I’ve been reading Bill and Dave (subtitled: How Hewlett and Packard built the World’s Greatest Company) by Michael Malone. He’s a great writer, and it’s an important business story; I heartily recommend it.
Being an ex-HPer, I have tremendous respect, bordering on reverence for the “HP Way”, which was the basis for the culture at Hewlett Packard for so many years. With the benefit of hindsight, it wasn’t perfect and there were definitely things I’d change. But you can’t argue with the results. Bill and Dave essentially founded Silicon Valley, and built an unbelievably successful company that grew like clockwork for nearly four decades. The HP Way is long gone and the company is nearly unrecognizable from the one I worked in. But to this day I don’t believe they’ve ever had a full year of negative profit results.
The term “Corporate Culture” has been defined many different ways by a lot of people, some of them so complex as to be unreadable. Here’s a definition that’s probably as good as most:
“The specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization.”
Maybe you have a better definition, but this one’s probably adequate for our discussion here.
Anyway, Malone’s book got me to thinking about corporate cultures at tech companies and their effect on a company’s performance. It’s something that I think is really undervalued in too many of today’s corporations. It’s often dismissed as a squishy, “soft” issue that’s unimportant to analytical senior managers.
Regardless of my HP bias, there have been a lot of very successful companies that have been built with very different cultures relative to HP’s in its heyday. One notable contrast would be IBM, a peer and competitor which as an east coast-based company had a much more traditional, hierarchical, button-down culture. But the IBM culture was revered as well, and the company was also wildly successful for a long period of time. As the saying goes, there’s more than one way to skin a cat (a very unfortunate idiom–who thought that one up?).
Cultures have been categorized many different ways including but not limited to “Work Hard, Play Hard Culture”, “Tough-Guy, Macho Culture”, “Process Culture”, “Bet-The-Company Culture”, and many more. In my mind, none of that matters much. What matters, in my opinion is does the culture drive positive results.
So you might surmise that the easiest way to define a great corporate culture is to look at financial results. That’s fine in the long run; with the benefit of hindsight, there probably is no better way to identify a great corporate culture than the decades of financial success such as HP and IBM enjoyed. But in the short run, financial results can be deceiving. It’s entirely possible to have a great short run of success even with a poisonous company culture.
So what’s the best way to measure whether you’ve built a great culture? The details vary at various successful software and hardware companies, but what are the common ingredients of a culture that sets the stage for long-term success? Here’s my shot at a list of the key attributes of winning corporate cultures:
Employees want to stay
For me, this may be the best gross indicator of a winning corporate culture. I know, you might say “That could means it’s a country club” with excellent compensation and low demands. But how often do you actually see that in a high performing company? Very seldom in my experience. In reality there is a great propensity for employees to take the view that “the grass is always greener”, and long to go somewhere else.
The best people rise to the top
This is another really key indicator of a company culture “clicking on all cylinders”. Particularly in larger organizations, political skills often are the dominant talent required to rise to the top of the org chart. There’s nothing wrong with this–it’s a skill set that’s very important to successfully influencing large, complex organizations and moving them in the right direction. The ability to connect with people and bring them to your position cannot be understated as a needed attribute of a corporate leader. But it’s important that these political skills are also paired with strong business savvy. The best leaders not only have the ability to “win the internal meeting”, but also the analytical and decision-making skills to drive the company to win in the marketplace. Sadly, all too often I’ve seen that those rising to the top are not exceptional in both these categories. A great corporate culture should facilitate the identification, retention and promotion of such well-rounded leaders.
Employees speak well of the company to outsiders
Everyone loves to bitch about their job and idiosyncrasies of where they work. But I find that in companies with the very best cultures, the word gets out about how great a place is to work, because great places to work are frankly, very rare. This means that you’ve created such a great environment that your employees brag about it to their friends and external colleagues, overcoming that very strong human propensity to view their jobs in a negative light.
