CRN Exclusive: Whitman's Campaign To Bring HP Back
Meg Whitman has been doing some remodeling at Hewlett-Packard's Palo Alto, Calif., headquarters since taking over as president and CEO in September. First, she and her executive team moved out of their offices into cubicles. Then she ordered the barbed-wire fence that used to separate the executive parking lot from the HP employee parking lot to be torn down. And, thanks to Whitman, all 49 of HP's campus buildings are now blanketed in high-speed WLAN coverage for the first time.
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"You can see the teamwork already," Whitman said of HP's new open-seating framework. "The conversations over the cubicle are the ones that really matter."
Whitman has brought some much-needed stability to HP, but now comes the hard part: implementing and executing on a long-term strategy. Call it "HP 5.0" -- Whitman is the company's fifth CEO since 1999, an astonishing number considering that HP previously had been led by just three CEOs since its founding in 1939. The executive turmoil was accompanied by plenty of drama, including questionable decisions by HP's board and two major scandals in the past six years. HP had $127 billion in sales last year, and yet there is a sense in the channel that the company has been drifting off course in recent years, said solution providers. Whitman believes that under her leadership, HP can get back to what it does best.
During a recent interview in a small, sparsely appointed conference room at HP's headquarters, Whitman is eager to talk about how she has been restoring order to the chaos created by ex-CEO Leo Apotheker, who was fired by HP's board of directors after three consecutive quarters of lackluster financial results. She describes how she moved quickly to repair the damage caused by HP's infamous Aug. 18 earnings announcement, in which it revealed plans to discontinue its TouchPad tablet, explore a sale or spin-off of its $40 billion Personal Systems Group (PSG), and acquire Autonomy, a U.K-based vendor of information management software, for $10.3 billion.
These three decisions raised questions in the channel about HP's future as a hardware company. While partners understood why HP would consider moving out of the low-margin PC business, many were baffled that the company would choose to reveal this publicly, as doing so would inevitably turn customers away from buying HP PCs. It's obvious that Whitman, too, remains befuddled by the hazy logic behind Apotheker's PSG strategy.
"Uncertainty was not our friend in the marketplace, particularly with our channel," she said with a wry smile. "We made a lot of people in our industry anxious over what we announced on Aug. 18." After five weeks of deliberation, Whitman decided to keep PSG in the fold. She also threw her support behind the Autonomy acquisition, despite loud grumbling from shareholders about the amount HP paid -- around 10 times revenues and 25 times earnings.
"Right out of the gate, the question I was getting because of Autonomy was: 'What is HP? Who is HP?' And in all of those meetings I reinforced, first and foremost, that HP is a hardware company," Whitman said. "The DNA of this company is product engineering -- printers, computers, servers, storage and networking are our bread and butter."
NEXT: Building On HP’s Traditional Strengths
Whitman's lieutenants are impressed with her unwavering stance on these controversial issues. Most of all, they are glad to have a leader who is not pursuing an agenda that runs counter to that traditional business.
"Meg is saying let's build on our strengths, rather than saying let's go transform," said Vyomesh Joshi, executive vice president of HP's Imaging and Printing Group. "She is basically saying that the hardware businesses and the channel are extremely important."
HP has relied heavily on M&A in recent years, but Whitman said the plan for this year is to "reset, rebuild and reinvest" in R&D. Future innovation will have to come from within HP, and Whitman intends to etch her name in the annals of HP history by making this happen. "I came to this company not for next week or next year," she declared. "I want to set HP up for the next 70 years."
HP saw an inordinate amount of executive turnover during Apotheker's tenure, but Whitman is confident that the team she has in place is the right one to tackle the challenges that lie ahead. "The executive team is absolutely essential to our future success," she said. "I feel great about our leadership team."
That team includes Todd Bradley, executive vice president of HP's $40 billion Personal Systems Group; Dave Donatelli, executive vice president and general manager of HP's $22 billion Enterprise Servers, Storage, Networking and Technology Services businesses; Joshi and HP's $26 billion Imaging and Printing Group; and Bill Veghte, who is doing double duty as HP's chief strategy officer and executive vice president of HP's $3.2 billion software business.
