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 user 2005-09-03 at 11:02:00 am Views: 40
  • #12670

    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
    called for.

    .  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.

      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
    consistent performers.

    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.”

      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.

    .  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.

    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.

      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.

      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

      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.”