Over the next few months we’ll get a chance to compare how two new CEOs are doing in their respective companies. Neither Meg Whitman at HP nor Scott Thompson at Yahoo were experienced in the kind of companies they took over.
Whitman got the more complex company but also got a team of seasoned executives already running the divisions, Thompson got a simpler firm but one also in far more difficulty. Both new CEOs had board changes surrounding their appointments, Whitman’s before and Thompson’s after.
Whitman is also clearly subordinate to Ray Lane, credited with turning around Oracle, a vastly different kind of company that has recently drifted into HP’s space. This creates an interesting dynamic as both CEOs are likely to take their respective charges on paths inconsistent with these companies’ current strengths.
With Yahoo’s board changes this week let’s take an updated look at Yahoo and HP.
Given the competitive pressure by Oracle, IBM’s own shift to software, and Ray Lane’s background, seeing HP drift again towards a software model shouldn’t be surprising.
Recent developments suggest a major, though dangerous, change there. Specifically, the departures of Shane Robison, an Apple-trained hardware-focused CTO, and Jon Rubenstein (father of the iPod). the only person deeply trained to be a Steve Jobs. These departures were coupled with moves to license WebOS (creating a potential additional conflict with Microsoft) and the appointment of ex Microsoft VP Bill Vehgte to chief Strategy Officer.
Certainly this is financially a more compelling move than Oracle’s move in the opposite direction. Software is traditionally higher margin than hardware and, unlike Oracle, success is likely to increase, not collapse, margins.
Now typically a best practice is to reorganize a company around the skill sets of its CEO but this rule breaks down a bit when talking about an umbrella company like HP where the division heads hold the key skills.
And while IBM is clearly on this same path, IBM up until the early 90s had the largest software company in the world and they have had better than 50 years in software to prepare for this move. HP, under Carly Fiorina, was building a software unit but Mark Hurd effectively killed the effort; he saw the head of that unit, a Fiorina favorite, as a threat and forcing her out.
Leo Apotheker, Whitman’s predecessor, started rebuilding with Microsoft veteran Bill Vehgte at the head of the unit but it was still in early phases when Whitman took over. HP will still need to make major acquisitions to close the software gap with both HP and Oracle. Software acquisitions are particularly treacherous because it is very hard to effectively lock in the talent – and the talent is the product.
Finally, retaining hardware executives who likely will see their opportunities to become HP CEO evaporate now becomes more difficult. And HP leads in several hardware markets, making top players like David Donatelli, the well regarded VP hired from EMC, potentially vulnerable over time.
HP is currently fighting on a number of fronts against global companies, including their traditional competitors IBM, Dell, Asus, Apple, Acer, Sony, Toshiba, and Lenovo; ex-partners Oracle and Cisco; and the company is increasingly drifting into Microsoft’s turf.
The umbrella model does allow for multiple fronts but HP’s number exceeds even IBM’s. And HP may have more ongoing battles than any other vendor currently in segment.
Eventually they are likely going to have to make some hard choices and exit one or more of them. Oracle’s own moves have lessened their leverage, the loss of Steve Jobs has weakened Apple, and the other consumer vendors aggregated don’t represent that much of a threat.
This is with the exception of Lenovo, which is currently growing rapidly and has a strategic position in China – the world’s fastest growing technology market. Dell is strengthening in the mid-market but that hasn’t historically been an HP strength. The battle with Oracle has largely benefited IBM, which enters this decade at the top of their game. Finally Microsoft, which historically seems to have a binary way of considering companies friend of foe, could be problematic. And WebOS might put HP at odds with Google as well.
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