Mark Hurd, superstar
Why the EDS deal may prove to be a smart move - and how it fits into HP's larger plans.
(Fortune Magazine) -- We're sitting under a canopy of trees on the patio outside Mark Hurd's office, and the man looks ready to hit someone. Earlier in the week, when word leaked out that Hewlett-Packard planned to buy EDS for $13.9 billion, a chorus of Wall Street analysts started second-guessing the deal - and by extension, Hurd's judgment as HP's CEO. EDS has too many expensive employees, went the conventional wisdom. It's less profitable than HP. Its culture is broken. An acquisition will only drag HP down. That the pundits aren't cutting him more slack clearly irritates him.
"I already know the math," Hurd says, trying to keep his voice down. He's about to host a lunch for HP's board to meet EDS chief Ron Rittenmeyer, and the group is just out of earshot. He continues in his emphatic whisper: "This work will get done."
Truth be told, maybe Hurd has earned the benefit of the doubt. After all, he has pulled off a remarkable three-year turnaround that has made HP the biggest tech company on earth - $104 billion in sales last year. Part of doing that was pulling off acquisitions, including HP's $24 billion purchase of Compaq (which was even bigger than EDS). No, he didn't come up with that deal - his predecessor, Carly Fiorina, did but he made it work.
Almost since the day he arrived at HP, Hurd and two deputies - Ann Livermore, head of enterprise business, and Shane Robison, the strategy chief - have been discussing ways to radically expand sales to big corporations, and EDS does that nicely. That's not the whole plan, of course; HP has a huge and growing consumer side too. "When you look at the total opportunity for us, it's somewhere north of $1.2 trillion. The consumer's a big piece of that," Hurd says. In fact, no other tech company offers a broader array of products to both companies and consumers. The issue really is shoring up both sides of that equation.
Back to the enterprise-technology side for a bit. Servers, big hardware, expensive software and services - the best way to move that kind of product is to have an army of consultants in your employ, which is precisely what companies like EDS (EDS, Fortune 500) (and Accenture (ACN), CapGemini, and others) have. And if you're an IBM (IBM, Fortune 500) or an HP (HPQ, Fortune 500) and actually make some of the gear as well, you get paid twice: once for consulting advice and again for equipment. Consider one outsourcing relationship HP has with a leading consumer products company. (Think soap.) Before the arrangement began, that client spent a little less than 40% of its $1 billion annual technology budget on HP gear. Now that HP runs the client's systems, HP gets 60% of the budget, providing the client with everything from the servers that process orders to printers that make labels for dish detergent. If HP repeats that across EDS's roster of clients? Jackpot.
Before he can start serving up IT value meals, however, Hurd will have to bend EDS to his will, and that won't be easy. Long before Rittenmeyer took over last summer, EDS had fallen from its swashbuckling glory days back when H. Ross Perot, its famous founder, ran the place.
Hurd faced a similar challenge when he arrived at HP. The company had drifted from the course set by its founders, Bill Hewlett and Dave Packard, a philosophy that came to be called the "HP Way." The pair were renowned for rewarding employees with perks like profit sharing, flextime, and tuition assistance, but they also believed in holding managers accountable for their numbers. Growth and profits came first. By the time Hurd arrived, maybe not so much.
Serial entrepreneur Marc Andreessen recalls a visit he made to HP a few years ago. He was talking to HP about its buying Opsware, a company he co-founded. (That deal was consummated in 2007.) He parked his car and attended his meetings, and when he returned to the parking lot found a note on his windshield. It began, "We at Hewlett-Packard highly value the concept of working as a team, which we call the 'HP WAY .' We ask that you follow our site Parking Guidelines and park your vehicle appropriately." It listed eight inappropriate parking methods; Andreessen had apparently violated rule No. 2: Do not back into parking spots. He still laughs about it. "It's like I got a parking ticket from the HP Way," he says.
To change things, Hurd has imposed a hardheadedness that Bill and Dave would applaud. He laid off 15,000 employees in his first year on the job. To restore accountability, he gave executives more control over their budgets but also tougher standards for managing them: They must cut costs from slower businesses like black-and- white laser printers and invest the savings in fast growing areas. Top execs can expect Hurd to interrogate them on minute details of their performance, question their projections, then set them loose to solve problems. "We're kind of taking the handcuffs off - we had a lot of handcuffs on before," says Dan Forlenza, a VP in the PC division.
A big part of the cultural change Hurd is trying to ram through is improving consumer marketing, which hasn't been HP's strongest suit. (Old joke in Silicon Valley: If HP had invented sushi, it would have called it "cold, dead fish.") That means better HP ads - and possibly even HP retail. The company has been working up concept spaces that look a lot like Apple Stores, down to the white décor. Is that the future? Will HP open its own stores?
Not quite. To avoid straining relationships with retailers, executive VP Todd Bradley and PC marketing head Satjiv Chahil are experimenting with boutiques inside the places people already shop - essentially the strategy Steve Jobs tried (and ditched) before building his own retail empire. HP's retail so far has been a limited engagement: A small U.S. electronics chain, Micro Center, is opening HP minishops; a higher-profile test will begin in August, when an HP boutique opens in Harrods in London. And there is actually one standalone HP store - but it's run by a third party and is in South Africa.
Whatever happens with the retail effort, what impresses (non-Wall Street) observers like Andreessen is that Hurd has his huge company moving with agility and taking some risks. "People who like being efficient and like winning tend to like working for Mark," says Andreessen. "He's injected the energy and discipline the company needed to come back." Back on the patio, that energy and abundance are set to maximum. But lunch is about to begin, and Hurd dials down a notch. Before getting up to join Rittenmeyer and the board, he smiles. "As you can see," he says, "I'm pretty motivated."