A "fundamentally flawed" company cannot recover simply by shaving costs. What can management do to turn around such an enterprise?
John Chambers believes Hewlett-Packard Co. is on the ropes and is unlikely to recover strongly enough to regain its old glory. The CEO and chairman of Cisco Systems Inc. believes Meg Whitman, his counterpart at HP, may not succeed in turning around the company. He may be right; at best, Whitman will succeed in whittling down HP's cost structure enough to improve its margins, but she will also eventually preside over a much smaller giant.
Chambers advanced two reasons for his conclusion. First, "there's not been a company ever turned around by the fifth CEO on the job," he told Reuters in an interview, referring to the succession of senior executives who have been appointed to lead HP over the course of the last seven years. I checked, and HP has indeed had five CEOs in substantive or acting capacities since Carleton Fiorina left in 2005.
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Chambers's second reason for his pessimism about HP's future resonated with me. The Cisco boss said rivals, including his company, which competes against HP in the networking equipment market, are hacking away at HP's market share while the Palo Alto, Calif.-based company is busy with cost-cutting and reorganization actions. He said Whitman has a "tough hand to play, but... I like competing against that hand, and we are going to try and accelerate that while they are struggling."
HP's "weak hand" isn't merely due to the revolving CEO door the company has had in the last decade. Like many other tech enterprises across the global economy, HP is a flawed company whose competitiveness has been compromised due to its failure to recognize and respond to shifts in its markets. The company, says short seller and hedge fund manager Jim Chanos, "missed the fundamental shift from personal computers" to tablets and phones, according to an article in the Insider Monkey. Turning HP around won't be achieved by simply cutting costs, he says.
I agree. But now that we understand a "fundamentally flawed" company cannot recover simply by shaving costs, what are the options open to the management of such an enterprise? This is an important question for the high-tech industry especially because of the seismic changes taking place in many segments of the market. The tech sector is awash in cash and on the surface seems to be thriving—but that perception is deceptive. Below the surface, many technology companies are struggling to maintain market share, improve margins, and in some cases even justify their presence in certain sectors.