Paul Wallbank – Brilliant Communications

Tag: dell

  • Saving Hewlett Packard

    Saving Hewlett Packard

    This site has previously looked at the massive task facing Meg Whitman as she tries to rebuild Hewlett Packard and undo the mis-steps of the company’s previous managerial failures.

    Bloomberg Businessweek goes further with a deep analysis of what went wrong for HP over the last two and Whitman’s challenges in rebuilding the business.

    HP’s decline starts with the biggest mis-step of Carly Fiorina, one of Whitman’s predecessors, in selling off HPs instrumentation business in 1999.

    Power in the instruments

    Industrial instruments were the core of HPs business, generations of engineers and scientists knew and trusted the HP brand which was synonymous with high quality, cutting edge technology.

    The proof of the instrument arm’s strength is in the subsequent share performance of the spun off company – today Agilent trades at $43 while HP wallows at $15, half of what it was worth in 1999.

    Making matters worse for HP was buying into the personal computer industry just as Dell and Gateway were commodifying the market. Fiorina’s high spending ways left Hewlett Packard incapable of competing against the lean operations of their nimbler competitors.

    In many respects Fiorina’s successor Mark Hurd is the IT sales guy from central casting; aggressive, an excellent eye for numbers, intolerant of (other peoples’) wasteful spending and an ego the size of Uranus.

    For HP he had some good points, making executives directly responsible for their division’s performance and cutting out management consultants. Anyone who shows Bain & Co or McKinsey’s the door, is not a wholly bad guy.

    Cutting costs in the driver business

    In cutting costs Hurd was ruthless – the Bloomberg story tells of how he cut HP’s driver division from over 700 to 64 staff. This in itself was not a bad thing.

    Those who worked on HP products remember that period well. The software that came with Hewlett Packard equipment was buggy and overblown and Hurd’s reforms bought in a real improvement as drivers went back to being simple and effective.

    Cost measures though also showed in HPs products and after sales support – increasingly the company resembled Dell during the dark days of Dell Hell where buyers of shoddy equipment found themselves dealing with poorly trained support desks over low quality phone lines. Customers started to flee HP products.

    The perils of stack ranking

    At the same time Hurd was using the crudest management technique of all – stack ranking, the practice of culling the bottom ten percent of workers each year.

    Vanity Fair’s 2012 expose of Microsoft’s decline infamously blamed stack ranking for much of that company’s woes. The problem being that defining the bottom 10% of a team invariably involves politics and staff become more obsessed with currying favour with their managers than shipping good products.

    People like Steve Ballmer and Mark Hurd like stack ranking because they thrive in that environment. The paradox is that characters like Steve Jobs, Bill Gates and Mark Zuckerberg tend to be culled.

    HP, and Microsoft, needed more geeks focused on shipping new products than political animals like Hurd and Ballmer but that’s not what they got.

    While Hurd met his financial targets, HP’s position was becoming more fragile as cranking up margins on services and printer cartridges while slashing costs on PCs and hardware can only go so far. His implosion over his royal lifestyle was probably one of the best timed exits in corporate history.

    It’s worth reflecting on Hurd’s management excesses as he slashed expenses for the lesser beings in his company, you can browse a list of his expenses at The Street. In this respect alone, Hurd personified the entitled managerial culture of modern western society.

    Replacing Hurd with the quiet Leo Apotheker made sense in that the new CEO was the opposite to his predecessor, but just as he didn’t have Hurd’s ego he was also a dud who made strategic mistakes and let costs begin to slip.

    In replacing Apotheker Meg Whitman has massive job ahead of her, an important part of getting HP on track is slimming down management ranks to make the company more nimble. That in itself is a big task.

    The biggest task of all though is to recapture HPs position as being an innovative leader with high quality products. Over the Fiorina and Hurd years that position was squandered and replaced by companies like Cisco and Apple.

    Right now it’s hard to see where HP can re-establish itself in the marketplace but the goodwill towards the company from a generation of engineers who were bought up believing Hewlett Packard means quality means the company has a chance.

    Hopefully Meg Whitman is the right person to seize those chances and undo fifteen years of bad management.

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  • Whitman’s managerial mountain

    Whitman’s managerial mountain

    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.

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  • Goodbye to the electronics store

    Goodbye to the electronics store

    “Can Electronics Stores Survive?” asks the Wall Street Journal.

    The future doesn’t look good with the liquidation of Circuit City in the United States and the exit of Australian giant Harvey Norman from the electronics markets.

    Yet Apple Stores are growing and while it’s tempting to dismiss their sales training as brainwashing the truth is their staff are among the most profitable retail employees on the planet.

    The real problem is the Big Box category killer store featuring wide product lines but poorly trained staff motivated only by commissions is a business model whose time has passed.

    Customers can now go online, research website that are far more informative and honest than the staff at the megastore then get the appliance delivered and often installed for less than the shelf price at the mall.

    The earliest industry this has affected is the computer sector – long ago companies like Dell and Gateway changed how people shopped for PCs.

