Next HP CEO needs to deliver growth and vision not just cost cuts

Next HP CEO needs to deliver growth and vision not just cost cuts

Summary: Hewlett-Packard under Mark Hurd, who resigned Friday, was a lean, mean operational machine. HP could cut costs and squeeze out profit margins with the best of them. The next CEO, however, is going to have to deliver organic growth and vision.

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Wanted: Chief executive for technology giant, known to some as a megacap. This executive will need strategic thinking and find ways to grow into new markets. Financial discipline also required, but most of all we're looking for vision, strategic insight and potential game changing innovation.

That could be HP's pitch for its next CEO.

Hewlett-Packard under Mark Hurd, who resigned Friday, was a lean, mean operational machine. HP could cut costs and squeeze out profit margins with the best of them. The next CEO, however, is going to have to show that HP can grow organically sans acquisitions and cost cuts.

Also: HP CEO Mark Hurd resigns amid sexual harassment investigation; Company raises full year guidance

Analysts and industry watchers on the Enterprise Irregular mailing list all agree on one thing about HP. Hurd was a master at operations and being efficient. He wasn't a big innovator and strategic thinker. Like a team that changes coaches, the new guy is often the opposite of the last manager. Disciplinarians yield to player's coaches. In this case, Hurd, the operations guy, is likely to yield to someone more visionary.

There are also other significant questions. Was this Hurd departure really about conduct and a sexual harassment suit? Or was it really about swapping coaches at HP? The more you think about the Hurd exit the more you wonder whether the board wanted to swap out the operational guy for a more visionary type.

Wall Street analysts on Monday were busy handicapping HP's prospects in light of the Hurd departure. The key takeaways:

HP's valuation after hours Friday was a 19 percent discount to IBM. That gap is the largest since the Carly Fiorina error era.

Deutsche Bank analyst Chris Whitmore said HP will remain cheap relative to its peers:

We expect HP’s valuation to remain under pressure amidst uncertainty and concerns surrounding other potential misgivings, a lack of visibility on leadership succession and a potential strategy change with new management. We believe many existing investors own HP for management’s cost cutting acumen and the ability to deliver consistent non-GAAP EPS. This thesis has to be questioned in light of the management change.

Hurd's departure could be a blessing in disguise. Barclays Capital analyst Ben Reitzes said:

We believe Mark Hurd was a great cost cutter and we are disappointed that he is gone, but he was having difficulty with investors in “handing off” the HP story to one of growth in a world that faces challenges with the movement to cloud computing.

HP needs to talk strategy and deliver a growth story at its Sept. 28 analyst meeting.

Investors were going sour on HP's PC business and plans for the consumer market, the strategy with EDS and a constant restructuring go-round. Business looks good for HP for now. HP's outlook is roughly on par with expectations although the fourth quarter view was light relative to what some analysts expected.

HP has internal and external candidates that would fit. As handicapped Friday, there are a bevy of possibilities to replace Hurd. Internally, Ann Livermore and Todd Bradley are the leading candidates, say Wall Street analysts. JMP analyst Douglas Ireland said:

Bradley joined HP in 2005 and is executive vice president of HP’s $42 billion Personal Systems Group, including personal computers and mobile devices. He was previously CEO of Palm, and we believe he could possibly look to leave HP if not given the CEO role.

Add it up and what's really needed at HP right now is some vision. The problem is that HP also has to integrate a few big acquisitions such as Palm and 3Com. Toss in questions about the services unit---does HP really get this business process outsourcing gig?---and there are a lot of outstanding issues.

Topics: CXO, Banking, Hewlett-Packard

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11 comments
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  • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

    Dear Mark Hurd, now that you've resigned from HP as CEO, I can't mail this to your office, however, I do want you to know how I and many other customers of HP feel about your customer service, product support, and well.... ... your products. Thank you for giving me the inspiration to finally get my money's worth from your products..

    http://www.youtube.com/watch?v=J5Gn93APYqA
    szymonkarl
    • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

      @szymonkarl - modern day business isn't about customers, except for base sales.

