up software business within TSG. I also remember how shocked I was not to hear anything related to IPG or Enterprise Servers & Storage (ESS) businesses which account for almost all corporate profits.

In a nutshell, Leo’s new vision and corporate strategy is to be a "late me too" to Steve Jobs’ Apple while betting the future of HP on a line of business - software that today accounts for less than 5% of the company. As if all of this weren’t ridiculous enough, only less than two months later, the company said they would be discontinuing WebOS and TouchPads while exploring strategic options the for PSG division but again few days later given overwhelming demand for discontinued TouchPads, they will manufacture more TouchPads. For a brand as respected as HP's with resellers, distributors and retailers, these "zig-zag" strategies and resulting communications will quickly diminish a once-iconic brand.

So much for 100 million devices and the WebOS strategy outlined by Leo back in March. I have led divestitures of companies and assets worth as much as a billion dollars. I have never seen such a disasterously premature corporate announcement for the PC divison that will surely destroy the future sustainability of the business.

When you decide to explore strategic alternatives for an asset as large as $40 billion in sales, you just don’t make wishy washy annoucements to public but rather launch a fast-track, well-structured, multi-pronged effort with contingency plans in place to auction off the business supported by an army of advisors with track records. There are so many ways to maximize shareholder value from an auction or spin-off only if one can plan and manage effectively.

HP’s strategic blunders’ date back to Carly Fiorina’s appointment who opted for a merger with rival computer company Compaq. Following massive layoffs, R&D cuts and missed earnings, HP Board ousted Carly in favor of Mark Hurd who was a brutal cost-cutter and a disciplined deal maker.

Just when I thought Hurd’s appointment was disasterous enough, HP Board appointed Leo Apotheker, a software executive who had not lasted at his previous employer SAP for even a year. I fundamentally question Mr. Apotheker’s credentials and track record as a software executive but even if we assumed he was the right candidate, managing an enterprise software business takes a radically different management talent than printers or servers or even outsourcing services.

If HP Board and CEO insist on the current course, they would do more damage to HP than Hurrican Irene to the East Coast. They should not.

So how can HP be saved now?

1.    Brand New Strategy - Define why HP should continue to exist.
I can clearly see Steve Jobs bold vision leading to Apple’s dominant innovative product leadership and how it has orchestrated the rest of the company. I can clearly see Lou Gerstner's courage and strategic brilliance leading to IBM’s “best customer experience” led, services-driven technology supermarket strategy and its flowless execution.

When I look at HP on the other hand, what I see is worse than a blank sheet of paper.

HP ought to stick to its innovation heritage and seek new and different ways to leverage it. Can you tell me when was the last time you bought a cool HP product that you felt good about? How can one of the most customer-focused and  brilliant marketing companies back in the 1990s be turned into such a diasarray and desparation so fast?
HP’s fundamental core should center around on services-led printing and information management. They should stick to their core and look for adjacent markets to grow and dominate.
2.    A New Structure - Technology super-market strategy has failed.
HP shareholders should put pressure on HP Board and management to break the firm apart into two public companies: 1. "Hewlett Global Services" consisting of IPG, software and HP legacy services. 2. "Packard IT Services" where PSG is to be bundled with ESS and spun-off immediately.
HP could never leverage or execute its services strategy beyond printers and MFDs. Given the chaos followed by massive executive reshuffling and Livermore’s so-called promotion into a silent Board position, HP Services would not be able to effectively compete against the likes of IBM and Accenture.
Both Carly and Hurd’s attempts to turn HP into world’s largest IT company by buying Compaq and Palm have failed miserably.
PSG/ESS should be divested rather than auctioned to ensure maximum value creation for shareholders. Following a seconday listing, many strategic and financial buyers would be interested in the company.
3.    HP Way is The Way – Embrace your heritage. Embrace your people.
HP culture has been severely traumatized since Carly’s appointment. Hurd cut even more people as well as slashed R&D and innovation. Unforetunately, Leo has only made it worse.
HP used to be a customer-led, market-connected, innovative company. I wonder how many of HP Board of Directors or executive management actually read a copy of the book written by its founders - The HP Way?

