Happy dealers, solid managers. So what's wrong at HP?

Board stupid

Kakabadse says: “With four CEOs since 2005, HP clearly has problems and these problems can placed at the feet of the board. It has stopped functioning properly, and hasn’t created the right environment for a CEO. With a lack of leadership and clear strategy, the running of the company falls to senior and general managers.”

In short, management carries on irrespective of what is happening in the captain’s cabin - even as the ship almost imperceptibly sinks a few millimetres more with each passing month.

Whitman has said HP’s problems won’t be solved overnight, profits will fall during 2013 and it won't achieve significant growth until at least 2015. True to her word, in the quarter ended 31 October, HP reported a net loss of $6.85bn. It’s all part of the plan apparently with the company “in the early stages of a multi-year turnaround,” according to Whitman.

Despite all this HP is still one of the planet's largest PC manufacturers - though its position in the number one spot is no longer secure. HP took 15.5 per cent of the market worldwide in the third quarter, with Lenovo taking 15.6 per cent share. HP reclaimed the top spot in the fourth quarter, taking 16.2 per cent, with Lenovo on 15.5 per cent - however, it was the Chinese vendor which showed the most robust growth, while HP's shipments actually slipped marginally.

But aren’t today’s PCs tomorrow’s laughable bits of clunky technology? HP’s sweeping internal restructure is designed to move towards services and the cloud. In the long term it aims to create a company that's less dependent on highly priced competitive consumer products, like PCs and printers, and more focused on delivering services and solutions to businesses. However, resellers appear to retain confidence in the troubled hardware giant, despite its frequent missteps and mishaps.

According to DTP MD Hall, the merging of the PC and printer divisions to provide a more unified approach to products and services, which also extends to partner programmes, is a step in the right direction: “Before HP merged the PC and printer division there was a lot of duplication. The behind the scenes changes have really made sense, they are cutting the costs out of the business. We have good relationships with the company at a senior level and we see more opportunities coming our way.”

It is these "good relationships" to which Kakabadse refers when he says managers are running the company. Whitman may be offering strategic direction but by focusing on the company's financials, she may be taking HP in the wrong direction: “As important as revenues are if a CEO focuses on these alone he or she becomes little more than an operational chief.

“To turn a company like HP around, the key thing is to engage stakeholders. These include the board members, dominant institutional shareholders, large private shareholders, the press and the political class such as ministers in the different countries they operate in,” says the prof.

Fundamental problems

The reasons why boards become dysfunctional are that they often see the reality of problems but don't act because to do so could damage their self-interest, adds Kakabadse. Board members invariably part of a relatively small and tight club of other board members. If they drive through action that might affect their peers, such as publicly questioning decisions, they are essentially ostracised from the network and unlikely to work again in the same capacity. They generally wish to avoid this and as a result paralysis sets in and the board stops functioning healthily.

Certainly the boardroom dramas of HP would brighten up the dullest of soap operas with one member hiring private dicks to find out who was leaking stories to the press. Of course, the late ex-HP chairwoman Patricia Dunn later testified that she had believed the investigators had used only legal methods to get the information, and the charges against her were dropped.

Perhaps, one of the clearest examples of HP's dysfunction was back in 2011, when the short-lived Leo Apotheker announced that he was considering spinning off the lucrative PC units. The Edward Munch-type scream that followed sent many resellers scurrying. Multi-million pound contracts were aborted as clients understandably didn't want to splash the substantial cash on a vendor which was planning to pull the plug on the PCs they were buying. Of course, there aren't any figures that illustrate a diminishing pool of resellers following this disastrous foot in mouth statement. But it might be a fair bet to assume that some at least dashed into the arms of more reliable suitors - if they could find them....

Those resellers who decided to keep the faith in HP and put their hands over their ears in the hope that the "nasty" talk would go away have reaped the rewards. One said: "At the time we couldn't believe what we were hearing. We hoped that they'd got it badly wrong and it was an internal discussion that had unfortunately got out when it should have stayed behind closed doors. But today HP is our number one vendor."

Despite the clouds of uncertainty hanging over HP. Loay Lawrence, sales and marketing director at Vohkus, believes HP is moving in the right direction: “I've worked closely with the company since 2001 and I've seen it go through many different changes. It's still best-of-breed in many areas, is channel-friendly and understands that the channel is vital to its success. We're vendor-agnostic but that said HP is one of our best-selling lines. We sell across managed print services, storage, servers and client solutions such as desktops and laptops. You've got to go to market with good value and HP helps us deliver this.”

Even HP's direct sales model is largely greeted by a metaphorical shrug of the shoulders. Reseller boss Hall, for example, believes the channel has matured and accepts this. But Alastair Edwards, principal analyst at Canalys, says its direct model has triggered a move to find alternatives among some resellers.

The importance of the channel to HP was evident recently at a conference in the US in which Whitman’s appearance was immediately followed those of HP's channel directors. They admitted that partner programmes needed an overhaul and conceded that there was too much complexity across the board ranging from the quotation process to pricing approval. But while the analytical eyes are drilling down into the detail to shore up the shaking vendor, the larger, largely unasked question is whether the company can survive the turbulent waters it has been drifting in for a long time now.

The consensus among resellers seems to be to continue to exploit opportunity while keeping an eye on the rest of the market. The reseller who circumvents distributors for his HP PCs and printers certainly sees new promise: “HP is still strong and I think it has a better future than Dell, but we've now got Samsung which is going to be a strong player and Lenovo which is getting increasingly stronger.”

For the moment, it appears that HP's behemoth-like size, "channel friendly" approach and product pedigree is enough to dampen concerns in the channel. Certainly its partner cloud-based services, are finding favour in the channel despite the company acknowledging it has been slow out of the block in launching them.

We love HP. For now...

Softcat's Hellawell says: “It has really good technology in terms of the cloud. We sell into the mid-market around storage area networking and service-orientated networking and with HP technology we've been able to build and develop our cloud technology offerings.”

As long as HP keeps producing the goods, many in the channel are sticking with it.

Long-established relationships with senior HP management are still in place, its move towards cloud-based services is seen as a welcome step, and despite missteps in the channel there is a general feeling that the company is still delivering.

However, there’s also an inescapable sense of making hay while the sun is shining. While Whitman is talking realistically about HP’s current position and long-term aims, Kadabadse is less than convinced: “HP clearly has deeply embedded dysfunction. The chances are that Whitman won't succeed.” And what are the consequences if she doesn't? One more too-big-to-fail giant stumbles and falls.

According to Kakabadse, HP’s already on its way down. But it may be some time coming. Resellers are still benefiting from its products and services and developing healthy businesses as a result. But that doesn’t mean governance problems will go away. Ford Motor Company has been plagued by all manner of boardroom conflicts yet people still buy its cars. Kakabadse concedes that resellers today can thrive on HP products/services and that may continue for some time to come - but says that five years from now he wouldn't be so sure. ®