What should we make of HP CEO Leo Apotheker’s recent announcement that HP is spinning off its PC business for a future sale, despite holding worldwide market share leadership? Here are three potential answers.
- HP understands portfolio management. The PC industry as traditionally defined is maturing, with growth mostly in the developing world. HP has higher growth businesses in which to invest.
- Apotheker’s copying another company’s winning strategy. In 2005, IBM sold its PC business to Lenovo to focus on its Smarter Planet B2B solutions business. HP’s recent announcement that it is buying British enterprise software maker Autonomy Corporation at a 60-80% premium (depending on the analyst) suggests a copycat strategy. Autonomy provides unstructured data analytics and data management software, positioning HP for the $20 billion enterprise information management market and $55 billion business analytics software and services market.
- HP can’t compete. Computing has gone mobile and HP keeps showing up late to the game. In fact, HP is discontinuing its recent entries into the mobile computing market – its two-month old TouchPad tablet as well as its Veer and Pre3smart phones. Apple holds a commanding 21% share of the mobile PC market, with 80% of these shipments IPad tablets. HP’s second-place mobile market share is 15%.
All three explanations are true and here’s my outsider guess about why they co-exist. HP’s board lacks a clear and evolving sense of what its business is or should be all about. A string of CEOs, each with short tenure and a different core strategy, created a mess that destroyed 20% of shareholder value overnight.
When HP thought of itself as a computing company, then CEO Carley Fiorina fought an ugly public battle with HP investors to acquire PC hardware company Compaq. But the CEO to follow, Mark Hurd, was so busy cutting costs to raise profits he waited too long to make investments HP needed (e.g., the acquisition of Palm for $1.2 billion) to catch the mobility wave in computing, a wave Apple is riding to replace Exxon as the world’s most valuable company. A wave of riches that HP missed.
Hurd’s replacement, Apotheker, is staring at two endless pits in terms of investment requirements. One is a consumer goods business with Apple dominating the top end. Certainly Google’s acquisition of Motorola’s phone patents and hardware business made this pit seem even deeper. The other is the business customer market, where HP will now place its primary focus. (Will printers be sold next?) More focused companies like IBM, Siemens, Oracle (where Hurd landed), Microsoft and Accenture have advantages that forced HPs acquisition of EDS in 2008 and now Autonomy. In both consumer and business markets, Dell and off shore competitors offer cutthroat prices that an upscale company like HP will struggle to match. “Select business or consumer, and by the way we are way behind in both,” was likely management’s message to the HP board.
A measure of HP’s rush to find a marketplace-winning strategy is the extraordinary price it will pay for Autonomy. Autonomy will contribute 0.7% to HP’s revenues (2.7% to earnings) yet cost one-fifth of HP’s market capitalization. Will yet another “must have” major acquisition turn out in retrospect to be wasteful? While HP was consumed acquiring and integrating Compaq, Apple built its iPod/iTunes business, paving the way for the iPhone then iPad and Apple’s huge run-up in stock price.
How did HP end up in this predicament? My sense is that HP mistakenly defines its business by products. Apple on the other hand defines its business around a value promise – making access to and management of electronic information effortless. IBM has always been a solutions business as well. With its product lens, HP misses the waves that drive new business opportunities while Apple and IBM, with a broad lens, keep finding and realizing them. Had HP caught the mobility wave in time, it would remain in both the consumer and business market.
Why? Because HP is one of the few companies with a strong consumer and business brand. Serving both markets has supply chain, technology and (for small businesses) channel synergies. I suspect that mobile cloud-based computing, coupled with eroding boundaries between work-life and home-life will make the consumer and business markets even more synergistic than they are today. The growing demand for iPads in the business world is the tip of the iceberg. If I’m right, HP exiting the consumer computing business is a huge missed opportunity.
One of the most critical questions a leadership team and its board must answer is, “What business are we in?” The more perceptive they are in framing their analysis, the more profitable the business model innovation insights will be. (For a great blog on how to answer this question see Patrick Stähler’s business model innovation blog.)
Companies that take a broad view of their business are rarely fooled by substitutions of one technology for another (tablets for PCs) and collapsing industry boundaries (phones and computers). It’s sad for HP shareholders and employees that the HP board forgot this basic premise of sound strategic thinking.
What business are you in?