HP's board did it again: CEO Leo Apotheker was fired, seemingly without much deliberation. Named his successor, former Ebay CEO Meg Whitman inherits a half-baked business strategy that has HP dangling between a hardware-focused and a software-tailored future.
One of Whitman's first official statements was that she has a lot to do at HP. Given the fact HP stock declined by 47 percent during Apotheker's leadership, Whitman may have understated what lies ahead of HP - a monster corporation that can hardly control its growing number of arms and legs. Torn between the sprouts of different business strategies, it is difficult to define what HP is about today. I have some thoughts what Whitman should be doing right away.
1. Remember the HP Way: Reinstall it, and employees will follow you
Hewlett-Packard has had a few CEOs and chairpersons who followed the ‘new broom sweeps clean’ mantra. In 2001, HP began its move into the services business through a merger with Compaq, who had previously acquired Digital Equipment Corporation (DEC)—a major services force. The highly controversial move was pushed through by then CEO Carly Fiorina. While it was common knowledge HP's weakness was a lacking Internet strategy (which Fiorina's predecessor Lew Platt missed completely). Fiorina wanted to change HP’s image from that of a ‘printer company’ into a PC and services giant. She was forced to resign in 2005 over differences with HP's board. Mark Hurd took over in 2005 (after 25 years at NCR) and instituted a rigorous cost-cutting strategy which allowed HP to gain traction again. He resigned in 2010 after an internal investigation (sparked by a sexual harassment claim against Hurd) uncovered expense-account irregularities. Leo Apotheker was appointed CEO of HP in late 2010 and was replaced by Whitman this week due to the board’s reported unhappiness with Apotheker’s execution of HP's business strategy.
Most of HP’s recent CEOs may have made the same mistake of failing to remember the company’s foundation. HP’s foundation is not its printer business, PC business, or its services. It's about the employees and the heritage of William Hewlett and David Packard, whose greatest idea may have been the creation of the HP Way. The HP Way is generally described as the core values of the company's two founders and the art of translating those values into a structure of operating a business by establishing and maintaining a corporate structure and creating business strategies. In that sense, HP has a hidden treasure and opportunity few other companies have, but it is also a trap for newcomers seeking to make HP their own, which simply cannot be. Mark Hurd was possibly the CEO most committed to the HP Way, as he reportedly promoted the heritage of Hewlett and Packard above his own. Whitman will have to reinstate the heritage of the company and its core values and build upon them. HP does not need another new broom that sweeps clean.
2. Invent: Foster creativity and innovation to fix the cracks and lay a new foundation for the HP of 2015.
"Invent" is the little word that HP likes to put below its logo, yet it is innovation which Whitman must focus on. Unfortunately, the true innovation we once expected from a company the size of HP just isn’t there anymore.
I can’t think of any innovation HP is known for these days. In printers, it is difficult to create something beyond LCD displays in color printers. Besides, when was the last time we got excited about a new printer? The current PC market can be frustrating and problematic given its low-margin. However, we know that with hundreds of millions of PCs being sold every year an opportunity for innovation is just waiting to be unlocked. One such opportunity slipped through HP’s fingers in 2006 when newly acquired VoodooPC was killed off. Another chance disappeared when HP completely missed the tablet market despite having all the necessary tools to make it a success, including the advantage of building upon hardware and software no competitor could. In services, HP appears to remain in an eternal second-place behind IBM, fighting for much smaller services portions with smaller services providers. While HP is following the cloud computing trend, it struggles to sell its ideas, which are often just marketing phrases placed atop larger trends. Today, HP's tagline should be "follow" and not "invent".
I know patent filings are a controversial topic these days, but consider the fact HP published just 26 U.S. patent applications over the past 60 days while IBM filed 634 applications. IBM was granted 1299 patents by the USPTO, while HP received only 245.There may be questionable patents in both collections, but the perception is clear that HP needs to do more.
3. Drop Services: Return to your roots, take advantage of HP's brainpower
I admit this is certainly a controversial idea. HP Services are second in revenue to only HP PC sales - $1.2 billion in profits compared to $892 million in net earnings. (Posted by the printing group for Q2 2011.) However, HP is ever more frequently colliding with IBM and getting cut out off from the big deals the company desires. The only way for HP to sustain its services business will be the acquisition of companies such as Autonomy, which will get increasingly expensive.
There are few successful companies in both the consumer and enterprise markets. The enterprise market is occupied by IBM, which would make the choice to go much more effectively after the consumer market an obvious one for HP, thus avoiding compromised budgets and strategies that have to be divided between the two markets. Focusing everything on the consumer market would enable HP to compete with Apple much more effectively, develop products consumers get excited about, and deliver on the company’s innovative promise. It's a big risk, but HP has the resources and the brainpower to turn its traditional business and strength back into the wind.