There is a certain gravitas associated with running multibillion-dollar businesses, yet a playful camaraderie is evident as Whitman gathers her executive team for a CRN photo shoot at HP's headquarters. Team members chuckle as they try to find the right pose, and when one executive jokes that another executive rents his suit by the hour, the group erupts in laughter.
According to Donatelli, this relaxed familiarity is one of the best things about Whitman's leadership style. "She brings a sense of humor to all of this," he said. "This is very serious, and we do a lot of hard work, but we can also have a good laugh while we're doing it."
With a clarion call of "communication, communication, communication," Whitman has instituted a bi-weekly call with her senior leaders. She also hired Henry Gomez, a public relations veteran and close personal adviser who worked with her during her run for governor of California and at eBay, as chief communications officer.
"If we're going to succeed, we're going to have to be a team at the executive level, senior leaders, employees, partners and customers," she said. "When you're going through the kind of change that HP is going through, communication is everything."
Whitman claims that her communication strategy is not broadcast-only, and that she has also been in a learning mode. She has met with some of HP's partners and asked for their frank assessments of the company and its direction. "It's been more conversation to me than the other way around," Whitman said, noting that before she came to the company she did not "understand the power of the channel to this company."
This willingness to listen is an early sign that Whitman "gets" the channel, said Bradley. "I think she'll be much more engaged than Leo, and I think she'll be as supportive as anybody [in helping] HP partners become bigger, better and stronger," he said.
NEXT: Joined At The Hip With Partners
In Whitman's view, what the channel wants most from HP is a "steady, reliable, predictable" vendor partner. In another thinly cloaked reference to the strategic confusion of her predecessor, Whitman acknowledged that HP's moves last August were an unacceptable departure from these ideals.
"[Partners] have bet their businesses and livelihoods on us, so it's not great when we make sudden and unanticipated changes," she said. "They need visibility into the product road map, they need visibility into HP's strategy, because in some ways we are completely joined at the hip when we go to market."
In HP's view, well-informed partners are going to be best equipped to go out and win business from rivals. And in keeping with HP's PartnerOne program messaging, Whitman suggests that partners that lead with HP will reap the most rewards. "The economics [of the channel] work for us, for the most part," she said. "Obviously we want to support the partners who support HP the most."
On Wednesday Whitman will give her first keynote address to partners at HP's Global Partner Conference, which takes place in Las Vegas from Feb. 13-15. She also has invited a select group of partners to attend an executive roundtable session at the event, in which all questions are fair game. Partners see this as a sign that Whitman is not going to shy away from issues of importance to the HP channel.
"It's a sign of great leadership that she's asking partners to assemble and creating an 'anything goes' atmosphere with no limits to the discussion," said John Convery, executive vice president of vendor relations and marketing at Denali Advanced Integration, Seattle. "She does not want a room full of 'yes' people."
Whitman's steady hand has been a welcome relief to partners that have made big investments in the company. Dasher Technologies COO John Vigliecca feels much better about his company's prospects for future growth after a meeting with Whitman at HP's headquarters in January. HP comprises the majority of the revenue that Dasher Technologies, Campbell, Calif., drives as a business and the company's sales were up 50 percent in 2011.
"Based on what we've seen from Meg so far, HP has been much more consistent over the past four to five months, and that gives us reason to believe that growth will continue," Vigliecca said.
Whitman also must tackle organizational and technology issues that threaten HP's status as the world's largest technology company. Some of these are longstanding issues that partners said could only be fixed through the type of forceful leadership that has been absent at HP in recent years.
For years, partners and customers have complained about the difficulty of doing business with HP and the silos that exist within its organizational structure. The situation grew worse under Apotheker, partners said, as business units, emboldened by his wobbly leadership, pursued their own market strategies and channel engagement paths.
John Gunn, president and CEO of ISG Technology, a Salina, Kan.-based HP partner that serves customers throughout the Midwest, said Whitman's first priority should be bringing a "fragmented company together."
"If the business units continue to work as independent businesses instead of as one company, there won’t be an HP in 70 years," said Gunn. "It will have been split into four or five companies. I am an operational type. I think they need to get their house in order now before thinking about what to do in the future."
Arlin Sorensen, CEO of Heartland Technology Solutions and HTG Peer Groups, an HP SMB specialist that has been in business for more than 25 years, said HP's silos are creating big problems for partners. "They create chaos in the channel with direct and business unit reps, many of which are unaware of each other, and either flood us with coverage or are absent for months," he said. "I'm hoping that she can do the hard work of bringing all the parties to the table, throwing out agendas and doing what is right for the marketplace and for partners."
