November 28, 2012, 7:24 am
To Save H.P., Break It in Two
By BILL GEORGE
Bill George is a professor of management practice at Harvard Business School and a former chairman and chief executive of Medtronic.
Hewlett-Packard’s $8.8 billion write-down of its Autonomy acquisition is just the latest evidence of the steady decline of one of the world’s great companies. Don’t blame Meg Whitman, the chief executive. She is just cleaning up the messes created since 1999 by her three predecessors and H.P.’s strategically challenged board of directors.
For more than thirty years, Hewlett-Packard served as my role model of a company. Having met David Packard in 1969, I deeply admired his, and Bill Hewlett’s, philosophy of “management by wandering around” and “The Hewlett Way.”
Like the founders of my former company Medtronic, Hewlett and Packard started in a garage. They never forgot that the company was an egalitarian organization focused on innovations that met their customers’ needs. Trying to compete with H.P. in its prime was very difficult because of its innovative products, superior customer service and product quality.
The founders also created a financial model that enabled the company to sustain its growth for 40 years: grow revenue at 20 percent, maintain 20 percent operating margins, and reinvest approximately 10 percent of revenue in research and development. Their internally groomed successors, John A. Young and Lewis E. Platt, carried on their philosophy for another twenty years.
In 1999, everything changed. Based on a consultant’s recommendation, the board decided to spin off its core business of test, measurement and medical instruments in order to focus on the rapidly growing computer business.
Wanting to shift its culture, the board passed over several internal candidates to bring in Carly Fiorina from AT&T and its Lucent spinoff. She quickly abandoned The Hewlett Way, moving aggressively to reshape the company as a prominent marketer of computer equipment and enterprise systems. Her fateful move was acquiring Compaq Computer, despite the objections of several board members, in order to become the leader in low-cost personal computers.
Ms. Fiorina tried to focus simultaneously on high-end enterprise systems. The split focus was costly. In its bid to buy the business consulting practice of PricewaterhouseCoopers, H.P. lost out to I.B.M. As time continued, Hewlett’s growth and profitability stagnated.
With 330,000 employees and $120 billion in revenue, H.P. has become too big to manage.
It is really two businesses: a commodity personal computer and printer business and an enterprise systems, services and software business. The characteristics of these businesses are entirely different.