Paul Wallbank | Paul Wallbank - Communications Professional

Disruption and leadership

Smartphones and the internet are shifting power between suppliers, companies and customers. The new breed of leaders has a tough task.

As new communications tools appear, the challenge for managers is to deal with the disruptions these technologies bring to their businesses.

Launching Deloitte Digital’s release of Taking Leadership in the Digital Economy last week the Executive Director of Telstra Digital Consumers, Gerd Schenkel, described how business is changing as consumers are being empowered by smartphones.

A good example of this is the taxi industry where applications like GoCatch, InGoGo and Uber give passengers the opportunity to fight back against poor service from protected operators.

Sydney is an attractive market for taxi industry disruptors as the current protected market fails both passengers and drivers. Travis Kalanick, the CEO of Uber, said at the Sydney launch of his service earlier last week that the city is one of the more ‘problematic” markets they’ve entered alongside San Francisco and Paris.

That letting down drivers along with passengers is an also an important point – drivers get 80% of Uber’s charges while InGoGo and GoCatch free operators from poor booking systems that frustrate everybody involved in the industry while making the system as unaccountable as possible.

Similar changes are happening in other industries as technology changes the way suppliers, customers and staff work.

A good example of changing work practices is the adoption of Bring Your Own Device (BYOD) policies in the workplace. A few years ago in most businesses it was unthought of that staff could be allowed to bring their own computers to work. Today it’s common and soon the companies that don’t have a BYOD policy will be exception.

BYOD has happened because of the arrival of cheap consumer devices like smartphones and tablets along with IT departments rolling out web based services.

We’ve seen this before – probably the greatest influences on the shape of modern society had been electricity and the motor car. These, and many other technological changes have shaped today’s workplace.

Many businesses though suffer for those changes as we’re seeing with the drying up of the newspapers’ “rivers of gold”.

For Telstra this is seen in the demise of their phone directory business; Sensis was a true river of gold in the days of printed phone directories, but a number of management mis-steps over the last 15 years meant they totally missed the transition to digital.

The tragedy for Telstra that Sensis’ strength in the local advertising market should have been a positive given Google’s failure to execute on their local search strategy.

On reflecting about the struggle to deal with transitions to new technology, just how many business are like Sensis and Fairfax in having leaders that aren’t equipped to deal with these changes.

The leaders of the 1980s whose business models were based on the assumption of economic growth underpinned by easy credit, cheap energy and demographic growth and now finding those factors are moving against them at the same time technology change is disrupting their industries.

For the upcoming generation of leaders, both in business and government, having the ability to adapt to the changed power relationships between customers, suppliers and workers is going to be essential. For those steeped in last century’s certainties, it’s going to be a tough time.

Bringing manufacturing home

How GE is reviving its American manufacturing operations

In the 1980s General Electric, like most US companies, sent most of its appliance manufacturing offshore.

Now its coming home.

The Atlantic Magazine looks at how General Electric is resuscitating manufacturing at Kentucky’s Appliance Park as management finds US workers are more skilled and productive than their equivalents in Mexico or China.

An important part of the article is how critcal supply chains are; manufacturing hubs rely upon having a community of skilled service providers and suppliers around the factories while being close to customers improves and simplifies logistics.

In the latter case, it now take hours or days to deliver products to customers’ stores or warehouses rather than the five weeks it takes from China.

The cost of those goods is lower too, the Kansas made GeoSpring heater sells for $1299 while the Chinese product sells for $1599.

What is most notable though is how designers and managers now have a better understanding of the manufacturing process; where under the oustourced model the difficulties in assembly were none of their business, now they are far more deeper and directly involved.

This really goes to the core of what an organisation does – in the 1980s it was fashionable to talk of the “virtual corportation” where everything the business did was outsourced except for the managers who were employed solely to pocket their bonuses.

In the 1990s and early 2000s that “virtual corporation” became a reality as manufacturing and customer support were offshored and logistics was outsourced.

One of the best examples was customer support where looking after the needs of those who buy the company’s products were secondary to the need to cut costs.

This focus on cost cutting over customer service hurt Dell badly in the 2000s and it continues to hurt many organisations – particularly telcos and banks – today.

