When HP's Q2 came in better than expected, you'd have thought that this beleaguered company could breathe a sigh of relief. No such luck. In and among the detail was the wee nugget that HP has jettisoned Autonomy's leader Mike Lynch with the explanation that revenue was 'disappointing.' Meg Whitman, HP CEO explained it as "not the product...It's not the market...It's not the competition. This is classic entrepreneurial company scaling challenges -- it's a whole different ball game." Anyone buying that? Charles Cooper at CNet astutely observes:
But didn't HP also suffer revenue declines in its imaging and printing division as well as in its enterprise server, storage and networking products groups in the last quarter? The best you could point to were the basically flat performances in the company's PCs and services groups. And while the overall numbers weren't as bad as initially feared, HP still suffered its third straight quarter of revenue and profit declines. (Sales were down 3 percent and profits fell 31 percent.)
After a stinker like that, someone's head was going to roll. So here was Lynch, the outsider brought into the company -- at a platinum price -- by a CEO who got bounced after just a year. If you're searching for convenient scapegoats, how much easier does it get?
At the time of the Autonomy acquisition, I was bullish about its chances of success as a growth driver. I was almost alone in that assessment. Looking back, what I had not factored into my analysis was the fundamental dislike that senior HP executives and Silicon Valley in general had for the deal. In reality, some very large egos stood in the way of managing this unit appropriately.
According to the Financial Times (paywall):
“He’s [Lynch] an entrepreneur par excellence, the type of person who says ‘bugger the rules’. Put him in an organisation like HP, it’s like putting him in the civil service, he’d go mad,” says Richard Holway, analyst at TechMarketView.
In an earlier piece, the FT said that as many as 25% of Autonomy's staff left in the immediate post acquisition period, adding that:
Former Autonomy staff cited a “stifling” and bureaucratic HP culture that had made it difficult to get things done. One said an endless series of conference calls and form-filling felt “like being water-boarded”.
That portrayal was disputed by people close to HP who said Mr Lynch was asked to leave after a “very significant” shortfall in Autonomy’s revenue numbers in the last quarter. The division had not been able to adequately handle all the sales leads they were being given by the company, these people said...
...Former Autonomy employees said that sales had been delayed last quarter because of a move to using HP’s sales process, which was made slow by high levels of bureaucracy. They also said it had been hard to deliver sales results following the departure of so many senior executives...
... When Ms Whitman took over at the helm she initially promised to give Autonomy free rein in how it was run, but insiders say that control from head office had been increasing over the last few months.
While Silicon Valley and HP might dismiss Lynch's departure as 'normal' the level of attrition alone would have had a significant impact on performance. You don't get that when a company is being well run and especially not in a company where the leadership attracts a loyal following. What can we deduce?
Two things stand out for me about the way HP has been managed in recent times:
- HP didn't like Leo Apotheker as CEO and made sure that his job was as difficult as possible. He did himself no favors by pre-announcing a hiving off of the PC division.
- HP didn't like the Autonomy acquisition but was bound to see it through. Rather than exercising sensible judgment and leaving it to get on with growth the way it knew how, HP leadership slapped on processes that made it impossible for Lynch and his team to succeed.
In other words, personalities got in the way of good sense. Now HP has to make a fist of a product set where much of the talent that could have taken it forward have either walked or been shoved out the door. Long term, that sounds like a $10.3 billion write off in the making, sunk by bruised egos rather than the exercise of first management principles.
Despite the general support for Meg Whitman as replacement for Leo Apotheker, you have to ask yourself is she and that team the ones who can really turn this company around? As Charles Cooper says:
So now we move on from this latest act in Silicon Valley's longest-running soap opera. The starring names change -- Fiorina, Hurd, Apotheker, and now Whitman -- but the plot line remains the same. HP is in as bad a shape than ever. Old scripts, old slogans -- Whitman even said on the earnings conference call with analysts Wednesday afternoon that she was "cautiously optimistic" about HP turning the corner. We've heard this stuff a zillion times before. Maybe someone can explain why it's going to work this time? If there's a transformational leader at the helm, this would be a good time to prove it.
My bet is that Ray Lane, HP executive chairman, who oversaw the phoenix like act of Oracle rising from a near death experience in the 90's, is hoping that some of what he learned and actioned in that turnaround rubs off on Whitman & Co. So far, the scorecard isn't looking so great. Our own Larry Dignan observes that even with a massive 27,000 job cuts in the offing and and an emphasis on renewed R&D spend, patient financial analysts are far from convinced:
HP shares are up a bit the day after the company’s results, but few analysts are calling the turnaround. In fact, HP’s restructuring is being portrayed in some camps as a move that won’t alter the reality the company could be facing businesses stuck in a secular decline.
In similar vein, I don't see how R&D spend helps the company unless it can fast track some disruptive innovation in time for a blistering Q4.
At the back of my mind I am wondering whether there is anyone who can turn this company around without including the radical but perhaps necessary step of breaking up this company and returning it to its roots.