    Given the economics, it’s surprising the low margin big box stores survived as long as they could and the main reason they did was because appliances were an ideal channel for pushing profitable finance plans and extended warranties.

    Often the store and sales assistant made more money out of the “interest free 72 months” deal, the three year warranty and the connector cables than they did from selling a top end laptop or plasma TV.

    Now the easy credit era is over, those add-ons aren’t so profitable and with Amazon leading an army of e-commerce retailers changing customer expectations, those businesses locked into Big Box, easy credit way of doing things have to rethink how and what they are selling.

    Harvey Norman’s founder Gerry Harvey said recently that people would still buy big items from his store. The reality is they are moving across to sites like Winning Appliances where they can choose the items, have them delivered installed and the old appliance taken off, a godsend when you’re dealing with a 50Kg washing machine or fridge.

    Apple’s success shows retail does have a future. It just doesn’t lie in the low service, Big Box model that grew out of the easy credit and cheap energy economy of the late twentieth Century.

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  • The tough world of smartphones

    The tough world of smartphones

    Dell’s announcement they are going to exit the Smartphone business – for the second or possibly even third time – comes on the same day Nielsen release a survey showing smartphones are now the bulk of US mobile phone purchases.

    For Dell this shows the problem they have in being locked into the commodity PC business, what was once a lucrative business is now suffering softening margins and slowing sales. In desperation they are looking to other product lines but struggle to differentiate themselves in other markets.

    The difficulties of doing this in the smartphone sector is shown in Nielsen’s analysis of what phones are selling.

    Of those sold in the last three months, a whopping 43% were Apple products while 48% were Google Android devices.

    Even more frightening in those Nielsen figures is Blackberry’s collapse where the Canadian product has 12% of the market but only 5% of sales in recent months. It’s little wonder Blackberry’s owner RIM is laying off senior managers.

    For Microsoft, that only 4% of phones were “other” than Android, Apple or RIM show just how tough the task of selling Windows Phone is going to be, something that won’t be helped with dumb marketing stunts.

    Google’s apparent success in mobile isn’t all that it seems either; while the Android platform has nearly half the smartphone market it doesn’t appear to be particularly profitable.

    The Guardian’s Charles Arthur looked at a number of legal cases involving Google’s mobile patents and extrapolated the claimed damages to get an estimate of how much Google earns from Android.

    Arthur estimates Android has earned Google $543 million dollars between 2008 and 2011 which, given Google’s mobile revenues last year were claimed to be $2.5 billion last year, indicates Google makes more money from Apple devices than it does from its own products.

    While Arthur’s estimates are debatable, they show how Apple’s profits dominate the smartphone market. Google, like Dell in computers, are locked into the commodity, low margin end of the market.

    Just as Dell have learned that entering new markets doesn’t guarantee success, Google may have to learn the same lesson.

    To be fair to Google, at least management are aware of being too dependent upon one major source of revenue.

    Whether mobile services built around the Android platform can provide an alternative cashflow of similar size to their web advertising services remains to be seen.

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  • Reputation’s long tail

    Reputation’s long tail

    When you decide customer support is an unnecessary cost, you make a statement that defines your position in the market place. Dell are reaping the consequences of this now.

    Micheal Dell, CEO and founder of Dell Computers, hopes to grab some of the tablet computer market from Apple with the release of Microsoft Windows 8.

    It’s a big goal – Apple have owned the tablet computer market since launching the iPad.

    Dell, along with most of the other PC manufacturers, squandered the decade’s head start they had in tablet computers with poorly designed and overpriced tablet PCs which were based around a clunky version of Microsoft Windows using styluses.

    Part of the problem was Windows itself; the operating system was designed for desktop users and to make it work on tablet computers it required a clunky workaround. Being designed for smart phones and tables mean Windows 8 may overcome previous limitations.

    But Dell have a problem; they are perceived as a low price, low quality supplier and have a competitor in Apple that has locked in the supply chain for the product.

    So Dell will struggle to beat Apple on price while customers believe the Dell system is inferior.

    Even more difficult for Dell is their support reputation, a quick look at the comments to the Bloomberg story illustrates the problem.

    Of the the sixteen reader comments, admittedly not a scientific sample, three business owners claim they will never buy Dell again after customer support issues.

    This is the critical mistake Dell’s management made in the 2000s – in order to cut costs so they could be profitable at lower price points they trashed their support.

    Eventually this culminated in the Dell Hell debacle where Jeff Jarvis’ experience summed up the frustrations of thousands of Dell’s disillusioned customers.

    Apple on the other hand chose not to go down the rabbit hole of cheap and nasty systems. Today they can offer free, and skilled, support in their genius bars as their fat margins allow them to provide constructive and helpful assistance to their customers.

    Now Dell has the reputation for at best indifferent after sales service which means they are locked into competing on price and ever declining margins.

    It’s not a good place to be for Dell but that’s what you get for treating your customers like an unnecessary nuisance while fixating on headline prices.

    We often talk about the Internet’s long tail; our online reputations could be the longest tail of all.

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