Aug 30, 2009

An Open Letter To Hewlett-Packard CEO Mark Hurd

I was thinking about writting a letter to HP's CEO and I read one that fits my views... so I just copied it here. But I included some of my comments ........

HP should become The Transformation Company, helping CIOs reverse the deadly 80/20 ratio and become drivers of growth.

By Bob Evans, InformationWeek
Aug. 20, 2009

Dear Mark:

Congrats on the Q3 results ---you met your May guidance targets and are projecting some nice revenue and earnings growth for next quarter. As such, your decision a year ago to buy EDS seems to be paying off handsomely as its profits anchored the entire company's performance (JS: although the firing of many of the managers and IP holders was MISMANAGED... services are NOT commodities)

I wanted to drop you this letter against the backdrop of your earnings report this week and your related comment that "HP will be an early beneficiary of an economic turnaround and will continue to outperform when conditions improve." As a fairly close follower of the IT industry and a particularly close observer of the CIO community that is one of HP's most important customer sets, I'd like to share a few thoughts about your company's enterprise customers, their challenges and expectations, and the huge potential HP has for helping them overcome those challenges and surpass those expectations. I'll start with a short list and then go into more detail for each of the four items.

1. Much or perhaps even most of your company's revenue comes from business customers whose needs are increasingly sophisticated and urgent, but a Bloomberg News story two days ago about your earnings report begins with this description of your company: "Hewlett-Packard Co., the world's largest personal-computer company . . . " Is that the image you want for HP? (JS: definetly hurts with Israeli Enterprise Clients)

2. HP's R&D was cut by $228 million year-on-year, and some business customers could see that as HP pulling back from its hard-earned reputation as a vigorous innovator. What's the deeper story here about HP's evolving approach to R&D? (JS: Software leadership requires high R&D investment and now the IT market's transformation into Industry in a BOX means no more advantage in commodities)

3. While your company's financial performance has demonstrated your talent as a vigorous cost-cutter, it's not clear to everyone what your corresponding long-term strategy is. EDS is a piece, but what does the whole enterprise puzzle look like? (JS: especially the departure of being a commodity company into one with extensive new IP in software and other areas)

4. The new top priority for every CIO---whether he/she knows it or not---is attacking the 80/20 monster to liberate IT funds from internal infrastructure and operations and apply them toward revenue growth. In CIO Randy Mott, you have the guy who wrote the book on how to do it spectacularly well. With that, you can become, if I might suggest, The Transformation Company.

1. The PC Company

Not a darned thing wrong with having become #1 in this wicked, cut-throat, low-margin, fickle, and highly exposed business. Rather, the problem is whether you want to hold on to that top spot in this wicked, cut-throat, low-margin, fickle, and highly vulnerable business. IBM shipped its PC headaches off to Lenovo, which can handle and even enjoy the brutal and commodity-driven dynamics of that business because that's what Lenovo does as its core business.

Then there's the inevitable Rise Of The Little Machines, as businesses are beginning to turn away from today's incredibly powerful and capable notebooks and toward smartphones and netbooks. Your PC revenue fell 18%---how much of that was due to the rotten economy and how much was due to a shift toward lighter, simpler platforms? PC profit margins are dwindling as well: last year in Q3, profit was $587 million or 5.7% of revenue, but this year it was $386 million or only 4.6% of revenue. Do you have reason to believe PCs can ever again achieve 10% margins?

In a similar vein, while a dollar of profit is a dollar of profit, doesn't it seem a little incongruous that (a) your company is the largest IT company on Earth and (b) its moving into more-sophisticated engagements with some of the world's biggest corporations but (c) there exists a half-true, half-urban-legend perception that most of HP's profits come from the sale of ink?

2. Your R&D Budget Cuts

Hewlett-Packard has long prided itself on innovation. So it was a bit of a jolt to see in this week's financials that R&D spending had been cut 25%. As my erudite colleague Alex Wolfe argues nearby:

It's also important to note that periodic lab revamps are nothing new, as when IBM (NYSE: IBM) Research famously told its scientists that their work had to be more closely connected to actual products. HP spent $3.543 billion in FY2008. So far this fiscal year, the figure is $2.115 billion for the nine months ending July 31, 2009. (This compares to $2.701 billion for the comparable year-earlier period).

A recent article described how HP and some other global corporations are shifting some R&D efforts toward "open innovation" to tap into the big brains of academics and other specialists around the globe for exposure to new ideas and focused collaboration on specific projects. This certainly seems like the sort of dynamic adjunct to HP's existing R&D efforts that The Transformation Company should be pushing.

3. What Is The Mark Hurd Strategy For HP?

On HP's website, the page listing company executives has a photo of you with a link saying, "Read the article: Mark Hurd's Moment." The article is a reprint from aFortune and it offers a solid picture of you as a highly disciplined manager, a numbers-lover, and an efficiency expert. It also says next to nothing about your vision for the company over the next few years or your strategy for competing with IBM and Cisco and Accenture and Dell and EMC and others.

