Monday, August 29, 2011

HP Gets Ugly ; What I would do as CEO

In the past two weeks, the business press has recently been busy excoriating HP CEO Leo Apothekar, for a series of earnings shortfalls, downgrades, communications missteps, and a confused strategy (for example here’s the New York Times’ take on it).
Mr. Apotheker certainly deserves to be pilloried, but recall that he did not take over in the best of circumstances. As far as Mr. Hurd’s tenure, he deserves a lot of credit for running a tight financial ship, but was not successful in innovating.  Being able to manage operations and generate profitability in the PC business is commendable, but it’s very difficult to create any sticky value when you’re building commodity PCs with someone else’s chipset, running someone else’s operating system. 

When Mr. Apothekar took over as CEO, it seems that he and his management team lost the operational discipline that Mr. Hurd had brought, which showed in decreased margins, market share, and profitability. In addition, Mr. Apothekar has so far failed to properly inspire and provide a compelling vision for HP’s deep pool of extremely talented people.  For example, look at its misguided TouchPad product, which had no well-defined purpose, and was doomed before it started. Was this truly targeted at consumers? If so, did HP really think that it could possibly be successful without at least a minimal ecosystem of applications?  Such a decision makes no sense!
But let’s try to look forward for HP – it seems clear to me what HP needs to do, to maximize its opportunities, given the many constraints of its corporate software landscape.  Specifically, HP has no dominant position from which it's feasible to leverage itself – it’s not a dominant OS vendor, it’s not a dominant chip manufacturer, it’s not a leading mobile vendor, it doesn’t have platform middleware, and it doesn’t have business applications.  That’s 5 strikes against it, and makes it very difficult for HP to compete against (respectively) Microsoft, Intel,  Apple (etc), Oracle, and SAP.  [The only 2 exceptions to this are its strong printer business (which are difficult to leverage), and its up-and-coming networking business where it’s competing against Cisco and Juniper].

Having said that, HP still has a broad set of strong IT operations-focused products which can and should be leveraged – including their PC line.  These are the strengths that I would leverage as CEO – rather than looking at the portfolio as a set of independent products, I would set a mandate that HP’s business products need to work better together than separately – that by engineering servers, PCs, system management software, and even networking gear to connect, share information, and cooperate, HP’s customers would benefit from owning an ecosystem of HP products.

For example, HP has a very strategic relationship with Microsoft. Why not leverage this to create an HP-specific version of Windows, which leverages some HP-specific hardware aspects to improve the PC’s manageability, security, or reliability? Why not have their servers be automatically part of HP’s excellent server management software, to eliminate manual tasks and improve IT efficiency?  Sure, this requires engineering work and coordination across divisions, but that’s OK – it adds tremendous value, and will help differentiate HP, and thus increase the value of their products to customers. This will, in turn, increase the price that customers are willing to pay for their products.
Wow, this has been a long posting, but worked up some steam writing this. I worked for HP a few years ago, and I know of the strengths that they have. It really makes me sad to see such potential going to waste.  Mr. Apotheker, get focused – you can do better!

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