      In reality, look to shareholders and speculators as the ones companies only care about. :( I wonder if shareholders and speculators are customers.
      HypnoToad72
  • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

    Needs to be the first to deliver an affordable, yet powerful 3d printer. And while at it, create a kind of free and open source "3d PostScript", before Adobe has the same idea and steals all thunder... Office reports will never be the same again...
    Silex
  • Will that include the return of "The HP Way"?

    http://www.hpalumni.org/hp_way.htm

    or

    http://www.reuters.com/article/businessNews/idUSTRE6781EN20100809

    I know, it's probably as dead as a dinosaur, as is 'egalitarianism', 'ethics', and so on...
    HypnoToad72
  • Vision is required, but "organic growth" is unrealistic

    I generally agree with Mr. Dignan's thoughts ("Next HP CEO needs to deliver growth and vision not just cost cuts"), but I challenge his assertion that "...the next CEO...is going to have to show that HP can grow organically sans acquisitions and cost cuts..." If by "organically" Mr. Dignan means by way of internally-generated innovation, I simply can't imagine this being possible.

    Assume HP's sales are roughly $30.8B/quarter or $124B/yr <http://bit.ly/bYX5OX>. Executives are expected to produce double-digit growth on an annual basis; for the quarter cited, Hurd oversaw roughly 13% increases in sales between 2009-2010, representing $16B/yr new dollars coming in. HP and the market would consider this "adequate," but not up to expectations.

    There is simply no way that companies the size of HP can innovate internally at a scale sufficient to create anything like $16B new dollars/annually. Even if HPLabs had 10x the research staff --- 5000 Labbies instead of ~500, down from 600+ in 2009 --- a company of that size will only meet its objectives by aggressively acquiring market share.

    Organic growth based on an internal, inspired innovation engine is a nice story, but when each of your businesses is itself a multi-billion-dollar market leader with huge growth expectations, it is simply not realistic.
    bitwacker
  • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

    HP engineers are responsible for inventing many of today's most used gadgets. The pocket scientific calculator, the personal computer, the laptop, the PDA, the smart phone. The list goes on. And who is number one in these markets, Texas Instruments, Apple, Dell, Palm, but not HP (OK well HP now owns Palm, but the PDA market is nearly dead.) HP needs to stop killing ideas that it cannot instantly productize and then playing catch up when someone else finally does. HP needs to invest in minds, return to the HP Way, and invent again. HP went from being in the top 10 of the top 100 places to work, to not even on the list in 1 year. Now those are 1's and 0's even a non-nerd can understand. Don't expect to have billions of dollars in profits. It is better to just cover your expenses and be respected than it is to make billions of dollars and be a just another reseller of cheap crap.
    stefanis
  • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

    More important: needs to deliver CUSTOMER SERVICE. HP's customer service, especially with regard to business partners, is abysmal. I work for a company that has ~30k servers world wide. I would estimate about 80% of those are Wintel, and of those another 80% are HP. We provide HP with a significant amount of server sales, and yet their customer service is so poor it leaves us feeling that they don't care about our business. Pathetic.
    smtp4me@...
  • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

    I've been purchasing HP products since 1956, when the HP product line was the only game in town in many electronic devices. HP seemed to lose many of their innovative skills when they first tried to compete with Tektronix in oscilloscopes and became sort of a "me, too" operation over the years, relying on acquisitions at the expense of internal growth. I have a very close college classmate of mine who was, before his retirement, an exceptionally bright and creative engineer. This guy went to work for HP sometime in the '70s and worked there for many years. Guess what his last job at HP was before he retired? Wrong! He worked in production control in a manufacturing facility. Then, when HP spun of Agilent, the company pretty much decided that innovative engineering was not its bag. Too Bad.

    You are correct. HP needs to regain its vision.
    K4thwright
    • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

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  • RE: Next HP CEO needs to deliver growth and vision not just cost cuts

    Yeah, just going to echo the other comments here: H-P customer service has been awful for a long while (it's why consumers defect to companies like Apple) and their product quality control of late has been pretty bad. In the latest Consumer Reports, their reliability rating and customer service was second to last, just a notch above Dell.
    Theseus
  • deliver growth and vision not just cost cuts

    My direct connect with those on top and
    through the organization is "too busy";
    from a "pay no attention to" customer .
    bigjon