This is the season for vendor events: IBM Edge, EMC World, Dell Annual Analyst Conference, and Lenovo World in Asia. And, of course, HP Discover. This show has actually been getting a lot of chatter of late, but for the wrong reasons. This is because apparently HP invited a bunch of analysts to this event and after they accepted, told them, “Oh, by the way, we aren’t paying for travel.” In the analyst world, this is kind of like inviting a bunch of friends over for dinner and the day before dinner telling them, “Oh, by the way, we’ll be supplying the drinks and you’ll be bringing the food.”
Obviously, this wasn’t a good way to kick off its big event. Analysts may attend, but will already not think favorably of your company. But, I think, it speaks to the core problem at HP: Too many people in key positions don’t have adequate skills.
As a result, HP is just doing stupid things. Let me explain.
HP’s Enterprise Business Is in Deep Trouble
The proof that HP is in trouble is that one recurring theme at all of these other events is that the vendors are positioning consistently against HP—particularly with large complex projects. They have all learned from their recently acquired customers that HP has apparently lost its ability to deliver solutions, though it still sells them. HP is instead delivering build-it-yourself IT kits—particularly in the hot converged systems space. This would be like selling a new Corvette and delivering to the customer a bunch of boxes with tires/wheels, engine, body on frame, and sound system in a not-so-easy-to-assemble kit.
Now this seems like an obvious problem and one that would be incredibly easy to fix. But I’m reminded of the GM executive who years ago was frustrated by falling revenues. He looked out into the parking lot and saw that it was filled with Japanese cars. His fix was to order the employees to buy GM cars, when the solution should have been to find a way to build cars that GM employees and other consumers wanted to buy and drive. The problem wasn’t the company’s employees, or really the cars (they were symptomatic); it was that GM, at the time, was run by people who didn’t love or understand automobiles.
The problem doesn’t start with the CEO; it starts with the board that selected her. HP was fundamentally a hardware, services and printing company. While Carly Fiorina had invested heavily in software development, Mark Hurd reversed much of this effort while he was there (which may make you wonder what the hell he is actually doing running Oracle). One fascinating thing is that there has been a significant turnover in board members at HP over last 15 years, which may explain why they repeated the mistake tied to both Fiorina and Hurd’s failures—making Meg Whitman the CEO and executive chairman. This is generally thought to be a bad idea and it is illegal in some places (e.g., the UK).
Whitman’s background was small scale compared to HP. As a company, eBay was nowhere near the size it is now.
In addition to Whitman, the board has Marc Andreessen, who oversaw the creation and failure of Netscape, which is arguably the firm that founded the modern Internet. He is considered one of the leading software experts. Ray Ozzie was hired to replace Bill Gates at Microsoft and failed in that role and more recently became CEO of a mobile communications company. Rajiv Gupta has deep manufacturing experience (chemicals and specialty materials) and more recently, automotive experience.
Shumeet Banerji is a financial investment advisor specializing in early-stage companies. Robert Bennett has a deep background in media and financial industries. Klaus Kleinfeld comes from Alcoa, which gives him deep materials background. Patricia F. Russo comes from telecom and Alcatel-Lucent with a background similar to Fiorina (who was one of HP’s other failed CEOs). Gary Reiner comes from a private equity firm and is out of GE, where he served as CIO. Raymond Lane was fired as CEO of Oracle long before it got into hardware, and he oversaw the selection as chairman of both Leo Apotheker, who had the shortest tenure of any of the recent HP CEOs, and Whitman.
Finally, we have Ann Livermore, who was one of the most well-regarded HP executives and likely should have been CEO for the last decade or so.
So out of 12 board members, including the CEO/executive chairman, only one has experience in a business that is core to HP and that business wasn’t hardware or printers, it was services. In fact, if you were to define HP by its board, you’d think the company was big in software, materials manufacturing, and finance, with some interest in services. Or, in short, the board seems completely unqualified to run a company like HP, which is in enterprise hardware, networking, PCs and is still dominant with printers.
Now, it is far from unusual to have a very diverse board of directors, but if they select a CEO from outside of industry, the end result will be no industry expertise at the top. You can’t successfully run a business if both the top executive and the majority of the board aren’t from that business. HP does have Ann Livermore, but she alone can’t make up for the lack of experience in networking, servers, PCs and especially printers. Though you would think she’d understand the problem, the health issues that prevented her from being considered for CEO are either keeping her from doing the job or Whitman isn’t listening to her advice.
Years ago, I was brought in to consult on a project Paul Allen was funding to develop a new laptop. After meeting with the team, I pointed out that this effort would fail because the team didn’t have the right skills mix to launch a hardware product; it was virtually all software people. The product never made it to market.
Wrapping Up: Why HP Is Failing
HP’s turnaround can’t be successful unless it somehow gets a board or a CEO that understands the businesses the company is in currently. Without critical skills in either role, opportunities will continue to be missed and critical problems, like the inability to deliver solutions, will remain. As the primary way to assure bottom line performance, the company has only cutting costs as an option (read, layoffs) and you can cut only so far. It is interesting to note that Andreessen Horwitz, Andreessen’s company, selects companies based on leadership and uses such examples as Andy Grove from Intel, Bill Campbell from Intuit, and Steve Jobs from Apple. Each are subject matter experts, are/were powerful leaders who could not only form a vision but also articulate it, had the right ambition (i.e., a desire to succeed, not just to make a ton of money) and, most importantly, the core skills necessary to execute. This fits nicely with my post from earlier this week on why CEOs need to be passionate, subject-matter experts.
By Andreessen’s own metric, HP would not be a company Andreessen/Horwitz would invest in, and I think it would be right not to do so. It speaks to the core of why HP can’t execute. It also makes you wonder why Andreessen doesn’t follow his own firm’s guidance to fix HP. Yes, Andreessen is stubborn, but it would be better for HP if he was more stubborn with his policy than in supporting bad decisions.
In the end, the reason HP is failing is because the folks who run it don’t know how to run a company like HP. At least one of the board members knows better, but isn’t doing anything about it because, apparently, he is also part of the problem.
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+.