HP SAYS GOODBYE TO DRAMA
HP SAYS GOODBYE TO DRAMA
2005-09-03 at 10:58:00 am #12416
HP Says Goodbye to Drama
Five months in, CEO Mark Hurd’s no-nonsense approach is being felt in a big way — and the Street has taken notice
It was April. R. Todd
Bradley was sitting on the beach near his San Diego home when his
mobile phone rang. A friend was calling to urge him to get in touch
with Mark V. Hurd, the newly appointed chief executive of
Hewlett-Packard . The computer and printer giant was looking for
someone to run its $25 billion PC unit. Bradley, fresh off a tough
turnaround at handheld maker Palm , was a reluctant recruit. “I was
ready to lay on the beach for a while — both literally and
figuratively,” he says.
Just weeks later, Bradley signed on. The primary reason for his change
of heart? HP’s new boss. Like Bradley, Hurd is a straight-talking,
number-crunching operations wonk. Hurd seemed intent on ending the high
drama that had distracted many at HP during the tenure of his
predecessor, Carleton S. “Carly” Fiorina. He wanted to bear down on
numbers, spreadsheets, and execution. “Mark seemed like a genuine,
focused guy — far more focused on creating value through operational
performance than just pitching grand visions,” says Bradley.
Five months into his tenure, Hurd’s no-nonsense approach is being felt
within HP in a big way. There have been no major press conferences,
chock-full of klieg lights. No wrenching changes in strategic
direction. In fact, Hurd says he has ruled out, at least for now, the
divestitures of the printer or PC businesses that some analysts have
MAKING DO. Instead of firing up the troops with some grand plan,
he’s focused on calming things down. “We need to temper the idea that
this company has to have some earthshaking event every 15 minutes,”
Hurd says. “I’m not sure how it got that way — and to be very frank, I
really don’t care. Our job is to execute.” (For a Q&A with the HP
CEO, see “The Word from Hurd”.)
In a sense, it’s the most audacious plan possible. Many experts have
come to believe that HP as it is is simply unmanageable. Its product
portfolio is unwieldy — ranging from $25 ink cartridges to
multimillion-dollar computers — and it’s trapped between the more
efficient Dell and the more innovative IBM.
Many on Wall Street argue that HP needs to narrow its focus, through a
major sale or spin-off, to compete more effectively. But not Hurd. He’s
going to try to run the sprawling, unwieldy organization pretty much
the way it is.
NEW BONUS PLAN. The big question now is how. In a series of
interviews, Hurd and his top lieutenants provided the first detailed
look at the game plan for the new HP. In many ways, it’s a lot like the
old, pre-Fiorina HP. Hurd’s most sweeping initiative is to rebuild the
culture of accountability that once made HP one of tech’s most
In a move yet to be made public, he plans to simplify the companywide
bonus system that many found incomprehensible and reward employees
based on the performance of their business units and HP overall.
He’s also tossing out Fiorina’s matrix management structure, which
muddied responsibilities, to give business heads more control of their
units. “The more accountable I can make you, the easier it is for you
to show you’re a great performer,” says Hurd. “The more I use a matrix,
the easier I make it to blame someone else.”
STATEMENT MAKEOVER. The changes don’t stop there. Hurd is
bringing in fresh blood from outside, something Fiorina struggled to
do. Besides Bradley, he has recruited Randall D. Mott, the former chief
information officer at rival Dell, to be his chief information officer.
He moved to trim HP’s costs in July by laying off 14,500 workers, from
a total workforce of 150,000.
And he may have a few surprises in store for HP’s analyst conference,
scheduled for early December in New York. One of them may be a change
in how the company reports its PC results. Bradley is mulling whether
HP should revamp its statements to make them more comparable to Dell’s,
since he contends that would show it is more competitive with Dell than
most investors think. “We have to stop letting people believe [Dell] is
the low-cost provider, because the reality is that we’re
extraordinarily competitive [with them],” says Bradley.
No doubt, Hurd’s toughest calls are ahead of him. He still faces a
monumental task. HP’s corporate-computing business looks incapable of
competing against IBM and Dell, and margins are slipping in the printer
industry — the source of 85% of HP’s profits.
ALL BUSINESS. But Hurd is benefiting from improved performance
that began late in Fiorina’s tenure. On Aug. 16, the company reported
quarterly results that were much stronger than Wall Street expected.
Its stock rose 13% the next day, to close at $26.82. Analyst Richard
Farmer of Merrill Lynch & Co thinks Hurd and his team are making
progress, but he cautions: “In the long run, they’ve got strategic
challenges and a need to better differentiate themselves.”
One of the interviews with Hurd took place in the boardroom across from
his cubicle, at headquarters in Palo Alto. He bounded into the room a
minute or two late. At 48, he looks a bit like a younger version of
Louis V. Gerstner Jr., the former CEO of IBM.
