'We Are A Company In Transition,' Says HP's Hurd

Despite his best attempts to deny it, Hewlett-Packard chief Mark Hurd has acquired some CEO star power this year by turning HP's earnings and stock price from mediocre to head-turning. It's been done with a heavy dose of cost-cutting--including 15,300 layoffs and trimming retirement benefits.

But Hurd's agenda isn't all about paring back, the CEO said Sunday at the InformationWeek 500 conference in Palm Springs, Calif. HP is trying to grow at the same time it's scaling down.

One prime example: HP is consolidating its sprawling IT operations under the direction of CIO Randy Mott, who Hurd hired away from Dell a year ago, and who appeared onstage in a joint appearance with Hurd at the InformationWeek conference. Mott is also investing in projects forecast to save more money in the long term. "What we look for in our company is people who can have the growth conversation and the cost conversation at the same time," Hurd said.

The strategy had bred some impressive successes so far. Operating profits are growing faster than revenues, costs are down, and HP's stock is up. Revenue for the third quarter ended July 31 rose 5.4% to $21.9 billion, as HP added $1.1 billion in revenue from a year ago. Net income rose to $1.38 billion from just $73 million a year earlier.

But the company is facing a huge distraction as its directors weigh the fate of board chairwoman Patricia Dunn, who authorized hiring a private investigation firm that solicited phone records of HP board members and journalists covering the company in a search for leaks to the media. One board member is being forced out for alleged leaks, and another has resigned in protest.

The Securities and Exchange Commission and California attorney general are investigating. A Sunday conference call among HP's board on whether Dunn should remain as chairwoman ended inconclusively; the board was scheduled to meet again today. In the latest development, HP said Monday it had been contacted by the U.S. attorney for the Northern District of California regarding the leak investigation.

"Crap was going on in the Hewlett-Packard boardroom," said management consultant and In Search of Excellence author Tom Peters during remarks Monday at the conference. "As far as I'm concerned, if [Dunn] doesn't leave, it will be a disgrace."

During his remarks, Hurd said HP is constantly trying to improve. "Everything at HP is not always great," said Hurd. "We are a company that is in transition." According to analysts' estimates, HP is expected to increase revenues 5.2% to $91.2 billion when the company's fiscal year ends Oct. 31. That would make it the world's largest technology company, surpassing IBM, which is forecast to have sales of $89.9 billion this year. But IBM's greater efficiency make benchmarking HP against IBM misleading, added Hurd.

One example: HP spent 4% of revenues on IT when he arrived, Hurd said, a number some managers justified because it matched IBM's. If HP reports $8 billion in net income this year--at the low end of forecasts--that still means the company spent $83 billion in costs, Hurd said. But whereas HP keeps roughly 23% of its sales as profit, IBM books 36% profit margins. "You still feel good? You want to go take a lap around the building?" Hurd said rhetorically to HP managers who get too high on the company.

Hurd has identified three big growth areas for HP: managing networks of printers for corporate clients and getting into the commercial printing market, selling more laptops and handheld computers paired with better data security software, and selling products that can automate more of the tasks in corporate data centers.

Operationally, Hurd is directing the majority of profit-and-loss responsibility at HP units to division heads and centralizing IT. "We want to round up everything in this company that's IT and align it to one set of leadership," said Hurd. That's also meant giving Mott the accountability to make changes, cut projects, and change processes--moves that aren't always popular. "His job isn't just to get us lower costs," said Hurd. "His job is to get us better information to help the company grow."

According to Mott, HP is consolidating 100 IT sites to 29 worldwide, reducing IT staff to 8,000 workers, from 19,000 at the beginning of 2005; cutting 5,000 apps down to 1,500; and collapsing 87 data centers into six. At the same time, the company is designing a supersized data warehouse to better track business data, including finding accounts HP doesn't call on. That's a growth initiative that's arisen from the centralization. "We need more accurate information," said Mott.