Fortune on why Fiorina's big bet is failing

Fortune on why Fiorina's big bet is failing

Summary: In a lengthy article Carol Loomis of Fortune [sub required] dissects HP. It's not a pretty picture of Fiorina or HP...

TOPICS: Hewlett-Packard
In a lengthy article Carol Loomis of Fortune [sub required] dissects HP. It's not a pretty picture of Fiorina or HP...

In the midst of all the competitive pressures bearing down on her, and in the struggle of managing the unwieldy company she created, Carly Fiorina sometimes talks as if she sees a vision all her own. She hauls it out in the opening lines of internal speeches, articulating her goal of making HP "the world's leading technology company." The ambition is a curiosity rouser because it implies that she has firmly in mind what company right now holds that title. But that turns out not to be true. There isn't any one company that fits the bill, she says. It could be IBM one place and some other company elsewhere.

But then, you wonder, if she doesn't know who the leader is now, how would she know whom HP has to pass and when to claim victory? Oh, well, classify this as one of those aspirational themes that Fiorina wafts skyward now and then. The utility of the idea seems small, anyway: Whatever it is, HP is not right now close to being the world's leading technology company.


Loomis makes a clinical case that the merger with Compaq is a dud, with the end result of HP giving 37 percent of its highly profitable printing and imaging business to Compaq shareholders and getting little in return. Fiorina must be fuming, thinking she can't catch a break from the press or analysts. After all, she runs an $80 billion company that has some market-leading positions. But, it's not about catching breaks as much as meeting expectations, and she is falling short based on the numbers. It's unlikely anyone could have met the expectations set post-merger, but this is the year in which HP has to demonstrate that it exemplifies the agility, adaptability and partnering capabilities that Fiorina likes to talk about when describing HP's vision for the future of IT. Just like the CxOs who are HP's customers, Fiorina is measured on her ability to deliver on profits and growth, not "aspirational themes"...

Topic: Hewlett-Packard

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  • She bought the wrong company

    Almost anyone inside either company could have told you that HP and Compaq were a "bad fit". Compaq's corporate culture was "You'll do it 'cause we're from Houston, *THAT'S why!" whereas the HP Way was well known in the industry.

    HP would have done wonderfully by buying Digital *BEFORE* Digital dumped all its valuables on the ground in an attempt to be purchased by Compaq. Digital and HP had very compatible cultures, Digital had the world's fastest processor chips, the world's best server operating system, a great Unix, and a gold-plated client list. HP had strong penetration in business markets, another good Unix, and the printer cash cow providing an entre into every business's door on the planet. And they still had friendly relations with Agilent which would have been a great tie-in to Digital's old technical OEM business.

    But most of Digital's golden assets were either discarded or disregarded in favor of trying to remake Digital as a PC vendor suitable for marriage to Compaq. By the time Compaq bought them, DEC was little more than an empty husk and Compaq continued the process of hollowing it out.

    In the end, all HP bought was a bit more market share in the money-losing PC business.

    It's sad, really.
    • Build vs. Make

      The build vs. make decision is the most important one any CEO faces.

      In the technology business, mergers almost never work. Only acquisitions work.

      The Compaq deal was a merger. Both sides were getting one another's garbage. This was obvious at the time.

      But Carly made the deal, she sold the deal, and she has to take responsibility for it.
      • Only acquisitions work?

        I disagree - Nortel bought Bay Networks for $11 billion and effectively threw it all away. The combined entity has (sadly) all but disappeared from the the enterprise space.

        It may have worked if HP had bought Compaq back in 1989 when first mooted, and made it the PC division; but we'll never know now.

        At least Bill & Dave can now have a rest from spinning in their graves!
  • merger

    As a small business Compaq workstation customer, I was very impressed with Compaq's support & was concerned that HP would destroy it. My surprise has been that not only has HP maintained the high quality Compaq support but that I am now an equally happy & impressed HP workstation customer. To keep things in perspective, I don't use HP printers, digital cameras, or test equipment which are areas HP is strong in. From an end user point of view, I couldn't be more pleased with the merger.
  • Where Carly first failed

    Carly Fiorina first failed when she dismantled the "HP Way" ... the culture put in place and nourished for over fifty years by the company founders. Has anyone noticed that (on her direction) the company never officially uses Bill Hewlett or Dave Packard's surnames anymore?