He’s a sharp contrast to his predecessor, though. While Fiorina was
smooth, polished, and expansive on virtually any topic, Hurd is not.
Questions about him or HP’s past tend to prompt sighs or smirks. He’s
plenty confident, but he seems puzzled by the idea of a celebrity CEO.
More than anything, he projects the air of someone who just wants to
get back to work.
ANALYTIC EDGE. What animates him is talking about the facts and
figures of HP. He rattles off numbers from all corners of its
businesses, having seemingly memorized nearly every spreadsheet the
company produces. One of his first moves after arriving at HP was to
work with his team to set the financial targets they think the company
should hit by 2008.
From there, he and his lieutenants worked backwards and laid out the
metrics for each segment of the company. Those calculations helped them
arrive at the 14,500 layoff figure and determine that HP can sustain
the $3.5 billion-a-year R&D budget they want. With a specific goal
three years out, “you can start thinking about the future with a little
less emotion and a little more analytics,” he says.
He uses the same sort of rigorous analysis for personnel decisions.
When the company decided it needed a chief marketing officer, Hurd
created a “skills map,” a list of the skills the ideal candidate would
have. He then evaluated all the candidates based on that list. That led
to the promotion of Cathy Lyons, a 26-year company veteran.
OD EXAMPLES. While she hadn’t had a marketing position in 11
years, Lyons had a reputation for speaking her mind and for making her
numbers as head of various units within the printer division. Hurd
hopes her promotion sends a loud message.
“When someone gets a job, it better be clear what they did to get it,”
he says. “If the organization thinks it’s because they gave good
PowerPoint presentations or because they were nice to Hurd when he
showed up, you’ve got a problem. But if it’s because she built a strong
team and delivered strong operating results, the next person may think,
‘Well, that’s what I ought to do.’”
That’s just one way delivering results is being emphasized. Under
Fiorina, sales staff were centralized into one group, separate from
business units. That hampered fast decision-making — in some cases,
because unit chiefs had to lobby for resources from the sales
organization, and it obscured who was responsible for performance.
SMALL SURPRISES. As of Nov. 1, however, HP’s 10,000 salespeople
will all be reassigned back to one of the business units. As a result,
the bosses of HP’s business units will control roughly 70% of the costs
associated with their operations, up from about 30% under Fiorina.
To further motivate HP employees, Hurd is also planning to revamp
compensation systems. Fiorina installed a complex bonus plan that left
many staffers more confused than motivated. Payouts were calculated
from a blizzard of statistics, including some, such as HP’s performance
relative to the Standard & Poor’s 500-stock index, that were
largely beyond employees’ control. The new approach will probably tie
bonuses directly to the performance of the employee’s business unit and
to HP overall.
If there are no blockbuster changes coming, Hurd & Co. are planning
a plenty of smaller surprises. For instance, Mott, a bona fide
superstar who helped turn Wal-Mart Stores into a merchandising
powerhouse before going to Dell, has big plans for HP’s
information-systems effort. He thinks there’s a golden opportunity for
HP to cut costs, since it hasn’t upgraded its tech systems in years as
it focused on integrating its systems with Compaq’s.
RETAILER REPAIRS. More important, Mott plans to build
sophisticated data-mining capabilities, similar to those at Dell. That
will let Hurd see the critical data from around the company almost
instantaneously. “He and I have always talked about what was possible
if you could make decisions based on facts, rather than guesses,” says
That pragmatism is making itself felt in many other ways as well. Take
distribution. During her first few years, Fiorina pushed hard to sell
products direct, just like Dell. That frayed relations with retailers
and other resellers that move about 60% of HP’s products.
Now, Hurd is working fast to repair those partnerships and take a more
refined approach. While the company will still sell directly to large
corporations and some consumers, it wants to build stronger
relationships with the resellers that work with small and midsize
GREAT EXPECTATIONS. The goal: to reward resellers that offer more
profitable bundles of HP products, rather than just stand-alone
products. “Mark is totally evidence-based,” says Steven A. Raymund, CEO
of industry giant Tech Data . “It’s clear he wants to do more
for us, if we do more for him.”
Add it all up, and HP’s new management team is off to an impressive
start in reviving the once-great company. Which has created a
long-forgotten problem for HP: It suddenly faces some pretty high
expectations. The company’s stock has risen about 35%, to $27, since
Hurd was tapped as chief executive.
But Hurd isn’t about to get distracted from the massive task at hand.
With his spreadsheets and his targets for 2008, he’s eager to roll up
his sleeves and put an end to the drama of the past few years.
“Bill [Hewlett] and Dave [Packard] were that way,” recalls Dennis Cain,
a 32-year HP veteran who recently left the company to join contract
manufacturer Solectron . “Don’t talk about what you’re going to
do. Just do it, and then let other people talk about it.”