Can anyone manage HP out of its distress?

Can anyone manage HP out of its distress?

Summary: Can anyone turn around HP or is it all looking a bit like too little too late?

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TOPICS: Hewlett-Packard
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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.

Topic: Hewlett-Packard

Dennis Howlett

About Dennis Howlett

Dennis Howlett is a 40 year veteran in enterprise IT, working with companies large and small across many industries. He endeavors to inform buyers in a no-nonsense manner and spares no vendor that comes under his microscope.

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20 comments
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  • Not if HP continues to make bone-headed decisions like this.

    How about a new HP Color Laser Jet CM1415fnw that has a SCAN feature on the device's front panel...but won't let you scan to ANYTHING but a USB thumb drive. Can't scan to the computer at all.

    Contacted HP about it and was told "This feature is more common on the inkjet product lines versues the Laserjet product line."

    So why the hell is the Scan "button" there in the first place then? What good is the scanner if you can ONLY scan to a thumb drive? Answer...NONE.

    Will be looking at the competition from now on for new hardware.
    It'sNotMe
    • So they have no other models that do network-storage scanning?

      For some outlets, scanning to a USB drive is not a problem, but with the Cloud taking over SMBs (and the eradication of IT jobs that will invariably follow, followed by people being angry because the people at the other end of the cloud have zero incentive to provide good or localized service... )

      Oh well. Anybody have some liquor?
      HypnoToad72
  • Easy

    As a start, how about designing printers that use the same toner cartridge?

    We bought a bunch of 4015s in 2011... guess what, they are discontinued and the replacement, which looks virtually indentical, uses a different toner. So much for simplification of our toner inventory.

    When it came time to purchase a couple extra units, we gave the business to Xerox and Samsung. If you're going to get screw*d, might as well let someone else take a turn.
    croberts
    • Or isolated mechanisms

      The imaging drum integrated in a toner cartridge is more liable to scratch and cause defects on the paper. It's a sheer waste of money (and toner, which is merely finely ground up plastic) to the customer, but how else can companies profit anymore...
      HypnoToad72
  • Harvard case study

    That will probably be all that is left of HP in a few years. And the printers.

    The truth is that there is a lot of "HP" that doesn't want to be HP. The EDS people don't want to be HP. The Autonomy people don't want to be HP. The Palm people didn't (past tense) want to be part of HP. The 3PAR people don't want to be part of HP. What's left? PCs and printers.

    Try to order something simple from HP, like a basic server. After 3 phonecalls to figure out the right mounting bracket you will get the idea. And when you get the mounting bracket and wonder why you spent $300 for a piece of angle iron with a couple of holes punched in it ...
    terry flores
    • Society is finally going paperless, but

      HP's printers have been sucky for years. But as with companies making good products, companies cutting corners to sprint ahead and then derail competition too end up getting into problems long-term.

      And what you say for Dell will ultimately happen to most companies. Even the largest. If that's surviving, it's not going to be pretty. Economic cannibalism and what might follow..

      The system is broken.
      HypnoToad72
  • Makes elephants dance

    Lou Gerstner, white courtesy telephone please.
    Robert Hahn
    • Doubt it

      I thought of adding that as a question but at age 70 would you want to take this beast on expecting to do an act 2?
      dahowlett
      • Fore!

        Not if I had 650 million dollars, which Gerstner does. Nope, I think I'd be on the golf course, in my air-conditioned golf cart.
        Robert Hahn
  • Can anyone manage HP out of its distress?

    any acquisition by hp will always go south because of the ill-advised posturing of one member of the founding family. who wants to join a company that will sabotaged all your plans using the media as its vehicle of choice? we can only hope that hp management will clean up its ranks and install people who really cares about the well-being of the company (and stop incompetent member of the family from interfering in hp's affair.)
    kc63092@...
  • Probably not

    The most likely scenario for HP will be a break up. It sounds like a bad thing, but, if you are familiar with HP's management, getting the rank and file away from the bureaucracy and casino acquisition decisions is probably a good thing. I think PCs, what is left of mobile, and printers will be one company. They will sell off what is left of the odd fitting software acquisitions, Autonomy, Vertica, etc, to other companies. Enterprise servers, storage, networking will be another company, probably put what is left of EDS in that company as well. Basically a data center company and an end point company. Call the data center company DEC, call the end point company Compaq and give the HP brand back to Agilent (just kidding on the last part).
    AdamS12
    • Revive VMS?