    HP would have had a chance to be the world's leading technology company if Carly had not driven off so many talented technical wizards ... the ones who do the invention she so proudly proclaims as the foundational strength of HP. Has anyone noticed how ruthlessly she dismantled a company whose strength was the mutual support of it's many operating units. Being a financial person she only understands profit and destroyed any operating unit that failed to make a profit.

    In the HP BC (Before Carly), the divisions that made great profits helped the divisions whose profits slipped get back on track. Bill and Dave saw that balance and shared resources across business units were applied because they recognized that all business sectors have variable returns based on business cycles of different industries served.

    There were years when HP medical products balanced the lower profits of Optoelectronics. Years when and handhelds buoyed the lower profits in disk products. Many years of solid Test and Measurement business profits paid for development of advanced computer systems and networks. The profit sharing story was repeated many time over many years ... not just between divisions but b for all employees.

    Those who worked at HP loved the security of knowing their jobs were secure even in bad times. They knew that failure when you were pushing the state of the art/science when building something no one had ever built before would not be punished, but rather rewarded. Innovation was endemic in the culture and everyone understood ? that was the HP Way. The old HP, BC, never did "me too" products. They invented the future and rewarded the innovators. By killing the HP Way, Ms Fiorina has doomed the company by killing off its soul and decimated the family spirit that drove the innovators. Today they are just plugging along praying that they won't be laid off if business slows. Now there are few differences in the units, almost all the old HP divisions have been sold off by Ms Carly as they had momentary hiccoughs.

    In the HP BC, everyone in the company would take a temporary 10% pay cut during the really bad business cycles, mainly to avoid laying off anyone. That was a time when all employees knew times would get better and the pay cuts were always restored. When HP worked as a team (a big happy family team) it was magic.

    The magic lasted until the founders passed away and bean counters with no sense of what a finely crafted system that was HP took over the direction of the company. It is a sad time in America when the great companies fall victim to shortsighted greedy executives who cannot recognize greatness when they see it. Bill Hewlett and Dave Packard built a great company ... all that Carly can claim is to have dismantled it and destroyed the soul.

    HP is now a Digital Entertainment company ? give me a break.
    • The real Hewlett-Packard was spun off into Agilent

      The heart and soul of HP was innovation, from the Model 200 audio oscillator through the HP35 pocket calculator through thousands of best-in-class electronic test instruments, medical equipment, and the like.

      Much like Digital spun off its best assets, HP spun off its heart and soul when it spun off Agilent. One of the assets that apparently went with Agilent was the HP Way. All that HP had left was a business based on hawking printer cartridges.

    • Well spoken!!!

      You speak well by calling out cultural issues. It's what failed
      mergers are all about. How funny is it that the Compaq staff
      hoped and hoped as they were being bought that no one at HP
      would notice how badly the Compaq/DEC merger went because
      of culture clashes.
    • Actually, the Board of Directors Failed First

      The board failed when they hired Carly. They failed again when they approved the Compaq aquisition. They've failed since the aquisition by not controlling Carly.

      Lots of money and jobs lost due to the Board not doing their job. Carly isn't the only fool here. The Board played the fools role too. Mergers of this size virtually never work. Always oversold and under delivered. Cultures collide, along with basic stuff like accounting practices.

      If anyone out there knows a single merger of this size that actually performed as advertised, please let me know.

      How the Board and Carly were stupid enough to think they could pull something off that virtually never works is way beyond me!
    • So true

      I weep when I recall the real HP. Fortunately some of the spirit still lives on in the ProCurve division. I think the $21 million could have been better spent in re-hiring some of the old blood and at least attempting to resurrect the strengths of the real HP. Sadly, much of the damage is irreversible.
    • Why Carly failed

      I absolutely agree whith you. I have been a faithfull HP customer for over 20 years and I have seen the degradation of the corporate attitude towards their products and customers. In trying to squeeze more money out, they've killed the spirit of this company and the core of their main claim to fame. It can only harm them in the long run and will probably require a merger to keep them alive, unless they decide to consolidate their structure and try to win back the confidence of their customers...serge
  • It's too early to say ...

    It is not fair to blame Carly for not buying Digital when Digital was long gone when she came on the scene.

    As for the merger with Compaq, it was never going to be spectacular. Two large vendors selling commodity products cannot extract a great deal of excess overhead out of their respective operations through merger -- because their wasn't much excess overhead to begin with.