The weakness in the “virtual corporation” model was the company ended up adding little more value than the brand name and eventually those offshored manufacturers and call centres took control of the business’ goodwill and intellectual property.

Eventually the hidden costs of offshoring became too obvious for even the most craven, KPI driven manager to ignore and suddenly manufacturing in the Western world became competitive again.

Sadly, the fixation on dirt cheap labour has damaged many industries beyond the point where they can be salvaged with too many skilled workers lost and the ecosystem of capable suppliers destroyed. These are costs where tomorrow’s managers will rue the short sighted actions of yesterday’s corporate leaders.

Comparing Management costs

How much are big corporations spending on administration and marketing costs?

Telecoms analyst site Asymco has a look at how much Samsung spends on marketing compared to other tech companies, particularly Apple, with Coca-Cola added as a sanity check from outside the bubble.

While the results are stunning with Samsung dwarfing the others, the Asymco story also touches on the total cost of sales and general administration expenses with the observation that, as a proportion of revenue, Sumsung’s are soaring while Apple’s are declining.

Teasing those figures out a bit more is interesting, when we track the sales and general administration costs of all the business we see that with the exception of Apple they’ve been remarkable flat in straight dollar terms over the last three years.

Of course this comparison is a little unfair as this is an absolute number, not as a proportion of revenue and as Horace Dediu points out in the Asymco posts Apple’s expenses as a ratio to sales has fallen.

For companies like HP, Dell and Microsoft where sales have been stagnant or falling it might be that the ratio is rising while spending is flat.

We’ll tease these figures out over the next few days.

In the meantime, the fact that Samsung is spending such an awesome amount on marketing should cause us to treat Android sales figures with caution as that spend in undoubtedly inflating their sales figures. More on that in the future as well.

What would you do if the computer screen went dark?

Warrnambool’s phone problems remind businesses of the importance of continuity planning

What would you do if the computer went dark? originally appeared in Smart Company on November 29, 2012.

One of the truisms of business is the more ways customers can pay; the more likely you are to make the sale.

This is particularly true when something goes wrong – the customer hasn’t any cash, the till is jammed or the EFTPOS system is down.

Exactly this happened to thousands of businesses across south-west Victoria last week when a fire burned down the Warrnambool telephone exchange.

Unfortunately for the people and businesses of the surrounding region, much of the telephone, internet and Telstra’s mobile network runs through the burned out telephone exchange, sending the district back into the pre-telephone days.

This presented real problems as customers couldn’t use EFTPOS or get cash out of ATMs, while businesses struggled to get payrolls done or place orders with suppliers who couldn’t comprehend that it wasn’t possible to place orders over the net or by fax.

A hundred kilometres north of Warrnambool in the Grampians town of Dunkeld, a cafe worker told the ABC, “suppliers say ‘send a fax’ and you’re like ‘we can’t’ and they’re like ‘oh, we don’t want to handwrite it’.”

Those suppliers are a good example of not having the systems or staff in place to deal with ‘out of the box’ situations.

Unexpected events like the phone network being down for a week, major floods, devastating bushfires or zombie invasions will test businesses and it’s why having a real Business Continuity Plan (BCP) is important for business.

A workable BCP is one that identifies all the critical failure points for the business such as not having the internet for a week, a flooded office or, as happened to one of my clients, their entire building collapsing into the construction site next door.

The various state business agencies have guides on what to consider in a Business Continuity Plan including a good one from the South Australian government.

Regardless of how comprehensive a plan your business has, the most important part is going to be your people. If your organisation is staffed or managed by people who like to say “computer says no,” then they are going to be particularly useless when the computer is stone dead.

As the Warrnambool outage shows, unexpected business disruptions can come from anywhere, so flexible thinking and initiative is what matters in a crisis. It’s something worth thinking about with your staff and systems.

Feeding the content beast

Can the tech media change its spots

One of the sad truths of the tech media is just how much news is really regurgitated media release, this is part of a bigger problem where online channels demand that sites deliver content and are ‘first’ to get announcements online.

