vendredi 18 novembre 2011

HP Is Not Apple, Meg Whitman Is Not Steve Jobs, But Here's Why I'm Bullish Anyway

In late September, when Steve Jobs was a fortnight from his long night, HP, whose co-founder Bill Hewlett had once chatted with and inspired the high-schooler Jobs, named Meg Whitman as its latest CEO. Meg Whitman has many positive and unappreciated qualities, but no one has ever compared her to Steve Jobs. He was the West Coast acid-dropping dropout and seeker; she was the East Coast Ivy Leaguer who kept her nose clean. Her rise up the corporate ladder to eBay was as predictable as any Harvard Business School grad’s can be: Disney, Procter and Gamble, Bain Capital. Even her husband’s name, Griffith Harsh IV, has an East Coast ring to it (though Dr. Harsh is a neurosurgeon at the Stanford Medical Center).

But eBay was Whitman’s game breaker. She became CEO in 1998, when eBay had 30 employees and about $4 million in sales. Her tenure lasted almost ten years and oversaw eBay’s growth to $8 billion and 15,000. Her genius stroke was the PayPal acquisition in 2004. Whitman’s first six years as eBay’s CEO were an unbridled success. Her grades for the next four years are mixed, and include the 2005 acquisition of Skype for $4.1 billion. The eBay immune system never welcomed Skype and coughed it up in 2009 for $2.75 billion. During this time, eBay’s growth flattened. The opportunity to a be a competitor of Amazon’s or Facebook’s was also missed.

As a slap to Whitman for her latter days at eBay – and perhaps for her expensive, lackluster and unsuccessful 2010 governor’s race against Jerry Brown – HP’s stock dropped 3.5% the day after the Whitman appointment.

I have no way to prove this, but I think Whitman was also punished for being the opposite of Steve Jobs at a time when the dying Jobs was about to enter Silicon Valley sainthood.

But quietly, the Whitman venom has receded, and HP’s stock is up 25% since her appointment. I think HP is a buy at $28, and we will come to see that Whitman is the right leader for the iconic company.

Even if you remain skeptical about Whitman, HP is a buy on the price. Consider that IBM and HP have comparable revenue numbers. Yet IBM is worth $220 billion. Warren Buffett just plopped $10.7 billion into IBM at this valuation.

HP is worth $56 billion. It is dirt cheap.

For all of HP’s problems, it still generates about $10 billion a year in free cash flow. A modest multiplier of ten times cash flow would get HP to $100 billion. Investor fear is costing HP scores of billions of dollars.

Though they can’t publicly say so, Meg Whitman and HP’s board of directors surely wonder how they can get HP’s stock price back up. Restoring faith in HP’s business and brand would go a long way in doing that. Brand restoration will create, literally, tens of billions in value for HP.

What, then, is HP’s essential brand story and how can it be restored? I think there are two elements. One is the great work of HP’s deep commitment to engineering innovation that has held remarkably constant since the company’s birth in 1937.

How to monetize this work? Whitman must manage it like a venture capital portfolio so that promising projects move along quickly, with the ten or so getting funded each year. Whitman needs to get close to her CTOs and to HP board members like Marc Andreessen with a stellar track record of entrepreneurship.

The second “essence” of HP’s brand is company culture that nourished its employees without fattening them into complacency. Before there were any “best places to work” published lists, there was the “HP Way” as laid down mostly by Bill Hewlett and captured by authors such as Jerry Porras (“Built To Last”) and Michael S. Malone (“Bill and Dave.)

Here is a July 16, 1970 memo from Bill Hewlett to HP senior managers. It is published in “Bill and Dave” and captures HP’s commitment to culture:

SUBJECT: Evaluations and Terminations

An increasing number of cases are coming to my attention in which employees are being terminated with little or no warning that their performance has been unsatisfactory. In some cases, evaluations have been glowing up to the time that an individual has been released.

There is no excuse for this. It is not humane. It is not HP-like.

Question: Can HP afford to be humane and HP-like as it turns itself around? I would turn the question around. It can’t afford not to. A remarkable feature of today’s tech-driven economy is the tight correlation between “best places to work” and performance. Google is a great place to work. SAS, the privately held analytics giant in North Carolina, is a great place to work and never lost a step in the recession.

This is HP’s legacy. It can’t succeed being one of those high-pressure, high-success companies like Oracle because Larry Ellison is not Bill and Dave. He’s Larry Ellison, a hyper-competitive man in everything he does. Nor can HP be like Apple, the creation of a genius-tyrant. Apple, I predict, will struggle with its core values post-Steve. Hint: More than what CEO Tim Cook does, watch what designer Jony Ive does in the next months. Steve Jobs always had Ive’s back.

Meg Whitman will not be given the chance to re-create HP in her image. HP was created in Bill and Dave’s image and enjoyed its best years when it was true to itself. Whitman’s job will be to rediscover the Bill and Dave way and adapt it. I would suggest to her that she read “Built To Last” and “Bill and Dave” if she hasn’t already. I would further suggest a trip to visit Dr. Jim Goodnight at SAS. Goodnight shows what HP can look like in the 21st century.

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