Hewlett Packard’s Musical Chairs Game

Hewlett Packard’s Musical Chairs Game

Hewlett Packard is splitting in two.  Do you find yourself wondering why?  You aren’t alone.

Hewlett Packard is nearly 75 years old.  One of the original “silicone valley companies,” it started making equipment for engineers and electronic technicians long before computers were every day products.  Over time HP’s addition of products like engineering calculators moved it toward more consumer products.  And eventually HP became a dominant player in printers.  All of these products were born out of deep skills in R&D, engineering and product development.  HP had advantages because its products were highly desirable and unique, which made it nicely profitable.

But along came a CEO named Carly Fiorina, and she decided HP needed to grow much bigger, much more quickly.  So she bought Compaq, which itself had bought Digital Equipment, so HP could sell Wintel PCs.  PCs were a product in which HP had no advantage. PC production had always been an assembly operation of other companies’ intellectual property.  It had been a very low margin, brutally difficult place to grow unless one focused on cost lowering rather than developing intellectual capital.  It had nothing in common with HP’s business.

HP laptop

To fight this new margin battle HP replaced Ms. Fiorina with Mark Hurd, who recognized the issues in PC manufacturing and proceeded to gut R&D, product development and almost every other function in order to push HP into a lower cost structure so it could compete with Dell, Acer and other companies that had no R&D and cultures based on cost controls.  This led to internal culture conflicts, much organizational angst and eventually the ousting of Mr. Hurd.

But, by that time HP was a company adrift with no clear business model to help it have a sustainably profitable future.

Now HP is 4 years into its 5 year turnaround plan under Meg Whitman’s leadership.  This plan has made HP much smaller, as layoffs have dominated the implementation.  It has weakened the HP brand as no important new products have been launched, and the gutted product development capability is still no closer to being re-established.  And PC sales have stagnated as mobile devices have taken center stage – with HP notably weak in mobile products.  The company has drifted, getting no better and showing no signs of re-developing its historical strengths.

So now HP will split into two different companies.  Following the old adage “if you can’t dazzle ’em with brilliance, baffle ’em with bulls**t.”  When all else fails, and you don’t know how to actually lead a company, then split it into pieces, push off the parts to others to manage and keep at least one CEO role for yourself.

Let’s not forget how this mess was created.  It was a former CEO who decided to expand the company into an entirely different and lower margin business where the company had no advantage and the wrong business model.  And another that destroyed long-term strengths in innovation to increase short-term margins in a generic competition.  And then yet a third who could not find any solution to sustainability while pushing through successive rounds of lay-offs.

This was all value destruction created by the persons at the top.  “Strategic” decisions made which, inevitably, hurt the organization more than helped it.  Poorly thought through actions which have had long-term deleterious repercussions for employees, suppliers, investors and the communities in which the businesses operate.

The game of musical chairs has been very good for the CEOs who controlled the music.  They were paid well, and received golden handshakes.  They, and their closest reports, did just fine.  But everyone else….. well…..

Dell – Take the Money and Run! Innovation trumps execution.

Michael Dell has put together a hedge fund, one of his largest suppliers and some debt money to take his company, Dell, Inc. private.  There are large investors threatening to sue, claiming the price isn't high enough.  While they are wrangling, small investors should consider this privatization manna from heaven, take the new, higher price and run to invest elsewhere – thankful you're getting more than the company is worth.

In the 1990s everybody thought Dell was an incredible company.  With literally no innovation a young fellow built an enormously large, profitable company using other people's money, and technology.  Dell jumped into the PC business as it was born.  Suppliers were making the important bits, and looking for "partners" to build boxes.  Dell realized he could let other people invest in microprocessor, memory, disk drive, operating system and application software development.  All he had to do was put the pieces together. 

Dell was the rare example of a company that was built on nothing more than execution.  By marketing hard, selling hard, buying smart and building cheap Dell could produce a product for which demand was skyrocketing.  Every year brought out new advancements from suppliers Dell could package up and sell as the latest, greatest model.  All Dell had to do was stay focused on its "core" PC market, avoid distractions, and win at execution.  Heck, everyone was going to make money building and selling PCs.  How much you made boiled down to how hard you worked.  It wasn't about strategy or innovation – just execution. 

Dell's business worked for one simple reason.  Everybody wanted PCs.  More than one.  And everybody wanted bigger, more powerful PCs as they came available.  Market demand exploded as the PC became part of everything companies, and people, do.  As long as demand was growing, Dell was growing.  And with clever execution – primarily focused on speed (sell, build, deliver, get the cash before the supplier has to be paid) – Dell became a multi-billion dollar company, and its founder a billionaire with no college degree, and no claim to being a technology genius.

