HP’s ULTIMATE TEAM PLAYER

[Anonymous]

HP’s Ultimate Team Player
Ann Livermore has helped revive Hewlett-Packard. Her next task will be much tougher
One
July evening in Silicon Valley, Hewlett-Packard Co.executive Ann
Livermore got the phone call she had waited months to receive. She
rushed to the hospital, having learned that a kidney had been donated,
and underwent an organ transplant, necessary due to complications from
a childhood disease. For most executives, it would have been an
opportune time to call it quits after a 24-year career. But three days
after the surgery, she was phoning HP Chief Executive Mark V. Hurd and
peppering lieutenants with questions. “I finally asked if someone would
please go in there and take her laptop away,” laughs Hurd.
Why
didn’t Livermore step down? Opportunity. While the $33 billion
corporate-computing business she runs has long been one of the most
glaring underachievers in tech, she’s convinced the business is finally
ready to show what it can do. Livermore and HP have spent 18 months
overhauling the unit, and the benefits are only now becoming visible.
“From the moment I left, I never thought of not coming back,” says
Livermore, who was out for 51/2 weeks. “We have a very special
opportunity right now.”
It’s a dramatic reversal. A year ago her
Technology Solutions Group, which sells servers, storage, and
consulting services to corporations, was valued at next to nothing by
Wall Street analysts. Mercilessly squeezed by IBM () and Dell Inc. (),
the unit struggled to show profits or promise. Indeed, while HP’s
printer business brought in nearly all of the company’s earnings,
Livermore’s unit became a millstone around the neck of former CEO
Carleton S. Fiorina, contributing to her ouster a year ago.
Yet
Livermore’s unit is now a key reason HP’s stock is on a tear and the
newly arrived Hurd is being hailed as a turnaround maestro. Thanks
mostly to cost-cutting and operational improvements, the businesses
turned in a 50% increase in operating earnings in fiscal 2005, to $1.9
billion, on revenues of $33.2 billion. Overall, HP earned $4.2 billion
for the year, on revenues of $86.7 billion.
Now, rather than
bemoaning how bad the corporate business is, analysts are trying to
figure out how good it can be. What was once rated an F has become a C
business. Can Livermore bring the grade up to a B or even an A? It’s an
open question, though there’s little doubt the next phase will be
harder than the last. “They’re certainly doing better,” says Richard E.
Belluzzo, a longtime HP exec who now heads the storage company Quantum
Corp. “They’ve done some good work, particularly on the cost side. But
the strategic challenges are pretty much the same.”
Harsh perhaps,
but true. While HP wants its corporate unit to be a leaner, meaner
alternative to IBM, it remains far behind Big Blue in several key
areas, including high-end computing, software, and services such as
consulting and outsourcing. In software, for example, HP’s revenues are
about $1 billion, compared with IBM’s $16 billion. And other rivals
expect HP to grow complacent, given its recent improvements. “I’m happy
they’re feeling happy about their success, because it means they’ll get
apathetic — and we’ll clean their clocks,” says Daniel J. Warmenhoven,
another former HP executive who now runs storage highflier Network
Appliance Inc.
Yet HP is better positioned than in the past. For
starters, Hurd has brought the company’s costs in line by laying off
about 15,000 employees, or 10% of its workforce. It also has a stronger
product lineup, particularly in storage and software, where HP has made
nine acquisitions in 18 months. Just as important, Hurd and Livermore
are beginning to articulate a strategy for corporate customers that’s
truly distinct from IBM’s, not just a similar approach with a different
name.
The difference? While IBM leads with its consulting services
and its ability to help the top brass devise corporate strategy, HP is
focused on helping companies get a handle on the soaring costs of
maintaining and powering their tech gear. The goal is to use software
and other automation technologies to reduce the number of tech staffers
by 90%, at the same time they slash the amount of energy tech equipment
uses. Livermore’s ideal is a “lights-out” data center, with almost no
human involvement. While IBM goes after chief executives, HP is
tailoring its message for chief information officers, the people who
oversee corporate technology. “We’re focused on addressing CIOs biggest
pain point,” says Livermore. “Customers are complaining that all their
money goes into labor and operating costs. We can be the company to
help them automate and manage this, to drive costs out.”
In many
ways, Livermore is a perfect metaphor for HP. The 46-year-old is
competent, respected, but not really feared by rivals. A standout
tennis player and valedictorian of her high school in Greensboro, N.C.,
she earned a coveted Morehouse Scholarship to the University of North
Carolina at Chapel Hill. She went straight to business school at
Stanford University. There, she won the annual competition for best
business plan for running the doughnut concession. Her secret? She
solicited companies that were coming to interview students to buy her
sweets by the dozen.
When she joined HP, straight out of Stanford,
she never expected to make a career of it. She had watched her father
stay at the same insurance company for years and vowed not to get
bogged down. But she fell in love with HP’s unique culture. Especially
