Great businesses evolve. Apple is now a phone company. Amazon is the Internet’s big box store. IBM is a global IT consulting operation. And Hewlett Packard is…Well, the once-great company that historically defined Silicon Valley itself is now a Layoff in Search of a Strategy.
So where can it now look for that elusive strategy? Like any troubled company that makes wholesale job cuts in order to recover profitability or enhance market position, HP would do well to revisit how, in the early 1980s, Jack Welch, the legendary General Electric CEO, tailored a massive reduction-in-force to directly serve a growth agenda that veritably redefined one of the world’s top corporate brands.
Not that HP can pay such obeisance without significant discomfort. It is, after all, the very same Jack Welch who seemed to go out of his way a couple of years ago to publicly savage HP’s board as “dysfunctional.” Yet if I were an HP shareholder, I’d hope its directors and officers would eat a slice or two of that humble pie in the interests of long-term corporate durability.
Don’t be fooled by the short-term indicators. Last week, after reducing its employee base by around 27,000 jobs, or 8% of its work force, HP stock jumped as savings projections of $3 billion to $3.5 billion buoyed investors in search of a bargain. For short-term profiteers, the attraction was understandable. But for those of us who like to hold on to the stocks we buy, I’m not so sure it isn’t fool’s gold, especially when we apply the Neutron Jack litmus test in search of a sound strategic plan that can put these layoffs in some sensible context.
Alas, the comparison to GE underscores HP’s current deficiencies at multiple levels.
Strictly in terms of the numbers, HP’s latest layoffs pale beside GE’s. Dubbed “Neutron Jack” because, like the bomb of the same name, he saved the buildings and eliminated the people, Welch says in his book Jack: Straight from the Gut that GE let go of 112,000 people in a five-year period. (37,000 of those employees worked at sold-off companies.)
Fifteen years later, Welch could look back on an accumulated double-digit corporate growth rate, but it wasn’t the layoffs per se that drove the engine. It was the how and why behind the restructuring.
First and foremost, the layoffs were only one part of an existing plan to exit traditional markets that were beginning to flatten, including consumer appliances. GE instead identified its future with bigger-ticket growth areas like medical technology, finance, and media. Not every subsequent move was a success as, for example, the acquisition of Kidder Peabody was a particularly glaring misstep. By and large, however, Welch held to a most practicable philosophy, which was to only do business in areas where GE could occupy dominant positions.
Now, amid the bromides that CEO Meg Whitman offered last week to put the best spin on her RIF, it’s hard to find a comparable notion of HP’s future once the short-term benefits of the layoffs are assimilated. Will HP get out of its signature printer business as fewer and fewer people actually use printers? Has the company fully comprehended the potential impact of that decreased usage? Is there likewise a sense at HP that a few layoffs won’t save its service business as outsourcing trends accelerate? We might doubt it, particularly in light of Whitman’s comment that she is "cautiously optimistic" that the printer and services sectors have turned the corner. When I look around the corner, I don’t see printers anywhere.
We are told that HP’s future may lie in cloud computing and “big data analytics.” It seems a vague prognostication with no real sense of what those products and services will actually include or, significantly, who the customers are going to be. If HP has indeed defined its future market with requisite specificity, now is the time to say so. Yet all we really know for sure at this point is that smartphones, tablets, and the social media now drive technology, and HP isn’t in those businesses at all.
Second, Neutron Jack wielded his axe at the bottom 10% of his managers while other managers were directed to fire the bottom 10% of their employees – “bottom” in terms of quality, not rank. It was more than a tactical decision; much more than a process. It was communications at its most strategic, intended to send a message both internally and externally that the layoffs were, in fact, mainly designed to enhance performance and productivity. Far from demoralized, surviving GE employees were encouraged by the implicit vote of confidence, and they eventually repaid the corporation tenfold for the compliment.
Here the contrast to HP is extremely pointed. Whitman has averred that last week’s cuts were across-the-board, although reports do suggest many of them are aimed at HP's services division, which faces competition from IBM and Accenture as well as outsourcing companies in India. In any event, there was no real communication of how termination decisions were made in each sector. Worse, there’s rampant talk about how the wrong people are getting fired, including significant rainmakers. According to reports, one laid-off employee with $20 million in sales (and a 30% margin) simply went to another company.
Again, how the terminations are made is of critical strategic importance. It can bespeak short-term desperation or, alternatively, a sober appraisal of where the company is going and who is needed to get it there.
For companies like HP, 2012 is decisive as technology spend is expected to continue increasing (by 2.5% to $3.8 trillion, according to the Gartner Worldwide IT Spending Forecast). To lag far behind as others jump way ahead is a disheartening prospect for a company in any industry. Can HP keep pace by focusing on cloud computing servers? Even here the competition will be stiff, especially as it was just announced that Dell – facing deep strategic problems of its own – has already acquired Wyse Technology, a cloud computing service leader.
If HP is late to this game as well, at what game will it finally be on time? Its only growth has been in PC sales, yet, in a mobile universe, that growth was too flat to generate much enthusiasm for the long haul. Former CEO Carly Fiorina merged the PC and printer divisions; successor Mark Hurd then de-merged them. No matter. Whether or not two underperforming divisions are combined is of no particular long-term importance.
Is the current leadership more visionary? “Since Meg took over and started to make some changes, it’s been all about the tactical,” says Mark Fabbi, a research analyst at Gartner. “It doesn’t change the trajectory of the company.”
All such tales of corporate woe beg an unpleasant question: How, in fact, can the trajectory be changed? Can a company capture sufficient share of markets that others already dominate? The question is additionally vexing when the very brand of that company is predicated on outmoded or soon-to-be outmoded products and services.
There are two interrelated lessons. First, cost-reduction is especially not a strategy for a company like HP that already has a long history of trying to cure persistent ills by that primary means. The successful corporate RIFs of the past, like GE’s, only confirm the point as they were driven more by growth plans than by the perceived need to retrench. Not so the chronic short-term cuts for which Mark Hurd was already famous before Meg Whitman took his job.
Second, obsolescence happens in a heartbeat. The best way to plan the week is to begin Monday morning imagining what you need to be doing in terms of R&D if, by Tuesday morning, no one in the world will want what you’re selling. If there’s no ready market to which you can shift your resources, you must create one.
You can’t sell a Packard just because 27,000 fewer workers are making it.
Follow Richard Levick on Twitter @RichardLevick, where he comments daily on brands and corporate crises.
Richard Levick, Esq., President and CEO of Levick Strategic Communications, represents countries and companies in the highest-stakes global communications matters — from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church. Mr. Levick was honored for the past three years on NACD Directorship’s list of “The 100 Most Influential People in the Boardroom,” and has been named to multiple professional Halls of Fame for lifetime achievement. He is the co-author of three books, including The Communicators: Leadership in the Age of Crisis, and is a regular commentator on television, in print, and on the most widely read business blogs.
