Strategic CIO // Executive Insights & Innovation
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8/11/2010
04:00 PM
Art Wittmann
Art Wittmann
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HP: My Day In The CEO Interview Hot Seat

Ever wonder what it would be like to interview for the top spot at the world's largest IT company? Here's one possibility for how it might go.

HP Board: Good morning, Mr. Wittmann. We're so glad you could make it. As you can imagine, we're mounting an extensive search for our next CEO. We're doing our best to think out of the box -- so we'd like you to interview for the position.

Art Wittmann: Wow, I'm honored, and happy to be here. But what's with this room? Is ‘70s wood paneling back in style.

HP Board: No, no, this is Bill and Dave's original conference room on this campus. We've preserved it just as they had it. You can see their offices on either end here! (Board members all point.)

Wittmann: It's, umm, nice. Nostalgic. I don't think this was ever in fashion, was it? Anyway, how can I help you?

HP Board: We'd like to go through some of our divisions and acquisitions to get your take on how we should evolve our business strategy. Let's start with the Personal Systems Group.

Wittmann: From your financial statements, Personal Systems accounts for 34% of first-quarter 2010 revenue. That's impressive, but the margin is just 5%. It feels like you're creating the playing field where Apple and Microsoft can easily score. Meanwhile, you're blocking and tackling. Surely, if you were looking at it from the other point of view, you'd never buy a business like this. I'm not sure I see the point in staying in it. The Lenovo exercise seemed to work for IBM.

HP Board: Don't you think that Palm could be a breakout move here? Apple has proved there can be a margin in this business.

Wittmann:They sure have. But Palm, really? Here's the problem: You now have Apple as the cool kid on the block. Google with Android is the brainiac kid -- you'll lose any feature race there for sure. And Microsoft is the clever punk who's going to find a way to take your lunch money either through cunning, brute force, or both. And of course there's RIM -- if Palm ever had a market, RIM took it away.

If you're happy with the 5% margin, then go make hardware that supports Google's and Microsoft's operating systems. If you're not, think about selling this business. I don't see Palm getting you anywhere with those three wanting the market and RIM being a strong player.

HP Board: OK, let's look at a brighter star. How about our Imaging and Printing division?

Wittmann: I have to say, at 20% of your revenue, the idea of almost giving away the hardware then gouging your customers for supplies is inspired. The notion that ink should be more expensive than blood -- I wouldn't have thought you could make that work, but you have. I think the only thing I'd change here is that I'd create a recycling program that consumers would use. That you package a half ounce of ink in a highly manufactured plastic container that typically ends up in the landfill is the antithesis of the sort of corporate responsibility that HP is known for. What would Bill and Dave say? Other than that, this is a great business.

HP Board: We'll think about that. So let's get into stuff you seem to write about. Let's hear what you think about our server and storage business.

Wittmann: At 14% of your revenue, it's what those of us with more than 20 years in IT think of when we think of HP. Well, that and Reverse Polish Notation calculators. Woops. I suppose even saying that out load might be an HR violation how, huh? (The board collectively winces.) I apologize to anyone of Eastern European lineage. You've built your strategy on being the best darn server hardware partner a software vendor could want. As such, there's a lot of SAP, Oracle, and Microsoft software running on HP hardware out there.

But that strategy is being challenged on two fronts. Cisco thinks it can be a better infrastructure partner by building its own servers and partnering with EMC. Meanwhile, Larry Ellison is off on his own magical mystery ride with Sun, where he thinks he can build application appliances that will appeal based on better performance and lower operating cost (albeit with significantly higher capital acquisition cost, since the hardware and software margins are now in one line item, and Larry is going to want to see margins like he's seen in software, not hardware).

In both cases, these are HP's customers to lose, and in both cases, your competitors aren't used to dealing at the sort of margins that HP deals in for servers. But you will lose those customers if you don't take the point that both Cisco and Oracle are making. Cisco is right that the nature of the enterprise server needs to change.

Your tendency to include more sheet metal with more powerful processors is a weak attempt at protecting what margins you have. The blade systems are a better approach, but you really need to go all-in on the notion of providing the highest number of cycles, the most memory, the greatest number of cores per cubic foot of any manufacturer. If it isn't solid state, don't put it in the server box (with the exception of fans). Lots of core, lots of very fast memory -- the storage goes in a different box that's connected by very fast networking.

Which brings us to storage -- it's time to be more serious about this. Buy NetApp and drive very quickly toward increased and improved use of solid state storage. The market you're after is the emerging market for data analysis. Large databases, and smaller in-memory or near-in-memory applications, are going to be a big market. You can serve these markets and you may squeak out higher margins -- but remember, the ace in the hole is that somewhere, somehow both Oracle and Cisco will want higher margins. Make them play your game here.

The 3Com purchase was a good one. Your customers probably don't understand it though. That 3Com's H3C has some very capable networking is not widely understood. It's time to make a clearer picture of how your networking, servers, and storage fit together. In particular, the OpenView management package seems like the wrong tool for highly virtualized environments. If HP wants to be the best partner a software company ever had, it's important to look at fully managing the stack through virtualization.

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