Opinions flow freely without fear of retribution
This one probably isn’t a hard and fast rule. I’ve seen traditional hierarchical organizations that were very successful. In those instances, you tend to see opinions flow down from the top much more often than you see them flowing openly from below. But I believe in most successful “modern” corporation cultures, this is a pretty typical attribute.
Don’t have to overpay to attract talent
You might think of this one downstream result of positive vibe from the previous four categories. If you’ve created a fair, stimulating, challenging and comfortable work environment, you don’t have to work very hard to restock it with new employees. In many cases you won’t even have to look for them–they will find you. In companies with the very best cultures, outsiders practically beat down the door to get hired. That means your pay packages won’t need to “set the market”, they’ll just need to be “in the market” to attract great talent.
So that’s my list–what’s yours? What’s your view on which company has the finest corporate culture? Post a comment to expand the discussion.
As regular readers will know, I am a Hewlett Packard alumnus and a longtime admirer of the company. I worked at HP in the eighties, and with hindsight it was one of the finest periods of my career. It was a GREAT place to work, as documented by books and case studies written about the company. My time there definitely had a major effect in shaping my management philosophies.
The more recent -periods at HP have seen a lot of change and a fair amount of turmoil not typical in the company’s first 60 years or so.
Let’s analyze some of the recent events and assess the overall strategic situation:
Firing of Leo Apotheker
What a disaster this was. To hire a new CEO with a major change in strategic direction in mind, then let him go in less than a year is not good. What isn’t known is was the new strategy totally conceived by Mr. Apotheker, or was he brought in to support a new strategy favored by the HP board. Either way, it’s an awful mess for such a major company, and the HP board has not distinguished itself in the last decade.
The new strategy itself while risky on the surface wasn’t the real problem, imo. The communication of the new direction was the real disaster, and smacked of incompetence. Don’t announce you’re “going to sell the business”–that does nothing for valuations. If you’re going to sell it, get on with it and sell it without premature public announcements. By most accounts Mr. Apotheker’s short reign was punctuated by missteps, retractions, chronically missing financial targets and general bumbling. My sources inside the company say that he had lost just about everyone’s confidence, from employees to shareholders to the board. It’s hard to say if that’s fair; new managers can be sabotaged by entrenched forces against change. And major changes were on the way. But the buck needs to stop with the CEO, and it certainly did in this case.
Planned Sale of the PC business
To be honest, I go back and forward on this one. Back in my HP days the PC business was a money-losing, also-ran business with tiny margins. The corporate line of thinking at the time was that HP HAD to be in the PC business, it was so central to everything else the company wanted to do, and the computing world revolved around PCs. I never bought it. In fact, the PC folks got in the way of many things we wanted to accomplish in the peripherals segment of the business, specifically connecting to and partnering with all the other PC makers.
The PC business remains a low margin one today, but one that HP has established a leading position in. I haven’t studied the balance sheet, but I doubt the PC business is so capital-intensive that it would prevent HP from having the money to adequately invest in a new direction. I don’t think selling it off is a stupid move, but announcing it as a first step seems extreme, and only served to make everyone involved nervous about what the future holds.
Eliminating the Tablets/WebOS
Another PR disaster and one that was totally avoidable. The problem was in buying Palm in the first place, and paying a billion dollars for a company that had almost completely failed in the marketplace. Then introducing a new line of tablet computers to great fanfare, almost immediately obsoleting them, and then announcing you’ll be making a few more because everyone love the fire-sale obsolescence pricing–it appeared that the left hand didn’t know what the right hand was doing.
By most accounts the WebOS is a nice piece of software. The problem is that this move was so very late to the game. If it had been done a few years earlier, it might have been a savvy deal, and allowed HP to make a major move into mobile devices with a differentiated product offering. But by the time of this acquisition, Palm was already discredited and Apple, Android and Blackberry had solidified the top leadership positions. And the price was completely ridiculous for as failed company. You can put this one on Mark Hurd, as it came on his watch.