But, the market shifted.  As this column has pointed out many times, demand for PCs went flat – never to return to previous growth rates.  Users have moved to mobile devices such as smartphones and tablets, while corporate IT is transitioning from PC servers to cloud services.  iPad sales now nearly match all of Dell's sales.  Dell might well be the world's best PC maker, but when people don't want PCs that doesn't matter any more.

Which is why Dell's sales, and profits, began to fall several years ago.  And even though Michael Dell returned to run the company 6 years ago, the downward direction did not change.  At its "core" Dell has no ability to innovate, or create new products.  It is like HTC – merely a company that sells and assembles, with all of its "focus" on cost/price.  That's why Samsung became the leader in Android smartphones and tablets, and why Dell never launched a Chrome tablet.  Lacking any innovation capability, Dell relied on its suppliers to tell it what to build.  And its suppliers, notably Microsoft and Intel, entirely missed the shift to mobile.  Leaving Dell long on execution skills, but with nowhere to apply them.

Market watchers knew this. That's why  Dell's stock took a long ride from its lofty value on the rapids of growth to the recent distinctly low value as it slipped into the whirlpool of failure.

Now Dell has a trumped up story that it needs to go public in order to convert itself from a PC maker into an IT services company selling cloud and mobile capabilities to small and mid-sized businesses.  But Dell doesn't need to go private to do this, which alone makes the story ring hollow.  It's going private because doing so allows Michael Dell to recapitalize the company with mountains of debt, then use internal cash to buy out his stock before the company completely fails wiping out a big chunk of his remaining fortune.

If you think adding debt to Dell will save it from the market shift, just look at how well that strategy worked for fixing Tribune Corporation. A Sam Zell led LBO took over the company claiming he had plans for a new future, as advertisers shifted away from newspapers.  Bankruptcy came soon enough, employee pensions were wiped out, massive layoffs undertaken and 4 years of legal fighting followed to see if there was any plan that would keep the company afloat.  Debt never fixes a failing company, and Dell knows that.  Dell has no answer to changing market demand away from PCs.

Now the buzzards are circlingHP has been caught in a rush to destruction ever since CEO Fiorina decided to buy Compaq and gut the HP R&D in an effort to follow Dell's wild revenue ride.  Only massive cost cutting by the following CEO Hurd kept HP alive, wiping out any remnants of innovation.  Now HP has a dismal future.  But it hopes that as the PC market shrinks the elimination of one competitor, Dell, will give newest CEO Whitman more time to somehow find something HP can do besides follow Dell into bankruptcy court.

Watching as its execution-oriented ecosystem manufacturers are struggling, supplier Microsoft is pulling out its wallet to try and extend the timeline.  Plundering its $85B war chest, Microsoft keeps adding features, with acquisitions such as Skype, that consume cash while offering no returns – or even strong reasons for people to stop the transition to tablets. 

Additionally it keeps putting up money for companies that it hopes will build end-user products on its software, such as its $500M investment in Barnes & Noble's Nook and now putting $2B into Dell.  $85B is a lot of money, but how much more will Microsoft have to spend to keep HP alive – or money losing Acer – or Lenovo?  A billion here, a billion there and pretty soon it adds up to a lot of money!  Not counting losses in its own entertainmnet and on-line divisions.  The transition to mobile devices is permanent and Microsoft has arrived at the game incredibly late – and with products that simply cannot obtain better than mixed reviews.

The lesson to learn is that management, and investors, take a big risk when they focus on execution.  Without innovation, organizations become reliant on vendors who may, or may not, stay ahead of market transitions.  When an organization fails to be an innovator, someone who creates its own game changers, and instead tries to succeed by being the best at execution eventually market shifts will kill it.  It is not a question of if, but when.

Being the world's best PC maker is no better than being the world's best maker of white bread (Hostess) or the world's best maker of photographic film (Kodak) or the world's best 5 and dime retailer (Woolworth's) or the world's best manufacturer of bicycles (Schwinn) or cold rolled steel (Bethlehem Steel.)  Being able to execute – even execute really, really well – is not a long-term viable strategy.  Eventually, innovation will create market shifts that will kill you.

Sorry Meg, Your Hockey Stick Forecast for HP Won’t Happen – Sell

If you're still an investor in Hewlett Packard you must be new to this blog.  But for those who remain optimistic, it is worth reveiwing why Ms. Whitman's forecast for HP yesterday won't happen.  There are sound reasons why the company has lost 35% of its value since she took over as CEO, over 75% since just 2010 – and over $90B of value from its peak. 

