Fiorina left out in cold after HP failure

When HP completed its take-over of Compaq in 2002, Carly Fiorina, chairman and CEO of the “new” HP, symbolized the new order by ringing the bell to open trading on the New York Stock Exchange floor. On February 8 the bell finally tolled for her, with the HP board’s decision to ask her to step down from her position, over “differences” in strategy.

  • E-Mail
By  Peter Branton Published  February 20, 2005

Introduction|~||~||~|When HP completed its take-over of Compaq in 2002, Carly Fiorina, chairman and CEO of the “new” HP, symbolized the new order by ringing the bell to open trading on the New York Stock Exchange floor. On February 8 the bell finally tolled for her, with the HP board’s decision to ask her to step down from her position, over “differences” in strategy. The reported US$21 million severance package may have lessened the pain somewhat, but Farina’s fall has still been a dramatic one, as indeed was her rise to becoming the most high-profile woman executive in corporate America, as well as one of the most celebrated executives in the world. The announcement that she was being ousted was not entirely unexpected however. Indeed, it has been building since the completion of that HP/Compaq merger, which has never been as well received as Fiorina hoped — or expected — it would be. While she felt that the logic behind the strategy of merging two of the largest companies in the industry to create one super-player was inescapable, others disagreed: HP’s share price fell 22% in the first week after the deal was announced. “I told the boards the market would hate this deal initially,” she later said. “To be honest, the reaction was a bit more negative than we thought.” In fact, from the time of Fiorina taking the helm at HP to her leaving, shares have lost 63% of their value, a figure that was always going to be hard for any board to accept, even one that had backed Fiorina as often as it had. ||**||Journey’s end |~||~||~|The HP board’s patience seemed to run out this month, with the announcement that Fiorina was stepping down, effective immediately. Robert Way man, formerly HP’s chief financial officer, becomes the interim CEO, with Patricia Dunn, a HP director since 1998, becoming the non-executive chairperson of the board. “Carly Fiorina came to HP to revitalise and reinvigorate the company,” said Dunn in a statement. “She had a strategic vision and put in place a plan that has given HP the capabilities to compete and win. We thank Carly for her significant leadership over the past six years as we look forward to accelerating the execution of the company’s strategy,” she said. Fiorina’s comments in the same statement were more succinct: “While I regret that the board and I have differences about how to execute HP’s strategy, I respect their decision,” she said. “HP is a great company and I wish all the people of HP much success in the future.” She may have given her wishes, but she has also left a mass of problems, with HP currently struggling on a number of fronts, and only its printer business making good progress. Far from having cemented HP’s position as a computing giant, Fiorina’s leaving will simply re-ignite the debate that HP should be — and will be — eventually split up. While there has already been much debate this year that HP would look at its long-term strategy, executives last week emphasised that it was a question of execution that had led to Fiorina’s departure. In a conference call to analysts last week, Dunn said: “This is not a change related to strategy. This is a change based on a desire to accelerate that strategy. We think that requires hands-on execution.” Last month, HP announced that it was merging its PC business with its imaging and printing business, thus heading off any speculation that it may be about to follow rival IBM’s lead and sell off its struggling PC unit. Such a move had been mooted, Fiorina said at the time of the announcement of the merger of the two business units, but had been ultimately rejected by the board. The board was also reported shortly afterwards to have looked at moving day-to-day responsibilities for certain units away from Fiorina to give them more autonomy, a claim the company denied at the time. “There are no other senior changes due in the near future,” a spokesman for HP said just last month. So what changed? The board is adamant that there are no unpleasant surprises in its Q1 results, which are due this week, and which should be in line with expectations. Rather, it was a concern that Fiorina has not shown enough leadership, with the company pointing to such problems as last year’s shortfall in its server and storage units, which led to the firing of three senior executives. Even so, that seems rather a simplistic explanation for why a company should choose to get rid of such a high-profile executive, especially considering that it has given her a US$21 million pay-off (plus share options) to go. ||**||Failure factor|~||~||~|Fiorina’s failure to “drive value between the portfolio businesses” must also be taken into account, with the company lagging behind best-of-breed competitors such as Dell, at the low-end of the PC pricing market, and IBM, which is more powerful in-services. HP wants to keep the portfolio of products and services it currently has, it just wants to get better value out of them. “The question is whether HP needs a new direction, or just a new driver,” said Douglas Hayward, senior analyst at research firm Ovum. “Our view is that HP has a broad portfolio whose separate parts just don’t work well enough together, Fixing that will require changes in strategy, and not just in execution. While HP undoubtedly has good products and services, Fiorina failed, with the exception of the printing group, to combine the hardware, software and services businesses so that they performed better than if they were spun-off. That’s rather ironic for a CEO who arrived from Lucent, itself a spin-off.” Case in point for failing to create value between different units, analysts say, is HP’s Adaptive Enterprise strategy. HP has plugged Adaptive Enterprise, which helps businesses build their infrastructures dynamically to cope with changing conditions, hard but with less success than it would have liked. “This promise is difficult to communicate and requires a strong consultative approach to sales and marketing,” said analyst firm Gartner, in an online advisory. “To date, HP has not exploited its capabilities in HP Consulting & Integration, which is critical to getting major accounts to adopt Adaptive Enterprise,” it added. Other problem areas include software, where HP failed to make a profit last year, despite having a strong enterprise software product line-up. Since software is one of the most profitable areas for corporate computing rivals, that’s an area of concern for HP. ||**||What next|~||~||~|While analysts are happy to agree that HP does indeed have problems, they are more split over what it should do to solve them. Some, such as Gartner, believe the board’s aim of focusing on improving execution while continuing existing strategies is correct. Others would like to see the company spin off business units and focus on its core strengths. Analyst firm Meta Group is also concerned that some legacy HP customers could lose out as a result of these management changes. “Overall, we believe Fiorina’s stepping down is good for HP shareholders, but questionable for HP data centre customers,” it wrote in a flash report. The reasoning is based on the assumption that tighter portfolio management could lead to rationalisation of the server product lines. “This will inevitably lead to much higher maintenance and service costs on legacy product lines (as high as 50-60% increases to already high HP maintenance costs) over the next two to three years,” it warned. The question now is who will replace Fiorina? A number of names have been already mentioned in connection with the role, with former Compaq boss Michael Capellas, who masterminded the sale of Compaq to Fiorina, being touted as a strong favourite. Capellas, currently CEO of MCI, has strong credentials, but is tarred by having already left HP once, having quit in 2002. Other strong candidates include Edward Zander, former president of Sun Microsystems, now CEO of Motorola, and IBM’s global services chief John Joyce. As Fiorina was the first HP CEO to come from outside the company, the possibility of an internal appointment can’t be dismissed, but is seen as unlikely. If such a move was to be made, a possible candidate could be Vyomeshi Joshi, who now heads up the newly formed HP Imaging and Personal Systems Group, and is well regarded internally. Whoever takes over will have to live with the fact that the board has already committed itself to continuing a strategy that Fiorina herself couldn’t deliver on. It’s a big job, and it’s going to take a big man or woman to fill it. ||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code