HP recently announced completion of the Autonomy acquisition, paying a dear price for this enterprise software company. Autonomy is a good acquisition if you’re intent on growing software as a share of revenue; the only issue is the price. It was very high, but one must remember that HP’s overall revenues are north of $125 BILLION. Autonomy adds less than $1B in revenue, which is a drop in the bucket relative to HP’s size. With a purchase price of over $10B, HP paid more than 11X revenues–pretty pricey even by today’s inflated SaaS valuations. Autonomy will have to be an exceptional growth in engine for this to pay off. Only time will tell.
Copying the IBM playbook
The IBM playbook was to sell off low margin, lower growth hardware business such as PCs (IBM sold its PC business to Lenovo, a shocking move at the time). Then focus on increasing software and services revenues relentlessly, for a long period of time. It’s worked extremely well for IBM, although I remember there were some tough times in the beginning. Would it work as well for HP, who appears interested in copying IBM’s strategy? I’m not a big fan of copying other company’s strategies, although on the surface the two companies are similar. The key to success or failure is usually execution in most cases of corporate strategy. Executing this strategy would also take a very long time to have an impact on HP’s financials. HP’s software share of total corporate revenue was less than 3% in 2010. There are only so many $1B+ software companies out there. Most software acquisitions on their own will have a minimum effect on HP’s overall revenues, unless they went after one of the few industry giants–which would truly shock me. HP has become strong in services after it’s acquisition of EDS in 2008, but is still much less prominent in services than IBM. So even with an aggressive acquisition program and strong organic growth, HP looks to be a hardware-dominated company for a long time in the future.
Meg Whitman appointed CEO
It’s hard to say what influence this will have on the corporate strategy. Ms. Whitman is a seasoned CEO who has been involved in great success, although one could argue that she was very fortunate to benefit from a snowball rolling downhill with Ebay. In addition, her background is heavily consumer products with almost nothing in the enterprise space, which is HP’s supposed new direction. HP’s business is only 25% consumer products, and if you eliminate the massive PC business, it becomes a whole lot less. I never underestimate smart people or their ability to adapt, and she definitely fits in the smart category. But experienced business people also tend to fall back on the comfort level of their past experience and what they understand best. It will be very interesting to watch as Ms. Whitman’s tenure evolves, especially how she affects the previously announced strategy.
What happens next?
I think that HP ends up keeping the PC business, while at least in the short term attempting to become more software and services intensive. You’ll see more software and services acquisitions. But I wouldn’t be surprised to see the flight away from consumer-oriented businesses to abate as long as Meg Whitman is CEO.
I also think that the original IBM-style strategy will be difficult–but not impossible–for HP to implement. For this approach to work, shareholders, employees and the board will all need to be very patient and supportive of the plan. Meg Whitman will really need to believe in it as well, and as discussed above, her background is far from a perfect fit for where they’re headed. My guess is that this strategy won’t be given enough rope for it to work and we’ll see another change of direction in the medium-term, but you never know. That’s what makes this kind of speculation so much fun!
What’s your take on the future direction of HP? Where are they headed, and does it end well or not? I’m interested in your analysis of recent events at the company; post a comment to share your views and continue the discussion.
To answer the question posed in the title, it definitely is if you’re Palm!
A long time player and sometime innovator in the mobile device marketplace, Palm was rapidly losing steam, market share and relevancy in the hyper-competitive Smartphone market. The company had staked its future on its new WebOS software platform and the recently release Pre SmartPhone.
After a long period of decline due to an aging product line built on an obsolete software platform, the Palm Pre and its WebOS software was introduced to critical acclaim by industry reviewers and pundits. Had these introductions come a few years ago, they might have indeed turned around Palm’s fortunes.
But competition in the SmartPhone marketplace has heated up to a white-hot level. After a promising early start, sales momentum of the new Pre products stalled, and this “last-stand” product introduction proved to be too little, too late. At nearly the first sign of Pre sales weakness top Palm executives began bailing out, while Telco partners quit promoting the product heavily, and it was also being dropped from the assortment of major retailers such as Radio Shack. The end was clearing in sight for this handheld industry pioneer.