HP was dying before Whitman arrived

I recall my father pointing to a large elm tree when I was a boy and saying "that tree will be dead in under 2 years, we might as well cut it down now."  "But it's huge, and has leaves" I said. "It doesn't look dead."  "It's not dead yet, but the environmental wind damage has cost it too many branches,  the changing creek direction created standing water rotting its roots, and neighboring trees have grown taking away its sunshine.  That tree simply won't survive.  I know it's more than 3 stories tall, with a giant trunk, and you can't tell it now – but it is already dead." 

To teach me the lesson, he decided not to cut the tree.  And the following spring it barely leafed out.  By fall, it was clearly losing bark, and well into demise.  We cut it for firewood.

Such is the situation at HP.  Before she became CEO (but while she was a Director – so she doesn't escape culpability for the situation) previous leaders made bad decisions that pushed HP in the wrong direction:

  • Carly Fiorina, alone, probably killed HP with the single decision to buy Compaq and gut the HP R&D budget to implement a cost-based, generic strategy for competing in Windows-based PCs.  She sucked most of the money out of the wildly profitable printer business to subsidize the transition, and destroy any long-term HP value.
  • Mark Hurd furthered this disaster by further investing in cost-cutting to promote "scale efficiencies" and price reductions in PCs.  Instead of converting software products and data centers into profitable support products for clients shifting to software-as-a-service (SAAS) or cloud services he closed them – to "focus" on the stagnating, profit-eroding PC business.
  • His ill-conceived notion of buying EDS to compete in traditional IT services long after the market had demonstrated a major shift offshore, and declining margins, created an $8B write-off last year; almost 60% of the purchase price.  Giving HP another big, uncompetitive business unit in a lousy market.
  • His purchase of Palm for $1.2B was a ridiculous price for a business that was once an early leader, but had nothing left to offer customers (sort of like RIM today.)  HP used Palm to  bring out a Touchpad tablet, but it was so late and lacking apps that the product was recalled from retailers after only 49 days. Another write-off.
  • Leo Apotheker bought a small Enterprise Resource Planning (ERP) software company – only more than a decade after monster competitors Oracle, SAP and IBM had encircled the market.  Further, customers are now looking past ERP for alternatives to the inflexible "enterprise apps" which hinder their ability to adjust quickly in today's rapidly changing marektplace.  The ERP business is sure to shrink, not grow.

Whitman's "Turnaround Plan" simply won't work

Meg is projecting a classic "hockey stick" performance.  She plans for revenues and profits to decline for another year or two, then magically start growing again in 3  years.  There's a reason "hockey stick" projections don't happen.  They imply the company is going to get a lot better, and competitors won't.  And that's not how the world works.

Let's see, what will likely happen over the next 3 years from technology advances by industry leaders Apple, Android and others?  They aren't standing still, and there's no reason to believe HP will suddenly develop some fantastic mojo to become a new product innovator, leapfrogging them for new markets. 

  1. Meg's first action is cost cutting – to "fix" HP.  Cutting 29,000 additional jobs won't fix anything.  It just eliminates a bunch of potentially good idea generators who would like to grow the company.  When Meg says this is sure to reduce the number of products, revenues and profits in 2013 we can believe that projection fully.
  2. Adding features like scanning and copying to printers will make no difference to sales.  The proliferation of smart devices increasingly means people don't print.  Just like we don't carry newspapers or magazines, we don't want to carry memos or presentations.  The world is going digital (duh) and printing demand is not going to grow as we read things on smartphones and tablets instead of paper.
  3. HP is not going to chase the smartphone business.  Although it is growing rapidly.  Given how late HP is to market, this is probably not a bad idea.  But it begs the question of how HP plans to grow.
  4. HP is going not going to exit PCs.  Too bad.  Maybe Lenovo or Dell would pay up for this dying business.  Holding onto it will do HP no good, costing even more money when HP tries to remain competitive as sales fall and margins evaporate due to overcapacity leading to price wars.
  5. HP will launch a Windows8 tablet in January targeted at "enterprises."  Given the success of the iPad, Samsung Galaxy and Amazon Kindle products exactly how HP will differentiate for enterprise success is far from clear.  And entering the market so late, with an unproven operating system platform is betting the market on Microsoft making it a success.  That is far, far from a low-risk bet.  We could well see this new tablet about as successful as the ill-fated Touchpad.
  6. Ms. Whitman is betting HP's future (remember, 3 years from now) on "cloud" computing.  Oh boy.  That is sort of like when WalMart told us their future growth would be "China."  She did not describe what HP was going to do differently, or far superior, to unseat companies already providing a raft of successful, growing, profitable cloud services.  "Cloud" is not an untapped market, with companies like Oracle, IBM, VMWare, Salesforce.com, NetApp and EMC (not to mention Apple and Amazon) already well entrenched, investing heavily, launching new products and gathering customers.

