HP's most recent quarterly results gave the company lots to celebrate: a 34 percent increase in sales that surprised Wall Street and took quarterly revenues to a company record of over $20bn. The strong financial performance also underlined the success of its merger with Compaq, a deal that has gone surprisingly well in an industry full of disappointing mega-mergers. Last week I spoke to David Wright, vice president of HP's personal systems group in the UK, who was closely involved in the merger in Europe as an executive at Compaq. He shed some interesting light on why that deal worked, and also made me think about the company's core identity.
The HP/Compaq deal used 'clean rooms', in which a large group were sworn to secrecy, trained in confidentiality, and then helped to plan the case for the deal in detail. They were also helped by 'super clean' consultants from Deloitte & Touche and other firms. These third parties could be trusted with the sort of information that neither party would want in a rival's hands if the deal fell through.
This meant the merger team could gather information and plan the deal with fewer political distractions -- ensuring that when the merger was approved, it would be relatively swift coup d'etat rather than a messy civil war. By contrast, the earlier merger of Tandem and Compaq was managed by a handful of senior executives from both companies. This meant that when the deal became public there was an enormous amount of practical detail still to be worked out. Once the news of the deal was out, it became harder to get accurate information, as managers in both companies knew what was going on and were more able to play position, as well as organise resistance to protect their political turf.
The company also handled the financial forecasting well. It said it would cut costs by $2.5bn through the deal. In fact it did rather better than that, and has announced announcing savings of $3.5bn. When I asked Wright if the team had simply low-balled the number, and he smiled and said, "No, but you want to make sure you have a number you can hit." He also pointed out that at the time critics of the deal said even the lower number was not credible. Things are looking pretty good over at HP, but the company still faces major challenges in competing with IBM in the market for high-end computing services, and with Dell in the PC space. Although the company under Carly Fiorino's stewardship has simplified its product lines and strengthened its marketing, it still has the challenge of bringing focus to a business of enormous size and complexity. One way to try and solve this problem is to spend a lot of money on a feel-good corporate umbrella brand, bringing together diverse technologies underneath the flattering shelter of a logo and some uplifting but necessarily content-free, tag line.
For IBM, it's the nebulous dynamism of being 'on', launched last month. Its latest advertising campaign, according to Lisa Baird, a veep of Intergrated Marketing Communications, is all about 'on demand business' branding. For Sun, it's 'The network is the computer', a return to a theme it first established in the 1980s, and to which it returned after dallying with being 'the dot in dot-com'. For Hewlett-Packard, it's 'Everything is possible', first launched in 2002. According to Gary Elliott, vice president, HP Brand and Marketing Communications, "Rather than focus on what we make, this campaign focuses on what we make possible on behalf of our customers, our clients and our partners."
I think HP has a harder marketing task than IBM, which has both the formidable heritage of its role as the pioneer of both mainframe and PC computing, as well as the best possible history for pulling off its new identity as the pragmatic source of technology solutions to big corporates.
When I asked Wright if there was anything about the company's image that he would like to change, he said that it surprised him that HP didn't get more credit for launching really cool products. He pointed to the iPaq as an example of an innovative product that didn't get the respect it deserved as an engineering product.
I'm sure the iPaq is a perfectly good handheld, but I got the sense that Wright was slightly crestfallen that the iPaq wasn't HP's iPod - a must-have, category defining product that generated the kind of excitement and passion which Apple's music player has won from consumers, and which marketing dollars simply can't buy. I think Wright's concern about being associated with cool products speaks to HP's core identity of a company that sees itself as an engineering company with great technology that wants people to be excited by its products. And if everything really is possible for the company, perhaps it can use its new-found market strength to get people excited about its products, and not just its financial performance.