HP Says Goodbye To Drama
It was April. R. Todd Bradley was sitting on the beach near his San Diego home when his mobile phone rang. A friend was calling to urge him to get in touch with Mark V. Hurd, the newly appointed chief executive of Hewlett-Packard Co. (HPQ )The computer and printer giant was looking for someone to run its $25 billion PC unit. Bradley, fresh off a tough turnaround at handheld maker Palm Inc. (PALM ), was a reluctant recruit. "I was ready to lay on the beach for a while -- both literally and figuratively," he says.
Just weeks later, Bradley signed on. The primary reason for his change of heart? HP's new boss. Like Bradley, Hurd is a straight-talking, number-crunching operations wonk. Hurd seemed intent on ending the high drama that had distracted many at HP during the tenure of his predecessor, Carleton S. "Carly" Fiorina. He wanted to bear down on numbers, spreadsheets, and execution. "Mark seemed like a genuine, focused guy -- far more focused on creating value through operational performance than just pitching grand visions," says Bradley.
Five months into his tenure, Hurd's no-nonsense approach is being felt within HP in a big way. There have been no major press conferences, chock-full of klieg lights. No wrenching changes in strategic direction. In fact, Hurd says he has ruled out, at least for now, the divestitures of the printer or PC businesses that some analysts have called for. Instead of firing up the troops with some grand plan, he's focused on calming things down. "We need to temper the idea that this company has to have some earthshaking event every 15 minutes," Hurd says. "I'm not sure how it got that way -- and to be very frank, I really don't care. Our job is to execute."
In a sense, it's the most audacious plan possible. Many experts have come to believe that HP as it is is simply unmanageable. Its product portfolio is unwieldy, ranging from $25 ink cartridges to multimillion-dollar computers, and it's trapped between the more efficient Dell (DELL ) and the more innovative IBM (IBM ). Many on Wall Street argue that HP needs to narrow its focus, through a major sale or spin-off, to compete more effectively. But not Hurd. He's going to try to run the sprawling, unwieldy organization pretty much the way it is.
NEW BONUS PLAN
The big question now is how. In a series of interviews, Hurd and his top lieutenants provided the first detailed look at the game plan for the new HP. In many ways, it's a lot like the old, pre-Fiorina HP. Hurd's most sweeping initiative is to rebuild the culture of accountability that once made HP one of tech's most consistent performers. In a move yet to be made public, he plans to simplify the companywide bonus system that many found incomprehensible and reward employees based on the performance of their business units and HP overall. He's also tossing out Fiorina's matrix management structure, which muddied responsibilities, to give business heads more control of their units. "The more accountable I can make you, the easier it is for you to show you're a great performer," says Hurd. "The more I use a matrix, the easier I make it to blame someone else."
The changes don't stop there. Hurd is bringing in fresh blood from outside, something Fiorina struggled to do. Besides Bradley, he has recruited Randall D. Mott, the former chief information officer at rival Dell, to be his chief information officer. He moved to trim HP's costs in July by laying off 14,500 workers, from a total workforce of 150,000. And he may have a few surprises in store for HP's analyst conference, scheduled for early December in New York. One of them may be a change in how the company reports its PC results. Bradley is mulling whether HP should revamp its statements to make them more comparable to Dell's, since he contends that would show it is more competitive with Dell than most investors think. "We have to stop letting people believe [Dell] is the low-cost provider, because the reality is that we're extraordinarily competitive [with them]," says Bradley.
No doubt, Hurd's toughest calls are ahead of him. He still faces a monumental task. HP's corporate computing business looks incapable of competing against IBM and Dell, and margins are slipping in the printer industry -- the source of 85% of HP's profits. But Hurd is benefiting from improved performance that began late in Fiorina's tenure. On Aug. 16, the company reported quarterly results that were much stronger than Wall Street expected. Its stock rose 13% the next day to close at $26.82. Analyst Richard Farmer of Merrill Lynch & Co. (MER ) thinks Hurd and his team are making progress, but he cautions: "In the long run, they've got strategic challenges and a need to better differentiate themselves."
One of the interviews with Hurd took place in the boardroom across from his cubicle, at headquarters in Palo Alto. He bounded into the room a minute or two late. At 48, he looks a bit like a younger version of Louis V. Gerstner Jr., the former CEO of IBM. He's a sharp contrast to his predecessor, though. While Fiorina was smooth, polished, and expansive on virtually any topic, Hurd is not. Questions about him or HP's past tend to prompt sighs or smirks. He's plenty confident, but he seems puzzled by the idea of a celebrity CEO. More than anything, he projects the air of someone who just wants to get back to work.