Yesterday’s Google-ICOA scandal where a forged media release was regurgitated world wide across the tech and general media illustrates the weaknesses in the latter imperative when a fake announcement was released through PR Wire, a news release service.

To exacerbate the problem, the forgers used PR Wire’s Premium service which guarantees the release is not only distributed across services like Bloomberg and Reuters but also passed on to Associated Press which in turn distributes the story to hundreds of media outlets world wide.

Which is exactly what happened; here’s the Sydney Morning Herald’s report ripped straight from the wire. A quick Google search on a phrase in the AP report shows 1,259 other outlets also spat out the same Associated Press story.

Nobody at PR Wire, Associated Press or at any of the 1260 outlets chose to call Google or ICOA to confirm the story was true. Neither did anyone at the various tech blogs who chose to rewrite the PR Wire release as ‘news’.

Around the world at mainstream newspapers, tech blogs and online news services writers are under massive pressure to feed the content beast which is why these mistakes are inevitable.

The content beast also means a lot of rubbish gets published, just to keep new material churning across the home page. A good example is in yesterday’s Gizmodo article on how to save money on soda machine gas refills.

While the writer and editors thought this tosh – which was probably inspired from a media release – was worth posting, readers quickly pointed out that using industrial gas for food uses is dangerous and the economics dubious.

A classic example of the audience being smarter than the writer; something becoming increasingly common as poor quality garbage is posted under provocative, attention grabbing headlines.

The question is whether the content beast is worth feeding, readers don’t care and increasingly we’re all struggling to reduce the noise and clutter in our inboxes and social media channels.

Reducing the noise is becoming most internet users priority and this means publications whose value is dubious will end up being winnowed out or, even worse, being ignored.

In the market where users are reducing clutter it’s only the useful, relevant, trusted and genuinely informative sources that will survive.

For Associated Press, this means they are going to have to terminate their relationship with PR Wire if they are going to remain useful and trusted.

AP’s clients are going to have to add more value than just spitting out whatever turns up on the wire as the SMH and 1,200 other sites did with the Google story.

The tech blogs are most challenged of all. Increasingly they have little to offer except a race to the bottom in regurgitating spin and third rate articles.

It’s possible that the Google scandal is good for the tech media, it’s going to force the sites with a future to do smarter, better writing and rely less on PR releases or shouting “first” when they get a story.

The ones who don’t are history and no-one will miss them.

A weird case of Stockholm syndrome

Some business have been trapped by their own technology. This is one of the problems for many news organisations.

Hacks and Hackers are regular informal meetups where technologists and journalists get together to discuss how news gathering is changing in the digital age. The November Sydney meeting featured a discussion with Aron Pilhofer, founder of the original event and Editor of Interactive News at The New York Times.

Aron had some great views on how journalism is changing and some of what he mentioned about the New York Times’ digital adventures was off the record

Some gems from Aron included just how ‘dirty’ raw data is from government agencies and how journalists can help open data advocates make their stories more accessible. Those topics are for future blog posts.

One of Aron’s comments about the challenges of the media was how many news organisations are trapped in “a weird case of Stockholm syndrome” – where their output is limited by their Content Management Systems.

It’s notable how many businesses, not just in media are constrained by their own systems – what was set up to serve the organisation has instead has become the master.

Of all the take aways from Aron’s talk, the Stockholm Syndrome of poor CMS’ is the most universal across industries – organisations pay a fortune to multinational consultancies for poor software platforms that management then tries to shoehorn their staff and business processes into.

This rarely ends well and usually creates more problems as the business loses flexibility, which is exactly what has happened to new organisations.

Sometimes biting the bullet and writing off a poor investment, particularly in software, makes damn good sense.

Disrupting the disrupters

Silicon Valley’s investment models are changing as attention moves from the consumer to the enterprise.

Two days ago, iconic venture capital investor Fred Wilson, wrote about the changing nature of the tech industry’s VC investments.

Fred puts the changes down to three factors; maturing markets where big players increasingly dominate, the move to mobile which Cristina Cordova examines in more detail and the shift in focus from the consumer market to the enterprise sector.

The last factor bears more examination as consumer and enterprise are very different and there’s no guarantee that businesses built around thousands of people downloading apps or accessing websites can pivot into selling into corporations and government agencies.

