Will Meg Whitman’s Layoffs Turn Around HP? Nope

by | May 25, 2012 | Defend & Extend, In the Whirlpool, Leadership, Web/Tech

Things are bad at HP these days.  CEO and Board changes have confused the management team and investors alike.  Despite a heritage based on innovation, the company is now mired in low-growth PC markets with little differentiation.  Investors have dumped the stock, dropping company value some 60% over two years, from $52/share to $22 – a loss of about $60billion. 

Reacting to the lousy revenue growth prospects as customers shift from PCs to tablets and smartphones, CEO Meg Whitman announced plans to eliminate 27,000 jobs; about 8% of the workforce.  This is supposedly the first step in a turnaround of the company that has flailed ever since buying Compaq and changing the company course into head-to-head PC competition a decade ago.  But, will it work? 

Not a chance.

Fixing HP requires understanding what went wrong at HP.  Simply, Carly Fiorina took a company long on innovation and new product development and turned it into the most industrial-era sort of company.  Rather than having HP pursue new technologies and products in the development of new markets, like the company had done since its founding creating the market for electronic testing equipment, she plunged HP into a generic manufacturing war.

Pursuing the PC business Ms. Fiorina gave up R&D in favor of adopting the R&D of Microsoft, Intel and others while spending management resources, and money, on cost management.  PCs offered no differentiation, and HP was plunged into a gladiator war with Dell, Lenovo and others to make ever cheaper, undifferentiated machines.  The strategy was entirely based upon obtaining volume to make money, at a time when anyone could buy manufacturing scale with a phone call to a plethora of Asian suppliers.

Quickly the Board realized this was a cutthroat business primarily requiring supply chain skills, so they dumped Ms. Fiorina in favor of Mr. Hurd.  He was relentless in his ability to apply industrial-era tactics at HP, drastically cutting R&D, new product development, marketing and sales as well as fixating on matching the supply chain savings of companies like Dell in manufacturing, and WalMart in retail distribution. 

Unfortunately, this strategy was out of date before Ms. Fiorina ever set it in motion.  And all Mr. Hurd accomplished was short-term cuts that shored up immediate earnings while sacrificing any opportunities for creating long-term profitable new market development.  By the time he was forced out HP had no growth direction.  It's PC business fortunes are controlled by its suppliers, and the PC-based printer business is dying.  Both primary markets are the victim of a major market shift away from PC use toward mobile devices, where HP has nothing.

HPs commitment to an outdated industrial era supply-side manufacturing strategy can be seen in its acquisitions.  What was once the world's leading IT services company, EDS, was bought in 2008 after falling into financial disarray as that market shifted offshore.  After HP spent nearly $14B on the purchase, HP used that business to try defending and extending PC product sales, but to little avail.  The services group has been downsized regularly as growth evaporated in the face of global trends toward services offshoring and mobile use.

In 2009 HP spent almost $3B on networking gear manufacturer 3Com.  But this was after the market had already started shifting to mobile devices and common carriers, leaving a very tough business that even market-leading Cisco has struggled to maintain.  Growth again stagnated, and profits evaporated as HP was unable to bring any innovation to the solution set and unable to create any new markets.

In 2010 HP spent $1B on the company that created the hand-held PDA (personal digital assistant) market – the forerunner of our wirelessly connected smartphones – Palm.  But that became an enormous fiasco as its WebOS products were late to market, didn't work well and were wholly uncompetitive with superior solutions from Apple and Android suppliers.  Again, the industrial-era strategy left HP short on innovation, long on supply chain, and resulted in big write-offs.

Clearly what HP needs is a new strategy.  One aligned with the information era in which we live.  Think like Apple, which instead of chasing Macs a decade ago shifted into new markets.  By creating new products that enhanced mobility Apple came back from the brink of complete failure to spectacular highs.  HP needs to learn from this, and pursue an entirely new direction.

But, Meg Whitman is certainly no Steve Jobs.  Her career at eBay was far from that of an innovator.  eBay rode the growth of internet retailing, but was not Amazon.  Rather, instead of focusing on buyers, and what they want, eBay focused on sellers – a classic industrial-era approach.  eBay has not been a leader in launching any new technologies (such as Kindle or Fire at Amazon) and has not even been a leader in mobile applications or mobile retail. 

While CEO at eBay Ms. Whitman purchased PayPal.  But rather than build that platform into the next generation transaction system for web or mobile use, Paypal was used to defend and extend the eBay seller platform.  Even though PayPal was the first leader in on-line payments, the market is now crowded with solutions like Google Wallets (Google,) Square (from a Twitter co-founder,) GoPayment (Intuit) and Isis (collection of mobile companies.) 

Had Ms. Whitman applied an information-era strategy Paypal could have been a global platform changing the way payment processing is handled.  Instead its use and growth has been limited to supporting an historical on-line retail platform.  This does not bode well for the future of HP.

