Friday, December 07, 2012

HP or Hewlett Packard - The Conundrum!

An $8.8 billion write-down of its latest acquisition - Autonomy seems to be the latest mishap in the HP saga. And with it comes proof that HP has been following a path which is heading south.
From the exciting times of Lewis Platt and John Young to the bleaker times started by Carly Fiorina, HP has lurched from disaster to disaster. And the list looks endless.
Fiorina decided to move to reorient the company to a marketer of computer equipment and enterprise systems. Her acquisition of Compaq Computer so that HP- Compaq would be the leader in low-cost personal computers was a disaster.  She tried to focus simultaneously on high-end enterprise systems. Luckily or unluckily she had bid for the business consulting practice of PricewaterhouseCoopers, but lost to IBM. 
NCR's Mark Hurd followed her and appeared to appeal to the stock market. The efficiency expert, he focused on short term sales growth and cost reduction, doubling the company’s earnings and stock price. His notable acquisition was Electronic Data Systems’ computer services capabilities which led to an $8 billion write-down in 2012. And given his short term focus, the company’s investment in R&D, fell to 2.3 percent from 4 percent.
In 2009 and 2010, HP acquired 3Com and Palm, the latter after an intense bidding war.
Hurd left primarily due to his entertainment of a certain person of the fairer sex on company expenses, the board hired Leo Apotheker, the failed co-chief executive of SAP. He proposed selling the company’s PC business and dropping its tablets and smartphones, to make HP a systems and software company (a la IBM). He acquired the British software maker Autonomy for $10 billion. 
Apothekar focused on what he knew rather than what was good for the company. As a matter of fact almost all CEOs Fiorina onwards, focused on what they knew.
Somewhere down the road in a string of unending disasters, Hewlett Packard became only HP.  That aptly summarized the fall of the company.

What HP Needs to Do
The founders Bill Hewlett and David Packard, developed a unique management style that came to be known as The HP Way. The tenets of the HP Way are as follows:
1. We have trust and respect for individuals.
2. We focus on a high level of achievement and contribution.
3. We conduct our business with uncompromising integrity.
4. We achieve our common objectives through teamwork.
5. We encourage flexibility and innovation.
It is very obvious that HP has deviated from the very tenets which were set. 

1. Go back to the roots - Innovate
The erstwhile  HP's bedrock has been innovation  for a company which or was once a great company. The answer lies in innovation and come up with products that have unique benefits. It seems apt to fall back on a by-line of HP which said 'Invent'.  To make the company great again, the need is to innovate, create new products/ categories.
Cost prudence and efficiency are processes which need to be followed as a rule and not as a differentiating strategy.

2. Spot the trends and recognize opportunities
The spirit of innovation creates opportunities across various markets. It gives a perspective to encourage and take risks. Somewhere in the cost cutting saga and cutting on R&D spends, risk taking decreases. This can be  seen in the missed opportunities too. 
Light emitting diodes - It was one of the early leaders in light-emitting diodes. Infact  Roland Haitz coined the industry-guiding Haitz’s Law while at HP. However the company did not think that there was a significant opportunity in the near future and the LED team was pushed into Agilent who in turn sold them off to Philips. Needless to say the lighting market is huge and LEDs are one of the main products to drive this.
Memristors -  HP announced in 2008 that they had designed a circuit with which one could make dense, long lasting memory chips. For decades other companies had been working on it with success eluding them. However, feeble efforts were made to take this forward and since then other companies have cracked the code to set standards.
It is very important that risks are taken especially if the innovation is unique. Agree that risks are higher but the company itself has proved that it is this risk taking ability which had created the HP of the glory days.

3. Split the company into Hewlett Packard and HP
Of the revenue of  $120 million, PCs and printers still account for roughly $ 60 billion in revenue and $5.3 billion in operating profit which is approximately half of the company’s revenue and 45% of the operating profit. 
In reality, HP is two diverse businesses - a personal computer and printer business which is highly commoditized and an enterprise focused systems, services and software business.
The former business with its wafer thin margins and high competitive pressure requires high efficiencies of logistics, distribution, and production along with quick product introductions catering to small micro-segments. The enterprise business requires high levels of customer engagement, customized solutions and sophisticated software.
Given that the requirements both internally and externally are very different, it makes sense to split the two.

d) Hire the right CEO
Over  the last decade, HP has hired stars - stars who worked in environments which was conducive to them. In a new environment like HP, these stars lurched from mistake to mistake. The CEOs tried to mould the company to suit them and not mould themselves to suit the company.  Each CEO has created more confusion and direction of the company changed very so often. It is important for the CEO to understand the ethos the company and then plan the way ahead. It’s not every day that you get a Steve Jobs who could change things! And he came back to company to which he had co-founded.

e) Get a new board
The board is to drive the overall vision of the company but the HP board has been an unmitigated disaster. Their selection of candidates has been pathetic and so to have been their understanding of the business they govern . They have also not guided the CEOs. 

There is still a lot of hope and the doors to growth are not shut. It calls for a mix of culture re-orientation &  practicality in approach. 

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