Did HP have its IBM moment as it outlined a series of moves to transform the company? Comparing the companies is a straightforward exercise since HP and IBM are similar, but it's unlikely that Leo Apotheker will be able to replicate Lou Gerstner’s accomplishments.
The temptation to cast HP's Apotheker as Gerstner is hard to resist. New CEO comes in, remakes company, sheds low margin businesses, makes a few bets and transforms a massive operation. It's a story out of central management casting.
HP is cutting its losses early on WebOS because it couldn't compete with Apple. IBM had to acknowledge its OS/2 wasn't going to compete with Windows.
HP plans to shed its PC unit because of margins. IBM withdrew from the PC market in steps. First, IBM pulled away from the retail market and then sold its PC unit to Lenovo in 2005 (after Gerstner left).
HP is betting on software and services. Apotheker is focused on making HP's services more strategic to customers and buying Autonomy for $10 billion. Gerstner focused on services, moved into high-end consulting and current Big Blue CEO Sam Palmisano doubled down on software.
And both companies have research and development arms that can be leveraged.
Apotheker said on a conference call:
HP is at a critical point in its existence and these changes are fundamental to the success we all want as investors, employees, and customers. These changes I've outlined today will transform HP and accelerate the strategy we have laid out and the transformation starts today. Decisive steps are never easy and change doesn't happen overnight.
With that backdrop, it's no wonder that there are plenty of articles noting how HP is following in IBM's footsteps. As David Gewirtz notes, HP's moves will be in business school case studies for years to come.
But just because HP is following in IBM's footsteps doesn't mean that Apotheker's master plan will work. There are critical differences to consider.
Time: Apotheker noted that change doesn't happen overnight, but it's unclear whether he will get a decade to transform HP. Gerstner's revamp of IBM took almost 10 years before it was complete. Apotheker has been on the job nine months and has missed quarters, suffered from news leaks and outlined strategies that have been changed in just a few months.
Gerstner's IBM turnaround occurred at a different time. Shareholders may not have the same patience these days.
The post-PC era: In investing timing is everything. IBM's move out of PCs came when the industry was strong. Sure, IBM couldn't make money on PCs, but at the time losing money looked specific to Big Blue. Dell and HP were doing just fine. Fast forward a few years and HP is the top dog in the PC industry, but the conventional view is that we're in a post PC era. This era is about mobility, tablets and smartphones. If you buy into the post PC era rap then you assume there's a day when no one wants a PC. HP's PC unit can go from being top dog to just a mutt of a business few want. In other words, IBM's exit from the PC business had much better timing.
The under promise, over deliver axiom: When Gerstner came to IBM, the company was a flat out mess. Bankruptcy was actually pondered and the prevailing view was that IBM should be broken up. Gerstner had only one way to go: Up. Now contrast what Gerstner walked into relative to Apotheker. Apotheker inherited an HP that regularly made its quarters. Under Mark Hurd, HP hit its numbers. Today it's clear that Hurd's cost cutting may have set HP up for a fall. Hurd cut costs on the services business and lost talent. Now HP is a no-show in high level consulting. Hurd also bought Palm. Apotheker just unraveled that mess. However, Apotheker isn't exactly in Wall Street's good graces these days. In other words, Apotheker has less wiggle room than Gerstner did.
Software acquisition candidates: IBM built its software business over time with a strategy that veers away from the big bang. HP has to play catch-up in software and many likely candidates have been taken off the table by both IBM and Oracle. As a result, HP may have to overpay for companies like Autonomy. Given HP's scale and revenue, the company needs big bets to move the software needle. Contrast HP's approach to Dell, which is quietly gobbling up software and services companies that can be tucked in easily. HP ignored software for too long.
Services: When IBM launched its foray into services, the field wasn't all that crowded. There was a nice crosspollination between technology and consulting to be had. In 2002, IBM bought PwC's consulting arm in a move that changed the services game. Apotheker has HP's services unit---the former EDS---but acknowledges that the company has to focus on more high-level engagements. How will HP get there? If you follow the IBM playbook, HP may want to swoop in and buy Accenture. The problem is that HP just blew $10 billion on Autonomy. HP's services turnaround will take multiple quarters.
Research: Through the years, IBM has spent roughly 6 percent of revenue on research and development. Meanwhile, IBM has honed its ability to turn research into products and services. Does anyone doubt that the Watson supercomputer will have an offspring in some hospital near you in the future? Under Hurd, HP's research and development spending fell to the 2 percent to 3 percent range. Apotheker is reinstating that R&D investment, but doesn't have the financial flexibility to really step on the gas. In any case, R&D investment may take years to play out. And as noted previously, Apotheker may not have all that much time.