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8/23/2010
09:09 PM
Bob Evans
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Global CIO: Has HP Found Its Next CEO?

Interim CEO Lesjak scored some big points in last week's earnings call but also revealed equally big challenges at the world's biggest IT company.

"I'm happy with the way we ended inventory," Lesjak said. "It was up three days year-on-year, and it was up for all good reasons.

"The first reason was better laser availability. . . . And then the third is that we've had good response, good growth in our POD business, which is basically data center in a container. And obviously, it takes more inventory to build out an entire data center before you ship it. So I'm very comfortable of where the inventory landed."

I'm not saying that higher inventory levels are something to cheer about, but Lesjak's answer calmly reflects what seems to be a specific desire to downplay the company's PC business and to emphasize its expanding strength in data centers.

It can be argued that HP's attempt to juggle its global leadership in consumer and business PCs with an otherwise enterprise-centric mission has made it difficult for the company to sharply and aggressively define its enterprise mission and strategy. Hurd defended the PC position by saying it drove the entire company's supply-chain operations and gave HP a big cost advantage.

At the same time, though, it became that knee-jerk image for HP as a whole: HP was becoming defined as the world's largest manufacturer of PCs, and that's a tough position from which to claim enterprise superiority.

I thought Lesjak stumbled a bit when asked if HP's services business can grow, particularly in the context of its lackluster Q3 performance of only 1% growth in revenue.

While she noted a record level of signings of new business for the quarter, and tossed in the required bromide about how you have to have "quality deals as well as good quantity of deals," the fact is that 1% growth is, well, 1% growth—meaning flat plus a tiny bit more.

Those uninspiring numbers were not helped by Lesjak's rationale that included yet another rewind of the seemingly endless saga of the ongoing integration of EDS into HP. At some point, with the deal having been announced 27 months ago, a company of HP's operational excellence has to either (a) finish the darn integration or (b) stop using it as an excuse.

But particularly troubling to me was Lesjak's specific description of the status of that 27-month project—instead of saying something like it'll be wrapped up tighter than a snare drum by Thanksgiving, she said that not even the first phase is done yet!

"As we are finishing up with the first phase of the integration of EDS and HP, what we're doing now is increasing some of our sales resources, and also seeing a very nice improvement in the pull-through," she says according to the transcript. "We do expect that we're going to be able to have this business at a point where it can outgrow the market, and that's going to be based on the sales coverage, improvements we're making as well as some offering adjustments that we are making."

Wow. More than two years after announcing the deal, and EDS is still at a point where sales aren't growing because improvements still need to be made and HP hasn't yet decided what services it will offer!

Now, how much of that is Lesjak's doing is hard to say. As CFO, was she responsible for ramming that acquisition through as quickly as possible? I don't know the answer to that—but that glacial pace of integration to services definition to enhanced revenue generation should certainly be among the permanent CEO's top two priorities. And it should be #1 on Lesjak's list as long as she's interim CEO.

One last point: asked by an analyst how sales and customer relationships would be impacted by the departure of Hurd, Lesjak stumbled a bit before regaining her rhythm:

"If you look at just one person, any one person, they solely are not going to be what drives the sales relationship, the customer relationship," she responded. "My staff and I, the whole executive committee, have lots of customer relationships with our largest accounts. And we're making those calls and continuing to make those calls."

I was puzzled by her use of the phrase "my staff and I"—is that the CFO staff? The interim CEO staff? The office of the CEO staff? Putting that out there before mentioning the executive committee—a powerful and highly visible team—seemed to run counter to her initial point about how it's not "any one person" who drives the relationships.

But perhaps I'm splitting hairs with that one. Overall, Lesjak projected a sense of calm authority, of someone who understands what HP's good at and where it might be straying, and of someone with a firm grasp of the company's priorities. Other than the murky state of things at EDS, she reported on a company that's growing nicely off of an enormous base, that's generating strong profits, and that claims it's R&D investments will power not only future revenue growth but also future earnings growth.

If the HP board is considering Lesjak as a potential permanent CEO, I think she acquitted herself quite well during the earnings call. But while the world's largest IT company seems to grasp that its future is not in PCs, it is courting disaster with its ongoing fiddling with EDS, still something of an orphan more than 2 years after adoption papers were filed.

The old Chinese curse says, "May you live in interesting times." For interim HP CEO Cathie Lesjak, it's hard to imagine that things could be more interesting—and in a few months, we'll see if, for her and for HP, that's a curse or a blessing.

RECOMMENDED READING:

Global CIO: Burying Mark Hurd: Hewlett-Packard And Its Future

Global CIO: Hewlett-Packard CEO Hurd's Strategy: The Infrastructure Company

Global CIO: Why Hewlett-Packard Must Articulate Its Enterprise Strategy

Global CIO: An Open Letter To Hewlett-Packard CEO Mark Hurd

Global CIO: In Praise Of Mark Hurd's 9,000 Layoffs At Hewlett-Packard

Global CIO: Hewlett-Packard's Missing Link Is Analytics

Global CIO: Hewlett-Packard CEO Hurd Shifts Strategy Toward Services

Global CIO: Inside HP's Numbers: Mark Hurd's Top 10 Strategic Insights

Global CIO: IBM & Hewlett-Packard Battle Over Booming Mobile Market

Global CIO: Hewlett-Packard Attacks Innovation Gridlock That's Killing CIOs

Global CIO: Are Oracle, HP, Cisco & IBM Too Big To Innovate?

Global CIO: IBM Claims Hardware Supremacy And Calls Out HP's Hurd

Global CIO: Hewlett-Packard's Hurd Creates Growth Engine In R&D

Global CIO: Hewlett-Packard's Hurd Says Bad IT Means A Bad CEO

Global CIO: Hewlett-Packard Recruits Microsoft To Raid Sun's Customers

Global CIO: Oracle Dumps HP After Co-Creating 'Most Successful Introduction Ever'

GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at bevans@techweb.com.

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