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September 22, 2011

HP Replaces CEO Apotheker with Former eBay Head Meg Whitman - What's Next?

By Peter Bernstein, Senior Editor

The rumor became official; after only 11 months on the job, the board of directors of Hewlett-Packard (HP) replaced troubled CEO Leo Apotheker with former eBay (News - Alert) CEO and California candidate for governor Meg Whitman. Thus concludes a day’s wild ride that has been the electronic version of Disneyland’s long-time favorite the darkly themed, Mr. Toad’s Wild Ride as speculation was rampant and the stock bounced around. Whether Ms. Whitman’s appointment quells the perception that the company could use some “adult leadership” at the CEO and board levels remains to be seen. HP cannot be proud of its moniker as Silicon Valley’s most dysfunctional company, or the perception that the board is incapable of righting the ship.  

The characterizations are not unwarranted. Since Lewis Platt retired as CEO and Chairman in July of 1999, here is a timeline on the leadership front:

  • Chairman: Richard Hackborn (January, 2000 – September 22, 2000; Lead Independent Director September 22, 2006 – )
  • CEO: Carly Fiorina (News - Alert) (July 19, 1999 – February 9, 2005; Chairwoman September 22, 2000 – February 9, 2005)
  • President: Michael Capellas (May 3, 2002 -- November 12, 2002)
  • Interim CEO: Robert Wayman (February 9, 2005 – March 28, 2005)
  • Chairwoman: Patricia C. Dunn (February 9, 2005–September 22, 2006).
  • President and CEO: Mark Hurd (CEO: April 1, 2005 – August 6, 2010; Chairman: September 22, 2006 – August 6, 2010)
  • Interim CEO: Cathie Lesjak (August 6, 2010 – September 30, 2010)
  • President and CEO: Léo Apotheker (September 30, 2010 – present)
  • Chairman: Ray Lane (September 30, 2010– present)

In other words, there has been a noticeable lack of longevity at the top. In fact, looking at the list, what stands out -- other than the short tenures -- is the apparent lack of succession planning. This has resulted in inconsistent performance. It has generated confusion amongst stakeholders, shareholders and customers. The only constant has been some jarring shifts in strategy and tactics along with non-cohesive visions and execution at the CEO level. Questions have been raised not only about day-to-day leadership capabilities, but about various acquisitions, including Compaq and EDS (News - Alert), just to name the two largest and most contentious, albeit with 20/20 hindsight. All of this tumult has created the thought, in many minds, that HP needs not only a change in its manager, but a change in the people who hire them.  

When Carly Fiorina took HP’s helm in 1999, one of her first acts was to create a new logo, a stylized version of the garage from whence HP sprung with the logo “Invent.” The challenge for Whitman will be to reinvent HP; not an easy task considering this is a $100B a year enterprise.  

In an early day post, Larry Dignan of Business Tech outlined a to-do list for Whitman. It is not a bad place to start:

1.       Decide what to do with the PC business. Should it stay or go?

2.       Determine if HP's software strategy is correct and figure out if Autonomy (News - Alert) is the right fit.

3.       Fix the services business and move it to higher margin deals.

4.       Figure out whether HP pulled the plug on the TouchPad too early.

5.       Define HP.

The reality is, if she does not do #5, the rest may not be relevant. Much of the M&A activities of the past decade were focused on burying the impression that HP had become an “INK” company. If one looks at the press release that includes their latest earnings statement, the three month view for the quarter ending July 31 (which also compares it to the previous quarter and results in the same quarter from last year) is telling. The challenges pop out immediately including hat the printer/ink business is still critical:

Earnings from operations:(a)

Month ended:

July 31, 2011

Month ended:

April 30, 2011

Month ended:

July 31, 2010

Services

$1,225

1,361

1,381

Enterprise Servers, Storage and Networking

699

766

706

HP Software

151

154

182

Personal Systems Group

567

533

469

Imaging and Printing Group

892

1,144

1,040

HP Financial Services

88

83

72

Corporate Investments

(332)

(198)

(88)

Total Segments

3,290

3,843

3,762

Corporate and unallocated costs and eliminations

(114)

(153)

(175)

Unallocated costs related to stock-based compensation expense

(130)

(130)

(156)

Amortization of purchased intangible assets

(358)

(413)

(383)

Restructuring charges

(150)

(158)

(598)

Acquisition-related charges

(18)

(21)

(127)

Interest and other, net

(121)

(76)

(134)

Total HP Consolidated Earnings Before Taxes

$2,399

$2,892

$2,189

Who is HP? That is the $100B question

 Along with all of the other atmospherics surrounding personalities and their style, strategic miscues and challenges regarding “managing” expectations with the financial community, the breakdown of the earnings on each company segment’s contribution (regardless of their performance trends) shows, it is not clear who HP is. That is why getting “the vision thing” right and aligning strategy and tactics with it needs to be priority #1 for Whitman. 

Reality is that while HP has said that going forward it plans to focus on its enterprise business with an enrichment and expansion of its cloud computing, software, integrated systems and services capabilities, the numbers paint a picture of a company that seems like a product and services (e.g., substantial maintenance component) business in an ecosystem era. It also highlights the fact that products that are going to have to drive earnings for some time into the future.

Whitman is going to have to come to grips with defining and then executing a strategy that puts HP as the hub of a dynamic ecosystem that can generate customer excitement which in turn can be translated into customer intimacy. Put simply, it needs to re-invent the way it goes to market and the speed at which it reacts to the dynamics of the market. And, even though it is a products house in transition, it needs to get better at making reasoned guesses about the products and services that will be most needed going forward. Let’s leave it at: this has been an area of lackluster performance that rivals, and is correlated to, recent financial disappointments.

The good news is that, despite it issues, HP has all of the puzzle pieces to re-invent itself. HP certainly has the resources to position itself at the center of an enterprise-critical ecosystem along with continuing to be an important and profitable supplier to SMBs and the mass market. However, to say the least, there are a lot of moving parts that need to be invested in, re-purposed or discarded based on who HP wants to be going forward. There needs to be a plan, consistency and redefinition of the value of the HP brand.

The leadership challenge

That brings us back to the leadership questions on a macro and personnel level. Is Meg Whitman the right or best choice? She certainly has a lot of upside in terms of her familiarity with the company (she is a board member), marketing and financial management skills are big pluses along with her celebrity.  Whether anyone can run such a behemoth -- particularly someone who has never run a hardware or software company -- is a huge issue. Plus, whether the initial positive reaction from Wall Street in the morning -- which was replaced with the stock closing lower than the Dow on a percentage basis -- was a case of buy on the rumor and sell on the news remains to be seen.

In addition, Wall Street is not the only audience that needs buy-in. Customers need assurances about the service and support of their products and services. Partners need to know if they are in or out. Employees need to know that as well and also could use a signal that there will be continuity in approach and longevity at the top.

All of these audiences can look at the leadership timeline list at the top and do their own correlations, based on their interests, as to how they have experienced HP over the past decade. It will be interesting to watch how Ms. Whitman deals with all of these challenges.


Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest brands, including Avaya, Alcatel-Lucent, Telcordia, HP, Siemens (News - Alert), Nortel, France Telecom, and others, and having served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.

Edited by Rich Steeves
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