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The Lesson Tech Boards Are Not Learning from HP’s Latest Financials
 

The Lesson Tech Boards Are Not Learning from HP’s Latest Financials

Monday Mar 5th 2018 by Rob Enderle

Success at HP is about understanding the basics and best practices. Many firms fail because their boards just do not seem to understand any of these concepts.

HP just had another stunningly successful quarter, with net earnings up a whopping 217 percent, in what is becoming a new success trend. Before this, there was some significant doubt the company would survive (scandal seemed to be the firm’s silent middle name). The irony is that much of the problem came from poorly thought through efforts by HP’s past boards to save the firm. To say that HP has had a tough time would be an understatement.

Back in the late 1990s, the firm’s board decided that HP wasn’t aggressive enough and hired Carly Fiorina as CEO to shake the company up. Shake it up she did and after a number of scandals, missed financial goals, a war with the families of the founders, and a near abandonment of her job to help a presidential election, she was fired. Next, with CEO Mark Hurd, HP had yet another scandal and another CEO was booted from the firm. The following CEO was in and out so fast it is doubtful they ever changed the lettering on the CEO’s door, and finally the firm ended up with Meg Whitman who, after promising to keep the company together, broke it up. She stacked the deck so the part of the firm she got, HPE, had every advantage and so that the other part, HP, had little chance of success, being built around two then failing markets in printers and PCs.

But something magical happened. HP stepped up and got tons better, while HPE continued to struggle badly. Interestingly, Whitman left HPE and coincidentally, HPE just had a very strong quarter as well. There are huge lessons here that I don’t think boards get. I’d like to cover them because so much of HP’s past pain was avoidable.

I think this is important for tech buyers because buying from companies in distress, or shortly to be in distress, puts the related technology and services at risk, and by proxy, the purchasing firm is at risk as well. In the end, healthy companies are far more likely to be able to execute than unhealthy ones.

Let’s talk about what we should take away from this exercise.

A Company Is a Team and There Is No ‘I’ in Team

Much of HP’s problems historically were the result of hiring CEOs who weren’t team players. This isn’t an uncommon problem. Often, people who rise to the top do so by being great self-promoters who take credit successfully for the success of their departments and divisions. The reality is that those departments and divisions are made up of more than one person and, often, the real credit for the success belongs to some unsung hero who isn’t great at self-promotion or who has misplaced loyalty in a leader who isn’t in turn loyal to them.

So, you take that executive who has taken credit and seems to discount the work of the folks who actually executed and then put them in as leader of a new team. That new team has no loyalty to that leader, resents the leader taking credit for their work, and the cohesive team you need never forms. You just have animosity between the major players, the smart people leave the company, and the CEO is left largely standing alone with responsibilities that vastly exceed the capabilities of any individual. And things go sideways.

CEOs Are Not Owners or Gods

Another issue that flows around HP’s old failures and is also not unusual is that the CEOs felt they could do what they wanted. This is a misperception that seems to occur early on in a career due to a lack of understanding for the actual powers of a CEO but never gets corrected as they advance. What I mean is that it is common that a young new employee, particularly one who starts very low in a company, believes that the CEO has almost god-like capability, allowing them to wave their virtual wand and fix any problem. This translates into a belief that CEOs can make tons of money and do anything they want. This likely goes to the heart of why we have so much abuse being reported at the moment (everyone should read Brotopia: Breaking Up the Boys’ Club of Silicon Valley to get a sense of how seriously twisted some of the top tech leaders are). Sexual harassment at scale, massive abuse, and behavior that should result in the termination of any employee, let alone someone who is the face of the firm, according to the book, is frighteningly common.

