The Experton Group Blog: Changing of the Guard Again at HP

It was barely 11 months ago when Hewlett-Packard Co. replaced Mark Hurd with Leo Apotheker as its CEO. At the time people were surprised the primarily-hardware company chose an executive that was long on software and services knowledge but with little hardware experience. The theory was he would transform the company to compete with the business and competitor changing landscape.

Unfortunately, Leo did not provide a coherent vision and was not an able communicator. He was shifting the company to become more of a software and services company, which Experton Group was a good thing. But he announced three moves at the end of HP's third quarter that shook the market and people's faith in his leadership:

• A purchase of the UK-based Autonomy Corp. for an astounding $11.2 billion, which was a price three times higher than the company's total revenues since inception. Deals of this nature would drain the company of funds before software as a percentage of overall HP revenues became a significant factor.
• The decision to divest the company of the profitable, market-leading PC division. The ability to be a one-stop shop from client system to Superdome to data centers and outsourcing offerings gave HP a unique position in the market that its customers valued. Moreover, the economies of scale is afforded HP enabled it to drive its supply chain to conform to its requirements and vision. A divestiture or spinoff of PCS endangers this position and the company's value proposition.
• The suspension of production of some WebOS smart phones and tablets from its acquired Palm business. In particular, the discontinuance of the Touchpad and fire sale shortly after the product launch proved to be quite disconcerting to its customer business executives.   

These moves made it seem like the company did not have a cohesive vision and was adrift. Adding flames to that fire were the missed quarterly results delivered under Leo and the loss of market share. So the board acted. Leo was removed and Meg Whitman, the ex-CEO of eBay Inc., was selected to be the new President and CEO, with Ray Lane moving up to Executive Chairman of the Board. Ms. Whitman had been a member of the HP board for the last eight months and is touted as a technology visionary with a proven track record and an understanding of HP's products and services. Her communications skills and leadership qualities were also highlighted as reasons for making her the new CEO. 

However, there are some minefields the new CEO will have to deal with that are not visible. One is Leo's recent dismantling of the HP software and services leadership team. He replaced many of the HP and ex-EDS executives with SAP executives. The new software and services team is a perfect fit for Leo but odds are they will be short-timers under the new management. This will impair two of the enterprise growth legs that HP is hoping to grow and will make it harder for Meg Whitman to succeed. The second – and bigger – challenge will leading a shaken but profitable $100 billion B2B and consumer company. EBay was only a $4 billion consumer company at the time she departed. Lastly, she will need to be able to provide the supply chain management vision and leadership if the company is to effectively leverage its economies of scale.

Experton Group believes Meg Whitman has her hands full and it is unclear that she can provide the leadership needed to keep up with the competitive pressures from Dell Inc., IBM Corp., Oracle Corp. and other major IT providers. She has internal communications and morale challenges and faces a huge learning curve in picking up the enterprise business and supply chain management. Fortunately, the company has a strong pipeline of products, decent profitability, and revenues, which should give her some time to build her vision and gain the trust of customers, employees, and shareholders. Her initial comments that she is in concert with the current actions taken by her predecessor were disappointing. Hopefully she will be able to break from this soon and articulate her own strategy.

IT executives that perceive HP as a strategic business partner should meet with Meg and her executive team to understand how the new roadmaps and strategies will dovetail with the enterprises' plans and requirements. IT executives working with HP's outsourcing and services units should meet with their executive counterparts to discuss contracts, directions, staffing, and strategies to ensure internal HP disruptions and/or new strategies will not impair or impede enterprise business goals, objectives, or projects.