HP’s Turnaround: A View from Its CFO

Rob Enderle

I was tightly tied to the turnaround of IBM as I wrote the post mortems on some of IBM’s largest failed acquisitions and wrote the paper on why IBM nearly failed in the first place from inside IBM. The key player in the initial phases wasn’t Louis Gerstner, but Jerry York, the experienced CFO who had been selected by the IBM board prior to Gerstner’s selection. As a result, I watched with some interest this week as Cathie Lesjak presented her view of HP’s turnaround.

Cathie Lesjak has been one of the few constants in HP’s leadership through a number of CEO changes and she is likely why HP’s slide hasn’t been more pronounced. Behind the scenes, I’m told she was the lone voice objecting to many of the big, bad decisions that prior CEOs made. As a result, her position in HP is, and needed to be, unusually powerful.

I’m writing this from HP’s financial analyst meeting and what follows are my impressions of the first two major speakers, Meg Whitman and Cathie Lesjak, but because I think the CFO is the most important player at this phase, I’m going to focus more on Lesjak. 

Whitman Lead-in

Lesjak followed Meg Whitman onto the stage and I think it is important to talk about how the CEO set the stage for the CFO. These are the two most important positions in a turnaround — the CEO has the vision direction but the CFO is tasked with keeping the company afloat during the turnaround effort. 

Whitman had a powerful opening. She highlighted the problems she had found inside HP from very poor to non-existent metrics, out-of-date or manual systems surrounding customer management, sales management, HR and other areas, almost terminally low R&D. She also highlighted that the revolving door in the CEO’s office had resulted in massive waste and that both organizational structure and product portfolios had become excessively complex and unmanageable.  

In each case she articulated fixes already in progress and a timeline for execution that extended from this year until full recovery in 2016. In short, she did what was the best job I’ve ever seen of both defining the problems and articulating a believable path to success, coupled with solid proof points surrounding metrics on how she would assure the results she forecast.

Cathie Lesjak

Cathie picked up on these themes but one of the complaints she addressed off the bat was why HP wasn’t doing stock buybacks to artificially increase share price. I’m not a believer in this practice because it reduces cash reserves often critical to the success of a turnaround and the investment only increases value because it reduces the number of shares in market; it doesn’t make the firm any more competitive, nor does it address any of the critical problems.  

This is an important start because the CFO has to prevent the company from making tactical moves that could cripple the strategic efforts to actually complete the turnaround. Investments have to be prioritized in terms of long-term strategic growth and she hit on these points sharply. The CFO is the one who lives on metrics and Whitman’s founding comments on building strong metrics plays to any CFO’s strength. Lesjak pounded on the idea that decisions with regard to future investments in technology or companies would be based on solid metrics and targeted at measurable benefits. The implied message, from my perspective, was that the foolish decisions to overpay for acquisitions or cripple the acquisitions once purchased that she had unsuccessfully objected to, wouldn’t occur going forward.  

Recognize that at a financial analyst meeting like this one the CFO presentation is one of the most important and she reiterated that her efforts would be tightly integrated with Whitman’s strategy. For instance, the capital strategy that she would be administering is tightly tied to the business strategy that Whitman presented and the operational excellence Whitman was creating would be assured at all levels by the office of the CFO.  


This representation of a tight partnership between the two critical roles, particularly given the frequency of HP’s CEO changes, is an important test of HP’s ability to execute Whitman’s vision and Lesjak was clearly on point and a critical part of the effort.

Finally, Lesjak articulated a financial plan to eliminate HP’s debt and dramatically improve the firm’s credit rating. So, instead of buying back shares, HP would be reducing debt, which lowers interest costs and strategically improves its balance sheet.

Wrapping Up: One Remaining Problem Partially Mitigated

Overall, I remain impressed with Cathie Lesjak and think she is one of the strongest CFOs in the market. The only problem I didn’t see well addressed by either executive was HP’s poor acquisition process. I’d hoped to hear it had implemented a program similar to Dell, IBM and EMC, all of which do better. However, they wisely said they were holding off on doing anymore and this gave me the hope that fixing this process would precede any other big acquisitions.  

What was interesting was that while Whitman spoke, HP’s stock fell, largely I think because investors realized that HP was at the front end of a long process. Whitman was realistic and sometimes we really don’t like reality; however, when Lesjak spoke, the stock recovered because she convinced folks that what Whitman spoke of would be driven from solid financial management. In the end, HP is a team and once the core team was done, most seemed pleased with the result.  

As I watched Lesjak, I remembered Jerry York, IBM’s best CFO who passed a few years back, and I think Lesjak performed at a level he’d be proud of. I can think of no higher praise for a CFO, which showcases my long-term respect for both York and Lesjak and my own financial background. This was a good day for HP, a firm which has had too few of them of late.  



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