    Both product lines are still big players in the consumer PC marketplace -- thanks to their retail channel. Unfortunately, both vendors were (and HP still is) so completely committeed to that channel that they cannot compete with Dell or IBM for the enterprise desktop. Why? Because their retail channel gets a cut off of every sale. Dell, on the otherhand, provides the same product but doesn't have to share their profits with anyone -- leaving them free to cut prices well below those offered by HP without cutting margins below their costs. The lucrative printer business just gave them the working capital to complete the merger.

    Neither HP nor Compaq penetrated the UNIX market early enough to be able to compete with Sun or IBM in that market place either. (Neither did Digital so acquiring DEC would not have made much difference either.)
    M Wagner
  • Carly and HP

    Sun folks should be rejoicing! First HP tells the world HP-UX is at end-of-life. Then Carly (who I greatly respect) steps down. Perhaps the lesson here is - "No single Company has the vision and products to be everything to everyone".

    PC's are just commodities, and midrange boxes are rapidly becoming the same. The complexities of environments is ever increasing, as are bandwidth demands in application delivery, mainframe popularity is on an upswing, and the costs and complexities of decentralized (or distributed computing - the last great 'failed vision') are escalating exponentially. Blaming Ms. Fiorina for attempting to provide a vision for the mess created in HP by the merger with Compaq - which included vestiges of DEC - is just silly. The driving factor for HP and IBM, Sun, Dell, Gateway, etc. is bottom line performance. Vision is nice for a corporate 'philosophy', but earnings are the key. Perhaps, as so many other technology companies have learned - just as HP did with their printing and peripherals lines - identify real needs, build a better product satisfying those needs, and the bottom line takes care of itself. Visions are wonderful - but not in this world. There cannot be a 'one size fits all' as of today. Sun's 'niche' approach might just be what is needed now. Of course, that could change tomorrow!

    • one thing straight

      HP told the world that its chip, PA-RISC was at the end of life, not its UNIX OS, HP-UX.
  • Impatient Boards ...

    ... often scuttle promising efforts. The naming of an interim CEO from the 1960s is a bad sign that HPs Board does not see the forest for the trees. Carly needed more time (and more room to delegate) to expand her vision for HP.

    HP is attempting to compete in too many places. They want to be in the same business as Dell, IBM, and Sun Microsystems -- but each of these companies has its own niche. Competition amongst them overlaps but is not all-encompassing.

    For instance, HPs enterprise printer business is as dependent upon its VARs, as its retail PC business but the VAR component of its enterprise PC business makes it uncompetitive in the space.

    Further, HP cannot expect to support it's IBM-like service model at commodity price-points. It must operate its enterprise service business independent of its commodity PC business.

    Similarly, HP should not expect its UNIX/Linux server (enterprise) business to be run the same ways as it's consumer PC business. The business models are just too different.

    I would hate to see HP throw out the baby with the bath water ...
    M Wagner
  • quick summary of her reign

    [b]Big picture[/b]: the merger was flawed and she's the one who pushed it through.

    [b]What she cost HP[/b]: undying hatred of Alpha lovers, unending skepticism by Wall Street analysts, unforgiving attitude of the friends of Walter Hewlett, of which there are many.

    [b]Who benefited most by her tenure[/b]: Michael Dell, whose company's corporate business unit was able to siphon off the most lucrative of HP's [u]and[/u] Compaq's customers.

    [b]Last word goes to[/b]: Walter Hewlett; or perhaps Jonathan Schwartz, who was right (if not subtle) about the failures of HP's unix strategy.

    [b]Bottom line[/b]: Great printer company, mediocre server company, and too taken with itself to see that big does not make better.
  • Compaq polluted HP

    As an HP reseller before and after the merger, I was in a good spot to the effects. Instead of HP keeping their superior customer service and tech support, they basically became Compaq.

    The Vectra went out. The Evo was in.

    HP never had a customer of mine talk with someone from India for 40 minutes to try to diagnose a problem.

    It was a shame.

    I now sell White Box PCs and IBM xSeries Servers.

  • RE: Fortune on why Fiorina's big bet is failing

    Loved your post !I weep when I recall the real HP. Fortunately some of the spirit still lives on in the ProCurve division. I think the $21 million could have been better spent in re-hiring some of the old blood and at least attempting to resurrect the strengths of the real HP. Sadly, much of the damage is irreversible.
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