HPE released financials this week and HP released its numbers earlier in the month. HPE did show some revenue growth in storage and networking, but the rest of the firm and profitability was mostly hurting. HP, in contrast, appeared far stronger and far more consistent, which is odd given that when the firms split, HPE got what was thought to be the valuable properties while HP got the declining industries and most of the debt. In short, back when HP split, the smart money would have been on HPE to be successful, not HP, and the smart money would have been wrong, very wrong.
So why is HP doing so much better than HPE given that the opposite should be true? I think it comes down to four things: stability/loyalty/competence in the executive staff, simplicity in operations, survival, and three misperceptions.
Let’s take each in turn.
One of the ways to differentiate successful CEOs from unsuccessful ones is a combination of skills. While there are always exceptions, successful CEOs tend to have a background in the firms they run and the industries they run in. They therefore know best who to hire and how best to measure them. Because they are competent and knowledgeable, they tend to have the confidence of their staff. I should add, on top of being personally competent, they tend to know how to most effectively motivate and nurture the executives that report to them. They share credit, they don’t just take it.
If we contrast the two CEOs, HPE’s has had a revolving door of executives while HP has been comparatively stable. HPE’s CEO came from eBay by way of running for political office. HP’s is an industry expert. Most telling for me was that when it came to a split, the two non-aligned executives (not tied to product areas) who got a choice, the CFO and the head of human resources, chose HP, not HPE.
Because HP was given two declining markets and most of the debt, its comparative success is offset by the fact that the deck was stacked against it. But, generally, a firm’s performance is dictated by the stability, loyalty, and competence of those running it.
Simplicity of Operations
HP has two basic businesses that drive the bottom line: PCs and Printing. HPE has servers, networking, software (including SAS), professional services and storage. In addition, organizationally, HP remains a relative constant, while HPE is attempting to come up with new acquisitions and creatively divest itself of properties without divesting them. As a result, HP is relatively simple to manage, granted with markets that were thought to be in decline, but given the relative lack of churn and the sustained competence of staff, HP is the simpler of the two to manage.
This doesn’t mean HP is easy but if you take more competent managers and give them an easier task, there should be no surprise that they can execute better than peers who are less competent/stable and given far more complex problems. Focus is a keystone to success and this combination of competence and organizational simplicity should, and does, result in better operational execution.
I don’t think there was much doubt HPE was going to make it. Even with disappointing financials, HPE is a long way from going under. HP, on the other hand, was birthed into crisis. Massive debt and both markets in sharp decline is a going out of business scenario. It reminds me a bit of the Kobayashi Maru scenario out of Star Trek. This was an exercise given to fictional Starfleet cadets to see how they did in no-win scenarios. The result was that from day one, HP was fighting for survival and HPE wasn’t.
Frederick Herzberg taught that if you put people at risk but gave them the tools and support to mitigate that risk, you could get extraordinary performance out of them. It can be used to explain heroes, folks who do extraordinary things when faced with impossible odds. HP’s people were put at exceptional risk, but they were given the tools to mitigate that risk and they executed to heroic levels. HPE was mostly defined by internal conflicts, politics, and staffing changes, conversely working against success.
HP’s problems forged HP’s leadership into a team. HPE’s problems were largely self-created, resulting more often in blame and an inability to execute.
Three misconceptions partially defined the relative success and failure of HP and HPE. First was that the PC market was in terminal decline. This belief was founded in the initial success of the iPad, which turned out to be unsustainable but effectively reduced segment demand generation to the point where it almost became self-fulfilling. The second, and related, was that printing would give way to digital content in a never-ending decline, but the iPad stall made that unlikely and HP was able to use this to increase market share and the consumption of printing supplies has actually increased. This means that the declining market assumptions surrounding the creation of HP were false.
The third big misconception was that the Dell/EMC merger would fail, providing a significant opportunity. Given HP’s lack of success with mergers, it isn’t unusual for a firm to project its weakness onto a competitor, but Dell uses a strategy that it has uniquely developed and husbanded not to fail, and its acquisitions have been opposites and successful, in sharp contrast to much of the rest of the industry. Thus, the Dell/EMC merger, which HPE was depending on to fail, did not and instead of resulting in opportunities, the result was a more powerful and focused competitor going after HPE’s accounts. Given professional services is a recurring revenue source and declining for HPE around 23 percent right now, it would at least appear that HPE, rather than HP, is taking a big hit, rather than gain, from the successful Dell/EMC merger.
Wrapping Up: Analyzing the Winners and Losers
This all suggests that in a successful company, you need competence, loyalty, and stability at the top; simplified operations so that these executives can more easily execute; something like the need to survive keeping everyone focused; and, that misconceptions work for, not against, you. In short, you can make errors but only if they make you work harder, not if they make you feel you have already won when the battle hasn’t even engaged yet.
At the start, HP could only lose and HPE only win. But the deck was actually stacked against HPE, and for HP, which is why the opposite is occurring. This would likely make for an interesting doctoral thesis, but it contains lessons for every company.
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+