February 9th, 2005
Fiorina falls victim to HP's Switzerland syndrome
Nice guys finish last. Of course, in the case of HP’s now ex-CEO Carly Fiorina, maybe that should be "gals." Actually, HP is the guy and, in addition to a recent story in Fortune magazine (that was no doubt the tipping point to Fiorina’s helmsmanship), HP’s Switzerland-like agnosticism to operating systems, applications infrastucture, and processor makers as well as at least two big-bet failures left the company with no major stakes in the ground. The result was a centrist strategy that, in the big picture, was little more than a lot of hedging — a dangerous game to play once you’ve reduced yourself to a commodities player, which is pretty much what HP did. Fiorina’s departure was only a matter of time and it was something I discussed in my audio interviews with THINKStrategies principal Jeff Kaplan (see Fiorina: One foot out the door) and Enderle Group principal Rob Enderle.
Compared to the way HP’s competitors Dell, IBM, and Sun do it, Fiorina had a tough time finding and targeting the right enemy and going for the jugular.
That’s because, devoid of anything signficantly unique (and attractive to customers), HP sits right in the middle of all three with little to leverage against any of them. So far, no company has been able to go toe-to-toe with Dell’s direct model — a model to which HP has never successfully converted (to the Dell extreme). In addition to its business model, Dell’s right-wing (Intel only) hardware strategy is a stake in the ground that HP has been unable to match.
HP comes close to IBM on the x86 hardware and IT consultancy front. But HP’s ongoing divestiture of its software interests and resulting need to diplomatically serve the Windows and Linux communities doesn’t compare to IBM’s command of the software stack and its fearless (of backlash from the Windows camp) Linux push. With nothing to lose, Sun has placed all sorts of stakes in the ground that have gone unmet by HP. From Sun’s real indemnification on bundled *ix solutions to $50 soup-to-nuts desktops to its delivery of a $1-per-CPU utility to its left-wing commitment to AMD, HP looks like a plain Jane. Compared to Sun and IBM, who actively cultivate developers as though it were a religious war, HP also lacks alignment with any development community worth noting.
Ultimately, all three of HP’s competitors have fairly convincing arguments for CIOs and CFOs as to why they’re uniquely qualified to drive the cost out of IT without marginalizing business performance or objectives. In fact, given their command of the software stack, IBM and Sun also have pretty strong "improvement" messages when it comes to the latter two of those three factors. (Dell’s business model makes up for its lack of involvement in software.) All of this is not to say that HP didn’t have its own mojo for CxOs. It’s just that the mojo it came up with fell flat on its face.
Three years ago, HP began a bet-the-farm unified platform strategy that didn’t pan out. Internally, the company decided to strategically consolidate its largely bifurcated processor and operating system lineup into fewer operating systems and one strategic processor platform: IA-64. Externally, the company started pitching IA-64 to CxOs as the go-to strategy for running a scalable, cost-friendly shop that better matched business objectives to IT. Banking on Intel’s ability to will IA-64 into the market (as x86’s successor), HP was looking to trim its own costs. By going public with its consolidation strategy, HP not only positioned itself to achieve significantly better economies of scale through the pursuit of a single hardware offering (far less complex manufacturing and SKU management), it was also the leading driver of IA-64 into the market (a position that none of its competitors had taken up).
Had IA-64 gone mainstream, or even showed signs that it would, not only would HP have been perfectly positioned to ride the wave, but the volumes would have driven more cost out of all of HP’s solutions, particularly the ones like OpenVMS that are superior to other offerings, but that, on its present low-volume hardware, are too rich for most CFOs’ blood.
Uunfortunately, old habits die hard, and as strong as the wills were of both Intel and HP, the market wasn’t ready to grandfather IA-32’s success to IA-64. As I wrote in the hours just before Intel capitulated to AMD’s IA-64 killer (aka: the 32/64-bit hybrid AMD64 architecture), the success of HP’s entire master plan hinged on Intel’s ability to stay the IA-64 course. It didn’t. From there, HP’s most important stake in the ground fully unearthed itself, leaving what remained of HP’s go-to market strategy — mostly a centrist and a commodities play — highly vulnerable. Adding insult to injury, in September of last year, the company decidedly missed the first big hype wave of utility computing when it scuttled its Utility Data Center plans — a miscalculation that could have long-term ramifications considering how Sun and IBM have managed to catch, and propel that wave so far. Now, without a unique arrow to put its wood behind, HP has a problem, and it remains to be seen exactly what the company can do as its healthier competitors line up to chop away at HP’s one remaining bright spot: its printing and imaging business.
