IBM and HP: Different Strategies in a Changing World - Page 2

Rob Enderle

The inability to respond in a timely manner to this threat may be an indicator that HP is becoming too complex to manage, though Mark Hurd and Shane Robison have already demonstrated a skill in managing complex companies that is unparalleled, given HP's performance through last year. However, in this game you are only as good as your current quarter, and this last one was clearly tough. On the other hand, in what has been a tough quarter across the industry, HP actually did reasonably well and the fact that it took such a small revenue hit from Services indicates that its merger skills rival some of the best in the industry. In addition, it is the only server vendor that can take the fight to Cisco.




Both IBM and HP are under marketing at the moment, which I believe is having an adverse effect on their financial performance. If you look at vendors like Microsoft and Apple, which are aggressively marketing during the downturn, both are showing benefit from the marketing efforts. Apple continues to maintain margins higher than anyone else in its segment. Microsoft's efforts are actually having a strong offsetting effect on consumer sales behavior. PCs are actually doing substantially better than they should and products that are not as well marketed in similar segments, like TVs, are taking it in the shorts. Under Louis Gerstner, IBM marketing was second to none in its class. HP's PC marketing has historically come very close to Apple levels. Both are off the mark and I think that has adversely affected both companies' results. Cutting marketing in a downturn is a classic textbook mistake, and Apple is one of the few companies that doesn't make it.


Wrapping Up


When it comes to CEOs and complexity, I've often thought a variant of "The Peter Principle" applied. The principle refers to managers rising to a level of incompetence. With CEOs, what I've observed is that they build out a company until that same incompetence level is reached and then take it to that next step: failure. Palmisano is actively fighting this trend but he may be too conservative and may be missing growth opportunities. HP is aggressively growing but this last quarter may indicate that it is dangerously close to proving my point. Both companies are in surprisingly good shape today, given the economic conditions, but this is a year of opportunities and changes. How both CEOs will be remembered will be not how they played the game so far, but how they play it over the next 18 months. Neither path is wrong and both have huge advantages. Their contrast is what is interesting.

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