Why Loyalty Defines the Difference Between IBM and HP

Rob Enderle

I continue this week at IBM's Think Leadership Forum in New York. It has brought together a massive number of company and country leaders who are singing the praises of IBM in support of its individual efforts to improve their companies and the world. In sharp contrast, during this event, the rumor that Meg Whitman was going to replace HP's new CEO Leo Apotheker sent HP's stock higher, but it also focused everyone on the firm's inability to maintain even the image of stability.


What is fascinating is that the difference between the two firms is largely that IBM is led and managed by people who measure their careers at IBM in decades and HP is led by people who measure their career at HP in months. This is with the exception of HP's printing and imaging group, which continues to represent the strongest island - with three CEO changes - of any part of the company and is led by VJ, a near-legendary HP lifer.

Let's explore the thought that the difference between IBM and HP is one of loyalty, and rewarding that loyalty, not leadership. Or, in short, IBM is defined by people who want to make IBM successful and see their legacy in the company; HP has too many people who define success personally and define their success by salary and benefits. This is why IBM can have an event that can address world issues, while HP can't even seem to keep a board and CEO.

The Missed Importance of Loyalty

I first saw this break when I worked decades ago in my first full-time job at Disney. At the time, we had some of the most loyal employees in any industry, folks who had been with the company for decades and where their greatest asset was their relationship with that company. I was young, but I not only caught the pixie dust, I was buried in it. But MBAs were brought in after Walt Disney died and one of the first things they did was bring in more folks like them and kick out all of the non-degreed old timers. I watched Disney begin to go through some of the hardest periods in its existence. Quality fell, attendance in parks and at movies fell, and the Disney that emerged was a shadow of what it once was and even had to buy Pixar to gain back leadership in a market it had created. These MBAs, and I later became one myself, understood numbers but didn't understand people or value loyalty.

IBM's Fall and Rise

IBM broke loyalty when it brought in Louis Gerstner and did the first major layoffs in its history. The cause had more to do with IBM's leadership losing its way largely due to an anti-trust consent decree that forced stupid decisions and effectively put attorneys in charge of the company. There was a lot more to the slide than this, including an insulated office of the CEO that couldn't see problems, let alone react to them, and an unfortunate culture of entitlements that appeared to increasingly work against risk takers and favored "yes" men.

However, after Gerstner, with Sam Palmisano, IBM aggressively moved to re-establish trust and rebuild this core element in the company. Unlike Apple, which has aggressively used fear to control leaks, IBM doesn't lead because the folks who have critical information have no incentive to leak. Their loyalty prevents them from putting their own short-term interests in front of the company. Both Apple and IBM occasionally have problems, but their problems aren't endemic and IBM's approach is far less hostile to its employees than Apple's appears to be. (To be fair, Apple actually had a culture of leaks prior to Steve Jobs' return. That, and the heavy use of contractors, coupled with a much higher interest in Apple's confidential information, likely required the more aggressive approach that company takes, not any disloyalty.)

HP's Disloyalty Problem

HP has had a series of CEOs who have felt the need to aggressively lay off employees and then offer high salaries and benefits to executives concerned about HP's stability. Ironically, its current CEO isn't one of them. At HP, it isn't unusual to see a top executive take out an ad in The Wall Street Journal promoting themself or to actively lobby financial analysts in the search of a critical promotion, including the CEO spot. At IBM or Apple, an action like that would likely result in the immediate early retirement of that executive; at HP it is allowed because it has fostered an environment where benefits, titles and salaries are more important at the top levels than the needs and goals of HP. That isn't to say there aren't a lot of employees in HP who are very loyal to the company, but the executives have been showcased, particularly the CEOs, as near-royalty with Carly Fiorina and Mark Hurd standing out as executives who don't seem to care about their employees and cared too much about their own jets, benefits and compensation.

This has created an environment where the firm's major moves are leaked on a regular basis in order to ensure an outcome preferred by the person or organization doing the leak and often in conflict with the goals of the office of the CEO and board.

This is now HP's biggest problem and the firm likely will have difficultly executing, or even holding market share, until it can address this behavior from inside the firm and historically even on its own board.

Wrapping Up: If IBM Can Change the World, Maybe HP Can Change Itself

Both firms occupy a similar space and are measured similarly. Both live in an enterprise world that values stability and rewards loyalty. IBM, because it has rebuilt loyalty in its ranks over the last decade, can use its position to drive global leadership. In addition, at this event, Sam Palmisano is thanking guest after guest for praising the company, while HP's CEO is likely wondering if he has been replaced in a coup. For any CEO at HP to be successful, the firm needs to re-establish loyalty as a priority and either eliminate what is looking like an open rebellion.

Interestingly, the most loyal division historically in HP is its Imaging and Printer division and that is likely the one place where leaks aren't coming. If I were on the board, at least until this leaking problem is patched, that is where I'd look for interim leadership rather than yet one more outside CEO. In fact, VJ, the near-legendary executive who leads that unit, may be the ideal person to help return loyalty to HP.

One final thought: As I look back, HP's CEOs are often defined by things that aren't connected to the job: taking down pictures of founders, excessive pay, new jets, diddling assistants and disloyal boards. IBM's CEOs are generally defined by the success of IBM even when they fail. I wonder if it is too radical an idea to suggest that the IBM way is better for both the company and its top executive.

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