Each HP business unit has its own channel chief, and partners with large deals spanning multiple business units have said it is difficult to find support within HP when channel conflict arises.
NEXT: Partners On Doing Business With Cisco Vs. HP
According to some partners, go-to-market and channel engagement are more clearly defined at Cisco Systems, which is battling HP in the hardware sales trenches both on the networking and server fronts.
"The go-to-market model with HP and Cisco is like night and day," said a top executive for a solution provider that has deep relationships with both and who did not wish to be named. "We spend a lot of time fighting with HP management in reference to HP taking something direct. I can't remember the last time I had a conversation like that with the guys at Cisco. No matter what they say, HP sometimes just doesn't get it. And when I call one of the channel guys to get it addressed, nothing happens."
Several enterprise partners that carry both HP and Cisco product lines expressed similar sentiments in interviews with CRN. It's a case of what one top solution provider calls HP's "flip flop" attitude on the rules of engagement with regard to the channel vs. direct sales.
"I don't want to be that one-trick HP pony," said the solution provider executive. "I don’t trust the HP pony. Under [former HP CEO] Mark Hurd, I felt like I was an extension of HP's sales force. I am not an extension of HP's sales force right now. Sometimes I feel like I'm in their way."
Beyond fixing channel conflict and organizational issues, Whitman also faces enormous pressure from investors and Wall Street. The day before she was named CEO, HP’s shares traded at $23.98. On Feb. 8, 139 days after she took the helm, HP shares closed at $29.46.
Brian Alexander, senior vice president and director of technology research for technology/hardware/distribution/EMS at Raymond James & Associates, has an outperform rating on HP shares ahead of the company's first fiscal quarter 2012 earnings announcement scheduled for Feb. 22, which marks the first full quarter under Whitman.
Alexander said in a research note that he expects HP's first fiscal quarter earnings per share to be at the high end of guidance, but for revenue to fall below the "Street estimate of $30.8 billion (by perhaps a few hundred million) due to weaker PC server sales and currency headwinds." He also expects investors to see a heightened focus on leveraging software across HP's diverse systems portfolio.
Partners also said Whitman must get HP's innovation engine firing on all cylinders. HP has skimped on R&D in recent years -- it spent $3.2 billion on R&D in fiscal 2011, a 10 percent rise from the year before but a figure that represents just 2.5 percent of annual revenue.
Whitman said she is committed to making "substantial" investments in R&D this year, but has not revealed how much HP will spend and to which technology areas it will direct this investment.
Inside HP, however, Whitman's vision for the future is resonating with top leadership. "She's out to build what I would call a sustainable, long-term plan for HP's key strength: Developing unique IP that solves our customers' most challenging business problems," said Donatelli. "She's bringing to us a great sense of urgency, great intelligence and a great view for the long-term vs. short-term operating profit."
NEXT: We'll Be Back In Tablets, Says Whitman
If there is one area where urgency is needed most, it is tablets. HP acquired Palm in July 2010 for $1.2 billion but was unable to bring a single, viable webOS product to market. Meanwhile, as Whitman predicted last November, Apple has overtaken HP for the top spot in global PC sales -- if tablets are counted as PCs. She's still confident that HP and longtime partner Microsoft will be able to get back in the tablet race.
"We have to have a tablet offering. We will be back in that business," Whitman said. "We're coming back into the market with a Windows 8 tablet, first on an x86 chip and then maybe on an ARM chip. I'm pretty sure we'll be able to do that."
Apple sold 15.4 million iPads last quarter and a great many of them to Fortune 500 firms. Yet Whitman said the enterprise-grade security that will be built into HP's Windows 8 tablet -- and which the iPad lacks -- could help it pry customers away from Apple. "I think our sweet spot has to be around security. This whole security thing is a big worry, not just for big enterprises but also for medium enterprises and small and medium businesses," she said.
That may be true, but Apple is not ignoring the issue of iPad security in the enterprise. Through its Mobile Technical Competency, unveiled last year, Apple is leveraging the expertise of Microsoft partners, some of which also partner with HP. MTC sets rigorous technical and security requirements for partners that want to handle large-scale iPad deployments, and Apple has set a goal of recruiting 1,000 Microsoft partners into the program by year's end.
