Eight months after assuming the dual positions of CIO and executive vice president of global operations at Hewlett-Packard, Gilles Bouchard was in about as unenviable a position as a CIO can find himself. His CEO, Carly Fiorina, announced that HP had "executed poorly" on an order-processing and supply-chain systems migration. And Fiorina blamed the execution problems for a US$400 million revenue shortfall that, in turn, contributed to the enterprise server and storage group's third-quarter revenue drop of 5 percent in comparison with the same quarter a year earlier. Last week, Bouchard spoke candidly with Computerworld about what it was like to be in the hot seat as three other company executives paid for the poor quarterly showing with their jobs.
Given that you're directly responsible for HP's supply chains and IT systems, what was your role in the failed ERP migration?
I got this job in December, and in the following four or five months, what I didn't want to do was merge business and IT just at the corporate level. I wanted to also merge it in the field, in each region and each country. That's what we put together in the early part of the year. A lot of the pieces of the supply chain, order management and IT were in different businesses. Bringing those things together into one operation became official on May 1.
This (ERP migration) problem broke out three weeks later in the Americas region. It was one of many transitions we had done, and are still doing, where we simplify our portfolio of ERPs. This was the 35th transition we had done of ERPs; 34 had gone well, and this one did not go well.
What went wrong?
It's a lot of little things that added up. Not one or two of them would have created the problem, but the combination of them created a bigger problem than we expected. We had planned for three weeks of disruption, and there were six weeks of disruption.
These problems are in three major categories. One we call working across silos. The team that was driving this (consolidation) program had to work with other parts of the company -- they were dependent on other parts. And working across these seams proved difficult. People have different priorities, so it made program management a little more complex. For example, logistics was in a different group, and the front-end order taking was in a different system, hosted in a different group. So there were a lot of these little disconnects.
Secondly, there were a lot of data integrity (problems). Orders fell out between the legacy front-end system and SAP on the back end, which required a lot of manual intervention. Orders started falling out for a lot of different reasons -- training, (product data management) issues, all kinds of little things. So backlogged orders started doubling, and by the time people were finished fixing those issues, we had a fairly large backlog, which took several weeks to get rid of. The backlog was not resolved until the end of the quarter, which had an impact on our financials.
The third element was increased demand. This migration had to do with our industry-standard Intel-based server business. The demand really increased for those products, and it's still very high right now, which is good news. But it put even more pressure on the whole system.
HP has made it clear that this was an implementation problem, not an SAP problem. So where exactly does SAP fit into the mix?
It was initiated by merging a product line into an SAP instance; we merged that product line from a legacy SAP to the target SAP platform. So clearly there was an SAP component to it, but the issue that created the problem was not the SAP itself. It was the set of business processes that went around it.
Do you agree with Fiorina's conclusion that HP "executed poorly on the migration?"
Yes. When orders fall out and there's more manual intervention and there are data integrity issues, I would call those execution issues.
Exactly what should you have done differently?
In August, we went back and basically polled everybody involved in the program and all the stakeholders and tried to turn this into a learning experience. Because those things happen. Every CIO knows problems like this do happen. We had done many of (the migrations) that had gone well, but I wanted to make sure we really understood what happened this time -- what was different -- and build it into our knowledge base so we could be a smarter organization looking forward.
We just got the results a few weeks ago, and it's those three major buckets I talked about. It is about managing better across the silos. The good news is that's kind of what we did when we changed the organization. All those things where things fell through are now together on my team. A lot of the people, when we polled them, had the comment that it helped resolve the problems when we changed the organization on May 1, and it might have helped us avoid them if we had done this a bit earlier.
When you consolidate, by definition, there's a lot more interdependencies. When everybody's got their own ERP, they can all work within their own silos. Now there's a lot more commonality and a lot more sharing and a lot of learning in terms of program management. We've invested a lot in program management.
How is HP dealing with the credibility issue in terms of marketing yourselves as a provider of SAP consulting services?
That, interestingly, hasn't been an issue at all. We've had customers that we've worked with on big SAP projects who have asked me the same question, so it's legitimate to ask the question. When I explain what happened, people realize that first, we'd done 34 good transitions. Shit happens, and it did happen this time -- there was this "perfect storm." They're more interested in learning from us, because they know it could happen to them. So they're interested in the 34 that went well, but they're also interested in what we learned from the 35th.
Frankly, the good surprise for me is we haven't lost a single deal. If anything, people are interested, so I don't think it's hurt our credibility. We've got so much experience in this, and we've done so many good (migrations), and we've been very upfront about what happened in Q3. So it's been OK, actually.
Fiorina fired three managers because of what happened in the third quarter. How did you escape the guillotine? Why did we miss Q3?
It was not just because of this. We have four businesses as HP: PCs, servers, services and printers. In Q3, three of the businesses met their goals and did well, and one missed. That's the one that tanked the company -- the server and storage business. And it missed for three reasons. One was the SAP transition, one was weakness in the storage business, and one was some channel issues in Europe. We only accounted for about a third. What Carly did is she put accountability at the business management level. She took people out who were in charge of those businesses.
How is morale within your organization?
I've energized my team around the fact that we've done 34 great things, and this is something that's going to make us smarter and we're going to learn from it.
It's hard for everybody at HP that we missed a quarter, because we like to win. We've worked very hard, and we've done great things since the merger (with Compaq Computer). I think it was hard for my team because they felt singled out. But we're beyond that because we did this thorough retrospective that really helped a lot to put this in perspective -- it wasn't a witch hunt. I did a poll of my people involved after the retrospective, and 80 percent of them felt that we found the right reason and we were doing the right things.
When you gained this increased responsibility and power and started merging those silos, how much political resistance did you face? Were people sniping at you from the bushes?
This has been a very good surprise, to be honest. I mean, I built a team of 10,000 people, taking at least half the people from other groups. So I was expecting the kind of things you're talking about. But frankly, it did not happen.
In January, I brought together most of the key operational leaders across the company and asked them to work on (creating a new organizational) model. I gave them a few guiding principles, but I didn't tell them what the model should be. They came from different businesses with potentially different political agendas, but within two days, they had agreed on what the model should be.
Is the problem fixed now? Can customers expect to get their orders on time?
The issues we had in June and July have definitely been solved. What's happening is the demand being still strong, we have some product shortages. So you might find a customer (order) with a lead time that's longer than ideal, but that has nothing to do with what happened in Q3. It has to do with the fact that this business is very strong for us.
We had to work through the backlog. When we exited July, we had $120 million of excess orders that had to be shipped. So people are still seeing us working through that backlog and in parallel because of strong demand there's some tension on some products. But again, that has nothing to do with what happened in Q3.
So give us three bullet points on lessons learned and what other CIOs need to do to avoid the problems you encountered. The big one would be work across silos and watch for the seams between organizations when you consolidate. Your system scope (needs to be) broader than your organizational scope.
The second point is you need proper program management.
The third one is that perfect storms do happen. We had planned for a three-week disruption and thought maybe two or three things would have to be fixed. Well, more things happened. We should have had a contingency plan for four, five or six weeks. Contingency means you build more inventory, you put more inventory in the channel.