Meg Whitman's Toughest Campaign: Retooling HP - New York Times

IT’S not as easy being as Meg Whitman might have expected.

At 56, Ms. Whitman, the billionaire who spent a fortune unsuccessfully trying to become the governor of California, has found her Act III. She has been chief executive of for a little more than a year, and many people are still waiting for her to get her message out about the place.

Here it is:

Meg Whitman believes in H.P., and believes that this company matters to Silicon Valley, to California, to the world. She believes that Wall Street doesn’t quite get it â€" doesn’t quite see the promise she sees. She believes that mobile devices, cloud computing and Big Data will re-energize H.P., a company that for a decade has grabbed more headlines for boardroom soap operas than for bold innovation.

“I believe in creative destruction,” Ms. Whitman says in a conference room near her executive cubicle.

Even, it seems, when the stakes include her company and reputation. In all likelihood, this is Ms. Whitman’s last great public performance. She became rich by building eBay, then spent more money than any candidate for public office in the nation’s history trying to become California’s governor. She was sometimes portrayed in that race as an aloof 1 percenter â€" as someone who pushed around subordinates, once literally, and who was unkind to her housekeeper, an illegal immigrant. “I left a little bruised,” Ms. Whitman, a Republican, says of the 2010 race she lost to Jerry Brown. “It was hard, it was personally very hard.”

So now Ms. Whitman is focusing her energy on H.P., the company founded by the tech legends William Hewlett and David Packard. Bill and Dave, as they are referred to at the company, spawned Silicon Valley. Last year, H.P. posted revenue of $127 billion. It employs 320,000 people directly, and easily that many again through a network of manufacturers and computer resellers across 170 countries.

Ms. Whitman has plenty of impressive-sounding stats at her fingertips. H.P., she says, employs thousands of people in Costa Rica, Houston and Boise, Idaho. “In India, we have 60,000 people,” she says. A new program for selling printer ink is in exactly 87 countries. Every 15 seconds, the company turns out 60 new printers, 30 personal computers and one powerful computer server. Still, she yearns for even more data, something closer to the command of the day-to-day process she had at eBay.

THE fact is, H.P. isn’t what it used to be. Next to Apple or Google, it looks like a bit of a loser. In the most recent quarter, as Apple soared to new heights, H.P.’s revenue fell 5 percent and its operating margins dwindled. Profit margins at I.B.M. and Apple are several times that of H.P. And H.P.’s share price, at just over $17 on Friday, is about where it was in 1995.

“It’s staggering,” says A. M. Sacconaghi, an analyst at Bernstein Research. “This is now the cheapest big stock in the last 25 years. That reflects an industry belief that the company is going to decline.”

Ms. Whitman is impatient to move H.P. closer to a global computing explosion that is transforming the industry. Smartphones and tablets from Apple, Google and others are now flying into consumers’ hands worldwide. Those computers are tied via the Internet to cloud computing data centers operated by Amazon, Microsoft, and hundreds of multinational companies. Information from all the consumer devices, in addition to data from billions of sensors and Web-crawling robots, is crunched in these supercomputing clouds, creating a Big Data revolution full of business opportunities and dangers.

From Ms. Whitman’s high vantage, the trends of mobile, cloud and Big Data resolve into a single phenomenon: the creation and exploitation of Information Everywhere. H.P. makes consumer devices, in addition to servers for the cloud, sensor networks, and analysis software. Instead of standing at the confluence of the phenomenon, though, H.P. is on the sidelines, with most of the parts but none of the integration to make it a leader.

H.P. sometimes seems like a place of siloed relics, as quaint as the autographed picture of Herbert Hoover in the shrine that is Mr. Packard’s office (along with Mr. Hewlett’s, untouched since the day Mr. Packard left in 1993). The stock is down 24 percent since Ms. Whitman took over. H.P. spends $4 billion a year on marketing, and, according to an arm of the ad agency WPP, has one of the fastest-eroding brands among major companies.

So why did Ms. Whitman take the job? Part of the answer may be in her new slogan for the company: “Make it matter.” She plans to unveil her strategy to Wall Street analysts on Wednesday.

She envisions a more customer-focused, Information-Everywhere H.P., with restyled PCs whose screens break off into iPad-like tablet computers. H.P. will also get into mobile devices, she says. And H.P. printers, under attack from cheap competitors, are being revamped as cloud-connected devices capable of initiating Google-esque data searches through corporate information. Print cartridges will be sold by subscription, as well as in individual units, with automatic refills shipped when ink runs low.