This strategy stuff might not be your favorite subject, but it's pretty darned indispensable these days to your CIO customers. As they evaluate which IT vendors should become intimately involved business partners, what do you want those CIOs to think about HP and where it's headed?

As an example of what I'm talking about, here's IBM CEO Palmisano addressing a group of institutional investors and financial analysts a few months ago. Agree with him or disagree with him, but there's no question---none---what his strategy is for IBM:

"We can do intelligent grids, we can do smart health care IT, we can do road systems and traffic-congestion charting, we can do we can do we can do. We can do the Smart Shanghai for the Shanghai Expo in 2010 -- we can do we can do we can do -- right? -- and that's where a lot of the stimulus is geared, not just on creating jobs to fill potholes and fix bridges. So we've been able to align in that regard and we continue to invest in a lot of those areas to capture those opportunities.

"So we're not saying it's easier for us than for anybody else -- we're just saying we don't have the dependency that other people have -- that's all. We're not seeing a different world: It is what it is. We just don't have the dependency on it that others have. Therefore we haven't slashed the pay of our people, we haven't cut all their compensation, we haven't furloughed, we haven't we haven't we haven't."

And here, said Palmisano, is one of the primary reasons why CIOs should believe in---and spend lots of money with and make long commitments to---IBM:

"Now look: we got it all. Why? Since nobody's asking us why---[but they do ask] 'No one expects you to [make projections], so why would you do it?' Because you need to keep things in perspective: We are not like the other companies in the IT industry. We're not. We've completely transformed the IBM company. We're not."

Having transformed itself, IBM has begun doing the same for its customers. But as good as IBM is, you've got an asset that IBM doesn't have: your CIO and EVP Randy Mott. Because with Mott, if I may borrow a Palmisano-ism, HP is not like the other companies in the IT industry. Let me explain why.

4. EVP and CIO Randy Mott

Mark, about the closest that Fortune article ever gets to discussing strategy is this passage about a meeting you had with customers before the NBA All-Star game:

Hurd is showing them how to reinvent themselves the HP way. He explains to this group of executives, from giants like American Express and DirecTV to local small-fry like direct-mail printer, a buyer of HP's graphic printing presses, that HP has slashed the software applications it uses companywide from 6,000 to 1,500. It consolidated its data centersfrom 85 to 6. HP's own IT department from 19,000 people to 8,000---all so the company could hire more salespeople. Hurd is preaching to the IT-manager choir. HP's guests would be heroes if they too could slim down their organizations.

Heroes---indeed! But that article misses the real point of what you and Randy Mott achieved with your internal IT overhaul: the real payoff was profoundly revitalizing HP by making it possible to shift money unproductive internal stuff to bringing board new salespeople, while also cutting hundreds of millions from administration, facilities, utility bills, security, and more. It also helped Mott fulfill your assignment of generating not just more information, but better information. 'Slimming down' doesn't begin to describe the impact.

Now take that room of a dozen or so CIOs at the All-Star game and extrapolate their concerns, challenges, nightmares, wishes, frustrations, and hopes to every CIO in every business in every industry in the world, and you've got what must surely become the #1 CIO priority for the next few years: reverse the intractable 80/20 ratio so that your customers can begin devoting only 20% instead of 80% of their budgets to maintenance and internal operations, while liberating millions or tens of millions (and even hundreds of millions in some cases) to be used for such heroic endeavors as hiring more salespeople or aggressively launching growth-oriented business-technology projects that engage and embrace customers and create new opportunities and let those CIOs help remake their companies in the image of what their customers want and need them to be instead of just perpetuating what they've always been.

Those transformations can happen with the help of The Transformation Company because no one in the world has ever done it better, faster, or more productively than your CIO Randy Mott. But of course you know all about him because you were the one who was smart enough to hire him away from Dell because you knew what he'd done there and at Wal-Mart was exactly what HP needed---desperately---for you to begin turning it into a growth company again.

And I'm telling you, Mark, you've got a world full of CIOs who recognize with great urgency that they simply cannot remove the CEO's heel from their neck and begin pursuing growth opportunities until they attack the 80/20 monster and lower the cost of infrastructure.

Show 'em the way, Mark. Help CIOs around the world kill the 80/20 beast that is spoiling their dreams and aspirations. Make those CIOs heroes. Become The Transformation Company.


Anonymous said...

I read the original article.
I was dismayed that the point about firing/cutting/cutting/cutting
peopel and salaries at EDS was not followed up on. This isi the division that made the profits and it getting the lion's share of the cuts.
Morale is rock bottom and we are facing the clients.

I'd be the first to admit that there are many useless middle managers and 'spreadsheet jockeys' at EDS, but, of course, they are cutting the System Administrators and the operators, the tools teams, the people who support the backups, the security team....

Oh, and let's not talk about accross the board cuts. Wiped out all my 'performance' raises at one fell swoop...

David said...

Hi Jimmy, have a good new year.
Sorry to say, but these CEO's are quite predictable (call it the MBA disadvantage).
Along the same lines, there is always a good chance that he'll come to Israel on a shopping spree for the innovation.
If not, we'll make him an offer he can't refuse!