HP CEO Meg Whitman Makes Key Steps in Turn-Around Effort

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This week I’m attending HP’s Security Analyst meeting for a “show and tell” by Meg Whitman and her staff on the state of HP, the markets they live in, and their vision for the future.

HP is in the early phases of a turn-around. This kind of effort, if successful, typically takes from five to seven years to complete. The early years are the most difficult financially. Often companies drift into the red, but this allows the CEOs to make major changes because everyone is focused on eliminating the red ink.

I’ll talk about Whitman’s presentation in this piece because it is her vision that will drive and assure HP’s success. If it isn’t adequate or if it is full of empty promises HP will continue to decline. Yet if it is focused on fixing the lack of good internal metrics, excess organizational and product complexity, and it restores customer, employee, and investor confidence, she is far more likely to be successful.

Let’s see if she met this goal.

HP’s Problems

Whitman opened by reaffirming the need for innovation and faster execution around it. She indicated she had been looking at this in-depth, and that Open Architecture and extensible solutions are HP’s sustaining strengths.

She reinforced that HP is still number one or number two in each of the major markets it occupies and that the employees remain focused on customers.

She reminded the audience that back in 2002, HP was mostly a printer company and today it’s not only generating more revenue but more profit and from a diverse set of industries. However, year over year recently revenue and profits have fallen.

She spoke to the problems as sourced in the revolving door at the CEO level. This resulted in conflicting strategies and costly reversed policies. Acquisitions were crippled, with rapid changes in their executive leadership, and the end result was an inability for the firm to execute.

HP also lacked focus and had massive product diversity. She pledged that this is in the process of being corrected. On marketing there was massive redundancy and this resulted in excess marketing costs and muddy messaging. Finally, HP simply hadn’t implemented good metrics – this too is being corrected.

Product innovation has lagged and HP had not implemented CRM and SFA systems from the current generation. HR systems were dramatically out of date. All of these have been or are in the process of being updated.

Demand is weak in both consumer and corporate markets, which exacerbates the problems. In short, HP was a destabilized company in an uncertain market.

Whitman represents that she has moved beyond initial triage to actually fixing the fundamental problems and believes she has completed year one in what she promises to be a 4-year record turn around.

I’ve never seen one of this scale down so quickly but if she can pull this off it will be a record.

Applying the Whitman Fix

Going into 2013 it will be a fix and rebuild year and she expects the world environment to remain challenging. 2014 will be the year she expects to be able to show much stronger growth, the new systems should all be in production, and the restoration of R&D spending should begin to showcase increased successes.

But it is 2015 where HP truly hits its stride as the turnaround is completed and this will set up 2016 as the year HP expects to once again be able to grow profit faster than revenue and restore leadership in critical markets.

Out of all of this I think the most important area mentioned is the institution of solid metrics. EMC implemented the best customer satisfaction metrics in the market and this drove them to their impressive growth and customer loyalty.

I’m a big believer in metrics and with strong ones HP will be better able to manage employees, tune products to customer needs, and shift the company for optimized performance. If Whitman is successful in this one thing and assures the accuracy of these metrics, the success of her effort is all but assured. If she doesn’t the rest will collapse like a house of cards.

Plan in Progress

HP remains somewhat of a mess with too many products, underperforming financials, and inadequate metrics. But Whitman has outlined a plan that is under execution.

In each of these areas Whitman provided status reports indicating that significant changes are in process to correct each of these areas. In each business area, R&D has been increased to assure the businesses will both increase their agility and competitiveness. Unlike many CEOs she showcased an intimate knowledge of key HP products, some halo products, in each business unit.

In the end I think she did decent job of articulating the problems – both what’s needed to fix them and the progress already completed toward the fix.

I’ve followed or participated in a number of turnaround efforts over the years and this represents what is the strongest turn around presentation, at this scale, that I’ve ever seen. She hit every key area I was looking for and showcased both the breadth and depth of knowledge needed by someone in her role.

This is just a talk and execution remains the most important element. But a CEO that can articulate the problems and direct fixes to them is doing their portion of the job. And, with the improvements in metrics, she should be far better able to drive the results she anticipates. I think this is what the HP board hoped for in picking Meg Whitman. No one is more surprised than I am (given HP’s CEO history) that they may have actually gotten it this time.