Whitman: the world needs HP

HP CEO Meg Whitman told shareholders that the company still has many of the things that made it a winner. It’s just got to lose the flab and get back in the game.

Like a best friend after an extended break-up, newly installed Hewlett-Packard chief executive Meg Whitman took to the stage at yesterday's annual meeting of stockholders to convince those with a stake in the company that HP's still a winner — and don't you listen to a word anyone says.

Meg Whitman
(Credit: CBS)

"HP matters," Whitman said. "Without HP, the United States Navy can't deploy ships. British pensioners don't get their cheques on time. Healthcare doesn't get delivered. [The space station doesn't function.]

"If HP doesn't work, the world doesn't work."

Riding on the coattails of an announcement that merged its long-standing PC and printer units, Whitman sought to strike a balance between comforting confidant and neutral third-party observer, reassuring shareholders and employees that HP still has a lot going for it, but there's plenty to be addressed, too.

"It took us awhile to get where we are," she said, speaking of the company's declining financial picture, "and it's going to take us a while to get out."

During her speech, Whitman outlined HP's various businesses and assessed, from a bird's eye view, the strengths and weaknesses of each and their priority within the company — foreshadowing acute changes in coming months.

For starters, she defined what HP as a company should be: "the world's largest provider of information technology infrastructure, software and services to individuals and corporations of all sizes."

The "core" of this company is its infrastructure business, Whitman said: PCs, servers, printers, networking. "Let's not run from that," she said. "Let's stand up and be proud of that."

HP's software business exists to "expand that core". It differentiates and adds value, but it's not there to "transform" the company into something it's not.

"Software makes the core sticky," she said, citing its controversial Autonomy acquisition.

HP's services business, then, is also a value add — "essential to making everything work for our customers", she said, by creating long-lasting customer relationships.

A revitalised HP, as envisioned by Whitman, must be the undisputed leader in converged infrastructure and application migration. "We want to lead in cloud, information optimisation and security," she said.

But the turmoil of the last two years has sapped the morale from an "icon of Silicon Valley", and HP employees and shareholders first need to recognise that the company still dominates several areas of the technology industry.

"We've got market leadership in virtually every category in which we compete," she said. "We need to build on those strengths to capture the future."

In an industry in motion — "tectonic plate shifts", she called it, likening today's shifts to the client-server movement of the 1990s — HP needs to help its customers manage the complexity. It's positioned to win because of open systems and architecture, its leading role in private clouds and its long history — that perhaps needs only to be removed from the closet and dusted off — of innovation.

"We have embarked on rebuilding HP in a very thoughtful way that is very true to the spirit of innovation ... at this company," she said. "We have a clear vision of where we want to go and what needs to be done ... restoring HP's rightful place in the technology industry."

Among her many detailed points:

• HP needs to restore credibility with investors by actually meeting its guidance
• Internal challenges remain. "Every business unit had some issues," she acknowledged
• There's pressure on all fronts for the Imaging and Printing group, once the "lifeblood of HP"
• Enterprise servers, storage and networking remain solid
• Some factors were out of the company's control. The hard disk shortage caused by flooding in Thailand was a setback. The weak macro economy is a challenge. The shifting value of the Japanese yen had "significant negative impact on our printer business"
• In the services business, there are challenges with resource allocation and its business mix — there's a need to drop low-margin businesses and focus on higher-margin ones. "Turning services around is going to be a long-term journey," she said. "We need to have a services business at HP, but it is going to take awhile to [turn it around]"
• "Overall, we've got to make it easier to buy from HP, sell to our customers and easier to get things done within HP"
• "Because we are so big, it's harder to get things done" and respond to market changes, she said
• Successes: never losing sight of customer, delivering great product. "The history of this company is all about great product, and I believe if you don't have the right product for the right customer at the right time, [you won't be successful]"
• Project Moonshot will "revolutionise server industry" and "restore our momentum"

Turning the ship around

Whitman offered a plan for how she believes HP can shake off the criticism, drop the bloat and get back to business again.

"We need to invest in our businesses to provide meaningful innovation," she said.

However: "our cost-structure is not sustainable". Operating expenses are growing faster than revenues — and that's no way to run a budget. "This is not a sustainable formula," she said.

"We need to create the capacity to invest from cost-savings" by tacking the "tough stuff", such as business process engineering — streamlining operations, removing processes and complexities — that changes "how we do work".

"In the end, we cannot cut our way to greatness," she said. "We've got to move that [revenue line]."

The Printer-PC unit merger is the first example of this. Whitman said several times over the course of her speech that she sought to reduce the countless SKUs and products the company offers in an effort to achieve focus.

"We'll simplify our go-to-market and make sure we can make decisions on a rapid-fire basis," she said of the new business unit. There's a need to make it easier for employees to get things done and reduce costs, too.

Such as in marketing: HP spends almost US$4 billion today. "I believe we can spend less" and get more, she said.

Such as in planning: "Investment decisions are going to have to be supported by business plans and risk [adjustments]," she said. HP needs to be more careful about investments.

However, investments still must be made — in its people, processes and systems, improving execution; and in its supply chain, so that HP isn't just a premier components buyer but designs its products better from the beginning to take advantage of that environment.

"We have tremendous numbers of products," she said. "We have to do a better job of segmentation, matching products to customers, and [thinning product offerings]. We create tremendous complexity in the system by not thinking through [simplification]." And quality must be higher, she added.

The same goes for R&D spending.

"We've got to place some bets on disruptive innovation," Whitman said, to "fundamentally reset the industry standard". But a careful mix of evolutionary and revolutionary innovation needs to be achieved, balancing acquisition and organic innovation.

"I am a big believer in focus," she said. "Can we please do in R&D a few small things really well instead of a little bit [of everything?]"

To prepare for the company's 70th birthday in 2014, HP needs to reaffirm its course and dominate along the way. Where there are eroding profits, a crisp strategy must be in place. Where there are too many products, a slimming effort must take place.

Leaner, meaner.

"If we don't have the very best products, uniquely suited to the markets that we serve, then we won't win," Whitman said. "We need to be a product company."

Via ZDNet US