September 22, 2011 — Whither HP?


It seems Hewlett-Packard is back in the news again. Considering the kind of news the company is generating, we can safely assume they really wanted to stay out of the limelight. Unfortunately it seems to be a habit for the company over the past decade or so.

First of all, just a couple of weeks ago HP announced they were pulling out of the tablet business. This occurred shortly after the introduction of the HP Touchpad, following a couple of months of disappointing sales. Other than the general question of what on earth they were trying to do, they seem to have fumbled the announcement. They shortly thereafter announced they were starting production again briefly. The assumption by industry analysts that was that they needed to build out machines based on commitments to vendors for parts.

Associated with this announcement were comments by the CEO that HP wanted to get out of the personal computer business. Keep in mind that HP is the world's largest manufacturer of personal computers. This is a commodity business, and difficult to make a sustainable profit with. Once again the announcement was not handled well, and the concern was that this would cause the HP personal computer sales to tank.

Over the past couple of days rumors have surfaced that the current CEO of Hewlett-Packard was in trouble. President Leo Apotheker joined the company a year ago after ten years at SAP. The news tonight is that HP has appointed Meg Whitman as the new CEO. The question before us tonight is whether the HP board has the necessary skills to select an effective CEO, or if the whole company is simply star-crossed.

The problems began a decade ago when superstar Carly Fiorina was hired as the CEO of HP. Carly's mission was to be a change agent for the lumbering behemoth that was HP. She engaged in massive reengineering of the business and also accomplished the purchase of Compaq, a competitor in the small systems field. Along the way she lost the confidence of Wall Street as well as the board, and hit the bricks.

Next up was Mark Hurd, the faceless technocrat from NCR, who succeeded in putting HP's operational house in order and bringing a measure of stability to the company. As a result of a series of questionable personal decisions, the board fired Hurd for violating company ethics standards. Some members of the press speculated that there were members of the board who had their knives out for Hurd, and used the ethics issue as an excuse to throw him overboard.

The HP board has traditionally been thought to leak like a sieve. The events of the past few days seem to confirm that. I think it is interesting that the board members who rise up in righteous wrath (as they should) over serious ethical lapses of the corporate officers, think nothing of breaking their confidentiality agreements to leak juicy tidbits to the press.

So, what is to become of Hewlett-Packard? The company is a technology conglomerate, made up of several large, successful businesses. Even the weak sister, the personal computer operation, is profitable. The printer business is still a license to print money. Why are they doing this to themselves? This sort of behavior impacts the stock price, makes the customers nervous, and shakes the confidence of the industry analysts, who normally would be promoting this company's products.

I believe the problems may be largely attributed to cultural clash within the organization. HP has yet to really make the transition from an old line technology company to a Web 2.O business. At one time HP had a paternalistic, insular, comfortable culture as deeply rooted as IBM's was prior to 1992. In both cases we’re looking at an anachronism. IBM had to change to survive. I believe the same to be true of HP.

The old culture / old guard in any company does not deal well with change. It will do whatever is necessary to preserve itself, and sabotage any change that threatens its existence. We could speculate that this old guard is well represented on the board. When we have a board that is guilty of short-term thinking, plus actively involving itself in operational decisions, and lacking in patience, we can easily see some of the events that have occurred recently.

Selecting Meg Whitman as the new CIO may be only a temporary measure. As a board member, she is almost certainly representing a faction from within the company. This is a recipe for continued turmoil, and may ultimately threaten the life of the company.

What's the solution, then? I am glad I don't have to sit on the board and make these decisions. It's much easier to stand outside and throw rocks. As I have said before, free advice is usually worth about what you pay for it, but here goes.

The HP board needs to hire a CEO who will execute, and the board then needs to stay out of his or her way. The board and the stockholders should plan on enduring five to ten years of tepid earnings because it will take that long for the new CEO to get a new culture in place and get things working again. We have seen from IBM's example that it is possible to do so. But, it is very, very rare.

The alternative is to break the company up and turn the individual businesses loose to make their way in the marketplace. Statistically, we know this will probably unlock more value in the short term, but the resulting entities will not have the competitive reach that HP does now.

My friends, this is the perfect lose – lose scenario. What's going to happen? HP will spend the next ten to thirty years dribbling away value until they are finally scooped up by a young aggressive company – much like what happened to the old AT&T before being acquired by Southwestern Bell. It's kind of depressing, isn't it?

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