Is Meg Whitman The Right CEO To Rebuild HP?

Hewlett-Packard’s new CEO, Meg Whitman, has had exactly five months to survey the damage her venerable 73-year-old IT company has sustained in the last 10 years.

And damage has been done to the brand. One wonders how now-deceased co-founders David Packard and Bill Hewlett would appraise the company today as compared to the “HP Way” days of yesteryear. It’s likely they would look at the number of key missteps (expensive and questionable acquisitions such as Compaq and Palm, flops with tablets and smartphones, and frequent leadership changes, for starters) taken since about 2001 and simply shake their heads.

What went wrong?

Here are a few of the things Whitman has discovered since she replaced the overwhelmed Leo Apotheker on 22 September last year.

HP is still the largest IT products and services company in the world by sales volume (about £726 million per year), but it may already have reached peaks in sales and industry gravitas.

The company is still recuperating from drastic cost-cutting measures, mainly in research and development, by previous administrations. Most of them took place during the term of Mark Hurd (2005-2010), now co-president of Oracle.

HP’s market value of $53.7 billion (£34m) is about half what it was at the beginning of 2011. On 23 February, 2011, the stock was selling for $43.59 (£27.50), but it closed 23 February 2012, at $27.05 (£17.07).

Ironically, while its sales and marketing people are out selling cloud infrastructure products and services, converged data centre hardware and software, and virtualised systems of all kinds, HP itself still runs in old IT silos that are slowing up its supply chain and fulfilment functions.

There are more issues than this, certainly, but these are the ones in capital letters at the top of Whitman’s to-fix list.

So where exactly did these disconnects start, and how do they get rectified before too many competitors gain revenue and market share ground on HP?  Above all, those two questions might be the ones that keep Whitman up at night.

The answers are: a) during the last decade, and b) with a lot of work and luck.

Whitman a Short-Timer

Whitman, who along with a newly reconstructed board of directors, must be the agents of change. However, she has only been with HP as a board member and CEO for 13 months. Talk about a hurry-up on-boarding project.

“This is not going to be an overnight fix,” Whitman said on the company’s quarterly earnings call on 22 February, one that had to be one of the most difficult any HP CEO has had to handle. “Some companies have setbacks that take five or seven years to recover from. Hopefully, we won’t take that long, but this is still going to be a long-term project. What HP needs is a steady hand on the tiller.”

Specifically, Whitman cited late 2013 or early the following year for the company’s financials to stabilize, and that might even be a little optimistic.

HP suffered a negative earnings trifecta in the first quarter of 2012. It reported that its revenue of $30 billion (£18.9m) was down seven percent from the same period in 2011. Net earnings of $1.6 billion (£1bn) were down 44 percent from $2.5 billion (£1.6bn) a year ago, and its average sales margin dropped from 12.4 percent to 8.6 percent in a year’s time. Those are huge one-year drops in this, or any other, economy.

The good news is, of course, that there is no hint of red ink overall at HP. But when trends start, sometimes it’s difficult to shake them, and company leadership is well aware of that.

Whitman told listeners on the conference call that the company is unable to turn orders into products quickly enough, and that HP has “far too many SKUs [stock-keeping units]; we need to pare this down and simplify what we’re doing.” She said the company has plenty of parts in its inventory, but they are not necessarily the right parts to fill the orders. The pile of non-relevant parts also creates confusion among sales and technical support staff, she said.

During the next couple of years, Whitman said, the company needs to invest more capital into businesses such as security services, information management and cloud infrastructure systems.

Company Has ‘Under-Invested’ in Itself

“We didn’t make the investments we should have during the past few years to stay ahead of customer expectations and market trends. As a result, we see eroding revenue and profits today,” Whitman said. Although certain parts of the company continue to do well in their markets (3PAR storage, the printing division, software and services), HP overall needs a general refresher.  Its executive leadership is already in that process, but now internal systems, long-range planning and R&D need upgrades, too.

“We were not as effective as we needed to be in matching supply with demand,” Whitman said. “When you look at the whole picture, from design to delivery, there are a lot of opportunities for us to improve.”

For example, Whitman said, HP “has under-invested in the upgrading of systems for the past few years. For years, we’ve run our businesses in silos, which adds complexity and causes things to run slower. We need to streamline our systems with new software and hardware and to standardize, optimise and automate wherever possible.”

Finally, investors, partners, analysts, journalists—in other words, everybody—is wondering if Whitman is indeed the one who can lead HP back into the Promised Land of higher profits and improved industry credibility. She certainly has enough people pulling for her. While Whitman is a veteran of consumer IT (mainly eBay) and thickened her skin by running (unsuccessfully) for governor of California in 2010, she doesn’t have a lot of experience in the B2B enterprise IT world. Time will tell how she performs, of course, and for some people, that time can’t move quickly enough.

Meanwhile, here at eWEEK, we’ll be watching closely and examining all the facets of this long-respected company as it tries to work its way out of the doldrums.