A lot has changed in the last year for HP. CEOs are mostly graded on stock performance and HP is trading at a high this year, around three times where it was trading when Meg Whitman took over. I’m at HP’s analyst event this year and there is now no doubt that Whitman was the right choice for CEO for the company. The results, at least from the standpoint of valuation, in what remains a very hard market, have been excellent. This appears to be the result of three prioritized moves by Whitman: staffing, R&D and customer focus. Let’s talk about each this week.
I can recall the first analyst event presentation made by Whitman on taking office. She was mostly surrounded by people who had been selected by her predecessor and there was an obvious lack of loyalty and coordination between these executives. They had been pitted against each other for so long that they seemed unable to collaborate. Some looked outright hostile to Whitman because they had competed and lost their attempts to take her job. This kind of conflict internally among team members and lack of respect for the new CEO seemed to assure that HP couldn’t execute.
Since then, Whitman has systematically changed both the organizational structure of the company and the people in the top jobs. Now virtually all her staff has been hand selected, with an underlying directive to cooperate. Because they were selected by Whitman and didn’t compete for her job, they are loyal to her as well. No company can be steered by a mob of uncooperative captains; you need a firm chain of command. Whitman’s focus on this has clearly paid dividends.
When Whitman took over, R&D had been gutted and starved in order to create the impression of lowered costs and artificially increased profits. I say artificially because that practice kills a company’s future and will, over time, render the firm uncompetitive. Worse, once done, restoring R&D funding has an adverse impact on costs so that the CEO who does it tends to get penalized for doing the right thing for the company. Yet, if it isn’t done, the firm will eventually die. R&D, at least effective R&D, is key to assuring a firm’s long-term survival. As a result of prior actions, Whitman got a firm that was on death watch.
Whitman significantly increased R&D. Advancements in servers like project Moonshot, and advances in cloud technology (networking, storage, servers, and services) are allowing HP to step back in competitively. HP’s future, as a result, is far more assured. Whitman took a major risk because this move clearly adversely impacted costs but the end result is undeniable. HP is in far better long-term shape than when she took the firm over.
When Whitman took over, the firm was kind of a mess of infighting and had clearly lost focus on the customer; instead, executives focused on each other and massive cost cutting had employees off balance and afraid to move. Whitman was successful at focusing HP back on the customer. One key example is NFV, an initiative focused on telecom that appears to be driving that industry into the cloud future. This renewed customer focus goes to the core of HP’s financial improvements and customer retention has improved sharply as a result.
If you can’t focus on your customers, those customers will seek services elsewhere. Even Oracle was taking share from HP when Whitman took over. That bleeding has largely stopped, and reversed in some places. Now instead of HP lagging the industry in performance, it is out-performing some of its largest competitors. A lot of that success came from being able to refocus on customers.
Wrapping Up: A Very Different HP
When Whitman took HP over, the firm was on death watch largely due to a combination of too many CEOs, too many scandals, too much focus on cost cutting, and too little focus on customers. A few short years later, HP is vastly improved, has increased massively in valuation, and rather than being the target of attack by competitors, is able to target those competitors. That’s solid success. You’ll see some rather interesting moves from HP shortly (we are under NDA on that stuff until it is announced), but I can say with some authority that the HP turnaround is very nearly over and HP is about to accelerate. This is a credit to Whitman and her new team. As we measure turnarounds, this has been a very successful one, but the best is clearly yet to come.