      As a well designed, robust alternative to Windows and Li/U-nix? ;-)
      jorwell
      • "Robust" is the name of a salad dressing and is overused

        And why are you winking? I don't do online dating. :D

        But, in seriousness - Are you hinting at MacOS, ChromeOS, or other ___OS that all leech off of open source because they were too lazy to build their own products from scratch? (Granted, the makers of BeOS did and look where they are today... there's just no money in building a better mousetrap when all the mice say "'good enough' is good enough"...)

        P.S. ChromeOS snoops on its users and Lion (10.7.x) kills MacBook Pro battery life and whittles down the once-cool Aqua interface... oh well.
        HypnoToad72
      • I'd like something better than Windows or Li/U-nix

        @HypnoToad72
        I've worked on both for many years.

        There are many features from 80s vintage mini-computer operating systems that are sadly lacking from Windows/Li/U-nix.

        The existence of Java and .Net demonstrates that Unix and Windows are not up to scratch as operating systems.

        But generally in the modern world the best thing to do is to add some more modern and reliable systems software (like an RDBMS) on top of the operating system and then try and ignore the OS (and panic fixes like Java and .Net) as far as possible. Of course on IBM i Series the operating system effectively is DB2, so you don't have to go through this step.

        By the way why is the number of replies on ZDnet limited to three levels, haven't you guys heard of recursive data structures?
        jorwell
      • VMS

        VMS is a "robust alternative" to Windows. MS hired all of the DEC engineers working on VMS to build Windows NT a few decades ago... NT is basically a VMS knock off minus all of the enterprise features like VMS clustering.

        VMS is toast though. DEC sold off their DB to Oracle, DEC now Oracle Rdb, in the 90s. Oracle has announced EOL on Rdb as well as the Oracle DB. Unless you are running flat files on VMS, there are no relational database options. Everyone who knows anything about VMS doesn't work at HP anymore, probably all retired. That ship sailed a decade ago. They will co-opt Linux and, of course, Windows as their OS on x86. HP-UX, VMS, and probably NonStop will end when Itanium ends, which is soon. XP and EVA storage are being replaced by 3PAR on the storage side too.
        AdamS12
      • I wasn't entirely serious

        @AdamsS12

        I don't think reviving VMS is really viable.

        My point is that maybe we shouldn't think that Windows and Li/U-nix are the be all and end all of operating systems.

        Oracle are in the position where they could build a DBMS appliance based on Sun hardware that misses out Solaris completely.

        As you say HP have no RDBMS and could not do this.
        jorwell
    • NICE TRY!

      right on the dot....
      kc63092@...
  • If companies rely on customers but customers have no money

    then no company, not even the biggest ones, will ultimately survive. Not even with government-sponsored subsidies and bailouts, since those are paid for by taxes, and with fewer jobs TO tax...

    I'm amazed how many people don't understand how simple our economy actually is...
    HypnoToad72
    • Relax

      We'll be back on the boom cycle soon enough. You just need to send the drain cleaners in against the billionaire liquidity blockage.
      jorwell
    • If companies rely on customers but customers have no money

      without federal contracts, there will be no super-sized companies in the u.s. of A. THE OLD DARPA WAS A GOOD INVESTMENT OF OUR TAX DOLLARS THEN! Read "The Dream Machine" by M. Mitchell Waldrop, on how they were investing properly your hard earned money. Their achievements in R&D were the epitome of what research is all about. Hope they will revive the spirit of the good old days.... and reassure taxpayers that no money will be thrown to waste.
      kc63092@...