Mark Hurd crunches the numbers
 |
| HP CEO Mark Hurd outlined the company's enterprise strategy for financial analysts on Monday. Image: HP webcast |
I was sitting with Mark Hurd on the patio outside his Palo Alto office exactly four months ago when he made it crystal clear that an avalanche of pink slips was coming.
At the time, the Hewlett-Packard (HPQ) CEO wanted to be sure I knew he hadn't temporarily lost his mind. He had just announced a $13.9 billion deal to buy EDS, a tech outsourcing company, and he was well aware that EDS's 140,000 employees would sink HP's profits unless he slashed costs. "I already know the math," he told me more than once.
Now we do, too: Hurd will cut 24,600 jobs over three years, half of them in the U.S., for an annual savings of $1.8 billion. Or at least, that's what he told a gathering of Wall Street analysts on Monday. I expect that when all's said and done, he'll have cut a bit more than that.
What we don't know is how the EDS/HP combination will stack up against entrenched competitors like IBM (IBM), CSC (CSC), and dozens of Indian firms that compete for contracts to handle back-office technology functions. During his presentation, Hurd didn't get into details like how HP will expand its customer base, offer high-end consulting and mollify EDS partners who worry about getting pushed aside now that HP is running the show.
Instead, he and his lieutenants mostly stuck to big-picture cost cuts and opportunities to sell more HP gear through the services organization. They promised that HP Services would hit operating margins of 9-10% in fiscal 2009, and 11-13% in 2010. "Longer-term, we believe the services segment has the potential to deliver 13-15% operating margins," said Chief Financial Officer Cathie Lesjak. "We're not confused. We know we need to create and deliver shareholder value."
IBM, meanwhile, isn't taking any guff from HP. During Monday's analyst meeting, in a not-so-subtle dig, Big Blue announced a new initiative to move people off of standard server equipment like HP's, and onto its own System Z mainframes. IBM's fighting back in other ways, too; when HP closed the EDS acquisition, IBM vice president Michael Svinte sent a rally-the-troops memo to the sales staff. "HP bought yesterday's model, with a huge labor force in higher-cost jurisdictions," he wrote. "To catch up with IBM's current skills and capabilities will take HP/EDS years, if ever. This is our time to capture share!"
And really, Svinte has a point. Even combined with EDS, HP's services business is puny next to IBM's – last year IBM recorded $54.1 billion in services revenue and margins near 30 percent, while EDS and HP together managed $39 billion in revenue and far thinner margins.
But on Monday, Hurd & Co. made it clear that they're not focused on going to go toe-to-toe with IBM just yet. Instead, they're working on getting their own house in order. Their goals include issuing half of the 24,600 pink slips in the next 12 months, and keeping HP's other business units chugging along.
If HP can cut workers and stay focused enough to avoid losing business to IBM, it could eventually emerge as a major force in the services business – and Hurd has a record of cutting and growing the company at the same time. During his first year at HP he and his team cut 15,000 workers while overhauling the company's operations.
When an analyst asked about his expertise at slashing jobs, Hurd was careful to nod to the human cost of cutbacks. "This is a really tough day for us. There's a human aligned to every one of these actions," he said. But don't think that will slow the flow of pink slips. "We've had to deal with taking thousands of people out before," Hurd reminded him a moment later, "and taking them out globally."
In other words, Hurd still knows the math. And once he trims HP down, he plans to pose a growing problem for IBM.
I work for HP and I can say one thing ,they don't care about the hard workers who push out all that work and make the shareholders all that money. So get it right.
Have you ever seen the movie "Boys from Brazil", this guy is actually one of them.
It is very interesting that the shareholders and investors are still asleep and cannot figure out Carly's, Mark's and other "hunters" game. More than 50,000 people paid with their jobs for Carly's goodbye package. How many people will pay Mark's?
Perhaps Mark Hurd is too young to remember two words: Control Data. They, too, were losing market share and attempted to get into the service business. When that didn't work, they tried integration. When that didn't work, they tried going out of business (effectively).
Look, folks, I am a buinessman and I am sick and tired of people saying that CEOs have a responsibility to increase shareholder value. What bunk! A CEO's responisbility is to run his company as efficiently as possible and earn money for the shareholders. The best way to do this is to keep your company stable and executing at the top of its game. To do that you take good care of the people who actually run your business. When a good business opportunity presents itself, you take it. But, when that opportunity means that you have to fire 24,000 loyal employees just so you don't go belly up, you have not – by definition – found a good business opprotunity. You've found a high risk venture that will not, in all probability, pay off in the long term.
Business has become too little about practicing sound, ethical business and too much about maximizing return to greedy investors – who have nothing more invested than money. The people who actually generate business value have to pay the ultimate price for this and none of those people have ever darkened the doorway of the board room.
I do not understand the math. It is simple. Start with your own salary cut and all the other useless perks that you are getting. I think that is the basic thing to do his job.
Normal people's anual salary is this guy's bill in a hotel stay. Bad. Very bad.
Hurd is running a global company and his job is to maximize shareholder value not employ as many people as possible.
These layoffs are a result of intergrating two enormous companies into a single functional organization. For example, before the merger we have two seperate accounts payable groups, two finance groups, two HR groups, etc. Two sales people (one HP one EDS) servicing the same area/region.
The layoffs (in most part) are a result of consoldation – not extreme measures to temporarily inflat the stock price.
And I am an HP employee who just might be one of the 24k, but I am realistic.
Try not to hate on a guy that is doing his job…and doing it pretty well too.