appealing was HP’s willingness to accommodate working mothers, through
flexible working hours and other arrangements. Livermore could dote on
her daughter, even as she roared through the ranks. By 1996 she was
running the services arm. In 1999, she made a very public run at the
CEO job — even hiring an internal press relations person to raise her
profile. She lost out to Fiorina and then became a staunch ally.
INAUSPICIOUS START
For
all her success, Livermore still has something to prove. Wall Streeters
are wary of her ability to deliver consistent financial results. Even
some HP insiders ascribe her rise to a selfless willingness to follow
orders. They’re quick to point out that she’s a solid general manager
and universally well-liked but question whether she can rally the
troops to challenge a fierce foe like IBM. “She’s extremely competent,”
says one insider, “but I don’t see her as a key leader for the
long-term.” Completing the turnaround in the corporate business could
help Livermore win over the naysayers. She may even get another shot at
the chief executive job, although Hurd, at 49, likely will hold the
post for a good number of years.
Livermore had an inauspicious start
in her current job. She took over the corporate computing business in
early 2004. Just three months later, in August, it reported a
disastrous quarter, causing HP to miss its earnings estimates by 33%
and pushing the company’s stock down 15%.
Out of that crisis,
Livermore has helped forge a comeback. Within days, she instructed HP
veteran Scott Stallard to set up a war room to begin addressing the
unit’s many operational problems. Over the months that followed, she
worked closely with a seven-person team to identify and improve 15 key
weaknesses — everything from how HP worked with distributors to how it
pulled together bids for customers. One accomplishment: HP established
an Integrated Bid Desk that reduced the time it took to generate prices
for complex corporate deals from two weeks to one day.
The improvements couldn’t save Fiorina, though. She was pushed out in early February of last year.
As
the company searched for a new chief, Livermore headed out to talk with
customers. In March she visited four large Wall Street firms and was
struck by the problems these big tech buyers were suffering from.
“Every one of the CIOs was complaining that while their spending on
tech equipment was declining, their spending on operations — mostly
labor — was increasing an average of 10% per year. They were pleading
for ways to automate more,” says Livermore. “They all believed HP was a
company that could help them.”
From New York, Livermore traveled to
Phoenix, where 80 of HP’s top researchers had gathered for an annual
technology confab. At the gathering, which is structured like a trade
show with demonstration booths, Livermore saw a series of technologies
that could help the CIOs she had just met on Wall Street. She pow-wowed
with Shane Robison, HP’s chief technologist, and his staff. Together,
they hatched a plan centered on creating the “next-generation data
center.”
Hurd came on board later that month, on Mar. 29. In their
first meetings, Livermore urged him to slash HP’s cost structure, to
boost profits and clean out bureaucracy. She also encouraged Hurd to
improve HP’s sales effort by investing in software tools to help
salesmen analyze deals more quickly, and by promoting sales vets to run
more of HP’s businesses.
In all of these cases, she got her wish. In
July, Hurd laid off thousands and gave Livermore and her fellow
division chiefs more control over their respective sales and marketing
efforts. Soon after, she accelerated plans to hire more storage and
server salespeople and implemented a new compensation plan to boost
sales of software, including the next-generation data center
technologies. The once-insular HP is also hiring and promoting
outsiders to fill key posts. Among others, Steve Smith, a hard-driving
former Electronic Data Systems Corp. () salesman, now runs the $15
billion services business.
BLOWING HP’S HORN
The payoff came in
November, when HP showed investors surprisingly strong results. The
corporate computing business was the real shocker, with the storage and
server unit posting operating earnings of $405 million, about four
times the total a year earlier.
By December, the normally hype-free
Hurd was ready to crow a bit. At a packed meeting of financial analysts
in Manhattan, he said Livermore’s division would lead the way toward a
“lights-out” data center. “If you look at our raw technology, I don’t
think there’s another company in the world that has a lead on HP,” he
said.
A growing number of analysts think Livermore’s business is
back on solid footing. Merrill Lynch & Co. analyst Richard Farmer
predicts the unit will see operating profits rise another 50% this
year, to $3 billion, while revenues increase to $35.1 billion.
But
can HP become a leader on par with IBM, setting the trends in
technology? That’s a separate question. “They’re in the process of
turning it around, but I wouldn’t hand them the keys to the kingdom
just yet,” says Goldman Sachs & Co. analyst Laura Conigliaro.
Livermore
recognizes that both she and HP have their doubters. But she believes
time is on their side. “The fact is, there’s no one better in the world
at helping customers design, build, and manage data centers,” she says.
“We have not proudly or loudly enough put that stake in the ground. But
we will.” The company’s future — and her own — may depend on it.

[Author]

January 23, 2006 at 9:43 AM