One Thing Missing From HP's Split Plan

HP’s plan to split into two independent companies has generated much news to fill in the social media space: layoffs, a lot of layoffs, and plenty of talk about efficiency, flexibility, and profit margins. But there is one thing missing from this talk, in our opinion: a growth strategy for the two new companies. Without such a strategy, any restructuring plan is doomed to end up in the decline and decay of this iconic company rather than a return to its old glory days. That shouldn’t come as a surprise to anyone following HP’s corporate restructuring plans closely in the last three decades. Each plan created a great deal of media buzz, hyped investor expectations, but failed to deliver profitable sales growth. First came outsourcing, which was supposed to cut cost and limit corporate size. A press release by HP back in 2002 says it all: “Hewlett-Packard Company today announced it is planning additional outsourcing of its PC manufacturing facilities worldwide, in keeping with its longstanding strategy to decrease operations costs and improve profitability. This move will allow HP to take advantage of the flexibility (my underlining) and cost benefits associated with using non-dedicated factories. . . In the past decade, HP has consistently taken measures to ensure profitability in the PC market through increased operational efficiency, expanded build-to-customer-order capabilities and supply chain improvements. Outsourcing PC manufacturing allows HP to focus (my underlining) on strategic core competencies, including supply chain design, new product and services development, supplier management and customer relationship management.” In the short-term, outsourcing probably had all these consequences. In the long-term, it made entry of new competitors into HP’s turf easier. And that’s how the company gave its competitive advantage away, piece by piece. Then came a string of bad acquisitions– in an attempt to fight ‘the last war’ in a number of segments of the technology industry -- which drained Hewlett-Packard’s resources. The purchase of Compaq Computer in 2001 was supposed to provide HP with a scale advantage in the PC market and allow it to compete effectively against Dell Computer, IBM, and all sorts of emerging Asian competitors. The purchase of near-bankrupt Palm in 2010 was supposed to help the company enter the fast growing mobile devices market, which began to replace PCs. And the acquisition of enterprise software maker Autonomy in 2011 (at a hefty price of $10.3 billion) pitted the company against three major competitors -- Salesforce.com, Oracle, and IBM. Each strategic move, which was followed by scores of layoffs of talented employees, improved short-term profit margins and helped leadership buy time. But it failed to re-ignite sales growth. "Some of HP’s leadership have been poster boys for what happens when you ignore your roots and what matters to your key stakeholders and why,” wrote one of my readers responding to a previous piece on HP. HP’s Key Financial Metrics 4/14/2013