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CEO Recruiting Advice for HP

When Hewlett-Packard abruptly fired Chief Executive Carleton Fiorina on Feb. 9, the move also looked like a blow to the company that recruited her. Yet executive search firm Christian & Timbers, which won't say whether it will be helping on the search for a new CEO, is anything but shy about its role in bringing Fiorina to HP.

In fact, Christian & Timbers Vice-Chairman Stephen Mader still defends HP's (HPQ) decision to hire Fiorina more than five years ago. In a Feb. 9 interview with BusinessWeek Silicon Valley Bureau Chief Robert D. Hof, Mader also noted Fiorina's shortcomings and offered insight into what HP's board needs to do next. The following are edited excerpts of their conversation:

Q: Were you surprised by Carly's ouster?

A: No. I would have been surprised before the press coverage of the last week or so. It seemed like it had to be the beginning of the end.

Q: What was Fiorina's key problem?

A: The combination with Compaq produced the cost savings that they wanted, but it hasn't produced the margins. That's particularly unexpected in the professional services area. After all, IBM (IBM) had paved the way for that. [IBM CEO] Lou Gerstner had made essentially the same decision years before and had succeeded. [At HP], it just didn't happen.

Q: What about her management style?

A: One of the criticisms of Carly is that she didn't develop enough effective lieutenants who were really capable of doing the same thing in the business-sector levels that she was doing for the entire corporation. That's a valid criticism. Twice, she passed up considerable sentiment as well as a specific opportunity, to have another operational leader. It looks like it bit her.

HP is large enough and diverse enough that it needed a GE (GE) mentality. You don't look at that crowd and say, "Wow, there's the next Jim McNerney [former longtime GE exec, now chairman and CEO of 3M]." They've had a rock-solid, longstanding management team that knows the company inside and out. What that produced is continuity. But it hasn't necessarily produced excellence.

Q: What did Carly accomplish at HP?

A: In 1999, when HP embarked on this search, the greatest fear in HP was that no one would change it. It was a $45 billion powerhouse that internally did not believe that it was failing. No matter what you say about Carly, she did change HP. She did it on time, and she did it in ways that weren't predicted at that time.

Was there a better selection out there? Well, I think the board would rather be in a different place. She could have done better, but she did get 'em to a place where they can fight another war.

Q: What should HP do now?

A: The professional-services strategy was highly sensible. Unwinding the Compaq merger is a very dumb thought. Making it work is a good thought.

Q: Can the PC side ever really compete against Dell (DELL)?

A: That business needs a huge chainsaw and an architect to do that. There's no time left for the PC business to decide how it will succeed. Even if it has to be turned totally upside down.

Q: What else will the new person need to do?

A: These businesses that HP harbors have significantly different business models and rhythms. The most important thing that needs to be done is to get each one on its own strategic footing and able to make its own decisions, and pin it down to do what it has to do.

The newcomer will have time to fund those transitions as long as they work. You can continue to use the printer business to fund those transitions for a period of time. The new player gets a honeymoon. Just like Ed Zander has had time to start his own renovation at Motorola (MOT), and then he got a little luck besides. They seem more comfortable with themselves. That's what HP has to do now.

Q: Where should HP look?

A: HP can't even consider going inside for a CEO. You've only got one exec there who's sitting on top of a victory chain [Vyomesh "VJ" Joshi in printers and personal systems]. His business is very different from any of the enterprise businesses. So he's not necessarily certified to lead the rest of it. All you may do is put stains on the one pretty doll.

The other leaders, as good as they may be, are associated with HP's lack of operational results, so there's no credibility. That's why they're going outside.

Q: Isn't the number of people who have run such a big, diverse business rather limited?

A: Yes -- although like the selection of Carly, I would expect HP to pay less attention to the scale and more attention to the skills. There are people out there who can scale up. I think Carly scaled up fine. The key issue is to get the right skills in there.

Q: So who's most likely?

A: I think it will be a left-field candidate. It's going to be someone whom nobody suspects. Gerstner was a left-field selection for IBM. If you go to the tech domain, there aren't many people out there. You're not going to find them.

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