Global CIO: An Open Letter To Hewlett-Packard CEO Mark Hurd
HP should leverage CIO Randy Mott's superb achievements and become The Transformation Company, helping CIOs reverse the deadly 80/20 ratio and become drivers of growth.
Congrats on the Q3 results -- you met your May guidance targets and are projecting some nice revenue and earnings growth for next quarter. As such, your decision a year ago to buy EDS seems to be paying off handsomely as its profits anchored the entire company's performance.
I wanted to drop you this letter against the backdrop of your earnings report this week and your related comment that "HP will be an early beneficiary of an economic turnaround and will continue to outperform when conditions improve." As a fairly close follower of the IT industry and a particularly close observer of the CIO community that is one of HP's most important customer sets, I'd like to share a few thoughts about your company's enterprise customers, their challenges and expectations, and the huge potential HP has for helping them overcome those challenges and surpass those expectations. I'll start with a short list and then go into more detail for each of the four items.
1. Much or perhaps even most of your company's revenue comes from business customers whose needs are increasingly sophisticated and urgent, but a Bloomberg News story two days ago about your earnings report begins with this description of your company: "Hewlett-Packard Co., the world's largest personal-computer company ..." Is that the image you want for HP?
2. HP's R&D was cut by $228 million year-on-year, and some business customers could see that as HP pulling back from its hard-earned reputation as a vigorous innovator. What's the deeper story here about HP's evolving approach to R&D?
3. While your company's financial performance has demonstrated your talent as a vigorous cost-cutter, it's not clear to everyone what your corresponding long-term strategy is. EDS is a piece, but what does the whole enterprise puzzle look like?
4. The new top priority for every CIO -- whether he/she knows it or not -- is attacking the 80/20 monster to liberate IT funds from internal infrastructure and operations and apply them toward revenue growth. In CIO Randy Mott, you have the guy who wrote the book on how to do it spectacularly well. With that, you can become, if I might suggest, The Transformation Company.
1. The PC Company
Not a darned thing wrong with having become #1 in this wicked, cut-throat, low-margin, fickle, and highly exposed business. Rather, the problem is whether you want to hold on to that top spot in this wicked, cut-throat, low-margin, fickle, and highly vulnerable business. IBM shipped its PC headaches off to Lenovo, which can handle and even enjoy the brutal and commodity-driven dynamics of that business because that's what Lenovo does as its core business.
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Then there's the inevitable Rise Of The Little Machines, as businesses are beginning to turn away from today's incredibly powerful and capable notebooks and toward smartphones and netbooks. Your PC revenue fell 18% -- how much of that was due to the rotten economy and how much was due to a shift toward lighter, simpler platforms? PC profit margins are dwindling as well: last year in Q3, profit was $587 million or 5.7% of revenue, but this year it was $386 million or only 4.6% of revenue. Do you have reason to believe PCs can ever again achieve 10% margins?
In a similar vein, while a dollar of profit is a dollar of profit, doesn't it seem a little incongruous that (a) your company is the largest IT company on Earth and (b) its moving into more-sophisticated engagements with some of the world's biggest corporations but (c) there exists a half-true, half-urban-legend perception that most of HP's profits come from the sale of ink?