HPs problems are far deeper than who is CEO

Ms. Whitman said that the biggest problem at HP has been executive turnover.  That is not quite right.  The problem is HP has had a string of really TERRIBLE CEOs that have moved the company in the wrong direction, invested horribly in outdated strategies, ignored market shifts and assumed that size alone would keep HP successful.  In a bygone era all of them – from Carly Fiorina to Mark Hurd to Leo Apotheker – would have been flogged in the Palo Alto public center then placed in stocks so employees (former and current) could hurl fruit and vegetables, or shout obscenities, at them!

Unfortately, Ms. Whitman is sure to join this ignominious list.  Her hockey stick projection will not occur; cannot given her strategy. 

HP's only hope is to sell the PC business, radically de-invest in printers and move rapidly into entirely new markets.  Like Steve Jobs did a dozen years ago when he cut Mac spending to invest in mobile technologies and transform Apple.  Meg's faith in operational improvement, commitment to existing "enterprise" markets and Microsoft technology assures HP, and its investors, a decidedly unpleasant future.

Will Meg Whitman’s Layoffs Turn Around HP? Nope

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.

Why a Bad CEO is a Company Killer – Sell Hewlett Packard


“You’ve got to be kidding me” was the line tennis great John McEnroe made famous.  He would yell it at officials when he thought they made a bad decision.  I can’t think of a better line to yell at Leo Apotheker after last week’s announcements to shut down the tablet/WebOS business, spin-off (or sell) the PC business and buy Autonomy for $10.2B.  Really.  You’ve got to be kidding me.

HP has suffered mightily from a string of 3 really lousy CEOs.  And, in a real way, they all have the same failing.  They were wedded to their history and old-fashioned business notions, drove the company looking in the rear view mirror and were unable to direct HP along major trends toward future markets where the company could profitably grow! 

Being fair, Mr. Apotheker inherited a bad situation at HP.  His predecessors did a pretty good job of screwing up the company before he arrived.  He’s just managing to follow the new HP tradition, and make the company worse.

HP was once an excellent market sensing company that invested in R&D and new product development, creating highly profitable market leading products.  HP was one of the first “Silicon Valley” companies, creating enormous  shareholder value by making and selling equipment (oscilliscopes for example) for the soon-to-explode computer industry.  It was a leader in patent applications, new product launches and being first with products that engineers needed, and wanted.

Then Carly Fiorina decided the smart move in 2001 was to buy Compaq for $25B.  Compaq was getting creamed by Dell, so Carly hoped to merge it with HP’s retail PC business and let “scale” create profits.  Only, the PC business had long been a commodity industry with competitors competing on cost, and the profits largely going to Intel and Microsoft!  The “synergistic” profits didn’t happen, and Carly got fired.

But she paved the way for HPs downfall.  She was the first to cut R&D and new product development in favor of seeking market share in largely undifferentiated products.  Why file 3,500 patents a year – especially when you were largely becoming a piece-assembly company of other people’s technology?  To get the cash for acquisitions, supply chain investments and retail discounts Carly started a whole new tradition of doing less innovation, and spending a lot being a copy-cat.  

But in an information economy, where almost all competitors have market access and can achieve highly efficient supply chains at low cost, there was no profit to the volume Carly sought.  HP became HPQ – but the price paid was an internal shift away from investing in new markets and innovation, and heading straight toward commoditization and volume!  The most valuable liquid in all creation – HP ink – was able to fund a lot of the company’s efforts, but it was rapidly becoming the “golden goose” receiving a paltry amount of feed.  And itself entirely off the trend as people kept moving away from printed documents!

Mark Hurd replaced Carly,  And he was willing to go her one better.  If she was willing to reduce R&D and product development – well he was ready to outright slash it!  And all the better, so he could buy other worn out companies with limited profits, declining share and management mis-aligned with market trends – like his 2008 $13.9B acquisition of EDS!  Once a great services company, offshore outsourcing and rabid price competition had driven EDS nearly to the point of bankruptcy.  It had gone through its own cost slashing, and was a break-even company with almost no growth prospects – leading many analysts to pan the acquisition idea.  But Mr. Hurd believed in the old success formula of selling services (gee, it worked 20 years before for IBM, could it work again?) and volume.  He simply believed that if he kept adding revenue and cutting cost, surely somewhere in there he’d find a pony!