HP cannot save its way to prosperity.  That never works.  Try to think of one turnaround where it did – GM? Tribune Corp? Circuit City? Sears?  Best Buy? Kodak?  To successfully turn around HP must move – FAST – to innovate new solutions and enter new markets.  It must change its strategy to behave a lot more like the company that created the oscilliscope and usher in the electronics age, and a lot less like the industrial-era company it has become – destroying shareholder value along the way.

Is HP so cheap that it's a safe bet.  Not hardly.  HP is on the same road as DEC, Wang, Lanier, Gateway Computers, Sun Microsystems and Silicon Graphics right now.  And that's lousy for investors and employees alike.

So many good die young – SGI, Sun Micro, DEC, Wang, Univac, etc.

by | Apr 1, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Lifecycle, Lock-in, Web/Tech

How many of these company names do you remember — Sperry Rand? Burroughs? Univac? NCR? Control Data? Wang? Lanier?  DataPoint?  Data General? Digital Equipment/DEC? Gateway? Cray? Novell?  Banyan? Netscape?

I'm only 50, yet most of these companies were originated, became major successes, and failed within my lifetime.  Now, prepare to add a couple more.  In the 1980s Silicon Graphics set the standard for high-speed computing, using their breakthrough technology to open the door on graphics.  There never would have been a PS3 or Wii were it not for the pioneering work at SGI. The company invented high speed graphics calculating methods that allowed for "real-time" animation on a computer, as well as "color fill" and "texture mapping" – all capabilities we take for granted on our computer screen today but that were merely dreams to early GUI users.  But now SGI has disappeared according to the Cnet.com article "First GM, Now Silicon Graphics.  Lessons Learned?"  The company that expanded the high-speed computing market most on SGI's early lead was Sun Microsystems, building the boxes upon which the first all-computer animated movie was made – Toy Story.  But 2 weeks ago we learned Sun will most likely soon disappear into the bowels of IBM ("Final Chapter for Sun Micro Could be Written by IBM" at WSJ.com)

When Clayton Christensen wrote The Innovator's Dilemma he said academics like to talk about the tech industry because the product life cycles are so short.  Actually, he would have been equally accurate to say their company life cycles were so short.  For business academics, looking at tech companies is like cancer researchers looking at white lab mice.  Their lifespan is so short you can rapidly see the impact of business decisions – almost like having a business lab.

What we see at these companies was an inability to shift with changes in their markets.  They all Locked-in on some assumptions, and when the market shifted these companies stayed with their old assumptions – not shifting with market needs.  Like Jim Collins' proverbial "hedgehog" they claimed to be the world's best at something, only to learn that the world put less and less value in what they claimed as #1.  Either the technology shifted, or the application, or the user requirements.  In the end, we can look back and their lives are like a short roller coaster – up and then crashing down.  Lots of money put in, lots spent, not much left for investors, vendors or employees at the end.  They were #1, very good (in fact, exceptional), and met a market need.  Yet they were unable to thrive and even survive – because a market shift emerged which they did not follow, did not meet and eventually made them obsolete.

Today we can see the same problem emerging in some of the even larger tech companies we've grown to admire.  Dell taught everyone how to operate the world's best supply chain.  Yet, they've been copied and are seeing their market weaken to new products supplied by different channels.  Microsoft monopolized the "desktop", but today less and less computing is done on desktops.  Computing today is moving from the extremes of your hand (in your telephone) to "clouds" accessed so serrendipituously that you aren't even sure where the computing cycles are, much less how they are supplied.  And software is provided in distributed ways between devices and servers such that an internet search engine provider (Google) is beginning to provide operating systems (Android) for new platforms where there is no "desktop."  As behemoth as these two companies became, as invincible as they looked, they are equally vulnerable to the fate of those mentioned at the beginning of this blog. 

Of course, their fate is not sealed.  Apple and IBM both are tech companies that came perilously close to the Whirlpool before finding their way back into the Rapids.  When businesses decide their best future is to Defend & Extend past strengths they get themselves into trouble.  To break out of this rut they have to spend less time thinking about their strengths, and more about market needs.  Instead of looking at similar competitors and figuring out how to be better, they have to look at fringe competitors and figure out how to change with emerging market requirements.  And just like they disrupted the marketplace once with their excellence, they must be willing to disrupt their internal processes in order to find White Space where they can create new market disruptions. 

Today, with change affecting all companies, it is important that leaders look at the "lab results" from tech.  It's important to recognize past Lock-ins, and assumptions about continuation (or return to) past markets.  Markets are changing, and only those that take the lead with customers will quickly return to profitability and emerge market leaders.  It's those new leading companies that will get the economy growing again, so waiting is really not an option.