Message To HP's Next CEO: Execution, Not Transformation

HP's board asked Fiorina to step down Tuesday over what Fiorina describes in a statement as "differences about how to execute HP's strategy." The company's CFO, Robert Wayman, has been named interim CEO and appointed to the board of directors, and Patricia Dunn, an HP director since 1998, has been named non-executive chairman of the board.

Fiorina has been one of the tech industry's highest-profile CEOs, foremost for leading the acquisition and integration with Compaq. "We brought Carly to the company to execute a major transformation, impacting the company's culture and portfolio, and we think she did an outstanding job in effecting that transformation. In particular, the Compaq merger integration was handled very, very well," Dunn said in a conference call. "This was a going-forward issue."

HP will stick to its strategy selling its portfolio of products, and it will look for a CEO who believes in that approach, Dunn and Wayman said. "We think it's a unique portfolio that is stronger together than apart," Wayman said. There has been much speculation that HP would spin off its hugely profitable printing business, but the executives said the board isn't considering that. "What needs to be done is achieving the opportunities present in a remarkable collection of businesses and assets that make up the HP portfolio," said Dunn.

Gene Golden, the VP of information for online ticket supplier Ticketsnow.com, is a believer in that portfolio approach, and wants to see HP stick with it. The company uses a variety of HP equipment, including its rack-mount-server and blade-server platforms, desktop and laptop PCs, and PDAs, and Golden says the departure of Fiorina should have little impact on his relationship with HP. "They have such a great recipe that I can't imagine that anyone new they brought in would make changes that would change my opinion," Golden says. "We are an HP shop."

Tim Kelly, director of distributed technology for Total Systems Services Inc., a provider of credit-card-processing services, says the strong level of support he receives from HP is more important to the ongoing relationship than the top-level of leadership. "It should be business as usual," Kelly says.

Total Systems Service uses HP servers and services throughout the company, and HP recently provided it with three weeks of free lab time in HP's Houston office to test its applications across hundreds of different servers and implementations. "That kind of thing just cemented our relationship, to have that kind of access," he says.

Dunn said there wasn't a single triggering event that led the board to ask Fiorina to step down, a decision it's been considering over several weeks with the help of outside advisers. She said a search for a new CEO would begin immediately but added that no candidates for the job have been contacted.

Wayman highlighted a number of areas where HP needs to deliver better results:

Storage and servers: Poor results in this group in the third quarter of last year led Fiorina to fire top executives. Wayman contended that HP has solved the execution problems that led to the surprisingly bad results, but now the business unit needs to establish a track record of credible results. While it will look for sales growth, the greatest emphasis will be on improving profits, Wayman said. "Storage has been losing market share. We fell a bit behind in terms of the product road map. That's one area we absolutely need to not only fix the mistakes we made but make sure we have the management team and processes that we don't have those kind of mistakes going forward," he said.

PCs: Wayman characterized its profit performance as "reasonable" instead of losing money, but needs to execute on a direct sales program and geographic expansion to increase sales and profits.

Services: Wayman noted that managed services revenue has grown 30% or more, but that hasn't translated to profits. "Now it's a matter of achieving a better balance of top-line and bottom-line growth," he said.

Cindy Shaw, an analyst at Moors and Cabot, says Fiorina should have moved "more aggressively" into the market for high-end IT services and consulting. HP ranks fourth in worldwide sales of IT services with revenue of $14.1 billion, but Shaw estimates that about 60% of that is low-margin support and maintenance work. However, Shaw doesn't fault Fiorina for passing on PricewaterhouseCoopers' consulting business--eventually swallowed up by IBM for $3.5 billion. Says Shaw: "At the time HP was looking at it, it was way overpriced."