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Fixing HP: The Back Story

Whitman can fix HP, but in order to do, so she'll have to undo the damage HP boards have done over a decade.
Posted November 29, 2012
By

Rob Enderle


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With the recent news surrounding Autonomy, it isn’t hard to see HP as some kind of train wreck. But much of HP’s ongoing business remains relatively strong and profitable. I believe the core of HP’s problem is instability at the top, but even this is more a symptom than a cause. In my opinion, the cause lies with successive boards who thought tactically to address strategic HP problems and who put speed over quality. Let me explain.

It all started with Carly Fiorina.

Fixing “Boring”

For most of HP’s initial life through the 1990s, HP was a "boring" company. It had few exciting products, but it had solid financial performance. Its only real hit was a calculator. And even though folks lined up to see its Sojourn PC, it was easily overshadowed by industry darlings such as Sony and Microsoft. At that point, even Apple was getting more interest from investors and consumers.

In the late 90s, HP’s board decided the firm needed a shake up, and they brought on board Carly Fiorina from Lucent to do it. Now, in my opinion, this was a fundamental mistake. What HP had was largely a marketing and consumer product problem. The company wasn’t going under -- it just wasn’t exciting consumers or investors. It didn’t need to be fixed operationally, it needed an image makeover and at least one hit product that, unlike the Sojourn, folks could afford.

This meant they needed a new CMO and likely a new head or a new product manager for their PC division. Instead, they got a new CEO, and they picked badly.

You see, over the past decade or so, there had been two catastrophic acquisition failures in the computer industry: IBM’s acquisition of ROLM and AT&T’s acquisition of NCR. Many felt these failures made it clear that telephony people couldn’t run computer companies and that computer people couldn’t run telephony companies. In addition, marketing people generally don’t have the operational background to run corporations. Fiorina was a marketing executive from a telephony company. On paper, she couldn’t be successful, and the board was fixing the HP problem at the wrong level.

Ironically, I believe Fiorina might have actually done well at the right level because she seemed to intuitively understand HP’s need for marketing and hit products. But running all of HP was beyond her. Add to this that she made herself executive chairman, which effectively made the board her subordinate, and the board couldn’t manage her. It wasn’t that she failed; it was that no one put in that position with her background could succeed.

Fixing Ops

Fiorina was clearly having problems guiding HP, and she moved to acquire Compaq without the approval of powerful board members, resulting in a proxy fight. Ironically, this proxy fight forced her and the CEO from Compaq, an ops specialist (Michael Capellas), to put in place one of the strongest integration plans ever developed, and the acquisition was successful. The conclusion was that HP needed a strong ops person. Capellas appeared ideal. But many believe Fiorina rightly saw him as a threat to her job and in her executive chairman position couldn’t be stopped from forcing him out of the firm.

She was subsequently fired, and Mark Hurd from NCR was hired to replace her--another bad choice, in my opinion. The issue wasn’t that Hurd didn’t have the right pedigree; it was that his skill was largely cutting costs. Fiorina had already cut the company heavily and had broken employee loyalty. Basically, she had isolated herself from the rank and file. While HP needed an ops person, it needed someone who could foster loyalty and rebuild the company. Instead, it got someone who had a history of being hated by his employees (Hurd reportedly had his tires slashed at NCR) and who would have been more appropriate for a firm that was failing and needed to be packaged for a quick sale.

So again, rather than getting a good COO or a builder to fix an ops problem, HP got a CEO who was a cutter. While this did improve HP’s financials, it came at the expense of HP’s long-term survival. And it restored the initial problem that HP was suffering from -- the lack of exciting products.


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Tags: HP, Mark Hurd, Meg Whitman, Leo Apotheker, board of directors


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