Sunday, April 20, 2008
CEO of the Year : Mark Hurd has earned a name at Hewlett-Packard
When Mark Hurd was named chief executive officer of Hewlett-Packard Co. in March 2005, the first question on some observers' lips was: Mark who?
The top spot at HP was formerly occupied by Carly Fiorina, the jet-setting favorite of magazine covers who had orchestrated the merger with Compaq Computer Corp. in 2002. Her replacement was the chief executive of NCR, a much smaller, Midwestern company known for making cash registers and ATMs.
While Wall Street showed early support for the quick hire, many held their breath. Would the new CEO turn around HP's woes, which included struggles to make money in the PC and server market, and a recent dearth of innovation, once HP's bread and butter. Could one man take HP back to the top of the tech world?
The short answer has been yes.
Since Hurd's arrival, HP's stock price has more than doubled. In fiscal 2007, which ended in October, HP's annual revenue reached $104 billion, eclipsing the $100 billion mark for the first time and allowing HP to overtake rival IBM. In fiscal 2007, the company's earnings totaled $7.3 billion, a 17 percent increase from the $6.2 billion earned in fiscal 2006. Profit grew not just from cost cutting but from real growth across the board.
In 2006, HP also reclaimed the top PC-maker title from Dell Inc., confirming the company's decision to buy Compaq and later retain the PC business instead of spinning it off, as some pundits had suggested.
And unlike under Fiorina's watch, HP has consistently exceeded analysts' earnings estimates. In February, it beat Wall Street's projections for the 10th straight quarter, a streak that has cheered investors.
Hurd "hit the ground running and never looked back," said analyst Jeff Embersits of Shareholder Value Management.
HP's performance in the past three years has earned Hurd the title of The Chronicle 200's CEO of the year. The company stands at No. 2 on the list of the Bay Area's top 200 public companies by revenue.
Hurd, however, is uneasy with the quick assessment of him as a turnaround artist.
"Running a company like HP, which is so global and so diversified, is absolutely a team sport," Hurd said in an interview. "I'm very honored to receive the recognition, but it's about the people at HP driving this thing."
That modesty is typical of Hurd, who has cut a different figure from his predecessor. Fiorina was the well-known charismatic face of HP, a visionary who championed the merger with Compaq when scoffers questioned the deal. But Fiorina struggled to put her vision into practice and realize the fruits of her signature merger.
Formula for success
Hurd, who built his reputation by turning around NCR, has been able to help HP unlock its potential by quietly stressing execution, growth, efficiency and accountability, all the while keeping a low profile.
"Carly was criticized for being a public jet-setter, but you don't get that sense of flamboyance from Mark," said Michael Gartenberg, an analyst at Jupiter Research. "He's very nuts and bolts, focused on what needs to be done, and delivering on that."
When Hurd arrived, HP was working to find direction. The company's finances were solid but sluggish, with a stock price hovering around $20 per share. HP was struggling to turn a profit in PCs and servers and relied on its printing business for profit. Some were calling for a spin-off of the low-margin PC business, following the lead of IBM, which sold its computer unit to Lenovo.
Hurd came in and cut 15,000 employees just four months into his new job. He then began looking at ways, both small and big, to squeeze more efficiency out of HP.
He reduced the number of people who weighed in on major decisions, entrusting more autonomy and responsibility to his managers. The move sped up the decision-making process and also saved almost $2 billion.
He also split up the sales and marketing group, dividing them up among the major business units. The decision again granted managers more power to direct their sales spending, simplifying what used to be a complicated process.
"My principles: Do it simple, and have accountability and responsibility," Hurd said in a 2005 presentation at the Stanford Graduate School of Business.
Hurd's reign had one other significant hurdle: a 2006 scandal involving then-Chairwoman Patricia Dunn and at least four others over "pretexting," obtaining phone records of board members, journalists, employees and others in an attempt to identify who was leaking confidential company information to the media. Hurd replaced Dunn in September 2006, and the scandal gradually faded away.
Pushing his managers has been one of Hurd's tools for success. He has granted them more responsibility, but in return he expects more from them and has recognized their efforts when they perform. That has created challenges but also sowed loyalty among his managers, said Rob Enderle, president and principal analyst of the Enderle Group.
"Hurd knows who's playing him and who's not, and he pushes his people to make commitments a little ahead of what they think they can do and then drives them to meet them," Enderle said.
The results have been noticeable, especially for the once-maligned PC business, which struggled to turn a profit. It has now grown into the jewel of the company, Enderle said.
Revenue for the personal systems group, which makes PCs, grew to $36.4 billion in fiscal 2007, a 36 percent increase from 2005. In the first quarter of 2008, the group reported a 52 percent rise in profit, to $628 million, with an operating margin of 5.8 percent. In the first quarter of 2005, just before Hurd arrived, the same unit generated $147 million with a profit margin of 2.1 percent.
From fiscal 2005 to 2007, the technology solutions group, which handles business storage and servers plus the imaging and printing group, grew by 13 percent.
Hurd has also been working to provide new vision at HP. He declared that HP's goal is to be the leading information technology company in the world, and to that end it would regain its mantle of being one of the most innovative companies in technology. HP, he reaffirmed, is a technology company.
Last year, HP said it was shaking up its famed HP Labs under the guidance of new director Prith Banerjee. The labs would take on fewer projects and focus its efforts on executing on ideas that could lead to usable technology.
"For us to lead, we have to lead in technology and service, not just market share," Hurd said.
While HP has refined its focus on its existing businesses, under Hurd's guidance it is betting big on a three future major growth areas. The company is looking to expand in next-generation data centers, mobile computing, and new imaging and printing endeavors, which includes HP's move into commercial printing. All three are areas where HP hasn't been a dominant player.
While the first three years have been rosy for Hurd, other than the pretexting scandal. potential turbulence lies ahead. With tech spending falling due to the economic slowdown in the United States, it will be harder for HP to keep up its stellar performance and meet its goal of $111 billion in revenue this fiscal year.
Some analysts also wonder how much more efficiency Hurd can wring out of the company. And others are waiting to see if Hurd can follow up his initial steps of cutting costs and reorganization with real innovation.
"Hurd's proven he can execute and grow," said analyst Shaw Wu, with American Technology Research. "Now he has to prove he can innovate. That's yet to be seen."
Hurd is upbeat about the future of HP. He said the company should emerge from the economic downturn relatively unscathed because it is positioned well overseas, with almost 70 percent of its revenue generated abroad.
And he said the talent at HP will continue to shine under his watch, ensuring a bright future for the company.
"We've done some things well, and some thing I wish we did faster," Hurd said. "But I believe the best days of HP are ahead of us."