In addition to selling regular computer servers, networking and data storage, H.P. is focusing on cloud-ready “pods” of servers, storage and networking, built in three days. Right now a comparable data center can take 18 months to construct.

As impressive a portfolio as it is, it’s unclear if Wall Street will buy the idea of the company’s renewal. Others have equal or greater products, though without H.P.’s broad corporate reach. Ms. Whitman herself is somewhat conflicted: in the same interview, she says that employees and key customers understand the new H.P., but “I’m not sure the media and Wall Street do.” Still, she says, H.P. needs four more years “to have confidence in itself.”

The external threats are apparent. New consumer devices eat at H.P.’s PC business, the world’s largest. The cloud computing data centers operated by so many companies have some H.P. servers, but those servers have lost ground to shrink-wrapped racks from cheap Asian competitors. The cloud also lowers demand for individual servers, a $10 billion H.P. business. The company also spent that amount last year for Autonomy, a Big Data company that has yet to earn its keep.

“It is a shift bigger than anything in our memory,” Ms. Whitman says. “We have to get ahead of the curve.”

And H.P. will need to do it, she says, during a period of slack economic growth in Europe, China and the United States.

Managing the decline, or, as Ms. Whitman prefers to call it, transformation, of old businesses is a tall order for any executive. At H.P., she has been going for the old Bill-and-Dave touch, standing in line for stir-fry in the cafeteria, hosting video conferences, asking if that seat is taken. She can’t talk to everyone, but 10 minutes into a conversation she is apt to lightly touch someone’s hand when making a point.

“On Day 1 when she came here, she said, ‘Here’s the deal: I’m team oriented,’ ” says David Donatelli, the head of H.P.’s server, storage and networking business. Ms. Whitman kicked top executives out of their private offices, and into a warren of cubicles to get them talking. She also replaced people and merged businesses so that the 11-member executive council at the top of H.P. now has just one trained engineer. Counting Ms. Whitman, there are five M.B.A.’s.

Many of the company’s new products were planned before she took over, but she has added a greater emphasis on software, design and customer focus. Server sales reps are compensated partly on how much software a customer buys, and how much of a customer’s total computer budget, including data storage, software and networking H.P. can take.

So far, however, the new products don’t bring in enough revenue to make up for the eroding older product lines. “There is nothing wrong with being in charge of a declining business, as long as you are managing it,” Ms. Whitman says. “The whole business better not be declining.”

TWENTYyears ago, people like Steve Ballmer at Microsoft, Larry Ellison at Oracle, and John Chambers at Cisco Systems heard Kenneth Olsen, then the leader of Digital Equipment Corporation, deride the PC as unsuited for business. Within a few years, DEC had been gobbled up by Compaq Computer. Everyone knows viscerally how fast change can overtake a legacy business â€" and how hard it is to change.

There’s little glory in managing decline, particularly in an industry in love with what’s next. Apple’s tablets are taking share from PC makers like H.P., but only after Apple had a near-death corporate experience that ended with the return of Steve Jobs. He created a new reality for Apple with its retail stores, something that H.P. can’t copy to sell PCs. I.B.M. also transitioned successfully after billions in losses and years of cuts. Most others ended like DEC.

Still, Ms. Whitman says her corporate campaign is less brutal than her failed electoral one. She doesn’t like to talk about her $140 million-plus run for governor, and says only that it gave her a thicker skin. (At a recent companywide meeting, Ms. Whitman, who helped host a $25,000-a-plate fund-raising visit to Silicon Valley by Paul Ryan, said she would not take a government position if Mitt Romney â€" who long ago hired her into the consulting firm Bain & Company â€" is elected president.)

The recent legacy dogging H.P. is uniquely bipolar. Carly Fiorina, who was named chief executive in 1999, tried bringing H.P. somewhat belatedly into the Internet age with a mixture of self-promotion and big corporate acquisitions. She defended her acquisition of Compaq, only to be ousted amid uneven business execution and a corporate spying scandal.