Probably the biggest problem is the consumer or small business freemium model doesn’t cut it in the enterprises who are prepared to pay big sums for highly reliable and secure services.

Similarly the enterprise model of fat sales commissions paid for by big implementation costs and expensive support contracts doesn’t quite fly either for these start up business. There’s also a good argument that high margin enterprise model is doomed anyway as cloud services displace costly in-house installations.

In the transition from consumer to enterprise is difficult and most companies have struggled to make the jump, even Google Docs has been a hard sell into the corporate sector.

At the enterprise end, cloud services are cutting margins as IBM and Oracle are finding. Both companies are moving across to cloud products and now a lot of salespeople and consultants in those organisations are looking at a substantial drop in their standards of living.

More importantly for the startup and VC communities, the “greater fool” model doesn’t work in the enterprise space. Hyping a business which has barely made a cent in revenue but does have a million users is very different to building a stable corporate platform.

It may well be the move to the enterprise by Silicon Valley is because the consumer model has run out of “greater fools” who’ll buy overhyped photo sharing apps or social media platforms of dubious value.

This change in investment behaviour also has lessons for governments trying to copy Silicon Valley. The puck moves fast in the investment community while governments, by definition, are slow.

By the time governments have setup their programs, the markets have moved on and many of the hot technologies of two years prior are now old hat. This is exactly what we’re seeing in the apps world.

We often hear about technology causing disruption, often though we forget that those disruptive technologies can be ephemeral as they are disrupted themselves.

As these industries evolve, we’ll see how well the disrupters deal with being disrupted.

Social malware and cunning tricks

Malware writers are moving onto using social media apps to harvest addresses and personal information.

Last week an interesting media release from anti-virus company Bitdefender appeared in the inbox describing a tricky little scam that promises to change Facebook page colours but actually grabs a user’s information to set up fake blogs associated with the victim’s email address.

Those fake blogs in turn link to a working from home scam, the type which are becoming depressingly common online. No doubt the malware authors have some sort of interest in that scheme.

What makes this malware interesting is how it brings together a range of opportunities for the malware writer – social media, apps, data aggregation, identity spoofing and the Ponzi affiliate schemes that are prevalent as people try to find new ways to supplement their income.

Many people say “I’d never get caught by these scams” but the reality is the scammers are rat-cunning, if not clever. Assuming you’re immune to these because you’re too smart, or you use a Mac or there’s nothing of value on your computer is a risk in itself.

Here’s the media release from Bitdefender.

Google Chrome App grabs identities, forges blogs in victims’ name to promote scam

Bitdefender catches Facebook colour scam with both hands in cookie jar

SYDNEY/AUCKLAND – November 19, 2012 – A Google Chrome app that promises to change the colour of Facebook accounts instead nabs authentication cookies and generates dozens of blogs registered to the victims’ Gmail address, in a new scam analysed by Bitdefender, the leading global antivirus company.

Once the malicious app is installed from Google’s Chrome Web Store, it starts displaying a large Google Ads banner redirecting users to a “work from home scam.” When clicking the sign-up link, users are redirected to a fraudulent website.

“Scammers gave a new twist to the old change-your-Facebook-colour scheme that’s been luring users to fraudulent websites to grab credentials and other sensitive data,” says Chief Security Strategist, Catalin Cosoi. “By creating dozens of blogs for a single account, the scam spreads like wildfire among Facebook friends.”

The blogs generating under the email address of the victims, which are used in further disseminating the scam, have registered a large number of hits among users in the US, the UK, Germany, Spain, Romania, and other countries.

The app can also post wall messages on the victims’ account. The messages use friend tagging to convince the victim’s friends to visit the blog domains. Each time the app posts on a users’ timeline, it links to one of the auto-generated blogs as to avoid blacklisting.

Bitdefender encourages users to use an antivirus solution and the free application Safego, which protects Facebook and Twitter accounts from scams, spam, malware and private data exposure.

Travel review: Marriot Marquis, San Francisco

In downtown San Francisco, the Marriott Marquis is good place to stay for a conference, just be careful of the coffee machine.

