Let Both HPs Thrive

Having more than once expressed in this space our skepticism regarding the merger of Hewlett-Packard and Compaq, we could now look back and say, “We told you so.” But now that Carly Fiorina has paid the price for her high-stakes gamble and is no longer leading the company, its important to look not at the past but at the future of HP and what it means to enterprise customers.

HPs future must start with the way top management views its central mission. The company must decide whether it is trying to appease Wall Street analysts and investors or serve its customers. Certainly, sound business practices mean increasing value for shareholders—and, by extension, Wall Street—but that can be accomplished only with a clear focus and mission on satisfying the customer.

Its likely that putting size first is what led Fiorina to see the ill-starred megamerger as a panacea to begin with. HPs history as depicted on the companys Web site gives some clues as to what has been important in Palo Alto. Each year highlights two key statistics: gross revenue and number of employees—both increasing each year, both connoting size and market power. Yet these numbers are seldom the measure by which anyone—Jane IT, Joe Consumer or even Wall Street—measures the value of a company.

As it turned out, integrating the two large enterprises into a coherent whole culturally, technologically and financially was more than Carly Fiorina and some of the best executives in the business could execute. It is pointless to seek a new executive tasked with the same mission.

A better approach would be to divide HP into two companies. Indeed, HPs business already is split between offerings for the enterprise—servers, storage, networking and services—and products for consumers—printers, digital cameras and PCs. While the enterprise business was stagnant, the consumer business has thrived, driving most of the companys profit growth. Separating the businesses will force the management of the enterprise part of HP to focus on business customers as never before, driving it to the results it must achieve to compete against Sun, Dell and IBM.

HP management can look to positive precedents for a breakup. HP itself successfully spun off its instrument business with the creation of Agilent several years ago. Recently, IBM sold its PC business to Lenovo because PCs were no longer strategic to IBMs long-term mission. Although its too early to judge that move, IBM appears motivated by a desire to focus on enterprise customers. HP will need to match that focus to compete.

Restoring coherence and vigor to HPs high-end offerings of technology and services must be Job No. 1 for the head of a new enterprise-focused company thats not making most of its profits from printer ink.

So heres to HPs future: a future of two outstanding companies.

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