Her successor, , deployed hard-nosed, sharp-pencil cost-cutting. He resigned amid accusations of inappropriate conduct with a female employee. Like the fate of a totalitarian despot, Mr. Hurd’s once-cheered reign is denounced in hindsight, with critics saying his cuts starved H.P. of products and talent. In August, Ms. Whitman wrote off $8 billion of Mr. Hurd’s 2008 purchase of the outsourcer Electronic Data Systems for $13.9 billion, since hoped-for services contracts never materialized.

After Mr. Hurd came Léo Apotheker. He talked about new technology but agonized publicly over how H.P. would stay relevant. H.P. stock sank, and, before long, he was out, too.

And so H.P.’s board turned to Ms. Whitman.

“She understands customers, business,” says Marc Andreessen, the Silicon Valley investor and an H.P. director who helped bring her on board. “While she’s not an engineer, at eBay she got schooled in how to talk to engineers.” Besides, he says, there are not a lot of Bill and Daves out there: “Engineers running companies with 50,000 people or more just aren’t available.”

Remarkably, the shadow of Bill and Dave still hangs over H.P., for better and for worse. David Scott, who runs the storage business, was at H.P. from 1983 to 2001, then rejoined in 2010 when H.P. bought a company he ran. He has experienced four C.E.O.’s in two years (including an interim chief between Mr. Hurd and Mr. Apotheker) but says that the first day he returned, “three of the first four people I met were people who were here when I left; there is a tremendous loyalty here.”

But employees say H.P. is desperate for leadership after so many changes in the executive suite.

“At our essence, we all want to build a great, enduring company,” says Mr. Donatelli, the head of the server, storage and networking business. “I do all-hands meetings where I award people for 40 years, 30 years of service, people who’ve given their lives here. It’s a huge responsibility.”

MS. WHITMAN’S efforts to clear out the bad history include a “bureaucracy buster,” to register complaints about slow practices, on H.P.’s internal Web site. In the last six months, it garnered 10,000 items, describing problems as varied as overflowing e-mail accounts and lengthy internal procurement rules. Ms. Whitman cannot know, however, if this is even a significant fraction of what is slowing H.P., or whether all its impediments can be addressed.

She continues to hold conference calls every couple of weeks with several hundred employees. Recently she derided the fact that H.P. processes insisted on a credit check even for a sale on a customer the size of Disney. She quickly shut down any talk of selling off the PC business, figuring that H.P. could guarantee cheap supplies by being the world’s biggest consumer of things like semiconductors and computer memory. One of her favorite updates involves talking about her top priorities, what she is doing about them and what she needs from her managers.

Last spring, in a move to a more consumer-focused business, Mr. Donatelli’s job changed from sales of servers to sales to business customers, a consolidation of emphasis that also combined senior managers in every country. Todd Bradley, who has run the company’s PC business, picked up printers as well; that move resulted in the retirement of a well-loved H.P. veteran. H.P. is counting on a spike in PC sales as soon as October, when Microsoft introduces its new operating system, and Mr. Bradley vows that H.P. will regain its brand.

“Despite the ill-informed commentary that the PC is dead, it is an ever-expanding category,” he says. Unlike the consumer-focused iPad, he says, PCs are “devices that are enterprise-ready, with security and Windows 8 compatibility” that create content for the cloud as readily as they consume it. Since January, Ms. Whitman has doubled the size of Mr. Bradley’s PC design team. Now at 60 people, it’s still small compared with Apple’s.

Ms. Whitman’s consolidation of top executives was a small part of a companywide layoff of 28,000 people, and even that may pale against what happens next. At a former Compaq factory in Houston, cloud-computing containers may soon be produced at a rate of 20 a month. At about $25 million apiece, that could mean $6 billion a year in revenue, which is likely equal to the revenue that H.P. will shed in this fiscal year relative to 2011. It takes fewer people to make a cloud-computing pod, however, than an equal number of servers, and pods have profit margins well above H.P.’s average.

“I’m the first C.E.O. in a long time who is from the Valley,” Ms. Whitman says. “Carly, Mark and Leo weren’t.”

She continues: “I understand the speed you have to move.”

This article has been revised to reflect the following correction:

Correction: September 30, 2012

An earlier version of the text of the slideshow accompanying this article referred imprecisely to the reasons that Carly Fiorina left Hewlett-Packard.  She was fired amid uneven business execution and not because of a corporate spying scandal. (The spying incidents came to light after she left.) The slideshow also referred imprecisely to the dismissal of Mark Hurd. He resigned amid charges of inappropriate conduct with a female contract employee, not an female employee of the company.