San Francisco’s Marriot Marquis is a welcome place to rest after a tough flight or a long day at a conference, just be careful when you take on the coffee machine.

The first impression of the Marriot Marquis San Francisco when you step out of a cab is that it is a very busy place. Being situated next to the city’s Moscone Centre makes it is the centre for the convention trade which overruns the hotel when a big convention like Dreamforce is on.

Something all major conference destinations do well is dealing with crowds and the Marquis is no exception. The reception desk is efficient, fast and friendly – right down to having no problem with a check-in earlier than the stipulated 4pm. Exactly what a traveller needs after a cramped 13 hour flight.

The room

A standard room at the Marquis is a comfortable size with a genuine king sized bed. Beside the bed is a clock radio that is simple to set and actually works, this is something many other hotels should take note of.

There’s plenty of room to spread out with a good sized bath, plenty of storage space and a deep wardrobe. In the wardrobe is the standard digital safe for valuables.

On the TV there is the usual range of cable TV, free to air stations and in-house movies. Interestingly the cable selection included Russia Today but not the BBC World Service or Al-Jazeera.

Power sockets are plentiful including two mounted on the writing desk for easy laptop charging. Wireless networking, which costs an extra $14.95 a day, gives reasonable download speeds and is more than adequate for most cloud computing tasks.

The Coffee Machine of Doom

Unlike the user friendly beside clock the one cup drip coffee machines are quite possibly the most difficult devices ever installed in a hotel room.

in room coffee maker at the san franciso marriott marquis — The evil Marriott coffee maker

Thinking the first one was broken, I sent it back. It turned out it wasn’t but I never quite got the knack of figuring out how to work them.

Along with being horribly user unfriendly, the disposable cartridges in the thing are horribly environmentally unfriendly. Generally give the things a miss and visit one of the many good coffee shops in the neighbourhood.

Fitness Centre

The fourth floor fitness centre features the usual range of equipment but in a complex the size of the Marriott expect it to be busy at peak times, at 7am the place was packed.

Upstairs on the fifth floor is a respectable 30ft swimming pool which doesn’t get too busy, however more than four lap swimmers at one time will be difficult. The pool is quite shallow at one end and enthusiastic tumble turners should take care at the end of their laps. Note the pool opens at 6am, half an hour after the rest of the fitness centre.

Location

For attending conferences at Moscone the location is unbeatable and being right on Market Street in downtown San Francisco with Union Square, Westfields and all the major shopping outlets close by.

Harbourside tourist attractions are some distance from the hotel although the Marriot is close to the Powell terminus of the city’s iconic cable cars to Fisherman’s Wharf. The vintage K-Line street car service also runs to Fisherman’s Wharf via the Embarcadero waterfront.

Both the BART and Metro are around the corner at the Powell Street Station – the BART takes half an hour to San Francisco airport but it’s unlikely you’ll need that if you can afford to stay at the Marriot. Cabs to the hotel are around $65 including a 20% tip.

Overall

It’s difficult to fault the hotel as the service is friendly and efficient while the rooms are comfortable with all the features required for a good business stay.

Overall, if you’re not on a tight budget and you’re attending a conference at the Moscone Centre or have business in the SoMA district then the Marriot Marquis is a good choice. If you’re in San Francisco for the tourist experience or you have business in the Financial District then you’ll probably find hotels closer to what you’re in town for.

Paul travelled to San Francisco and stayed at the Marriott courtesy of Salesforce to attend their Dreamforce conference.

Tracks in the ether

Smartphones, the web and tracking technologies are giving governments and businesses more power than ever.

Bureaucrats dream of tracking every person or asset under their purview and the rise of technologies like smartphones, Global Positioning Systems (GPS) and Radio Frequency IDentity (RFID) chips are giving them more power than ever.

Two stories in the last week illustrated how these technologies are being used by authorities to monitor people; a school district in the United States is fighting a student who refuses to wear an RFID enabled identity card and Saudi immigration authorities are now sending text messages to guardians of travellers, mainly women, leaving the country.