So many of HP’s past CEOs just seemed to believe that as CEO they had ultimate power, that rules didn’t apply to them, and that contributed strongly to their failure. HP is hardly alone. The tech industry is awash with stories of CEOs who bought new private jets, took huge salary increases, and pumped their benefits as they were massively cutting costs and laying off thousands of workers. Fiorina, who started this bad trend at HP, bought a new et fleet, drove around in a Maybach, and even replaced pictures of the HP founders while she was laying off huge numbers of HP employees. This bit her in the butt pretty hard (you’ll note the source of the link is one of her own people) when she tried, and failed, in her run for Congress in California and later the U.S. presidency. This behavior, which isn’t at all uncommon, not only kept her from getting the loyalty she critically needed, it created a level of animosity between the rank and file and the HP executive office that I’ve rarely seen in any company.

No Knowledge of the Industry the Firm Is In

In the area of knowledge, Hurd was the exception on the list of failed HP CEOs, as he came from NEC and he did know the industry HP was in. He also outperformed the other CEOs and wasn’t removed for a failure to perform, but because of what appeared to be an abuse of power against a subordinate. What seemed really strange at the time was that rather than replacing Hurd with someone with a similar skill set but better behavior, HP went to a series of CEOs who increasingly had no background In HP’s part of the business. Leo Apotheker, Hurd’s immediate replacement, was a failed software CEO, and Whitman was out of eBay, even more different, and had recently failed in politics.

It was as if the HP board at that time had no idea of HP’s history and decided that the road forward was to double down on the mistake they made with Fiorina (she even had a Russian scandal). And HP’s struggles got worse rather than better.

The New HP

I believe the reason the new HP is running so well is that these mistakes have finally been addressed. HP is a team again, and the executive staff clearly seems to like and enjoy working together. Presentations aren’t on how great Dion Weisler, the current CEO, is but on how great the team is performing. Shared credit rather than the CEO seizing credit. Weisler has showcased the best practice, which is common in other strong CEOs like Michael Dell, Satya Nadella and Bill Gates. He recognized that his success is tied to the company and praising his people, over taking credit, benefits both immeasurably. There is no subtext surrounding Weisler’s wealth and he is focused on building the company, not excessively focused on his own compensation (little hint, many CEOs don’t seem to get that it isn’t the salary that is important anyway, it is the equity. They generally make more from equity and pay less in taxes). And, of course, Weisler has years of relevant industry experience from similar firms like Lenovo and Acer.

The executive team is balanced and experienced in the areas within their spans of control. Cathie Lesjak, HP’s CFO, is arguably one of the best in the industry and likely the reason there is even an HP. I believe she was the only thing keeping a series of bad CEOs from sinking the firm. Enrique Lores is passionate about printing and one of the industry’s leading experts and instrumental in the successful effort to turn HP Printing from a liability back into a huge asset. Stephen Nigro, another printing expert, has been instrumental in making HP the leader in 3D printing at industrial scale.

Shane Wall is likely the strongest and most experienced CTO currently in segment, rivaling some of the best in the industry. Tracy Keogh is arguably the only HR manager who deserves star status, going beyond the typical compliance/enablement behavior of many of her peers into actually turning HR back into the huge asset it once was. Ron Coughlin has taken the flagging HP PC division and turned it back into a market leader aggressively using design to stand out in the segment and, like printing, changing the unit from a declining liability back into a growing asset. Antonio Lucio is interesting because his background isn’t in tech but in banking and consumer goods, but IBM’s turnaround was largely because Louis Gerstner built a team with similar leadership. Outside of Steve Jobs at Apple, tech tends to be light in marketing skills, and hiring Lucio was a best practice.

Wrapping Up:

Like any job, the position of CEO has skill requirements that, if ignored, will result in failure. HP is a showcase of what can happen when boards don’t learn and adhere to those requirements and the amazing things that can happen when they do. HP is now a standing representation of how to rebuild a company. You start with a CEO who is an industry expert, a strong leader, knows how to build and lead a team, and doesn’t show an inability to deal properly with power or new-found wealth. You assure they build a strong viable team of the best leaders they can find, with a particular focus on product leadership, marketing, research, HR and finance, to assure no unpleasant surprises crop up and to also assure the quality of your people.

In the end, HP’s success is about understanding the basics and best practices and it continues to amaze me how many firms fail because their boards just don’t seem to understand any of these concepts. The easy answer: Just do what HP’s board did.

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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