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“We’ve reached the halfway point of HP’s turnaround”

In a letter dated June 2014, Rob Binns Vice President, Hewlett-Packard (HP) Investor Relations stated, “We’ve reached the halfway point of HP’s turnaround.”  The turnaround journey began when Meg Whitman joined Hewlett Packard as President and CEO in September 2011.  She was preceded by Carly Fiorina (1999 – 2005); and Mark Hurd (2006 – 2010).  This ten year period prior to Ms. Whitman’s arrival was marked by mergers including Compaq and EDS, headcount reductions, executive attrition, and sending jobs offshore.

Additionally, since 2002 HP transformed from a printing company, where 40% of revenues and 95% of profits came from this line of business; to a diversified technology company today, where printing accounts for only 20% of revenues and 30% of profits at HP.  Even after these changes, it became clear that a Business Turnaround was required.

The clearest indication that a Business Turnaround is required, is after a steady erosion of your business economics.

Since a peak experienced in the fourth quarter of 2010, declines were seen in several key statistics.

Annual Statistics

Revenues ($000)

Gross Profit ($000)

Operating Margin

Long-Term Debt ($000)

10.31.2010

$126,033,000

$30,181,000

9%

$15,258,000

10.31.2011

$127,245,000

$29,827,000

8%

$22,551,000

10.31.2012

$120,357,000

$27,972,000

9%

$21,789,000

10.31.2013

$112,298,000

$25,918,000

6%

$16,608,000

Source: http://www.nasdaq.com/symbol/hpq/

Once the decision is made to Turnaround a Business, a detailed internal assessment is undertaken to identify areas that require a redesign. 

Fiscal years 2012 and 2013 were the years of assessment at HP.  Problems identified as needing correction included -

Strategy and Planning – As is common in situations where management turnover occurs, strategy becomes inconsistent, which is confusing to customers, negatively impacting sales.  Detailed business unit strategies, tightly linked to desired financial outcomes, are required.   HP needs to assume a focus on customer needs; and competitor offerings.

Cash Flow and Reporting – HP requires a cost management program; as well as a disciplined capital allocation strategy.  Periodic business reviews are required to review success and modify plans, if needed.  A performance management system should be implemented; where compensation and accountability are linked.

Business Processes and Support Functions - Business activities should be streamlined, with inefficiencies and duplications removed.  A consistent level of quality should be established.  Automation should be utilized whenever possible, i.e. labor and contact relationship management systems.

Business DevelopmentMarketing should be centralized to take advantage of unified media buying and the potential for discounting.  Sales - Improve the sales processes.  Implement a renewed focus on solution selling; and re-train, if applicable; Products - Weed out unprofitable products and identify product gaps.  Move faster at commercializing innovations investment; and, Customers - Improve the results from underperforming accounts.

But on October 6, 2014, it was announced that HP will split into two companies.  Hewlett-Packard Enterprise – a company that will compete within the IT market, serving key markets that include – servers, networking, software, converged systems, storage, services, and cloud; and, HP Inc. - a company that will compete within the IT market, serving key markets that include – notebooks, mobility, ink printing, managed print services, desktops, graphics, and laser printing.  The split is slated to be completed by the end of fiscal year 2015.

What will be interesting to see is how these two different approaches will be integrated successfully.  In a perfect world, HP would solve the deficiencies outlined above, prior to the break-up into two companies.  In this way each entity that will be launched will be an efficient entity, with all processes optimized to be profitable.

Comments

Anonymous
(Associate) |

Interesting that the plan doesn't involve customer service. I had a horrible experience with them in 2013. I'm a calm person, but I was practically yelling at them on the phone, trying to get them to see the ridiculousness of their policy. My company ordered a laptop from them and it arrived defective. When i called to get a replacement, they cited some sort of quality control, saying they don't ship out defective products. They wanted me to buy a new one before I received any credit on the first.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Good catch. I noticed that piece also mysteriously absent. The details of the HP turnaround were detailed in a Securities Analyst Meeting (10.03.2012). During the CEO opening remarks, Meg Whitman was very detailed on what was wrong with the company. The only reference to customers was to say that one of HP’s strengths was a loyal customer base.

If I were to guess, after that meeting, a HP executive also made your same observation.

An update of the HP turnaround was detailed in a Securities Analyst Meeting (10.09.2013). During the CEO opening remarks, Meg Whitman stated, “The good news is now the entire Company is focused on reconnecting to our customers and to our partners. Nothing is more important for the future of HP. This year alone, I have personally met with over 1000 customers and partners, and other senior leaders have done exactly the same kind of outreach.”

But no where do you see the words “Customer Service” in the CEO’s remarks.

Let's see if that changes with the 2014 Securities Analyst Meeting, originally scheduled for 10.08.2014, but postponed.

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