HP Should Have Looked Inside IBM For CEO - InformationWeek

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Commentary
9/23/2011
01:06 PM
Paul McDougall
Paul McDougall
Commentary
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HP Should Have Looked Inside IBM For CEO

Big Blue has a pool of enterprise-savvy CEOs-in-training. Any one of them would have been a been a more logical choice than Meg Whitman.

HP's decision to anoint Meg Whitman as CEO seems odd for a company that makes most of its money from business technology. Former eBay chief Whitman is a relentless consumer brand-builder--but that's not what HP needs. The board instead should have looked east to IBM, which has a pool of divisional heads who are running highly profitable commercial IT units that are bigger than most companies.

Even before Leo Apotheker arrived from SAP, HP as an organization had concluded that its consumer offerings, mostly printers and PCs, were commodity products with deteriorating margins, and little potential for long-term growth. That's why, under previous CEO Mark Hurd, it invested $13.9 billion to acquire tech services giant EDS, spent $2.35 billion on data storage specialist 3Par, and dropped another $2.7 billion to buyout 3Com.

HP decided that future profits were to be found in the enterprise. That makes the decision to replace Apotheker, who outdoes Crocs when it comes to making flip flops ("We'll put WebOS on every PC! Er, no, let's drop WebOS, AND PCs!") an odd choice. Especially when you consider the CEOs-in-waiting toiling at IBM, a company that HP has been trying to emulate for the past decade.

An obvious choice might have be Ginny Rometty, who heads up global sales for IBM and previously led its key consulting unit. Rometty is a big picture type who can also talk details, and she's got the sales exec ability to connect with customers. It's no coincidence that current IBM CEO Sam Palmisano also came from sales. The New York Times reported that HP offered Rometty the top job prior to hiring Apotheker, and that she turned it down.

[ For more on what awaits Meg Whitman, see HP's Whitman Or Leo: It's The Strategy, Stupid. ]

Maybe by now she's had a change of heart, particularly given that Palmisano, 59, earlier this year said he would likely break with IBM tradition and not step down at age 60.

IBM insiders will tell you that when Palmisano does go, the candidates to replace him are pretty much limited to Rometty and services head Mike Daniels. Daniels runs what's arguably IBM's most important business unit.

Global Services accounted for half of the company's total revenue. And though it's been a bit growth-challenged of late, pre-tax income was a healthy $2.4 billion in the most recent quarter. Apotheker himself wanted to push HP deeper into services, he just wasn't the guy to do it. Daniels might have been.

Two other IBM'ers would also have been good choices, though not as compelling as Rometty or Daniels. Software head Steve Mills may be the smartest guy in the room at IBM, and he presides over a unit that grew 5.7% in the last fiscal year, despite the rough economy. Under his watch, IBM is becoming a powerhouse in high-growth software markets like business intelligence and Big Data analysis.

To my mind, however, Mills, savant that he is, is too much a specialist for the broad responsibilities that go with the corner office.

Another Big Blue exec who should have at least gotten a look from HP is Rod Adkins, who heads up the company's $18 billion server and storage business. Adkins is a smooth, convincing speaker who could sell a turnaround story to Wall Street and big customers. The knock against him would be that he's a hardware guy, at a time when HP is looking to emphasize software and services over nuts and bolts.

Still, any of the above probably would have been a better choice to run HP than Whitman, who's got broad experience in consumer brand-building, but little in the way of hard-core tech chops. Whitman only makes sense if HP wants to change course (again) and embrace consumer offerings like tablets and PCs.

So why didn't HP turn to IBM? It may be that the HP board felt such a move would be an admission that IBM, at this point in time, is a superior business.

Another factor may also have been in play. IBM has sued virtually every high-level executive that has jumped ship in the last couple of years--mostly in an attempt to enforce non-compete clauses. It served papers on M&A chief David Johnson when he left for Dell; on chip guru Mark Papermaster when he bolted for Apple; on biz continuity GM Joaane Olsen when she went to Oracle; on U.S. sales head Sam Khanna when he went to Unisys; and on cloud leader Giovanni Visentin when he left for HP itself.

In most of the cases, IBM either settled or a judge told the company to back off. Still, HP's board likely wanted a new CEO in place right away to keep it (and its stock) from sinking deeper. A lengthy court battle isn't what it needed.

Whitman's got her work cut out for and she may yet prove to be a great choice. But HP is betting an awful lot on it.

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