March 09, 2011, 5:56 PM — He doesn't come right out and say it, but Leo Apotheker thinks former Hewlett Packard CEO Mark Hurd left him a fine mess to clean up.
In Wednesday's BusinessWeek article by Aaron Ricadela, the new HP chief executive asserts that "HP has lost its soul," in part because of Hurd's emphasis on cost-cutting at the expense of research and development and product quality.
Hurd was forced to resign last August amid charges of sexual harassment by Jodie Fisher, an HP contract employee, and allegations by the board that Hurd filed doctored expense reports in order to conceal his personal relationship with Fisher. He left with $12.2 million in severance and soon took a job as co-president of Oracle.
One of the first things Hurd did when he became CEO of HP in 2006 was lay off more than 15,000 employees, or 10 percent of HP's workforce. He cut the number of IT workers at HP by more than half and hacked the software apps used by the company by 75 percent. A couple of years later he ordered a 5 percent pay cut for all employees. To show how fair he was, Hurd cut his own base salary by 20 percent. As luck would have it, HP's compensation committee jacked up Hurd's bonus enough to offset the salary cut. (It's not likely that the compensation committee got around to adjusting the bonuses of HP employees in a similar fashion, but life is arbitrary that way.)
The Hurd Era and its slashing, top-down approach may have resulted in higher sales and profit, but came at the expense of innovation and morale. Apotheker, who took the helm last Nov. 1, seems eager to remedy the situation, telling BusinessWeek, "The first thing I wanted to do when I joined HP was listen to the people. The rank and file usually know about all the shortcomings."
The decline in research and development and Hurd’s aversion to software mean HP has been slow to capitalize on some key tech trends. It lacks not only cloud-computing expertise, but also tools that help companies analyze information, Apotheker says.
Apotheker also aims to revive HP’s emphasis on product quality, saying that when hardware performs better right out of the gate, the company incurs lower service and warranty costs -- and customers are happier. He’s rehiring quality-assurance experts fired under Hurd and giving new responsibilities to those he says got “sidelined” by the former CEO.
“We have cut enough costs,” Apotheker said.
Of course, corporate America's obsession with quarterly numbers usually rewards cost-cutters like Hurd, who typically produce instant results in the form of better margins and increased profits. They always look like heroes at first, but over time the rot becomes visible, though often far after the tough-guy cost-cutters have left Dodge.
John Schwarz, a former SAP executive who left in 2010, got it exactly right in a quote from BusinessWeek: "The minute you stop investing in innovation, you start spiraling toward your death."
Which is why Apotheker is boosting R&D spending and encouraging HP employees to become more entrepreneurial. As he told BusinessWeek, "You don’t mandate innovation. People need to be a little more empowered in this place."
Translation: A little more empowered than they were when a certain someone we won't mention was running the company.
Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.