The Hewlett-Packard turnaround started around a decade ago and has been badly hampered by a revolving door on the CEO office. Mark Hurd and Leo Apotheker arguably made things worse, leaving current CEO Meg Whitman a nasty mess to clean up.
Meanwhile, Computer Science Corp. CEO Mike Lawrie started a few months after Whitman (February 2012 versus September 2011) but has gone farther faster. Understanding why, as well as what both CEOs are missing, provides some insight into how to turn around a complex company.
Why CSC Can Recover Faster Than HP
For starters, there are three key differences between the two companies that explain why the HP turnaround has been far more difficult.
- CSC is a relatively focused company. It's most similar to the Electronic Data Systems-heavy HP services unit, which is a major part of the HP enterprise division, which in turn is only part of a company that also includes significant, and very different, PC and printer divisions.
- CSC was very near bankruptcy, while HP was in far better financial shape. Leading a company near financial failure gives a CEO has a great deal more latitude than one at a company that's still very financially viable.
- Finally, HP is battling an unprecedented number of companies, with EMC, Cisco, IBM, Oracle, and Dell focused their sights on HP's business. CSC, on the other hand, mostly flies under the radar.
These three factors give Lawrie a huge advantage. He's given more freedom to make changes, he has far less complexity to deal with and he isn't constantly under attack by other global companies.
CSC Streamlines Offerings, Replaces Executive Team
I spent a bit of time with CSC executives at EMC World 2013. The difference between Lawrie's execution and Whitman's at HP is dramatic. CSC at its worst was admittedly simpler than HP, so Lawrie's success is understandable but still amazing.
Even though IBM's Louis Gerstner and Sam Palmisano trained Lawrie, his execution is more reminiscent of Steve Jobs, who faced similar problems and also enjoyed greater latitude than even Gerstner had. As a result, Lawrie has made far more progress in turning CSC into a well-managed company.
Both CEOs came to companies with far too many products to manage. While HP's relatively profitability makes it hard for Whitman to make dramatic changes, Lawrie has whittled CSC's product line from nearly 3,000 products to fewer than 100.
In addition, CSC no longer treats every technology vendor equally. Under Lawrie, the company has tied itself tightly to firms such as EMC and positioned itself as a more strategic partner—which means more aggressive promotion for CSC.
Mirroring Jobs and Gerstner, Lawrie also replaced 90 percent of his executive staff. (In contrast, Whitman left her executive staff in place, even though at least one member of that team was, and likely still is, considered for the HP CEO job.)
Jobs' success in creating a focused executive team, and in turn recreating Apple, helped him take the company further than Gerstner took IBM during a similar term in office, so it's definitely a model worth following.
It's also worth noting that a surprising number of new CSC executives came from HP, given that Lawrie came from IBM. He did this for two reasons. One, it meant he'd have a loyal, well-oiled machine. Two, the team would know intimately the easiest target for the firm's expansion efforts.
CSC Missing Marketing, Financial Opportunities
It's interesting to watch CEOs work. Even those who appear to be specifically trained by prior experts tend to ignore areas where they haven't developed competency.
There are two aspects to both the Apple and IBM turnarounds that neither CSC nor HP are addressing. The first is the selection of a formative chief financial officer such as Jerry York, who came to IBM after driving Chrysler's turnaround under CEO Lee Iacocca. York actually came to IBM before Gerstner did, and the CEO likely saw York as a rival more than as a member of his personal team, even though York drove most of IBM's initial progress.
Here Whitman is in better shape than Lawrie. Her situation mirrors Gerstner's, actually. HP CFO Cathy Lesjak has been at the job since 2007 and is considered one of the best in the business. Whitman has given her the authority to materially assist in the turnaround effort.
In contrast, CSC CFO Paul Saleh, appointed in May 2012, did participate in the Sprint and AOL turnaround efforts. While neither endeavor is currently seen as a success, this is more a matter of sparse resources than Lawrie actually missing Gerstner's lesson.
The second missed opportunity is aggressive marketing. Gerstner took the unique approach of building the most powerful IT marketing team ever created, largely by hiring advertising experts out of the industry, while Jobs took the lead in marketing Apple personally and handpicked a CMO who would execute sharply on his vision.
Both CEOs then took aim at fixing their respective firms' image and product line before the companies were themselves fixed. Jobs and Gerstner knew that perceptions change slowly but trump reality; if they didn't start with perception, it would add years to their marketing efforts. I don't know Apple's internal, but I know IBM needed five years of massive marketing spending to restore the Big Blue brand to any semblance of its former power.
Starting early helped Apple and IBM better match customer perceptions to the real improvements the companies were making once they were, in fact, accomplished. It amazes me how so many CEOs—even Tim Cook at Apple and Ginni Rometty at IBM—don't understand the massive leverage that marketing can provide.
Are Those Who Ignore History Doomed to Repeat It?
Apple and IBM taught us the four factors of a successful corporate turnaround:
- Massive product simplification
- A handpicked executive team loyal to the CEO and optimized for current market conditions
- A strong CFO who will drive the simplification effort and focus on optimizing internal expenditures
- A marketing effort strong enough to convince customers to believe in the company before it has changed so they're ready to buy when improved products and services are ready
Commentary: Why Apple Won't Be Around as Long as IBM
Lawrie's turnaround efforts have been more dramatically successful because CSC was in more trouble than HP but, at the same time, represented a simpler problem to solve. This means Lawrie has more latitude to make changes that Whitman does at HP.
Lawrie's direct training under Gerstner at IBM has paid off handsomely, though it's clear that he, and many other CEOs, underestimate the power of marketing in turnaround efforts. This, I think, is because CEOs don't get much training in marketing or much education in social science.
Since Given CSC is targeting HP's revenue base and reporting increased penetration, CSC's approach—and relevance—should be a higher executive priority for HP than it currently is. After all, CSC's tight relationship with EMC, Cisco and VCE makes it a larger threat than it would be alone.
Rob Enderle is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance and Security. Currently, Enderle writes on emerging technology, security and Linux for a variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.