Earlier this week, we spoke of the HP analyst conference and that HP would need some of Apple's magic to get folks on board with its vision. Well, after a couple of days of examining the company, its tag line "Everybody On" is quite appropriate. While it should resonate with customers, getting everyone at HP on the same page will be difficult.
As a side note: One of the most interesting comments was from the head of DreamWorks who suggested that HP put part of its focus on showcasing its presentation technology and abandon PowerPoint. That one little change could do amazing things for a lot of tech companies. But let's leave that for another time and focus on the event in the main tent.
The vision HP's new CEO Leo Apotheker conveyed was one that isn't that dissimilar to what made Apple successful and what took IBM to its initial success. It is a vision of a highly integrated and focused company. That focus is on providing comparatively simple solutions that provide the technology you need wherever you are, and clearly embracing trends like the cloud, tablets, and services and applications stores to make it all work. "Everyone On" means everyone on the cloud focusing their efforts internally and externally on HP's Enterprise Business (EB) software and hardware.
The concept has the iconic beauty of IBM before it became an umbrella company and of Apple today, but HP's current umbrella structure and PC unit may work against it.
The Umbrella Problem
HP is becoming the last company to use umbrella structure in its class, and IBM, which brought this structure to tech, now seems to be moving to eliminate it. The umbrella corporate structure places the CEO in the position of an owner over a series of smaller chief executives who operate independently and share some of the corporate overhead. The advantage is that a company pursuing lots of unaligned businesses can be more agile with each individual business. The disadvantage is that it makes a concerted effort like the one HP is undertaking vastly more difficult to accomplish because the independence of the model makes close cooperation very difficult.
Exacerbating this for HP is a string of very inconsistent CEOs over the last decade. Carly Fiorina tried to execute a centralized strategy with more of a consumer focus across the company and failed badly-much of the failure came from executives who rebelled against her. Mark Hurd managed the umbrella structure optimally by shifting operational control and marketing out to the divisions, but showcased one of the problems with the structure: a tendency to focus excessively on cost and not enough on corporate messaging and, at least in the Hurd case, left the CEO with enough free time to get into trouble.
To make this work, Leo Apotheker needs the company to focus and for it to function more as a single entity. That is not a strength of an umbrella organization structure, which is likely one of the reasons IBM is moving away from it and most other large companies, like Oracle, don't use it. Interestingly, the first company I saw abandon this was Chrysler when Lee Iacocca turned that firm around with the help of Jerry York who went on to help turn around IBM.
Enterprise Business: On Message and On Track with a Little CFO Magic
At the core of this effort is HP's Enterprise Business (EB), which actually looks as if it is on a similar path to IBM in terms of focus with a weaker software unit but greater strength in networking. It has already created an unusually common hardware platform allowing for high integration of its servers, storage and networking components in the same rack coupled with management software that couples them all together. Dave Donatelli, a well-regarded executive out of storage giant EMC, and Bill Veghte, a well-regarded executive out of software giant Microsoft, are leading this effort on software and hardware.
One of the biggest supporters, however, is Cathy Lesjak, the HP CFO who appeared at the financial analyst event the prior day and was so fired up she could have run a revival meeting. Typically an excited CFO is a bad thing because we tend to see this behavior as a result of a problem. However in this case, and given the CFO in an umbrella corporation is often more powerful than the CEO because the CFO controls the money, having her aggressively on board is a huge indicator that this might work.
Services and Printing: Neutral as They Need To Be
Services and Ann Livermore indicated they were ready to help execute. Like IBM, HP services are an enabler but not a driver of an initiative like this. Services can't be seen as a heavy advocate because it has to be trusted to do what customers want and be far removed from the sales team. Able to execute but not cheerlead is consistent with what we saw this week and appropriate for this group.
Printing and Imaging is a company within a company. It is led by the legendary Vyomesh Joshi, better known as "VJ," who has arguably been the most consistently successful HP executive over the longest time. He was on message, but frankly, while printing can make use of this initiative and will, it isn't central to this and, in general, its buyers are different. Printing is a different market and given it is a declining market, this unit continues to perform admirably. But the fact remains that it might be even more successful outside of HP than in because outside of HP, it could sell through HP competitors like Dell, which it can't now.
Personal Systems: Liability or Asset?
Personal Systems Group (PSG-the PC side of the company) is likely the biggest problem or opportunity in terms of visibility thanks to its tablet effort. PSG is the only consumer-focused organization and it is not mirrored by Cisco, EMC, Oracle or IBM. And a big hit in the tablet space could put HP in a powerful position in the market against these big rivals, at least in the minds of investors. However, that same unit prevents HP from partnering with vendors ranging from Apple to Lenovo that otherwise might make HP's Enterprise Business products more successful. For instance, while many of these other firms are looking at using iPads to work as control interfaces, HP will have to favor its TouchPad, which currently has no sales. In a way it is the exact opposite of the printing division in that it is a potential drag on HP, while the printing division experiences a drag from HP.
Apple will likely eventually partner with one of these other players; it has partnered with IBM in the past and has a close relationship with Oracle. Such a partnership would put HP on the defensive particularly if the TouchPad failed as has every iPad competitor so far. Therefore, if HP can't hit it out of the park with this effort it will likely be better off distancing itself from the division and letting the crash happen at a distance. Recall that AMD's entire management team was fired over a failure to execute a similar strategy and even Microsoft's Steve Ballmer has been called on the carpet for a miss.
Right now, HP's effort isn't competitive and that has been a historic problem for folks running against Apple, from Motorola and Samsung on tablets, and Microsoft on the Zune, which was just discontinued, but could have been a success with the right effort.
Wrapping up: Cathy Lesjak May Be Critical Element
This is a daunting strategy that could well define HP; however, standing in the way is the structure of the company, which will make execution in a heavily competitive market more difficult. Also standing in the way is PSG, which appears to limit HP's options more than it currently assures the result. Vision is great but, at the end of the day, the executives must make the hard decisions to assure success. Unlike Leo Apotheker's predecessors who either failed to get everyone on the same page or didn't even really try, Leo will need to bring the company together and drive it to the stated goal and/or divest it of the parts that no longer make sense, much like Steve Jobs and IBM executives did to accomplish similar goals.
Thinking back to Louis Gerstner's turnaround of IBM and how it was Jerry York, the IBM CFO at the time who made the hard decisions that assured the success, the key to success may not be the CEO but the CFO. That may make Cathy Lesjak that critical element that separates success and failure. It is a good thing for HP that she is so enthusiastic about it. She would be wise to channel Jerry York, who unfortunately has passed, to assure the success she so ardently supports.