It seems natural to judge a political candidate by her previous work performance, which is precisely why my eyes are on the California Senate race. Former HP CEO Carley Fiorina is challenging the incumbent democrat, US Senator Barbara Boxer, to represent the financially strapped state. While the two women trade public policy barbs, HP shareholders are debating whether to dump HP stock. From my perspective, the seeds for HP’s current problems were planted from 1999-2005 during Fiorina’s tenure as CEO of HP. (Disclosure: I vote in Wisconsin. I am an independent and have voted for both parties.)
Before her forced exit, Fiorina changed HP in two ways that each demanded significant internal focus. First, she reorganized the company, a reorganization that Mark Hurd who followed Fiorina spent time dismantling, as it diffused responsibility for organic growth and delayed decisions. (Hurd’s reorganization cut out 4 layers of management.) She also fought and won a tough battle with her board to acquire Compaq in 2001. Imagine the degree of internal focus when a $47b company essentially merges with a $40b company, each with numerous product categories, SKUs and sub-brands.
Industry consolidating acquisitions, as good as they look financially on paper, too often do too little strategically. Sometimes they are simply the easy decision for leaders searching for business growth strategies. In HP’s case, the Compaq acquisition ended up making HP bigger, but in increasingly commodity-like categories. Hurd spent his time at the company adding software and services to enhance the value of these products to IT leaders. He also downsized the company, in part to extract the Compaq synergies.
Over these same years, IBM divested its personal computer and other commodity categories, while investing in advanced software capabilities such as data analytics. As IBM’s income from hardware fell from $2.7b to $1.4b, its income from software rose from $2.8 to $8.1b between 2000 and 2009.
Today IBM’s business model is designed to tackle some of the hardest challenges facing cities and our planet, challenges that IBM describes as “Smarter Planet” opportunities. It’s new business model has expanded its served market and moved IBM to bigger issues where bigger profits can be earned. While IBM was shaping its future, HP was rearranging chairs on what may become, in retrospect, a Titanic.
Following the dismissal of Mark Hurd over ethics issues, HP’s board awoke to the realization it was woefully behind IBM and Oracle in software and extended an offer to Léo Apotheker, an ex-SAP leader. Was the gap so large and therefore the hiring so hurried that board members failed to note SAP’s huge ethics violation, a violation continued under Apotheker’s watch? (SAP stole Oracle’s intellectual property; SAP has admitted to stealing and is in court disagreeing on the damages.)
Among the worst things a leader can do is force her team to focus inwardly when market conditions demand external focus and strategic repositioning. One could argue that the US faces the same overall challenge HP faced when it went to the outside to hire Fiorina – being behind competitively. Vote for Carly if you agree with her policy positions. But please don’t vote for her because of her strategic leadership skills, which were sorely lacking during her HP reign.
For insight on business model strategy, read my recently released book, Beyond Price.