Hurd Wrecks HP's Innovator Image

Ann All
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With Mark Hurd out at HP in the wake of an oddly minor scandal (involving surprisingly little sex or money, at least thus far), we're getting a flood of analysis on his performance as a CEO.

 

Some analysts, like those quoted in an eWEEK story, laud Hurd for making a series of strategic acquisitions, cutting costs and focusing on measurements and results. Others point out some not-so-positive trends. As Jeffrey Schwartz writes on Redmond Channel Partner, debt has grown from $3.4 billion to $14 billion during Hurd's tenure, while its cash position has slipped from $13.9 billion to $13.3 billion. And the PC division contributes the lion's share of revenue, though its operating margins are a measly 5 percent.

 

Even some fans like Gartner's Martin Reynolds, who says in the eWEEK article Hurd "drove an amazing turnaround at HP," acknowledge that Hurd wrecked the company's image as an innovator.

 


Writing on MarketWatch, Therese Poletti notes that spending on research and development fell to 2.5 percent of total revenue on Hurd's watch, down from 4 percent when he took over after Carly Fiorina left the company. (And Fiorina had cut it from 5.8 percent.) Compare that to IBM, which spent 6.1 percent of revenue on R&D in 2009, a year in which its overall revenue fell as the economy crashed and burned.

 

I wrote about a similarly short-sighted approach to innovation at Dell back in 2007, citing Cutter Consortium's prescient insight that innovation would become a primary competitive differentiator. Its take: Operational efficiency, while important, has become table stakes and thus can no longer give companies enough of an edge against their rivals

 

Though everyone is jumping on the Hurd-as-innovation-killer bandwagon now, at least a few folks commented on it while Hurd was still being hailed as a superstar CEO. In a May 2009 post on The Directive, Kat Shoa ran some interesting numbers, comparing how much HP spent on R&D as a percentage of revenue in 2008 to how much IBM and Apple spent, and performing the same exercise for how much the companies spent per employee on R&D.

 

At that time, HP was spending 3 percent of total revenue on R&D, vs. IBM's 6 percent and Apple's 4 percent. While Apple had just increased its R&D budget, its number looked low because its revenues saw strong growth as well, wrote Shoa. Per employee, HP spent $10,900 on R&D, compared to IBM's $15,600 and Apple's $40,600.

 

As Shoa noted, HP's bread-and-butter products (PCs, printers, servers) are in mature, highly commoditized sectors. (Ones with low margins, I'd add.) She wrote:

And the problem with commoditization is the vicious cycle of continual price reductions feeding back into commoditization. Cost cutting becomes essential if the company is to survive, but the way to break this cycle is to feed innovation, to develop new technologies and product lines in order to ensure future revenue growth.

Meanwhile, IT Business Edge's Loraine Lawson writes that this change in leadership could be a make-or-break time for HP in integrated systems.



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