HP in 2006: A work in progress

Hewlett-Packard remains a work in progress for a CEO looking to create a more efficient and focused IT company heading into 2006.

HP CEO Mark Hurd admitted there's still plenty of work to be done in order to turn around a company that, in recent years, had become unfocused and fat.

At the company's Securities Analyst Meeting in New York this month, Hurd focused his keynote presentation on these three key topics during a 45-minute speech given to approximately 300 journalists, IT industry and financial analysts.

Hurd vowed that in 2006 his company would continue to work on lowering its expenses to improve financial performance and capital position.

"The lower our cost structure, I believe the faster we will grow," he said. "We want to be as efficient as we can be and align capital to the opportunities we see in the market in order to scale the company.

"We need to work on all three of these levers at the same time -- targeted growth, efficiency and our capital strategy."

Efficiency became something of a corporate mantra for HP, soon after Hurd came on board in March. In early April, HP sought to "benchmark" its business processes and overall performance to determine how efficient it was and what improvements were needed. He described it as a data gathering exercise to establish how the company was performing.

From this effort was developed something called an "efficiency framework," where a how-to plan was created around where HP, as an organization, needed to improve its cross-company efforts to streamline and enhance processes and information exchange. The goal was to build a more profitable and efficient business, with greater demands placed on accountability throughout the organization, particularly around sales.

"We had to have a structured process and measure our performance reviews around attaining those (goals)," Hurd said.

With that in place, HP moves on to determining how it needed to grow as a company. Hurd unveiled a number of targeted growth areas for 2006 and beyond, focused on three key concepts that include:

-- Building the next-generation data center architecture. According to Hurd, the cost of computing will continue to decline and the market will see a movement to standards-based technologies, away from mainframes and other isolated computing structures, and a movement to "virtualizing" processing capacity and storage. Customers will look to build on their own or purchase as a service this kind of capability, Hurd said. HP will look to step up as both a product and services provider in this space.

-- Enabling mobile computing. It's the notion of creating highly distributed "always ready, always on" anytime/anywhere computing, Hurd said. It's the convergence of e-mail, voicemail and other types of communications -- "all done in a highly secure environment and with personalized services," he added, explaining HP will seek to deliver product and services combinations designed to help enterprises build highly mobile workforces and organizations.

-- Printing market. The direction forward is the multi-function peripheral market -- the "morphing" of the copier and printer markets, Hurd said.

In terms of marketing in 2006, Hurd spelled out some specific objectives, which he and his executive team will seek to drive the company towards:

-- Getting the HP sales force more fully deployed in the market and doing it at the lowest possible cost. Hurd seemed to put the company's value-added resellers and other partners on notice by saying, "the right kind of partners are important to our go-to-market mix." He admitted HP has "some good partners and some not so good," and that "if we have bad ones, we'll get different people."

-- HP will look to improve its responsiveness to customers by delegating greater authority to sales groups to allow them to address customer issues more directly. Hurd admitted HP has, in the past, been a company that could be difficult to do business with. "Who could make a decision? The sales and go-to-market model was complicated," he said, explaining some of the frustrations.

Hurd also vowed to provide more tools and training to the sales forces and seek to understand customers through the data and information gathered about them.

The HP CEO also reflected on his initial 60 days with the company as he sought to understand where the business was at, what problems existed and where the company needed to go.

"Not everything was good, nor was everything bad," he recalled. "It was kind of a mixed report card."

The company's stock had been volatile and disappointing. Hurd said HP was "strong from the balance sheet perspective, but a bit loose on spending." It was a situation that prompted a drive towards greater process efficiency and spending accountability.

Hurd believed that although HP's product portfolio was compelling, the value of many of these offerings hadn't been widely recognized in the market.

During this early period, the HP CEO said he visited and met with more than 400 customers and business partners.

"I got fairly consistent input," he said. Among other things, Hurd realized there was a lot of innovative technology within the company, there was a strong brand, and many customers were loyal and supportive. Even within the company, HP was a reasonably stable place.

"On the employee side. I expected to find a company filled with employees that were de-motivated," Hurd said. There was some low morale but he insisted HP was "filled with people who wanted to win and improve the company."

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