I think it is a shame that our government allows major corporations to merge, making a few “in charge” people very rich with buyout clauses and golden parachutes, while 24000 people lose their jobs, crushing their spirits and finding themselves without any healthcare. Not to mention with out a job or the career they may have dedicated their life too. The already unemployed and the newly unemployed, along with the many that are being enrolled into the poor house with major industry collapse is a un furling of our nations financial system. Maybe in an election year our candidates should be supply real plans on addressing corporate corruption, greed and mis-management instead of how cute a VP candidate is, or what race, religion, age, and sex they are. It would be nice to know that at some point our government would severely punish a corporation for making 24000 people unemployed and shipping thousands of jobs overseas, rather than allowing them to walk away with a windfall buyout, and a resume item for their next corporate victim.
Yeah…once every couple of years, it does it. It's not like he had a choice. These are not needed employees since the profit margin is smawer.
i began my career with HP and during the later years served in leadership capacities with IBM SWG. Having had a taste of both the legends of information technology both have a distinct verve of being pioneers and market makers.
Critically the 90's decade became a defining moment in the distinguished history of the titans.
IBM hit the funk first and it took a leader par excellence like Louis V Gerstner to swing the pendulum in favor of big blue decisively. He reading of the future was spot on and he shepherded the company into strategic markets and importantly growing markets. Many were market making initiatives such as calling the SWG cash cow and buying the consulting powerhouse ( which HP attempted and failed) and betting early on services and exiting low value commodity and unprofitable PC biz. Now they have as decade plus lead which is a tough act to follow.
On the contrary HP did have a change agent in Carly Fiorina who bet on big Compaq take over and other slew of changes. Which Lou Gerstner managed the element of culture Carly had her detractors which disabled her tryst with change in HP. In many way HP is coming through from a second funk which it could have avoided.
Under Mark Hurd able leadership HP is running a catch up game. A decade of strategic advantage which IBM enjoys. Nonetheless it is a catch up game unless and until IBM remains stagnant and HP does some game changers the gap shall remain huge.
Carly Fiorina destroyed HPQ. Hurd is just trying to make HPQ competitive again. Fiorina probably left HPQ much too bloated.
As an outside observer, 25 plus year computer industry veteran, former industry analyst and current silicon valley executive I am very impressed with Mark Hurd's leadership of HP. We live in a time of major transition. That takes strong and courageous leadership and often results in significant and painful adaptation to a new reality.
Sam Palmisano is leading IBM confidently and effectively through this era. Mark Hurd is likewise doing the same to transform HP and it needs to be done. He may not be being aggressive enough.
Be worried about Dell. Their entire business value proposition is being eroded.
Sun is adrift, rudderless and its leadership cannot communicate its value, business strategy or relevance effectively to its customers or investors.
Both HP and IBM have a vision and a future. Change is sometimes painful but necessary. Only the fit survive.
I wonder how this will affect EDS and their state and federal government offices. Many states contract with EDS as their Medicaid fiscal agent. It could be disastrous for many states health care management if suddenly EDS starts losing employees due to "cost cutting".
Give me a break, Corvallis John 12:52. How well did Carly bind your loyalty to the Company?? She destroyed the HP culture long before she got booted. Check the stock's performance during her tenure vs. that of Mark's.
As a former HP employee, I was sad to see Carly & Co. throw away HP's broad portfolio of products (test & measurement etc.), and focus on industry standard hardware and printers. Under Carly, HP lost much of its uniqueness.
I'm really glad to see that under Mark Hurd, HP has again expanded out of the these commonplace markets, and embraced the higher growth – and more innovative – software and services markets. Building on these will grow the company in a way that I think Bill (Hewlett) and Dave (Packard) would have appreciated.
HP has been trying to take on Big blue for the last 40 years!! This guy, by his own admission, can't grow the business so he decides a job slashing program will "help his margins". This guy is exactly what is wrong in corporate America today–cut the jobs, screw the workers, and walk away rich!!! Big Blue will clean their/his clock and he won't even know he's been taken out to the shed for his whippin!
As a long time HP employee (going on 14 years) I can tell you that Mark Hurd as very effectively destroyed any loyalty that HP employees once held for this company. He is a numbers person and has little care for the human cost of his actions. I honestly wonder if he has a soul.
As an American tax payer and IT worker…why in ANY way should I condone this? Is it to be via government support of eased immigration/foreign worker levels and yet more expanded tax deductions for well lobbied interests like HP ? Legislators… en garde, CHOOSE your constituents and stick by them. Your choice, Fats Cats or regular people.
Mark Hurd is the force of greed in our world today. He has zero empathy for regular middle class people – I would say he is effectively autistic in this regard. The corporation is always a sociapath, but not necessarily the individuals in it – this is a phenomenon when large groups of people are led by small groups of super-rewarded ones – sociopathy generally results. Mark is just a product of his privileged background and many years of ceaselessly feeding his greed – sadly he is now beyond redemption. The corporations or avaricious super-fed can never control themselves – only democratically elected governments immune to lobbying can, through just and society protecting regulation. Speaking of governments we have been criminally let down by ours in the past decades; let's hope Obama gets backed by most of the 90%+ who are disenfranchised increasingly by thes hungary, pampered pigs, and that he actually gets to mitigate gross inequity in our great land once more. Shareholders my ass – since when should a rich minority destroy the lives of the decent majority to stuff their pockets even more? Get a grip guys, and vote for change.
http://www.damiansaunders.net/2009/02/26/commentary/hp-pay-cuts-an-unfair-act-of-economic-opportunism-and-greed/