What animates him is talking about the facts and figures of HP. He rattles off numbers from all corners of its businesses, having seemingly memorized nearly every spreadsheet the company produces. One of his first moves after arriving at HP was to work with his team to set the financial targets they think the company should hit by 2008. From there, he and his lieutenants worked backwards and laid out the metrics for each segment of the company. Those calculations helped them arrive at the 14,500 layoff figure and determine that HP can sustain the $3.5 billion-a-year R&D budget they want. With a specific goal three years out, "you can start thinking about the future with a little less emotion and a little more analytics," he says.
He uses the same sort of rigorous analysis for personnel decisions. When the company decided it needed a chief marketing officer, Hurd created a "skills map," a list of the skills the ideal candidate would have. He then evaluated all the candidates based on that list. That led to the promotion of Cathy Lyons, a 26-year company veteran. While she hadn't had a marketing position in 11 years, Lyons had a reputation for speaking her mind and for making her numbers as head of various units within the printer division. Hurd hopes her promotion sends a loud message. "When someone gets a job, it better be clear what they did to get it," he says. "If the organization thinks it's because they gave good PowerPoint presentations or because they were nice to Hurd when he showed up, you've got a problem. But if it's because she built a strong team and delivered strong operating results, the next person may think, 'Well, that's what I ought to do."'
That's just one way delivering results is being emphasized. Under Fiorina, sales staff were centralized into one group, separate from business units. That hampered fast decision-making -- in some cases, because unit chiefs had to lobby for resources from the sales organization, and it obscured who was responsible for performance. As of Nov. 1, however, HP's 10,000 salespeople will all be reassigned back to one of the business units. As a result, the bosses of HP's business units will control roughly 70% of the costs associated with their operations, up from about 30% under Fiorina.
To further motivate HP employees, Hurd is also planning to revamp compensation systems. Fiorina installed a complex bonus plan that left many staffers more confused than motivated. Payouts were calculated from a blizzard of statistics, including some, such as HP's performance relative to the Standard & Poor's 500-stock index, that were largely beyond employees' control. The new approach will probably tie bonuses directly to the performance of the employee's business unit and to HP overall.
If there are no blockbuster changes coming, Hurd & Co. are planning a plenty of smaller surprises. For instance, Mott, a bona fide superstar who helped turn Wal-Mart Stores Inc. (WMT )into a merchandising powerhouse before going to Dell, has big plans for HP's information systems effort. He thinks there's a golden opportunity for HP to cut costs, since it hasn't upgraded its tech systems in years as it focused on integrating its systems with Compaq's. More important, Mott plans to build sophisticated data-mining capabilities, similar to those at Dell. That will let Hurd see the critical data from around the company almost instantaneously. "He and I have always talked about what was possible if you could make decisions based on facts, rather than guesses," says Mott.
That pragmatism is making itself felt in many other ways as well. Take distribution. During her first few years, Fiorina pushed hard to sell products direct, just like Dell. That frayed relations with retailers and other resellers that move about 60% of HP's products. Now, Hurd is working fast to repair those partnerships and take a more refined approach. While the company will still sell directly to large corporations and some consumers, it wants to build stronger relationships with the resellers that work with small and midsize companies. The goal: to reward resellers that offer more profitable bundles of HP products, rather than just stand-alone products. "Mark is totally evidence-based," says Steven A. Raymund, CEO of industry giant Tech Data Corp. (TECD ) "It's clear he wants to do more for us, if we do more for him."
Add it all up, and HP's new management team is off to an impressive start in reviving the once-great company. Which has created a long-forgotten problem for HP: It suddenly faces some pretty high expectations. The company's stock has risen about 35%, to $27, since Hurd was tapped as chief executive.
But Hurd isn't about to get distracted from the massive task at hand. With his spreadsheets and his targets for 2008, he's eager to roll up his sleeves and put an end to the drama of the past few years. "Bill [Hewlett] and Dave [Packard] were that way," recalls Dennis Cain, a 32-year HP veteran who recently left the company to join contract manufacturer Solectron Corp. (SLR ) "Don't talk about what you're going to do. Just do it, and then let other people talk about it."
By Peter Burrows in Palo Alto, Calif.