Photo: AP Images
Once a company that could do no wrong, HP has made a series of missteps since 1999 that has left many scratching their heads about the company’s leadership and direction.The latest news that it is laying off 27,000 employees gives further evidence that this once great innovative company is turning into a shipwreck being led by yet another less than ideal captain.
From the beginning to Carly Fiorina the “rock star”
Started in a garage by Messrs. Hewlett and Packard, Hewlett-Packard had a long track-record of success. Then came Carly Fiorina in 1999 – the CEO that did a better job of promoting herself than improving Hewlett-Packard. Carly was positioned as a star from Lucent Technologies, but those that know the story behind Lucent’s subsequent collapse, paint a different picture. HP’s board gave Carly $65 million in restricted stock to supposedly compensate her for the Lucent options she had to give up upon joining HP.
However, soon after Carly left, the value of the Lucent options evaporated because of the huge uncollectable debt Lucent accumulated during her tenure. As a result of the collapse, Lucent was absorbed into Alcatel. HP’s stock price and overall performance declined under her tenure, and her relations with descendants of the founders and others inside the company grew contentious. Many believe that her biggest sin was transforming a company that was an innovative market leader focused on high-growth, high-profit businesses into a company that was a market follower focused on low-growth, low-profit businesses. Carly Fiorina’s severance package at the time was estimated somewhere between $21.4 to $42.4 million.
Some stability under Mark Hurd but a continuation of cost cutting rather than innovation
Mark Hurd replaced Ms. Fiorina in 2005. While at HP, he doubled the stock price and increased net income by high double digits. However, some say he did this by being an efficiency expert while others claim that HP’s other financial metrics trailed the industry on his watch. Also, during his tenure, R&D and innovation was cut drastically since they cost too much. In any case, he resigned (or the Board gave him that as the better option) after he was accused of falsifying expense reports, amounting to $20,000, to cover up a relationship with a female marketing consultant who alleged that he sexually harassed her. This came four years after the board was accused of spying on journalists and board members to find the source of news leaks. Mark Hurd was initially implicated but later cleared. Mark Hurd’s severance package upon his exit was estimated at $40 million.
Insanity under Leo Apotheker a “do what I know” rather than “know what to do” guy
To replace Mark Hurd, the HP board must have totally lost its collective mind. It hired Leo Apotheker, the former CEO of the German enterprise software maker SAP. Too bad they did not properly vet Leo’s background before hiring him. If they did, they would have learned that after only 7 months as CEO, he was linked to a software theft scandal that cost SAP a $1.3 billion in damages and that SAP failed to renew his contract.
Well, Leo lasted only 11 months at HP, and during that time, he almost completely wrecked the company with HP’s stock price declining 49% and former HP director and venture capitalist Tom Perkins quoted in the New York Times as saying “I didn’t know there was such a thing as corporate suicide, but now we know that there is.” Even so, Leo’s severance and take home from this debacle is estimated at $25 million. Where can I sign up for this job?
Meg Whitman lots of uncertainty and huge layoffs
After her defeat in the race for Governor of California, Meg Whitman was looking for her next thing, and HP’s board found her (she was on the board without going through the board’s nomination processes). From the start, many believed she was the wrong choice for CEO. The two biggest complaints were that she has no experience captaining a sinking ship with low morale (after having three different captains in a year) and she does not have the depth of knowledge in technology to return HP to its innovative leadership roots. Her fans refer to her success at eBay, but her detractors point to her leaving eBay as its growth started to ebb. They also bring up the fact that, while Meg ran eBay, the company bought Skype for $4.1 only to sell it at a loss to Microsoft for $2.75 billion. They also claim that eBay’s acquisition of Paypal had great promise but that it failed to innovate and expand that platform to reach its potential during her watch. These examples are reminiscent of HP buying Palm for one billion and totally squandering that investment.
Over the past week, the fears of the naysayers were given further credence as Meg announced layoffs of 27,000 employees. This is not a move that will give HP employees and shareholders the morale boost they sorely need. The stock price has been hovering around $22, which is nearly a 60% drop from two years ago and 38.9% from a year ago. More importantly as Adam Hartung aptly explains in his Forbes post (HP Is Broken, And Meg Whitman’s Not The CEO To Fix It), “HP cannot save its way to prosperity…To successfully turn around, HP must move – FAST – to innovate new solutions and enter new markets.”
Innovation and inventing the future
For the sake of HP employees, stockholders, and the rest of us, let us hope that those running HP now and in the future realise (as most high-tech successful companies have realised) cost-cutting is only a short-term strategy that is designed to stop the bleeding.
For a once great company such as HP, the solution is to innovate and come up with unique benefits that give HP products a leg up on competitors. Investing in the past, such as buying PC businesses that are low margin and low growth are not strategies that will enable HP to realise its enormous potential. Innovation, new product development, and inventing the future are what made HP great and what can make the company great again.
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