Ok, that was a cheap pun, not to mention tacky, but I couldn't help myself and I bet neither could many in the industry after news broke last weekend that Hewlett-Packard CEO Mark Hurd had resigned, following allegations that he had misreported company expenses to hide payments made to a female marketing contractor. HP stock took a dive when the markets resumed trading Monday, dipping 7 percent to US$39.
Ok, that was a cheap pun, not to mention tacky, but I couldn't help myself and I bet neither could many in the industry after news broke last weekend that Hewlett-Packard CEO Mark Hurd had resigned, following allegations that he had misreported company expenses to hide payments made to a female marketing contractor.
HP stock took a dive when the markets resumed trading Monday, dipping 7 percent to US$39.20 or US$7.9 billion in lost market capitalization. As I write this, the company's stock has tapered off to US$40.14.
As one of the world's largest IT company by revenue, which clocked US$114.6 billion for fiscal 2009 ended Oct. 31, HP--along with its 304,000 employees worldwide--will no doubt survive this sudden turn of events in its leadership. After all, it survived the ousting of former CEO Carly Fiorina whom Hurd himself had replaced in 2005.
And while there are some who, like Oracle's Larry Ellison, have decried Hurd's unceremonious exit as a mistake, I believe this may well be the silver lining the company needs to regain its roots and head back to the HP Garage, which has come to symbolize inventiveness.
The HP Garage (credit: HP)
In the five years at HP's helm, Hurd was cheered for his financial discipline, focus on detail and stringent cost management. His aggressive cost-cutting measures and operational restraint helped boost the company's market capitalization to US$108.1 billion, from US$44.6 billion since he took over in April 2005.
However, his eye on slashing cost also made an impact on HP's research and development (R&D) spend, which fell from US$3.5 billion in 2008 to US$2.8 billion last year. In its 2009 financial report, the company said the dip in total R&D expense was due largely to a favorable currency climate and "effective cost controls".
Gartner analyst Martin Reynolds said: "He was very focused on cost-cutting and cost management. The challenge of that is it's very difficult to present innovation in that environment." He noted that HP's new chief needs to shift the emphasis from cost focus "toward the inspirational things that HP can help companies and consumers do".
Hurd's tenure undeniably helped the company trim its fats and streamline operations to reach optimal efficiencies. But, when extended over a few years, such stringent cost measures will inevitably impact other facets of the company, such as product innovation and staff morale, which are important to ensure its continual growth and to maintain the competitive edge.
And HP faces strong rivals that have long recognized the value of R&D. Archrival IBM, for instance, dedicated US$5.8 billion toward its research efforts last year--more than double what HP spent.
If it continues to apply Hurd's iron hand and slash further investments in R&D, HP's brand as an innovative IT player could suffer--especially amid efforts to introduce significant new products such as WebOS into the market.
Hurd's done a great job oiling the wheels and getting the company running on maximum efficiency--and he got a very nice thank-you severance package for his dues. But it's now time for HP to reinvest in the necessary resources to once again fuel a company that once drove a huge campaign simply coined, "Invent".
