H-P Fires Carly Fiorina

Here’s my take on the departure of Carly Fiorina from Hewlett-Packard. She was a strong leader and a capable manager who made a fatal, strategic error in buying Compaq Computer in May of 2002. With the value of hindsight it all seems so simple. Why would you buy a company that operates in a brutally competitive market, with slowing growth and shrinking margins? Maybe out of hubris, out of a belief that you can magically transform it into a Cinderella company, the belle of the ball.

At the time that Fiorina pursued the merger, she was strongly opposed by Walter Hewlett, the son of H-P’s founder. During a very nasty proxy fight, Fiorina’s troops characterized Hewlett as a dilettante, a musician who really didn’t understand the nuances of business strategy. It turns out that Carly didn’t understand this basic concept — you can’t turn a sow’s ear into a silk purse even by spending $20 billion.

By all accounts Fiorina did a good job managing the merger process and integrating Compaq. She cut thousands of workers and restructured the new organization in an attempt to improve margins and stimulate growth. I guess the merger went well but what didn’t happen was product development or sales growth. When was the last time you saw a really cool product with an H-P logo on it? Oh, yeah, when they started selling the iPod under license from Apple.

In the end, sales didn’t grow fast enough and the company could not compete with Dell on the basis of cost or efficiency. Face it; you are just not going to beat Dell on execution. They are simply too good. You take a road like Apple, make insanely great products that clearly differentiate themselves and are happy with your share in PC’s. Meanwhile, you look to grow in new segments like digital music or any market where you are not banging heads directly with Michael Dell and Kevin Rollins.

At the time of the merger, Scott McNeely offered this acerbic observation, “The visual I see is two garbage trucks colliding.” He may not have been wrong. Compaq was losing the PC battle to Dell and H-P couldn’t seem to find another star product other than printers. Nothing much has changed in the three years following the merger, despite all of Fiorina’s promises and strategies.

I went into Staples last week to look at laser printers. I saw a nice, inexpensive model from Brother and a very sleek machine from Lexmark. Then I looked at a butt-ugly model with the Hewlett-Packard name on it. It had similar technical specs but a higher price tag than the other two models. Even in printers, H-P couldn’t seem to turn out cool products anymore.

So Carly rides off into the sunset with her $21 million severance package (not including stock options) and the pundits are left to speculate on where H-P goes from here. Here’s my advice to H-P’s board and Fiorina’s eventual successor. It’s all about the products. Build cool products and develop new markets and customers will follow you. I think that should be the H-P way.

Comments

[alex]

Kurt,

I agree with your analysis. Unfortunately for HP Carly Fiorina never dared to go for bold options and brought very "traditional" remedy to a situation that called for radical reinvention. It has been obvious to me from day 1 (remember her first speech at Comdex?) that she was out of touch with strategic reality. I feel some surprise that it sould have taken so long for the board of directors of HP to take notice and decide to act.

alex