Thursday, September 08, 2011

HP split is nothing like IBM's

Senior management at HP are probably wondering what is the noise surrounding about HP saying that they are interested in selling off / reviewing their PC division. It's not like something on this scale wasn't done before. Didn't IBM do it and walked away stronger than before?
I think they need a reality check.
When IBM sold off it's PC division, there wasn't as much noise although it was a major event. But they did it after an extremely long process. Analysts were telling IBM to sell it's PC division since the mid-90s, possibly even earlier. We all now know from the stock market crash, how valuable advice from analysts are. IBM in the past recognized the value of the IBM PC brand and the need to keep that front and center. In front of executives and right in the center of the table. That money losing brand was the 'public face' of the large servers and networks in the data center, where few are allowed to go. The large and profitable server and networks business and services. This was a time when computers were becoming even more prevalent in business in general, beyond the previous domain of enterprises. Having the brand on the desktop was still important. It says something about your business when you can afford to be using IBM desktop PCs instead of other brands. So it balances out in the end. Lou Gerstner, IBM's CEO at the time saw it's value but realized the inevitable. He put in place the process to split the PC division before he left and it was completed only a few years afterwards.
What made IBM successful is that although they are a large corporation, they understood the process of making sales. The tech guys would come up with great products, the sales people would shake hands and push the products out to the customer, the senior executive would bring the CEO of the customer out for golf. That basic concept of focusing on getting Job Number 1 hasn't changed even though the products and technology has. In the end, this commitment to the customer is now the main IBM brand, not the PC.
And what tech! Those original IBM PCs were built tough like tanks. I have had IBM keyboards that last longer than the PC it came with. When it came time for them to sell to Lenovo, IBM made sure Lenovo continued carrying on that tradition. I still have old-timers call their Lenovo laptops, IBM laptops (talk about brand loyalty). I don't blame them. The hardware are still built tough. I don't see that kind of brand loyalty with HP. [Full disclosure: I just realized my 4 year-old PC under the table is a Lenovo. Great service: I've had two motherboards and a hard disk replaced on-site with no questions asked]
HP is not chopped liver but my experience with them are still a mixed bag. They make good hardware but the term "good service" doesn't automatically come to mind. It is spotty at best, with some products better supported than others. A tell tale sign? After HP Networking bought 3Com, you have to have a support contract to get access to previously free software or firmware, often the same software that came free on a CD with equipment (which usually is lost within the first few days). Contrast that to the experience accessing HP printer drivers, where software, often updated drivers are free even after the warranty of the product runs out. And guess which one I had to pay more for?
Splitting up is also not alien to HP. HP used to be even more spread out in terms of technology. It used to have business units doing medical imaging, telecommunication networking, semi-conductors and scientific test equipment. These were spun-off into Agilent Technologies so that HP could focus on servers, storage and computing. Looking at Agilent's history could give a clue as to how HP might look like down the road. Agilent began life as an 8 billion dollar company in 1999. 10 years later, it is worth slightly less. In that time, it has sold off it's medical equipment, semiconductor and network test equipment divisions, focusing on the scientific equipment market. It seems to have a policy on increasingly narrowing it's focus in pursuit of sustainability and profits. Will the to-be-split HP Personal Computing unit become like this? First splitting then shedding it's low-profit computer divisions until all that is remaining is the printer unit? Is this the first step on that road?
Motorola also split into two to allow each company to focus on it's own market. Each are doing well enough. Motorola Mobility is being purchased by Google (for a much more complex reason than purely financial). I am going to take a leap here and say that the Motorola split and the HP-Agilent split was about technology and focus on markets. It is about a company that has too many of them to manage and decided it would be better off to split itself up to focus their resources on their specific markets. This proposed HP split is more about what the direction of the CEO is, not about technology. HP PC division wasn't losing money, just not making enough profit. The litmus test is whether they sell off the printer division. If the split was about technology, it would also sell off the profitable printer division which is in the consumer half of the consumer-enterprise split. They may have to include it as part of the PC division to make it attractive. But why would you sell the goose that is laying the golden eggs? Customers, myself included, will see this as HP turning it's back on us.
HP is not a stranger to bad decisions. Come on, this is the company that turned down the Woz's Apple 1. But the way that the announcements were made about the fate of the WebOS tablets and the possibility of selling off the PC division is very suspect. You can look at it one of two ways. Either HP was trying to appease the markets by ditching a low performing unit whose operating profit was 5.7% (and a mere 38 billion in revenue) or it has been working on it some time ago as part of a broader plan to make over the company into something that the CEO better understands. HP's current CEO is from the financial and enterprise world, previously in SAP. The consumer market is probably something he just doesn't want to deal with.
Like in my previous post, it really makes me feel old when I see things like this happen again.
I've seen this behavior in CEOs before. A large telco appointed a new CEO from outside the company. He was basically an finance guy and probably viewed the world through those glasses. The telco was not losing money, wasn't making a small profit, just not making as much when compared to other companies of the same size. So he went into tinker mode and things became worse. He understood the financial goals to be reached and how to reach them but chose very poorly the mechanisms to achieve them. He chose an act typically done by companies in utter dire circumstances, a measure of last resort. The public relations disaster that followed didn't undermine the corporate customers but put doubt in the minds of consumers. This also lowered morale of the employees. This probably reinforced his view that things were wrong in the company. And he made more fixes that didn't seem to make things any better than they already were. Everywhere he turned, he saw a problem that needed fixing. And as finance people always do, the first thing to do is to tighten the purse strings. Which actually further lowered confidence in the company. The assumption was if there was smoke, the fire should come next. But it didn't. The company continued to make a good but not stellar profit. In an attempt to probably appease the stock market, he ended up bring the share price lower. His basic mistake: failure to understand what the company is about, what is it's business.
CEOs must learn to understand the business of the company they are trying to manage. Context-free management is the Expert Systems of this generation.  If you want to take the HP-IBM comparison further, take Lou Gerstner's approach at IBM when he came in. He spent months going around the country to the various business units to learn more about the company before he made large changes. He set free technologies in labs by commercializing them and not keeping them exclusive to IBM, the best example being the TrackPoint. Compare that to Leo Apotheker's approach since he became CEO. It is barely a year and major changes are taking place. With the review of the PC division and the purchase of Autonomy Corp., it is clear he wants to build another SAP. Probably because that business is something he has experience in and understands. But is it the business of the company he is leading? Is IBM selling charge cards or food products (Gerstner led American Express and RJR Nabisco before IBM)?
If that is Leo's aspiration, good luck HP. Dream all the IBM dreams you want.
(Epilogue- that telco CEO finally left for a CEO position at a bank and the bank flourished and grew to become a major player. The telco lured a CEO from another smaller telco and it flourished, too.)

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