HP Inc. vs. HPE: Lessons the Industry Does Not Want to Learn

Rob Enderle

Both HP Inc. and its one-time parent, HPE, released financial reports this week.  Both did reasonably well on the top line but underneath that, HP Inc. looked far more successful, largely because it was showing improvement in nearly every major area. HPE was carried by services, with weakness in most other segments. Typically, services have some of the lowest margins, and services increases during declines in product business may be an indicator of unique problems in HPE accounts, not any indication of sales growth (if you aren’t installing something with services, you are likely fixing what you already have). By the way, when you have a services spike against a sales decline, that generally reflects a lot of unplanned operating expense for the firm’s customers and one thing I know firms really don’t like is unplanned expense charges. (Executives are measured on holding budgets).

What is interesting about comparing HP Inc. and HPE is that the CEO who crafted the split clearly stacked the deck, putting the businesses that were in seemingly declining markets (PCs and Printers) and the lion’s share of the debt into HP Inc., while keeping what should have been growth businesses and low-risk initiatives in HPE. So why is HP Inc. doing so much better? I don’t think it is rocket science. HP Inc. CEO Dion Weisler hand-picked the best executives the combined company had in both Finance and HR, he was a subject matter expert having come up in the industry HP Inc. would find itself in, and he stayed focused on the job and didn’t try to multi-task with politics.

Let’s take each in turn, because, at the core of this is a lesson that the technology industry doesn’t seem to want to learn.

The “I” in Team

The old saying is that there is no “I” in team. But there actually is, and that is the team leader. When you form a team, the team should be formed around the leader. It doesn’t matter how good the people are if they either won’t follow the leader or can’t function together. If so, you don’t have a team, you just have a very talented mess. In contrasting Meg Whitman and Weisler, Whitman had more CEO experience but there was no indication she knew how to build a winning team. This isn’t uncommon in an executive who comes up organically. We see the process as kind of a plan because we focus on the winning company, but for every success like eBay, there are thousands, well more like millions, of small startups that don’t survive let alone grow to a major company. When you have those kinds of numbers, luck plays an incredibly big role on a macro level. You saw this when Whitman ran for office, but you also saw it when she allowed Weisler to take her best people.

The examples are CFO Cathie Lesjak and Chief Human Resources Officer Tracy Keogh. Lesjak was on the other side of virtually every bad HP decision I’d seen when the company was together and, given HP’s CEO revolving door, had been critical to keeping the firm from falling off the rails. Arguably one of the strongest CFOs in the planet, if Whitman had understood teams, Lesjak should have been her best first choice when it came to choosing who got whom. Keogh is the Harvard-trained HR manager who stands out as arguably the best in technology. Keeping the employees motivated and focused during some of the ugliest layoffs in history after a long string of CEOs isn’t easy, and finding ways to recruit and keep executives during hard times is incredibly difficult, yet she pulled it off. Keogh should have been choice number two. However, both women would be best able to assess their success with both CEOs and that both ended up with Weisler and not Whitman may tell a secondary story.

I think not valuing the people under you is an endemic problem because of the crucible that creates most CEOs. They must compete for the job and view those at the same level as rivals, then, once promoted, can’t step back and realize they now must be allies. But Whitman didn’t come up in HP, and my theory is that this may also be a unique problem for female executives. They generally have a far harder path, far more personal criticism coming up, and have as peers far more members of the opposite sex (and we are being reminded that a lot of men don’t behave that well around women this week). Strangely, some particularly don’t get along with other women; Carly Fiorina, for instance, was blindsided by her own CMO at the end, a woman who had been one of her biggest supporters.

So, it ended up being HP Inc. run by a CEO who understood the business and had a good hand-picked team, contrasted against Whitman, who didn’t understand the business or seem to know how to pick a team (let alone keep it together, if she did build it). One of my indicators of whether a new CEO will work out is how well they build the team of folks reporting to them. (Admittedly, this is far easier with an external hire who must replace what they are given vs. an internal hire who may legitimately be OK with who they have.)

Wrapping Up: The Recurring Problem


We talked about skills and team building, but one other thing that seems to recur far more than it should is this idea that any executive can do any executive job. I’ve seen hardware guys put in software jobs, software guys put in hardware jobs, accounting executives put into places like HR, and I’ve even seen folks put engineers into marketing (there should be a law against that). The skill sets aren’t remotely similar and someone who is a good engineer will probably suck at something like HR or marketing, which drifts heavily into human behavior and away from numbers as a core skill set. (By the way, numbers do play a big role in both but if you don’t know people, it is very hard to interpret those numbers well or understand the needed fixes.)

Who is at fault? Generally, this problem starts with boards that just aren’t aligned with the businesses they oversee and couldn’t match a recruit to a requirement (let alone come up with a valid set of employee required skills) to save their lives. It isn’t your fault if you were chosen to do a job outside your skill set; it is the fault of the person who chose you.  So, look for three things in a new CEO to determine early on if they are likely to be a success. One, do they have both management and operational skills sufficient to run the company (scale and product specific)? Two, is their team both qualified and loyal to them (did they hand pick the major players)? Three, was the CEO picked because they were available or the most qualified? I’m just saying that a CEO who misses on all three will not work out most of the time.

 

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+


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