The first thing that stands out from yesterday's announcement by HP’s CEO Meg Whitman that she is launching a five-year recovery plan, is the impression that there was no plan in place before. Whitman has been in at HP for more than a year now, so that sounds a bit scary.
The other thing that crosses your mind is whether it's wise to be announcing this in public. While honesty in the IT business is always refreshing, what HP needs more than anything at the moment is a vote of confidence from investors. And giving the impression that you are only putting a plan in place after more than a year at the helm seems a tad tardy.
Granted, the problems facing HP are enormous. But you would have thought that when the board of directors went prospecting for a new CEO (after the untimely departure of Leo Apotheker), one of the boxes to be ticked for the new boss was: Someone With a Plan.
Maybe they didn’t tell Whitman exactly how disorganized things were, but you wouldn’t have to know much about business to guess that. Even outsiders marveled at the decline in value of HP's stock.
In fact, Whitman told a bunch of Wall Street analysts that HP has problems, and that it would be five years before a turnaround was on the cards. Did the markets appreciate the honesty? (Short answer: No.)
The initial reaction was to see shareholders dumping stock like hot potatoes, creating a further fall in value of 8 percent while she was speaking. It ended up 13 percent down, at US$ 14.91 a share — its lowest level in more than 10 years.
Whitman's HP Analysis
So what’s going on here? Meg Whitman is an experienced business leader with many years in the IT business. Surely she hasn’t lost her way?
It would seem, from some of the reports following the meeting, that unnamed executives — unnamed because they were told not to talk to the media — said that she was trying to get as much of the bad news out as possible, the way you might lance a poisonous boil.
Get the worst of it out of the way, they said, and then the company can start focusing on pulling itself out of the mire that has engulfed it for nearly two years.
At face value, this advice has a lot of merit to it. But the question needs to be answered as to whether Whitman will be able to coax investors back on board. This new plan seems to be all about that.
The first thing Whitman said during yesterday’s full-day presentation was that despite all appearances, things have started to happen: Business has started to stabilize now that the operational and organizational models needed to build up the company again are now in place.
She talked about a deeper focus on corporate customers, narrower product ranges and a focus on traditional wares like scanners, printers and fax machines, but all rolled into one.
She said that in the past 18 months HP has focused on positioning itself to ride the cresting wave of new IT trends like cloud computing and information optimization, and insisted on the maintenance of its R&D department.
During her keynote speech at HP’s annual Securities Analyst Meeting this week, Whitman said that from 2016, it will be business as usual with revenues growing in line with gross domestic product, and with operating profits growing faster than revenues.
HP has a powerful set of assets, a culture of engineering innovation and a trusted brand…Now, we have to focus on bringing our incredible assets together to deliver for our customers, employees and shareholders.”
But how to do that? Well there are 4 different ways that she talked about.
1. HP Enterprise Services
In the Enterprise Services sector the aim is to improve margins over time. But then, every company is trying to do that. However, there are four pillars here:
- Improved and expanded portfolio through innovation in the areas of cloud computing and information management
- Strengthen accountability across the enterprise services space
- Optimizing cost structures and better value for money
- Operating excellence through new tools and processes
In the long term, HP is hoping to generate 80 percent of enterprise services revenue from core data center applications and business process outsourcing, with 20 percent coming from higher-growth services like cloud, security, mobility, information management and analytics.
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