Does it matter if your key supplier’s Board is incompetent? HP – a case study

Do you, like me, remember the days when EDS was a power in the land? They virtually invented large-scale IT and business process outsourcing, and at one time in the late 90s seemed to pretty much run the UK government, for instance, with huge contracts covering social security, tax and benefits – and they were making inroads into other areas such as defence.

Post –millennium, things slowed down a bit, and they lost the Inland Revenue contract in 2003 to Cap Gemini to general market amazement.  Then, in 2008, EDS were bought by Hewlett Packard. HP had made other dubious acquisitions, such as Compaq in 2002, just in time to see to see Dell disrupt that market.  But by 2009, HP was the 9th largest firm in the Fortune 500.

In the last two years however, things have gone disastrously wrong. I was hearing stories in 2009/10 that the ‘old’ EDS folk felt unloved by Mark Hurd, the HP CEO, and the focus of their outsourcing contracts was switching to being a platform for “selling HP boxes”.  Which didn’t please clients or the old EDS pros very much.

Mark Hurd, ex CEO of HP

Then, last August, we had the whole Hurd resignation saga, which appeared to be badly mis-handled by the Board, whatever you think about his personal behaviour.Leo Apotheker, ex SAP, was appointed last November, which was a bit of a surprise as he had left SAP earlier that year under something of a cloud. He appeared to be taking HP in another different direction, towards software, which was of course his background. But the share price did not respond, dropping 40% during his reign. Then in August, HP agreed to buy UK software firm Autonomy for $10 billion. Autonomy is generally considered to be a good firm, but over-valued at this price. Apotheker also announced HP would exit the Smartphone business and tablet computer business.

Jodie Fisher, Hurd's nemesis

This all appeared to be the final straw for the Board (but surely they approved this strategy?)  Last week, the HP Board fired him, and appointed Meg Whitman, an HP Board member and ex CEO of eBay, as Chief Executive. Although Whitman did a great job at eBay, it wouldn’t appear to be a very similar business to HP, and her failed bid to become Governor of California didn’t do her credibility any good. Is she really the best candidate – or, as a Board member, was she just an easy and quick solution to a problem?

So, let’s cut to the big question. Does the HP Board have the faintest idea what it is doing? Read this excellent article from James Stewart in the New York Times which suggests the answer to that question is “no way”. For instance, the Board is riven with in-fighting factions, and no-one outside the small Board “search team” actually met Apotheker before he was appointed, which seems incredible.

Does it matter if you’re a customer of HP? Probably not if you just buy hardware, but if you’re in a long term outsourcing relationship, this uncertainty, and what I can only imagine must be consequent morale issues amongst HP staff, can’t be good news.

On the outsourcing side, Horses for Sources suggests what seems like a good idea for HP – sell the “old EDS” outsourcing business to the Perot family, although Perot systems is now itself owned by Dell. (Ross Perot was the founder of EDS of course).

It is also sad for the UK software industry and staff at Autonomy, unless they’re major shareholders of course.  While HP was talking about making Cambridge their centre of global software development, goodness knows what will happen now. Uncertainty reigns, and one suspects that HP might rather like to get out of the deal, but that may not be possible.

Anyway, it’s not a particularly happy story for anyone. But we should give some credit to the UK government, and officials in a number of Departments, who have reduced the government’s dependence on EDS / HP over the last few years. That looks like a very smart move, given the continued level of incompetence demonstrated by their Board.

Voices (2)

  1. Christine Morton:

    Well that’s looking from the top.

    Looking from the bottom, and judging from the 8 incompetent jobsworth people I had to talk to this week about a problem with the wireless radio on my HP printer, I’d say yeah, they’ve got issues…

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