Who holds the reins at HP? It ain't just Whitman.

The more I read in and around the ousting of Leo Apotheker as CEO at HP and the more I look back over how this drama has played out, the closer I come to the conclusion that this was never about Apotheker. It's about Ray Lane.

Getting the context straight

In backchannels I don't see anyone believing that Apotheker's ousting is a good idea. Like him or loathe him, the consensus is that he wasn't given the time to execute inside a company as large as HP. As I've said before, it is very easy to manage on the upswing, it is much harder when things are going badly. And when things are going badly pretty much everywhere then one person alone cannot do the needful. HP's board must have known this. So what's going on?

At the time of Hurd's ouster, it is clear that HP struggled to find anyone to take on the job. Why? Hindsight is a wonderful thing and it is easy to speculate. Given the HP board's performance over a number of years it must have been obvious to any potential Valley based tech industry candidate that attempting to run that ship with that board composition just wasn't going to work.

From a Valley standpoint, Apotheker was an unknown quantity. That despite he had been CEO of SAP and over 20 years built one of the most formidable sales machines I have ever seen. But before he stepped through the doors of HP HQ, Larry Ellison, CEO Oracle was mocking Apotheker, much to the amusement of the media but surely a worry to a financial analyst community that failed to do its homework. My thesis is that from day one, Apotheker was doomed.

Miscalculations and blunders

This was a miscalculation by Lane who must have believed that working with Apotheker, the two of them could poke a stick in Oracle's eye. While they may have been on opposite sides of the fence during much of the 90's (Lane at Oracle, Apotheker at SAP) they had a rapport built upon a joint desire to put a dent in Oracle's relentless march. There was the added advantage that Apotheker and Lane could pool their knowledge about managing in tough situations. Except that Lane was always a part timer.

Now we learn from Lane that this HP board didn't appoint Apotheker. Well a good number of them did, even if it was by default. And Lane was the kingmaker in that regard because he had already said 'no' to the job but was prepared to act as chairman, a role to which he should be well suited. Unless you believe the implausible scenario where Apotheker called up Lane one day and said something like: "I see HP needs a new CEO, I could do that," to which Lane agreed. More likely the other way around, but I am speculating.

Tough stuff, poorly communicated

As we roll through the months, Apotheker takes tough decision after tough decision, none of which were welcomed by Wall Street. They had been oblivious to the way Apotheker's predecessor had scoured out the talent in services. Why would they care? Hurd was delivering what they wanted which is easy when all you do is cut costs. Companies like HP have enough fat around them to ensure they can meet targets - mostly. Unless there are big factors in play that take revenue control out of management's hands. And that's what was happening.

As a side note I see this a LOT. Financial analysts who don't have the time to properly understand what's going on with tech companies. They almost never speak with people who meet with folk on the ground. Instead they content themselves with board presentations. You only have to listen to financial results calls to realize that a savvy board can anticipate pretty much 90% of the Q&A. What they didn't know but which the board must have known, is that at the time of Hurd's ouster, HP was in the verge of falling off a cliff. And in Apotheker, HP had the perfect patsy.

The writing on the wall

What I have been hearing is that in recent times, Lane had started to actively distance himself from Apotheker and especially after August 18th when the company splurged all the bad news. That by the way was in part forced because the Great Leaking Sieve was, by then, in full flood. That thought was reinforced when Lane stood on stage at Dreamforce and made an odd deprecating remark in response to Sandra Kurtzig's quip about HP's existence. Danger alert antenna went up all around me at the time. It was at that same time some people expressed concern about Lane's reputation as becoming badly tarnished by association with Apotheker's perceived ham fisted handling of the bad news.

Reputation matters in an ego filled world and nowhere is that better exemplified than Silicon Valley. My assessment is that Lane realized he was supporting a CEO in a highly precarious position but at real personal risk to his other interests and the well deserved reputation he had established, first as a steady hand at Oracle and subsequently as an investor who sees well beyond Silicon Valley. My guess is that at some point in the past week or so, that became too much. So how to extricate yourself and restore some credibility.

Prior to Apotheker's appointment, the consensus was that HP had not grown enough internal talent to fill Hurd's shoes. That situation was no better 11 months on. To my mind that speaks more to what had gone on before Lane or Apotheker arrived but over which there could be no glossing over.

That left Lane and HP in a tight spot with almost no time to resolve the impending crisis. It is at this point I believe Lane took a crucial decision. He must have calculated that there was no way to solve HP's problems without ousting Apotheker. Taking on a more active role would have weakened Apotheker further and not helped Lane to do what he felt was necessary. On everything we've learned to date, he was not in fundamental disagreement with Apotheker's strategy but he (and I suspect Apotheker) could not figure out a way of making it work with what amounts to a joint CEO situation. Perceptually, this would have been a disaster.

Lane's get out of jail card?

Looking around at the board, there was no-one Lane adjudged could be put in post as CEO...except Meg Whitman. Popular in some circles but with no track record in enterprise, Whitman must have looked like the best of a poor bunch. That gave Lane the opportunity he needed to create what looks very much like a joint leadership situation in all but name. It gives Lane the operational power needed to back Whitman and act where necessary. Where is my evidence?

