The media enjoyed a field day last week amidst the ouster of Leo Apotheker as Hewlett Packard's CEO and appointments of former Oracle executive Ray Lane as executive chairman and former eBay CEO Meg Whitman as CEO. There have been plenty of jabs at the board, which apparently hired Apotheker without everyone even meeting him (New York Times), and plenty of complaining about HP's deteriorating performance and stock price. But the big question is, will Meg Whitman be able to turn around HP?
Whitman is the seventh HP CEO in a mere 12 years. Of those CEOs, the only one pointed to with any attraction was Mark Hurd. He did not take any strategic action but merely slashed costs, which immediately improved the profit line and drove up the short-term stock price. Actions taken at the expense of R&D, new product development and creating new markets, leaving HP short on a future strategy when he was summarily let go by the board that hired Apotheker.
And that indicates the strategy problem at HP which is pretty much a lack of strategy.
HP was once a highly innovative company. We all can thank HP for a world of colour. Before HP brought us the low-priced ink-jet printer, all office printing was black. HP unleashed the colour in desktop publishing and was critical to the growth of office and home printing, as well as faxing, with its all-in-one, integrated devices.
But then someone largely Carly Fiorina had the idea to expand on the HP presence in desktop publishing by expanding into PC manufacturing and sales, even though there was no HP innovation in that market. Hurd expanded that direction by buying a service organisation to support field-based PCs.
This approach of expanding on HPs 'core' printer business, almost all by acquisition, cost HP a lot of money. Further, supply chain and retail programme investments to sell largely undifferentiated products and services in a hotly contested PC market sucked all the money out of new products development. Every year, HP was spending more to grow sales of products and becoming increasingly generic while falling farther behind in any sort of new market creation.
Into that innovation void jumped Apple, Google and Amazon. They pushed new mobile solutions to market in smartphones and Tablets. And now PCs, and the printers they used, are seeing declining growth. All future projections show an increase in mobile devices and a sales cliff emerging for PCs and their supporting devices. Simultaneously, as mobile devices have become more popular, the trend away from printing has grown, with users in business and consumer markets finding digital devices less costly, more user-friendly and more adaptable than printed material (just compare Kindle sales and printed book sales or the volume of Tablet newspaper and magazine subscriptions to printed subscriptions). HP invested heavily in PC products and now that market is dying.
Now HP is in big trouble. There are plenty of sceptics who think Whitman is not right for the job. What should HP under Whitman do next? Keep doubling down on investments in existing markets? That direction looks pretty dangerous. IBM jumped out years ago, selling its laptop line to Lenovo for a tidy profit before sales slackened. With all the growth in smartphones and Tablets, it is hard to imagine that strategy would work. Even Apotheker took action to deal with the market shift by redirecting HP away from PCs with his announced intention to spin off that business while buying an ERP (enterprise resource planning) software company to take HP into a new direction. But that backfired on him, and investors.
Apotheker and Carol Bartz, recently fired CEO of Yahoo!, made similar mistakes. They relied heavily on their personal past when taking leadership of a struggling enterprise. They looked to their personal success formulas what had worked for them in the past when setting their plans for their new companies. Unfortunately, what worked in the past rarely works in the future because markets shift. And both of these companies suffered dramatically as the new CEO efforts took them further from market trends.
The job Whitman is entering at HP is wildly different from her job at eBay. As we know, eBay was a small company taking advantage of the Internet explosion. It was an early leader in capitalising on Web networking and the capability of low-cost on-line transactions. At eBay, Whitman needed to keep the company focused on investing in new solutions that transformed PC and Internet connectivity into value for users. As long as the number of users on the Internet, and the time they spent on the Web, grew, eBay can capitalise on that trend for its own growth. So eBay was in the right place at the right time and Whitman helped guide the company's product development, so that it helped users enjoy their online experience. The trends supported eBay's early direction and growth was built upon making online selling better, faster and easier.
The situation could not be more different at HP. Its products are almost all out of the trend. If Whitman does what she did at eBay, trying to promote more, better and faster PCs, printers and traditional IT services, things will not go well. That was Hurd's strategy. Been there, done that, as people like to say. That strategy ran its course and more cost-cutting will not save HP.
In 2020 if we are to discuss HP the way we now discuss Apple's dramatic turnaround from the brink of failure, Whitman will have to behave very differently than her past and from what her predecessor and Bartz did. She has to refocus HP on future markets. She has to identify triggers for market change like Steve Jobs did when he recognised that the growing trend to mobility would explode once WiFi services reached 50 per cent of users and push HP toward developing solutions which take advantage of those market shifts.
HP has under-invested in new market development for years. Its acquisition of Palm was supposed to somehow rectify that problem, only Palm was a failing company with a failing platform when HP bought it. And the HP Tablet launch with its own proprietary solution was far too late (years too late) in a market that requires thousands of developers and a hundred thousand apps if it is to succeed. The investment in Palm and WebOS was too late and was based on trying to be a 'me too' in a market where competitors are rapidly advancing new solutions.
There is a world of market opportunities out there that HP can develop. To reach them, Whitman must take some quick actions:
1. Develop future scenarios that define the direction of HP. Not necessarily a 'vision' of HP in 2020 but certainly an identification of the big trends that will guide HP's future direction for product and market development. Globalisation (like IBM's 'smarter planet') or mobility can be the start but HP will have to go beyond the obvious to identify opportunities requiring the resources of a company with HP's revenue and resources. HP desperately needs a pathway to future markets. It needs to be developing for the emerging trends.
2. A recognition of how HP will compete. What is the market gap that HP will fulfil like Apple did in mobility? And how will it fulfil it? Google and Facebook are emerging giants in software, offering a host of new capabilities every day to better network users and make them more productive. HP must find a way to compete that is not toe-to-toe with existing leaders like Apple that have more market knowledge and extensive resources.
3. HP needs to dramatically up the ante in new product development. Innovation has been sorely lacking and the hierarchical structure at HP needs to be changed. White Space projects designed to identify opportunities in market trends need to be created that have permission to rapidly develop new solutions and take them to market regardless of HP's historical strengths. Resources need to shift rapidly from supporting the ageing and growth-challenged historical product lines to new opportunities that show greater growth promise.
Apple and IBM were once given almost no chance of survival. But new leadership recognised that there were growth markets and those leaders altered the resource allocation toward things that could grow. Investments in the old strategy were dropped as money was pushed to new solutions that built on market trends and headed toward future scenarios. HP is not doomed to failure, but Whitman has to start acting quickly to redirect resources or it can easily be the next Sun Microsystems, Digital Equipment, Wang, Lanier or Cray.