Microsoft, Cisco and Research In Motion all have cast similar doubts on the security of iPads, but any perceived security shortcomings haven't seemed to affect iPad sales. HP will have to come up with other points of differentiation for its Windows 8 tablets and for the possible webOS-based tablet that Whitman has suggested HP may bring to market in 2013. Having Veghte in place as chief strategy officer, Whitman said, will help HP react more quickly to the technology trends facing all its business units, including tablets.
Meanwhile, many partners feel that HP was far too focused on cost cutting and transactional rather than strategic solutions sales under Hurd. At the same time, partners want the change Whitman brings to be gradual so that it will not disrupt their current business.
It is a delicate balancing act, but the long-term strategic approach that Whitman is putting in place is a shrewd one, according to Kristin Rogers, executive vice president of sales and marketing at PC Mall, a Torrance, Calif.-based HP partner.
"Sometimes it feels that the short-term quarterly pressure on earnings works against transformational type changes that are sometimes needed in our industry," Rogers said.
NEXT: Setting A Software, Services Strategy
Still, HP is in the same bull’s-eye of technology change as other hardware-centric vendors, and Whitman faces the Herculean task of shifting a company that still makes 70 percent of its revenue from hardware sales onto a software and services path. HP's software business currently accounts for about 3 percent of its revenue, and some strategic bets will be needed to boost that figure.
"Companies in the future are going to have to be innovative and nimble. No one is going to survive on operational strength alone," said the CEO of a large national solution provider that already has moved aggressively to new cloud computing business models and did not wish to be named. "The best thing Meg can do is create a culture of transformation that leads and manages change well."
How HP works the assets from the Autonomy acquisition into its portfolio will be closely watched as a sign that Whitman's strategy is working. Autonomy's technology allows computers to understand unstructured data -- i.e., e-mails, Twitter posts, video and audio. Autonomy is resource-intensive technology and, as such, will drive sales of HP servers, storage and other hardware, said Mike Lynch, Autonomy co-founder and CEO, and vice president of HP's Information Management division.
"The reason why Autonomy was so valuable is that it's a unique asset," said Lynch. "There's nothing out there that has the ability and scale to understand the meaning of human-friendly information." Given the amount HP paid for Autonomy, it would be understandable for Whitman to push for a quick return on the investment by channel partners up to speed on selling it.
Brandon Harris, vice president of HP Solutions at $1.1 billion solution provider Logicalis, already has engaged in preliminary conversations to bring Autonomy into the Logicalis HP product portfolio and is interested in its archiving product as a potential cloud opportunity.
"Customers that buy Autonomy look for the hardware and storage, and that’s coming from HP,” Lynch said. “They look for services and that can come from HP and its partners."
Autonomy's technology also is being baked into HP’s PSG products -- most PC owners “almost certainly” have Autonomy technology on the products that ship with their PCs, through OEM agreements with companies such as Adobe and Symantec, Lynch said. And HP's Imaging and Printing Group can use it to make printing interactive using visual recognition technology he said.
HP is opening its distribution system to Autonomy and the channel will certainly play a key role, but Whitman said she's handling Autonomy carefully. She is aware that the 3,200-employee firm could easily get swallowed up in the 326,000-employee behemoth of HP.
"We have some work to do here because our sales force is just figuring out how to sell it too," said Whitman. "What I don't want to do is flood them with leads that they can't fulfill in a very high-quality way. It takes 100 good installations to have a great reputation in technology, and takes one bad one to wreck it."
Could Whitman's kid gloves approach to Autonomy be interpreted as a sign of a new strategic direction for HP, one that's focused on long-term impacts as opposed to the next quarter? That remains to be seen, but the things that Whitman has said and done so far suggest that this is so. Some partners most likely are still withholding judgment, but if Whitman is able to keep open lines of communication, both within HP and with the channel, she stands a good chance of building a level of consensus that HP has not seen in a long time.
Dasher Technologies' Vigliecca, for his part, said HP competitors are not going to like an HP that stays on message. "Any company that's competing with HP should realize that solid leadership makes HP a formidable foe," he said.
Steven Burke and Scott Campbell contributed to this story.