When you look at what Whitman said during the analyst call, there was absolutely nothing to indicate that she will do anything other than a combination of what Apothker had in mind strategically and more obvious things like rallying the troops.

It is Kara Swisher's interview that reveals much more. Swisher clearly likes Whitman and gives her a warm reception. She says (my emphasis added in bold):

Message No. 1 from Whitman, who is very good at delivering messages: “I took this job, because HP really matters to Silicon Valley, to California, to this country and to the world.”

And: “This is an icon and the place where the initial spark to create Silicon Valley came from and I am resolved to restore it to its rightful place.”

And: “I have the skills to do that.” Lane concurred, noting that while Apotheker had focus of defining some of HP’s goals, he lacked the operational, people and communications skills Whitman has.

“Leo was very wise about figuring out what HP needed to do to add value,” said Lane. “But he did not have more important tools we needed, including operational excellence, people skills and communications skills.”

He added: “Meg has all those things…and when we looked around the board room, we realized we had what we needed right there.”

So far there isn't much there that wasn't said in the earlier analyst call. Some will want to argue the finer details and especially those that relate to Whitman's communication skills:

The recent California gubernatorial election served as perfect reminder of just how downright unlikable Meg Whitman can be -- or at least seem. Perhaps face to face over coffee or even in the boardroom, she comes off differently. But in the public spotlight, she comes off as brash and abrasive, qualities that are ill-suited for the public face of a company desperately needs a charismatic leader to inspire the folks at HP, not to mention charm the public, the press, investors, and partners.

Apotheker was cast in similar fashion so is there a real difference? Wasn't the communications issue an 'embarrassment' to HP's board? Perhaps Lane thinks he can school Whitman where necessary or that a few years of aging have mellowed her. We will have to wait and see.

It is when the Swisher-Lane-Whitman conversation moves forward that things get really interesting. Let's pick them apart:

1) Focusing on meeting Wall Street expectations for HP for the next quarter over the next 45 days. “We have made a commitment,” she said. “And we are going to do everything possible to keep it.”

Street talk is that HP will be light on revenue this quarter but more or less OK on earnings. That would have been the case anyway so nothing to flap about. At least not for now.

2) Integrating HP’s $10 billion acquisition of Autonomy, which was made by Apotheker. “As you know from my time at eBay, I know a lot about unstructured data and it is a market where no one is a leader except Autonomy,” Whitman said.

Oh - so Whitman believes the Autonomy deal is good when all analysts I speak with think it is over priced and adds very little to HP? Some think it is downright nutty. I think differently and while not exactly aligned with Whitman, I see how this deal does make sense. I guess that makes us both nutty. I wonder how she will persuade the Street of her conclusion?

3) Come to a decision about whether to spin off or keep its Personal Systems Group, which includes HP’s consumer PC business. “We will not sell,” said Lane firmly.

Bang - there you have it. In Whitman's earlier remarks, she left the fate of PSG open:

With regard to the potential spinoff of PSG, we’re committed to doing work right now to determine the best path forward and we expect the board to make a determination by the end of the calendar year if not sooner. This decision is solely based on the value to and investors and value to customers.

Lane is much more definitive. If there is a skirmish here then Lane has won that one straight away. See what I mean about joint leadership?

4) Getting a better feel for HP and its employees. “I have been on the board for eight months, but I really need to get in there and meet its people,” said Whitman. “That is perhaps the most important thing to get right.”

Stating the obvious. But nothing else. Nothing of substance on WebOS, nothing on services, nothing on software. Those are three big issues which will get tongues wagging in short course, especially those pondering webOS.

Battle plans

It looks to me as if Lane and Whitman have decided the immediate battles they will fight and have a plan to get that underway. That's not a bad thing but it will be a joint fight and not a one person show. And then there's what to do about the Great Leaking Sieve. In the current situation, neither Lane nor Whitman can afford to be undermined. Courting a friendly press will do what Apotheker could not - calm matters for a period.

But of greater concern - what about the enterprise business? This is where Apotheker was staking the future. There are possible near term deals to be done but...

Last week, we met with HP reps who have a reasonably credible story around the delivery of hardware and services for SAP's HANA (video interview with my colleague Jon Reed.) Their booth was busy. If demand is as SAP declares, then there are potentially rich pickings for HP. We're talking seven figures in a number of cases. Apotheker could have helped close those deals. Will Lane? Whitman has no chance. Enterprise is just not her thing...so far as we know. And customers are nervous when it comes to cutting checks for HP.

Add it all up and at first blush, the balance of what's being said sounds just about OK to provide the breathing room HP needs to tackle the bigger problems. How well the Lane-Whitman ticket manages the Autonomy acquisition will be an early test. But make no mistake. This is not a one person management team. Lane has, for better or worse, committed to getting HP out of the muck. And in doing so, I suspect he gets to do what has been top of mind for a while. Restore his own Valley reputation.