HR Is Driving HP's Turnaround (Yahoo, Take Note)

Hewlett-Packard shouldn't be succeeding. It's spread itself too thin by competing in too many markets. But the company's turnaround actually seems to be working, and a focus on employees seems to be doing the trick.

This week's Hewlett-Packard annual analyst conference is a fascinating event.

What's fascinating isn't really the products or services, though. It's that HP is undergoing a unique turnaround that shouldn't be working—only HP doesn't know that, because the company's actually making some amazing progress.

In a typical turnaround, as we saw with both Apple and IBM, the company is cut back to a foundation and then rebuilt around that foundation. While HP has undergone layoffs--and an impressive number of them to boot--most actually occurred before the latest turnaround effort. No divisions or capabilities have been cut.

This means HP is competing in more markets than any of its competitors: Enterprise systems, consumer products, large-format printers, corporate personal computers and tablets, and personal and departmental printers. Each of these areas, in turn, typically has a different buyer set, different marketing, servicing and economic models—and very different competitors.

Commentary: How HP (and Dell) Can Avoid Being Dragged Down by PCs and 2 Emerging Markets HP Should Enter to Turn Itself Around

Only Dell comes close to HP's breadth, and Dell's in the process of going private so it can reduce overhead and better focus its resources. That sort of breadth reduces targeted resources and senior executive focus. The only structure that works is the umbrella structure that Dell never adopted and IBM seems to be walking away from.

Strangely, HP seems to be able to get it to still work. My theory? HP is doing something no one else is doing: Using HR strategically.

Human Resources Can Be Strategic Resources

Many companies operated this way until the mid-1970s, when changes in employment rules intended to eliminate discrimination, unfortunately, turned HR in most companies into what is today: A compliance organization that's no longer strategic.

In the 1980s, when tech was in its second big ascendency, there was a lot of competition to create a better place to work. As the market matured and stabilized, though, employees again seemed to revert back to being an expense that needed to be eliminated, not resource to be nurtured and optimized.

Recently, with discrimination rules and hiring quotas largely eliminated, companies such as Google, Facebook and Plantronics stand out by creating environments people liked to work in. However, HR seems to play no improved role in assuring the quality and performance of employees. Today's firms still outsource employee measurement, implement General Electric's forced ranking process, and/or focus more on making it look like people are working than on assuring the quality of the result.

Google, for example, suffered by thinking that the only productive employee was an engineer; by favoring this skill set for most jobs, regardless of the actual skills required, employees remained interchangeable, faceless tools.

Analysis: Yahoo's Telecommuting Problem Is Management, Not Collaboration and Yahoo's Work-at-Home Policy Is the Right Decision

Most recently, Yahoo CEO Marissa Meyer reviewed VPN usage stats, decided remote employees weren't working enough and ordered them back to the office. Such a draconian move assures that employees can be observed while working, with no one reviewing the individual quality of work done.

Tracy Keogh: Giving HP Its HR Competitive Edge

HP is different than the other companies I've mentioned. It hired Tracy Keogh, a Harvard-trained overachiever, and put her in charge of HR. She apparently didn't get the memo her peers got that says HR isn't strategic.

Keogh is managing HR as a strategic resource. Her process is a litany of best practices heavily based on metrics and HR science. As a result, HP is enjoying some of the lowest employee turnover numbers in the industry, while top performers are being identified, assigned mentors, protected and nurtured.

HP has gone from filling 70 percent of new positions externally to filling 70 percent of positions from the inside. This gives employees career paths but still ensures that new blood keeps the company from becoming stagnant and brings in skills that can't be identified internally.

Meanwhile, HP as a whole isn't making the same mistakes that prior executive teams made, such as cutting salaries while increasing top executive compensation. (This, of course, typically cripples productivity and puts workers in opposition to senior management.) Cuts, when made, have been cleaner and respectful of both the departing and retained employees.

News: HP Halfway Through Restructuring; 15K Layoffs to Go By 2014

What's allowing HP to compete successfully across a breadth that exceeds any other high technology company is that the employees are being managed as a critical strategic resource, not like equipment that can be bought, sold, cost-reduced and outsourced. Over time, HP employees be able to focus more on their current job and less on finding their next one, to engage with and and loyal to their company, and improve their productivity, hour by hour and person by person.

HP Under-resourced, Still Overachieving

HP shouldn't be successful. The company's spread far thinner than its competitors across more distinct markets. What appears to make the difference is its unique focus on assuring and growing employees. The benefits are in the results: HP's valuation is up, its competitive execution is improving across all businesses (with the unfortunate Autonomy acquisition being the exception), and in the second year of what should be a five-to-seven-year turnaround, it's showing near unbelievable progress.

Given HP's complexity, the turnaround CEO Meg Whitman is attempting should be impossible. Given the right care, motivation, and backing, though, employees often can do the impossible. HP now appears to be a case in point.

In the IBM turnaround, the unsung hero was Jerry York, the CFO who came to IBM after turning around Chrysler. At HP, Keogh appears to be the unsung hero ensuring that the employee is once again the most important part of the new HP Way.

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.

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