Let me offer a big kudos to HP CEO Meg Whitman and her fellow executives. While they will likely be second-guessed about their approach to the analyst day held in San Francisco on Wednesday, I say it took guts to lay bare the deep problems facing Hewlett-Packard.
While at the presentation, independent analyst Patrick Moorhead sent me an email, expressing similar sentiments: “Whitman honestly and openly detailed HP’s issues, which are many. I give her a lot of credit, even though it may be spooking short-term thinking Wall Street. Turnarounds take years as evidenced by IBM.”
In response, investors essentially tried to club the company to death. The stock fell $2.22 or 12.96 percent to $14.91. Say bye-bye to about $3 billion in market cap. Poof! It just doesn’t get any uglier than that on day when the company didn’t announce a bankruptcy, a scandal, or any other major event.
What spooked investors, aside from the litany of problems, was HP being explicit that the short-term outlook for 2013 was even worse than we thought. The company lowered guidance and said progress in the turnaround likely wouldn’t be spotted until 2015. Even that was a stretch given what they saw as a global economic slowdown gathering momentum.
Now, no doubt, many can and will look at the long list of problems presented Wednesday as convenient excuses. They will demand faster progress and quick fixes. And I am on record as saying that Whitman faces an impossible task at which she will most likely fail.
I remain critical of HP’s long-running and excessive use of layoffs as a tool to fix any short-term problem. Whacking 120,000 people in the course of a decade, including 29,000 under Whitman now, is not a recipe for a building a company for the long-term.
But here’s where I give Whitman and her team credit. As she said in the presentation, it’s important to identify the problems before you fix them. It’s clear Whitman has taken this to heart. And so, rather than spending a lot of time spinning, or denying, or trying to get us to ignore them, she shoved them in our face and demanded we take note.
“It’s going to take longer to right this ship than any of us would like,” Whitman said.
Among the culprits she listed:
- Constant turnover in CEOs and new strategic directions. Obvious, but she named it rather than pretending it never happened.
- Excessive costs, like spending $1 billion on new sales hires when revenue was declining.
- Lack of sharp competitive focus.
- Too many products. 2,1oo laser printers!
- Too little accountability.
- Too few ways to measure progress. “At HP, you don’t get what you expect. You get what you can measure.”)
- Under investment in R&D.
- Big shifts in technology: mobile, cloud, data. All places where HP is not a player.
- Macroeconomics: Outside the U.S., many countries are experiencing an economic slowdown.
When Whitman took the CEO job last year, she said her first task was just stabilizing the company after the mishandling of the non-decision to spin-off its PC unit.
“Peeling the onion has taken some time,” she said. “But I’m a firm believer that if you can’t name the problem crisply and precisely, you can’t fix it.”
Yep. Agreed. Now, the temptation would be to focus on the short-term. Maybe find a mind-bending merger, Carly Fiorina style. That’s the typical CEO crutch, and distracts investors for a while as you integrate the companies and write down all sorts of related expenses. And that is the path HP also followed most of the past decade, which, as I wrote before, created a company that is not so much a company as it is a “patchwork of people and products.”
No, instead, Whitman spelled out a timetable to get HP back to global leadership by 2015. Part of that is operations excellence. Part of that is making better use of its current portfolio of products. And part of that is innovating.
The thing is, as one person noted to me previously, is that while that timetable might be realistic, it remains problematic. Things are moving so fast, that by the time HP turns around in four years, it could still be facing the wrong direction.
In a sense, HP doesn’t have the time to pursue a measured, deliberate reboot that it does need. Layoffs aren’t the answer. Neither is a daring merger. In short: the company is boxed in, with no way out.
“We all hope we can accelerate the journey,” Whitman said. “But there are no silver bullets to solve our challenges.”
Whitman, though, offered up her best Braveheart moment at the end of her presentation, to rally HP employees, if not investors for the unwinnable battle ahead.
“We have to lead HP by redefining the HP Way for today,” she said. “I believe with every single bone in my body, if we do this right, we can set up HP to be a technology leader for the next 75 years. Don’t bet against our people, our industry position, or our resolve. We are here to win.”