In Saudi Arabia, the law prohibits minors and women from leaving the country without the permission of their adult male guardians. As the Riyadh Bureau website explains, to streamline the permission process Saudi authorities enabled online pre-registration for travellers so now male guardians can grant assent through a website rather than dealing with the immigration department’s paperwork every time their spouse or children wants to travel.

When the spouse or child passes through immigration, the guardian receives an SMS message saying their ward is about to leave the country. One assumes the male can withdraw that approval on receipt of the text.

The Saudi application is an interesting use of the web and smartphones to deliver government services and probably not what Western e-gov advocates are thinking of when they agitate for agencies to move more functions online.

More ominous is the story from the US where Wired Magazine reports Andrea Hernandez, a Texan student, is fighting her local school over the use of RFID enabled identity cards that track pupils’ attendance.

John Jay High School’s use of RFID tags is a classic case of bureaucrat convenience as electronic cards are far easier to manage and monitor than roll calls or sign-ins.

Incidentally John Jay High School has over 200 CCTV cameras monitoring students’ movements, as district spokesman Pascual Gonzalez says, “the kids are used to being monitored.”

The problem is that RFID raises a range of privacy and security issues which the bureaucrats either haven’t thought through or have decided don’t apply to their department.

Notable among those issues is that “has a bar code associated with a student’s Social Security number”. It never ceases to amaze just how, despite decades of evidence, US agencies and businesses keep using an identifier that has proved totally unsuited for the purposes it was developed for.

Probably the most worrying point from the Texan story is how school officials tried to suppress the story, offering Ms Hernandez’s father a compromise on the condition he “agree to stop criticizing the program and publicly support it.”

That urge to control criticism and dissent is probably the thing all of us should worry about when governments and businesses have the ability to track our movements.

In this respects, the Texas education officials are even more oppressive than Saudi anti-women laws. Something we should consider as more of our behaviour is tracked.

Newly normal in the English Midlands

The new normal will be different to the old normal – is the English Midlands a vision of the future?

On their metal, a story from BBC Radio’s In Business program looked at how the English Midlands is dealing with the toughest economic conditions the beleaguered region has suffered for decades.

Once the centre of the industrial revolution, The Midlands have had a tough time of the last fifty years as the region caught the brunt of Britain’s de-industrialisation and the loss of thousands of engineering jobs.

Today, the surviving engineering companies are struggling to find new markets as orders from Europe dry up and many Midlands workers find they are confronting the ‘New Normal’.

The ‘New Normal’ for British industry is described by Mark Smith, Regional Chairman, Price Waterhouse Coopers Birmingham who points out that UK industries have to sell to the fast growing economies.

Interestingly this is similar, but very different in practice, to the Australian belief – where the Asian Century report sees Australia continuing being a price-taking quarry for Asia rather than selling much of real value – the Brits see some virtue in adding value to what they sell to Asia’s growing economies.

The British experience though shows the realities of the ‘New Normal’ for Western economies – the cafe owner featured in story now offers no dish over £3 and the idea of overpriced five quid tapas are long gone. The customers can’t afford it.

Part of this is because of the casualisation of the workforce as people find salaried jobs are no longer available and become freelancers or self-employed. One could argue this is the prime reason why unemployment hasn’t soared in the UK and US since the global financial crisis.

That ‘new normal’ features the precariat – the modern army of informal white and blue collar workers who have more in common with their grandparents who worked for day wages at the docks and factories in the 1930s than their parents who had safe, stable jobs through the 1950s and 60s.

For the precariat, the idea of sick leave, paid holidays or a stable career started to vanish after the 1970s oil shock and accelerated in the 1990s. The new normal is the old normal for them, there just happens to be more of them after the 2008 crash.

With a workforce increasingly working for casual wages without security of income, the 1980s consumerist business model built around ever increasing consumption starts to look damaged.

The same too applies to the banking industry which grew fat on providing the credit that unpinned the late 20th Century consumer binge.

When the 2008 financial crisis signalled the end of the 20th Century credit binge, the banks were caught out. Which is why governments had to step in to help the financial system rebuild its reserves.

The effects of that reserve building also affected businesses as bank credit dried up. Early in the BBC program Stuart Fell, the Chairman of Birmingham’s Metal Assemblies Ltd described how his bank decided to cut his line of credit from £800,000 to £300,000 which forced the management to find half a million pounds in a hurry.