And patent applications just kept falling.  By the end of his cost-cutting reign, the once great R&D department at HP was a ghost of its former self.  From 9%+ of revenues on new products, expenditures were down to under 2%! And patent applications had fallen by 2/3rds

HP_Patent_Applications_Per_Year
Chart Source: AllThingsD.comIs Innovation Dead at HP?

The patent decline continued under Mr. Apotheker.  The latest CEO intent on implementing an outdated, industrial success formula.  But wait, he has committed to going even further!  Now, HP will completely evacuate the PC business.  Seems the easy answer is to say that consumer businesses simply aren’t profitable (MediaPost.comLow Margin Consumers Do It Again, This Time to HP“) so HP has to shift its business entirely into the B-2-B realm.  Wow, that worked so well for Sun Microsystems.

I guess somebody forgot to tell consumer produccts lacked profits to Apple, Amazon and NetFlix. 

There’s no doubt Palm was a dumb acquisition by Mr. Hurd (pay attention Google.)  Palm was a leader in PDAs (personal digital assistants,) at one time having over 80% market share!  Palm was once as prevalent as RIM Blackberries (ahem.)   But Palm did not invest sufficiently in the market shifts to smartphones, and even though it had technology and patents the market shifted away from its “core” and left Palm with outdated technology, products and limited market growth.  By the time HP bought Palm it had lost its user base, its techology lead and its relevancy.  Mr. Hurd’s ideas that somehow the technology had value without market relevance was another out-of-date industrial thought. 

The only mistake Mr. Apotheker made regarding Palm was allowing  the Touchpad to go to market at all – he wasted a lot of money and the HP brand by not killing it immediately!

It is pretty clear that the PC business is a waning giant.  The remaining question is whether HP can find a buyer!  As an investor, who would want a huge business that has marginal profits, declining sales, an extraordinarily dim future, expensive and lethargic suppliers and robust competitors rapidly obsoleting the entire technology? Getting out of PCs isn’t escaping the “consumer” business, because the consumer business is shifting to smartphones and tablets.  Those who maintain hope for PCs all think it is the B-2-B market that will keep it alive.  Getting out is simply because HP finally realized there just isn’t any profit there.

But, is the answer is to beef up the low-profit “services” business, and move into ERP software sales with a third-tier competitor?

I called Apotheker’s selection as CEO bad in this blog on 5 October, 2010 (HP and Nokia’s Bad CEO Selections).  Because it was clear his history as CEO of SAP was not the right background to turn around HP.  Today ERP (enterprise resource planning) applications like SAP are being seen for the locked-in, monolithic, buraucracy creating, innovation killing systems they really are.  Their intent has always been, and remains, to force companies, functions and employees to replicate previous decisions.  Not to learn and do anything new.  They are designed to create rigidity, and assist cost cutting – and are antithetical to flexibility, market responsiveness and growth.

But following in the new HP tradition, Mr. Apotheker is reshuffling assets – closing the WebOS business, getting rid of all “consumer” businesses, and buying an ERP company!  Imagine that!  The former head of SAP is buying an SAP application! Regardless of what creates value in highly dynamic, global markets Mr. Apotheker is implementing what he knows how to do – operate an ERP company that sells “business solutions” while leaving everything else.  He just can’t wait to get into the gladiator battle of pitting HP against SAP, Oracle, J.D. Edwards and the slew of other ERP competitors!  Even if that market is over-supplied by extremely well funded competitors that have massive investments and enormously large installed client bases!

What HP desperately needs is to connect to the evolving marketplace.  Quit looking at the past, and give customers solutions that fit where the market is headed.    Customers aren’t moving toward where Apotheker is taking the company. 

All 3 of HP’s CEOs have been a testament to just how bad things can go when the CEO is more convinced it is important to do what worked in the past, rather than doing what the market needs.  When the CEO is locked-in to old thinking, old market dynamics and old solutions – rather than fixated on understanding trends, future scenarios and the solutions people want and need bad things happen.

There are a raft of unmet needs in the marketplace.  For a decade HP has ignored them.  Its CEOs have spent their time trying to figure out how to make old solutions work better, faster and cheaper.  And in the process they have built large, but not very profitable businesses that are now uninteresting at best and largely at the precipice of failure.  They have ignored market shifts in favor of doing more of the same. And the value of HP keeps declining – down 50% this year.  For HP to change direction, to increase value, it needs a CEO and leadership team that can understand important trends, fulfill unmet needs and migrate customers to new solutions.  HP needs to rediscover innovation.