HP's Whitman Or Leo: It's The Strategy, Stupid

HP seems to be under the impression that it must be larger than life. But now, it must simply execute—and win back the loyalty of enterprise customers.

Fritz Nelson, Vice President, Editorial Director InformationWeek Business Technology Network

September 23, 2011

7 Min Read

InformationWeek Now--What's Hot Right Now

InformationWeek Now--What's Hot Right Now

On Thursday, after a day of board meetings, and rumors having been leaked in an attempt to test investor reaction, HP announced the inevitable: Leo Apotheker was out, and former eBay CEO Meg Whitman was in.

After the market closed, Whitman, flanked by HP Chairman Ray Lane and CFO Catherine Lesjak, gave her acceptance speech--as if the technology industry had voted her into office. She pledged her oath to HP, which she called an icon in Silicon Valley, in America, and the world, stopping short of claiming its galactic importance.

Then, Whitman called upon the company's 300,000 employees to bleed HP blue and get on with it.

Among all of the "right things" one can say in these situations, she spoke the single truth that mattered: "In the end, the only thing that will rebuild confidence…is to execute." Amen.

[ Will Whitman have a better ear for CIO needs? See Is A Customer Running HP? ]

Just one little problem: Execute what? Because in practically the same breath, Lane and Whitman said HP's strategy was sound, and now, too, is its leadership. In fact, all the strategy needed was a better communicator and executor, and Apotheker had been neither.

On that, there is little disagreement. But far too many questions and contradictions remain to pin all of HP's problems on Apotheker's lack of clarity--or to pin its hopes on Whitman's unbridled enthusiasm.

HP needs to shore up customer sentiment for the company's core business: Hardware and software infrastructure. It needs to make a very quick decision on its PC business, preferably to keep it as is. It needs to clarify its services business and outline a game-plan for its cloud ambitions, including what it will deliver, and when.

And then it needs to tidy up its balance sheet for a future that may well see the company invest in growing a software business around structured and unstructured data, but also one that helps fuel its business in the data center.

None of this is dazzling, but $120 billion or so in revenue is sexy enough. As Lesjak outlined downside risk to the company's topline revenue for this quarter on Thursday, it became apparent that beyond weakened macroeconomic trends, HP has started to put the core of its current business in jeopardy by playing the old game of "let's guess how we can wow investors by confusing our customers."

On stage at InformationWeek's conference early last week, Lane acknowledged that 99% of HP's core infrastructure business was servers, storage, networking--the hardware that runs today's businesses. And yet everything HP has talked about for the past year--unstructured data, mobile, cloud--while important trends for the future, isn't where its customers look to HP today. It's fine to paint a vision of the future, but it's not fine to leave your customers behind.

Two successive CIOs stood up at our conference last Monday and told Lane that while they appreciated his clearing things up, they still felt left behind. Lane replied: That couldn't be further from the truth.

But saying it doesn't make it so.

HP must prove to its still loyal customer base that customer needs matter. For example, it still matters to many of them that they buy PCs and servers from HP. As Wells Fargo analyst Jason Maynard points out:

"We think HP should just keep the PC business and believe they too will arrive at this conclusion once they run the numbers. The PC business has the lowest corporate margin, but it generates about $2B in profits, drives sales synergy, and provides significant component scale. Servers and PCs are often sold together and customers across all market segments have built relationships with HP in that manner. Absent PC's, we think HP's other hardware units could see revenue decline and gross profit suffer as it would lose the sales benefit of bundling and supply chain cost advantage."

If HP doesn't believe its announcements have a negative impact on customers, our own polling of IT buyers showed that even though HP hasn't said a peep about printers, 32% of respondents said they were less likely to buy HP imaging technology now.

You may find fault with HP's board, with Ray Lane himself, with a hiring process that excluded a search and any inclination to look at outsiders (a parade of all the usual CEO suspects had already rebuffed HP a year earlier according to Lane,) with the timing, and with all the flip-flopping. There's a year's worth of Harvard Business Review case studies on how not to manage in all of that.

But none of that is likely to change, and execution is what remains. CIOs don't much care if the new CEO was a branding expert, or the shepherd of an iconic Internet startup, or a gubernatorial candidate--only that her strategy is sound and that the execution of that strategy makes their businesses move faster.

Most people don't go around tattooing Sam Palmisano quotes on body parts, but things seem to be going well at IBM. In fact, HP's customers seem to be have been best served under unassuming CEOs (Lewis Platt and Mark Hurd come to mind).

When asked at InformationWeek's conference what business HP is in, Lane said: "Very simply: HP is an information and technology services company. It is primarily serving commercial businesses." There's a place to start.

All of the HP drama, as fun as it is to watch, is now meaningless. HP Chairman Ray Lane told AllThingsD's Kara Swisher that he had approached Meg Whitman as little as three months after Apotheker had begun. It's clear now that Apotheker knew during the first week of September, when he gracelessly (but perhaps in hindsight, rightfully) withdrew from speaking to customers at our InformationWeek 500 conference at the last possible moment.

He likely spent the interim working out a deal that netted him some $25 million in severance (some in actual severance, some in stock) a healthy reward for missteps that cost shareholders billions in value, deteriorated employee morale, and shook customer faith.

Now the focus turns to Meg Whitman. Thursday, Lane called her decisive, a "technology visionary with deep experience and recognized management capability." He said her strengths were leadership, that she was a team player, and that she could execute. Later, he noted that these were not Apotheker's strengths.

He also said that Whitman possessed two other attributes: First, she was once a customer, a buyer of technology on a large scale, and she's very familiar with unstructured data, a key vision for HP (as InformationWeek's Chris Murphy writes, in: "Is a customer in charge of HP?"). Second, she's been on the HP board for eight months, meaning she has some keen insight on HP's technology strategy.

Meg Whitman, in other words, is everything Apotheker wasn't: That's the bottom line of Lane's message. In an interview with InformationWeek in March, Apotheker talked about "The HP Way 2.0." He said it almost as if a surprise, even to himself. But what was wrong with the HP Way 1.0? It may not sound as hip, but it worked.

For whatever reason, HP seems to be under the impression that it must make grand statements, big announcements, to be cool, must be larger than life, must boast a corporate ego the size of its balance sheet.

But HP's customers never really cared much if its technology was cool, only that it worked, that it was cost effective, and that it was world-class.

Very simply: Customers want a good business partner.

Got that, Meg?

Fritz Nelson is the editorial director for InformationWeek and the Executive Producer of TechWebTV. Fritz writes about startups and established companies alike, but likes to exploit multiple forms of media into his writing.

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About the Author(s)

Fritz Nelson

Vice President, Editorial Director InformationWeek Business Technology Network

Fritz Nelson is a former senior VP and editorial director of the InformationWeek Business Technology Network.

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