Harvard Professor: HP's Survival Lies in Breaking Up Company

New Hewlett-Packard (NYSE: HPQ) fix-it artists are popping up everywhere to lend free advice to the beleaguered company. A Harvard Business School professor of management practice has written an opinion piece in the New York Times arguing that to survive, HP must split into two separate entities--one for enterprise systems and another for computer hardware. Haven’t we heard this refrain before? Didn’t former chief executive Leo Apotheker move down this road only to be rebuffed by HP traditionalists?

William George, a professor of management practice at Harvard Business School and a former chairman and chief executive of Medtronic, writing in the Dealbook section, contends that the time for HP—on the heels of an $8.8 billion write down—is “ripe,” as he put it, to form two $60 billion entities that would instantly show “positive cash flow and solid profitability.” George has a particular affinity for HP, given that it served as his role model for 30 years as to how a company should be run.

According to George, HP, with some 330,000 employees and $120 billion in revenue, not only is too unwieldy to effectively manage, it's basically two businesses: a commodity personal computer and printer business and an enterprise systems, services and software business. "The characteristics of these businesses are entirely different,” he wrote, the conclusion being, of course, that they are functionally incompatible and cannot co-exist under one roof.

At the risk of countering a Harvard Business School professor, isn’t this tune sounding awfully familiar? Only 15 months ago, on the brink of spinning off HP’s PC business and fresh off the now ill-fated $11 billion Autonomy purchase, Apotheker said, “to be successful in the consumer device business we would have had to invest a lot of capital and I believe we can invest it in better places," referring, of course, to enterprise software and services. We already know how long that sentiment lasted around HP.

George contends that current HP chief executive Meg Whitman, who he holds blameless for the company’s current state, could run the new enterprise systems business, “using her strengths in software and customer relationships to restore the company to its original roots and The Hewlett Way.”

The computer hardware company might be run by Todd Bradley, current executive vice president of the Printing and PC group. Bradley, George said, “could create a leaner, more competitive company to take on Dell, Lenovo and the Japanese printer companies."

In sum, the restructuring might drop from the books up to $1 billion in corporate overhead, according to George. The corporate split, George said, would benefit HP’s downtrodden shareholders with an expected uptick in the market valuation of the two companies. And right there is your bottom line.

“It is time for the board to move quickly to restore its former status as a company everyone can admire, one that can compete successfully in two very different global markets,” George wrote.

Perhaps there’s a simpler analysis and maybe a better answer here. It would be hard to argue, for example, that HP hasn’t made three poor chief executive choices in a row since Lew Platt ran the place, starting with Carly Fiorina in 1999, moving to Mark Hurd in 2005 and then Apotheker in 2010. What did all three have in common for HP’s strategy going forward? You guessed it, nothing. And that’s the point. If only to belabor the point, in that same 13-year period, from 1999 to 2012, IBM has had two chief executives, with Lou Gerstner finishing his term in 2002 and Sam Palmisano helming the company through 2012 when Virginia Rometty took over. Continuity, anyone?

While it’s too soon to make conclusions on Whitman's performance, saddled as she is with cleaning up after her predecessors, to date she hasn’t exactly shaken up the IT world, and, it’s still quite debatable that her eBay experience will translate to HP’s success.

Along the same lines, it would be hard to argue that HP’s board, dating back to the Fiorina information leaks fiasco, has demonstrated consistent and effective leadership. For HP, the combination of its chief executives and its board has proved to be an undynamic duo.

There’s nothing inherently impossible about selling to the enterprise, SMBs and consumers from under one hood, but to do so, HP will have to cut out the funny stuff such as the $8 billion EDS writedown, making a mess of Autonomy long before this latest news, and most importantly, it must knock off all the drama. It’s enough already. Go to work.

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