It is so ironic that Leo decides to pay 11 times sales for an average Enterprise Content Management software company that has been shopped around for so long with no buyers in sight. This could have easily come from HP's very own garage should they not cut people and innovation so easily! I would like to know how management could ever justify this premium to shareholders?
I have yet to witness a corporate turnaround of this magnitude who would have any chance of succeeding without wining the minds and hearts of your people. How can you convince your best people to stick around if the leader in charge can unregrettably change his mind in less than two months?  or when you dont even blink about firing the entire leadership team in favor of outsiders?
HP badly needs a new Board of Directors who should in turn consider naming a new CEO - a lifetime HP insider similar to what Xerox did after Rick Thoman by naming Anne Mulcahy CEO and Chairman. A name that would not surprise me is Anne Livermore who is still around.  Unfortunately, the situation has became so severe that, only a well-respected insider (like Xerox' Mulcahy) can stabilize the troups and eventually bring the moral back up.

The fundamental problem starts with how the Board of Directors selected incorrectly HP's business leaders. Time is of essence to save HP only if they can go back to the "HP Way" focusing on innovation and brilliant marketing centered on futuristic customer insights or just follow what Jobs did for Apple....

 Otherwise, HPQ is headed for a corporate suicide…


MJP said...

Hakan has correctly identified and analyzed several strategic disasters at the highest levels of HP. But even these could have been overcome IF the company maintained some resemblance of the HP culture. Ultimately, there was no culture. Organizations may survive, but will not thrive, without a strong cultural identity. As en ex-HP employee (left on my own, no sour grapes of downsizing) I can tell you that I never felt more insignificant in my entire career. We all saw the morass, the waste, the apathy.

If HP looks this bad to outside observers, I can assure you that the inside is considerably worse. I agree, the primary and bottom line responsibility resides with The Board for their legacy of poor judgment and bad decisions.

RicardoBach said...

Good analysis. HP was a great company, essentially founded Silicon Valley where I am moving to work . HP's servers have been fantastic. Fiorina was disastrous, Mark Hurd was just a man who got caught. (Larry Ellison sure is paying him super well at Oracle!). I wish HP all the best to change and success. Leo probably has to go. Is there enough consulting for IBM and HP and Oracle and everyone else?

wansai said...

Good article. HP has just been on a slide downwards. When the board decided, rather off-handedly, to replace Hurd with Apothekar, I think many people were scratching their heads.

Apothekar's first act as a CEO was to play truant and dissappear for nearly a month (maybe more) without a word to anyone. Once I heard that, i already knew HP was screwed.

The sale, then firesale then announcement to discontinue WebOS then the decision to build more at loss... what the hell is going on. Seriously, it looks like a 12 year old is making random decisions over there.

the real kicker was the decision to blow 11 billion to purchase a software business so they can focus on software, which accounts for such a small amount to their bottom line it's nearly pitiful.

the decision to announce selling off its computer business... felt like a monkey suddenly had a brilliant idea; which is to say, who knows why they made that disasterous announcement.

It has been one incompetent step after another with the ONLY constant being that board of director. How they ever made it high enough in th ebusiness world to be sitting on a huge corporate board like that, who knows. They are clearly incompetent.

When was the last time I bought an HP and was excited?

Earlier this year, I bought their high end 17" laptop (HP Envy 17) and love it, as do a lot of people. It's garnered a cult following and is clearly a high margin product for them. Consider I paid $3500 for mine.

Yet what did HP do? They released mid to lower end laptops and marketed the hell out of it and just left their highest end product languishing. Little to no advertising or marketing for it. Instead, their money is spent on their lowest margin products. It boggles the mind.

One doesn't even need to be in business or a business person to know that every step they have taken, strategically, tactically, has been an unmitigated disaster of incompetence. They still make good computers; too bad they are selling that business. Too bad their CEO is not even fit enough to have made it that far up the corporate world. Too bad the board is just as useless and inept.