So long, Carly Fiorina.
You would think the Pope had died. Last Thursday, all the major newspapers announced H-P’s sacking of its CEO, Carly Fiorina. Not one story, mind you, but multiple stories.
The Wall Stree
t Journal, for example, ran seven separate sacking stories. The New York Times ran five.
Why was Carly fired?
You would think this intense media coverage would have uncovered every aspect of the fall of Fiorina. My cynical self thinks otherwise.
Why was she fired? Not one
of the newspapers mentioned a devastating
11-page cover article in the February 7, 2005 issue of Fortune magazine entitled: “Why Carly’s Big Bet is Failing.”
Written by Carol Loomis, the article is a well-written, well-researched, well-documented, almost-brutal analysis of Fiorina’s five-and-a-half years at Hewlett-Packard. “The fundamental and overpowering problem here,” states Ms. Loomis, “is that HP’s shareholders paid $24 billion in stock to buy Compaq and in exchange got relatively little value.”
Nine days after the magazine hit the streets, Carly was out. Coincidence?
I think not.
We live in a media world. A company, a concept, an individual or an idea will succeed or fail depending on the coverage he or she or it receives in the media. And, to tell the truth, the media gets the story right . . . most of the time.
But not all the time. What I found missing in the Fiorina story was an analysis of the “marketing” implications of the Compaq merger and Carly’s downfall.
One of the essential issues in business today is the conflict between “operations” and “marketing.” The Fiorina stories unfortunately focused on operations only.
And from an operational point of view, the Compaq merger made a lot of sense. Reduce competition. Increase market share. Eliminate redundancies. Reduce staff. Slash costs.
But from a marketing point of view, the Compaq merger made no sense at all. Hewlett-Packard already had a personal computer brand name so it didn’t need another one. Furthermore, the addition of the Digital Equipment remnants spread the H-P name even further.
You can’t stand for something if you try to stand for everything. With the Compaq merger, the new bulked-up Hewlett-Packard tried to stand for everything from enterprise storage and servers to consulting and outsourcing services. Not to mention printers and personal computers.
Hewlett-Packard’s strategy might have worked if IBM were the only competitor in the game. But the narrowly focused Dell was a major thorn in H-P’s side. As a brand, Dell stood for something: Direct and cheap.
Compare the two. In the past three years, H-P had sales of $209.6 billion and net profits after taxes of $5.1 billion, or an anemic net profit margin of 2.4 percent. Dell, on the other hand, had sales of $108.7 billion and net profits of $6.0 billion, or a margin of 5.5 percent. Dell on roughly half the revenues made more money than Hewlett-Packard did.
Also compare Hewlett-Packard before and after the Compaq merger. In the seven years before the merger, H-P had sales of $296.3 billion and net profits after taxes of $18.7 billion, or a net profit margin of 6.3 percent. (Compared with 2.4 percent after the merger.)
On average, Hewlett-Packard was making more money before the Compaq merger than they did after. As a result, as Carol Loomis points out, H-P got relatively little in value for its $24 billion in stock.
But that’s water over the dam. What should Hewlett-Packard do now?
As usual, the focus of management is on operations, not strategy.
According to USA Today, “New Chairman Patricia Dunn, an H-P board member since 1998, says Fiorina’s downfall was her inability to handle everyday operational issues – the nuts and bolts of selling computers. ‘Consistency of execution,’ Dunn called it.”
Consistency of execution? Without a good strategy, you can consistently do all the wrong things. Here is how I would change H-P’s marketing strategy.
1. Use the Compaq name on all HP personal computers. With this change, the company would have two brands. Hewlett-Packard for printers and Compaq for personal computers. (How bad a name is Compaq anyway? It used to be the world’s largest-selling brand of personal computer.)
2. Narrow the focus on Dell. Drop the desktop line and focus on laptops only. (Compaq is a nice name for a laptop. Furthermore, the market is shifting from desktops to portables.) Let Dell sell cheap, low-margin desktops and try to take away their high-margin laptop business.
3. Pour internal resources into laptop design. Who cares what a desktop computer looks like? Most of them are bought on specs. Laptops are different. People like to see, feel and test-type a laptop before they buy one. Make them available in a variety of colors. (You can have it in any color you want as long as it’s not black.)
Now that IBM has sold its PC business to Lenovo, there’s an opportunity for a Compaq brand to take over the high-end laptop business dominated by IBM’s ThinkPad subbrand.
4. Spin off the printer business, a move that would be easier to accomplish if the personal computer brand had a different name than H-P.
That’s not all. These are just some of the changes needed to get Hewlett-Packard into strategic shape to fight the computer wars.
Are operations important? Sure, but only after you get the marketing strategy right.