In swoops HP to save what little shareholder equity was left. HP is on a roll, and in conjunction with their upward momentum they seem to be intent on acquiring everything available for sale, as well as competing in nearly every category of the technology business. This particular acquisition appears to me to be particularly high risk/high reward. It raises several key questions:
Did HP pay too much?
Probably. The price HP is paying for Palm is about $1.2M, while most knowledgeable industry observers had placed the value below $500M. This is hard to understand for the casual observer, but you must remember that a company is worth what the highest bidder is willing to pay. Except for those on the inside of the deal-making, no one knows what the sizes of the competitive bids were. So it’s a bit pointless to speculate whether they paid more than they needed to. The better question is what is the intrinsic VALUE of Palm to a company like HP?
A case can be made in this situation for bidding at a price that will prevent the transaction from dragging out. Software loses value quickly–especially in a fast-moving market like SmartPhones, and this is largely a software acquisition. Another big key to the valuation question is whether or not HP is able to hold together and retain the Palm team, especially the key developers. In most cases, buying a software business (which is the key asset of Palm) without the team is nearly worthless.
Can HP compete in the SmartPhone business, and should they?
This is a huge question in my mind. Hewlett Packard is definitely becoming the 10,000 lb gorilla in the tech business. But even the biggest giants reach a limitation on resources, most importantly senior management bandwidth and market segment knowledge. IBM at one time looked much like HP today, competing actively in nearly every important technology market. Eventually IBM lost traction and did a painful restructuring focusing on services. Microsoft is huge and still dominant in software, but they’ve been far from successful everywhere they’ve invested. There are many examples in the tech business of competing in too many competitive markets at once. The often-used analogy (which still rings true) is to Hitler opening up a two front war by invading Russia. The old joke goes that had he been more focused, we might all be speaking German today. I am very skeptical of Hewlett Packard being able to win in all of the major markets they appear to be serious about at the moment.
Can putting two losers together ever create a winner?
Not usually. I can’t think of a single high profile successful instance of this, although I’m sure it’s happened before. It usually doesn’t work in such a highly competitive market as SmartPhones, however. Palm was around 5% market share and fading fast. HP is very successful overall, but its iPaq SmartPhone has less than .1% market share–I’ll bet most of you are shocked to hear that HP was even in the SmartPhone market prior to this deal! When there is a reason that both companies are unsuccessful, it’s very difficult to change the equation simply by combining. Mergers often create more problems then they solve, regardless of how good they look on paper.
Having said all this, there is some synergy here. There is a belief is that one reason the Pre wasn’t gaining much traction was Palm’s precarious financial position. No one wants to carry around a phone that could soon become an orphan. The HP acquisition should help immensely on that front. Hewlett Packard certainly has the financial might, industry muscle and influence to improve the position of a well regarded platform like the Palm Pre and WebOS platform.
Will HP be patient and persistent enough to win in SmartPhones?
To me this is the biggest question. If you asked me 10 years ago I would have said no. As a former HP employee, at one time this wouldn’t have been the type of market that I would expect Hewlett Packard to have success. But since them I’ve seen the company persevere for decades as an also ran in the low margin, down and dirty PC business, and finally push Dell out of the top spot. There was a time when Dell (and a few others) used to laugh at HP in the PC market–but that ended a while ago.
I’m convinced that this ever more powerful version of HP can succeed in SmartPhones if they so choose. But as discussed above, even in a giant company like this, can they win so many tough fights across so many difficult market segments? That is a different question entirely–and something may have to give. They might not be able to win on all fronts.
The bottom line for me is that HP can probably muscle their way into the SmartPhone market if they want to bad enough. But can they do it while they also compete with Cisco in networking, IBM in services, and Dell in PCs–just to name a few? Even for a successful industry giant like Hewlett Packard is today, I believe in the concept of “biting off more than you can chew”. That is the real risk. One thing I think for sure is that this won’t play out quickly. Only time will tell whether HP ultimately has the market knowledge, patience, tenacity and will to win in this hit-driven and brutally competitive market. What’s your take on this high profile acquisition? Post a comment to rev up a discussion.