That experience has been repeated across the world as banks have used their government support and easy money policies to recapitalise their damaged accounts rather than lend money to entrepreneurial customers to build businesses.

Businesses are now looking at other sources to find capital from organisations like the Black Country Reinvestment Society which is profiled in the story that raises money from local investors to provide small businesses with working capital.

Communities helping themselves and each other is the real ‘New Normal’ – waiting for the banks to lend money or hoping that surplus obsessed governments will save businesses or provide adequate safety will only end in disappointment as the real austerity of our era starts to be felt.

The New Normal is declining income for most people in the Western world and we need to think of how we can help our neighbours as most of us can be sure we’re going to need their help.

Just as the English Midlands lead the world into the industrial revolution, it may be that the region is giving us a view of what much of the Western world will be like for the next fifty years.

Whitman’s managerial mountain

How Meg Whitman has to dismantle the legacy of over a decade’s poor management at HP

This week’s announcement by HP that it will take a nearly nine billion dollar write down on the $10 billion investment it made in British business intelligence software business Autonomy shows how a once proud company can be laid low by a managerial culture.

HP’s purchase of Autonomy was a classic example of the Silicon Valley greater fool exit where the founders and investors of a business find a foolish buyer – in this case HP – to overpay for the operation.

In HP’s case it appears they overpaid by $8.8 billion dollars, this follows a $8 billion dollar write down earlier this year on the 2008 acquisition of Electronic Data Systems.

HP’s management are now claiming Autonomy’s managers defrauded them and the deal has been referred to the US Securities and Exchange Commission and the UK Serious Fraud Office – a point which Autonomy’s former CEO, Mike Lynch, describes as nonsense given 300 HP managers and two major accounting companies carried out due diligence on the firm.

For HP this is another humiliation on a decade of embarrassment largely caused by poor leadership with poorly chosen CEOs including the hubristic Carly Fiorina, followed by the poster boy of entitled managerialism, Mark Hurd, who in turn was succeeded by the haplessly incompetent Leon Apotheker.

Apotheker was the wrong person to undo the mistakes of his predecessors however at least with the Autonomy purchase he was trying to clamber onto a technology trend before it left the station, unlike both Hurd and Fiorina who had missed opportunities and entered markets way too late. Although like Apotheker, they overpaid for acquisitions like Palm, EDS and 3Com.

In Fiorina’s case she had missed the dot com boom and subsequent bust while trashing the company’s brand by competing with Dell in the low end, lousy margin consumer PC industry.

Hurd’s solution was services, as shown by the $14 billion dollar acquisition of EDS. At the same time he took an axe to HPs costs and continued Fiorina’s gutting of HP’s core competences in R&D and high end industrial technology.

Like all managerialists, Mark didn’t apply the cost cutting mantra to himself, staying at the best hotels and flying the world on corporate jets like a latter Bourbon. A list of his expenses, along with the salaries for himself and his senior executive buddies, would embarrass a third-world kleptocrat.

When he left HP under the cloud of a sexual harrassment scandal, the board gave him a settlement of over $40 million dollars rather than the $27 million he was entitled to.

Most infamously, in the scandal that bought him down, a company ‘hostess’ claimed he stopped by an ATM in Madrid to show her the million he kept on call in his checking account.

It’s instructive that Roman emperors would have a slave reminding them that they were only mortal. Today’s managerial heroes have ‘hostesses’ to remind them of their entitled position of being hairy chested, virile heroes of 20th Century capitalism; even as their 1980s thinking destroyed shareholder wealth on an industrial scale.

One could ask why a company like HP would need ‘hostesses’ – particularly at a time when cost cutting was mandating office lights were turned off at 6pm. Just the fact pretty ladies could be on the company payroll to solely to stroke the egos of senior male executives is enough in itself to illustrate the mess HP had become.

With over $16 billion in write downs this year, sacking the eye-candy for over-privileged middle aged executives is the easier task for current HP CEO Meg Whitman. Whether she can manage to save HP from over a decade of poor management remains to be seen, but the shareholders will be hoping.