One of the sharp contrasts we can draw this week is between BMC and HP. In a weird way, BMC looks a lot like it may be what HP’s board wanted: a software pure-play. But BMC has around 7,000 employees, and HP has around 300,000. This week, HP announced it would be cutting an additional 30,000 employees on top of the 55,000 already cut, approaching one-third of the workforce. This comes after management split the company in two, which should have resulted in the need to up the staff for common services that aren’t common anymore.
One of the interesting contrasts is that over the last decade or so, BMC has largely had one CEO, Bob Beauchamp, while HP has had a string of them, starting with Carly Fiorina, who came from telecom and marketing, and ending with Meg Whitman, who arrived after a failed bid for California governor and being replaced at a far smaller eBay.
I think this showcases that the revolving door impact of changing out CEOs more often than many change their cars is far more negative than we’ve previously considered. I also think we can come up with an easy way to score whether a turnaround effort will be successful.
Conventional wisdom is that the first thing you do in a turnaround is replace the CEO. But what if that is the last thing you should do?
Apple and Turnarounds
Apple is a great benchmark because it also went through a period where it was failing and replacing CEOs rapidly, with each CEO seemingly less successful than the predecessor. It hired from the outside and inside and it didn’t seem to make a difference until it brought back Steve Jobs, who was able to actually be successful. Granted, he was a far more mature person than when he had been fired, but he also had built the company and knew better than Gil Amelio, the guy he replaced, what needed to be done. Finally, the loyalty of the rank and file to Jobs was unmatched.
Lesson: Apple replaced IBM last decade as the gold standard of turnarounds.
IBM and Turnarounds
While IBM did get rid of its CEO for its turnaround and brought in someone from the outside, Louis Gerstner from Nabisco, the company backed him up with Jerry York, a turnaround expert, and then left Gerstner in place for over a decade so he could fully complete his vision. Then IBM went back to its regular cadence of using well-trained insiders to run the company.
One person who was consistent between both IBM and Apple was York; he was CFO for IBM, he was on Apple’s board, and he was one of the leading experts on how to do large turnarounds.
Common Elements for a Successful Turnaround
The common elements are some kind of tested turnaround experience on the board or executive staff, consistency in the board and CEO, and likely a great deal of consistency and experience on the board as well (though I haven’t tested this).
BMC and Dell and Turnarounds
The turnaround efforts at both BMC and Dell were very similar. The CEO was experienced not only with the industry but with the company. The loyalty of the team for the CEO was strong and both men crafted their teams personally. Both companies went private so they could function strategically to make long-term changes without the pressures of keeping the financial industry happy quarterly. In effect, both firms were structured specifically for a turnaround.
Looking at HP’s Turnaround Effort
HP has been a train wreck because there has been no consistency on the board, with the CEO, or with the executive staff. There has been a distinct lack of industry experience with three of the four CEOs (Mark Hurd was the exception). The board went from being heavily staffed with industry expertise but dysfunctional to having almost no current industry experience. The end result is that it is likely more amazing, particularly after some of the most poorly executed layoffs I’ve ever seen, that HP is still operating, not that Whitman has been unsuccessful in her turnaround. All credit to the poor, hardworking and underappreciated folks in the HP trenches who are heroically keeping the lights on in the face of brain-dead executive management practices.
Wrapping Up: Scoring a Turnaround
I think there is an easy way to score whether a turnaround is going to be successful.
Give one point if the CEO has industry experience, one if they have CEO experience, and another if they have been CEO for a similar-sized company.
Then add three points if the board has turnaround experience, and another three if they have current industry experience.
Add another two points if the executive staff has turnaround experience, or four if it is with the CFO. Give four points if the executive team is loyal to the CEO, add five points if the firm has a history of backing the CEO, and then another five if the firm goes private.
So, Apple, under Jobs, would have two points for the CEO, six for the board, four points for the executive staff, and five for the backing of the CEO (because it was Jobs): That’s 17 points.
IBM would have two for Gerstner, six for the board, four for the executive staff, and five for the backing: That is also 17, but we get there differently. Had Apple or IBM gone private, this would have jumped to a class-leading 22.
Dell under Michael Dell would get three points for the CEO, three points for the board, four for the executive staff loyalty, five for backing, and five for going private. This takes us to 20.
BMC gets three points for the CEO, three for the board, four points for loyalty, five for backing the CEO, and five for going private. This gives us 20 points (note that I haven’t identified who the turnaround expert was for Dell or BMC so these scores could potentially be three points higher).
HP gets one point for the CEO, three for the board (this may be generous because the board isn’t demonstrating industry or turnaround experience), 0 for the executive staff (they initially didn’t appear to be loyal to Whitman nor have turnaround experience, and she has churned the staff heavily), and 0 for backing: This gives us four points, but this is actually likely one point. It should be noted that replacing the CEO with an industry expert from a similar-sized company would only take the score to six; they need deep turnaround and industry experience and to change the mechanism so that a CEO can survive long enough to be successful.
So for scoring, I’d say anything over 15 points has a good chance of being successful. Anything under seven, and particularly under five, would have little chance of being successful.
Like a sports team, you need a critical mass of industry and turnaround skills to execute a turnaround. It isn’t that it is difficult, it’s just that you can’t have the entire team learning on the job.
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+