Is Ann Livermore the Hottest Property in the Valley?
In the end, Hewlett-Packard didn't make her CEO--but someone else might

In the spring of 1998, with Hewlett-Packard Co. (HWP) stuck in one of the deepest funks of its 60-year history, the company's top executives agreed to put themselves through a so-called 360-degree evaluation in which they would open themselves up to criticism from employees, peers, and board members. That's when Ann M. Livermore, then head of HP's $5 billion software and services business, discovered something about herself. ''I learned that I'm a very, very well-controlled executive, but that my employees like when I go off the handle every once in a while--you know, show my human side,'' says Livermore. ''It reinforced that leadership means touching people's hearts as well as their brains--so since then I haven't worried so much about keeping my lid on.''

That's for sure. In the past year, Livermore has evolved from a cautious practitioner of HP's consensus-oriented management into a lightning rod for change at Silicon Valley's granddaddy of technology companies. It was she who finally got HP into gear on the Internet. After years of fragmented efforts, she broke through HP's highly decentralized structure of warring tribes to create an ''E-services'' vision that finally put HP into the Net game alongside IBM and Sun Microsystems (SUNW). And when HP CEO Lewis E. Platt announced in March that he would step down, Livermore shocked some colleagues by confirming that she wanted the job.

If judged unseemly by some, Livermore's approach almost worked. Insiders say Livermore was the only internal candidate who made the short list. And after HP made history on July 19 by making former Lucent Technologies (LU) executive Carleton S. Fiorina the first female CEO of a Dow 30 company, HP board members and executives went out of their way to point out that Livermore was a finalist. ''Ann and her team deserve huge credit,'' says Fiorina, who met with Livermore for four hours on the weekend she was named CEO.

MIFFED COLLEAGUES. Now, Livermore stands out as a hot property for headhunters seeking to fill the 200-plus CEO spots now open in Silicon Valley. ''If nothing else, she's made herself a much better candidate to be CEO elsewhere,'' says Bain & Co. consultant Vernon E. Altman. ''Coming in second doesn't hurt her internally, and companies who had never heard of Ann Livermore will now consider her for CEO.'' But rather than rush off in a huff, Livermore says she's looking forward to working with Fiorina, as long as the new boss is committed to E-services. ''I already have one of the best jobs in the industry,'' she says. Adds Livermore's father, Robert Martinelli: ''Carly doesn't have an insurrectionist on the payroll. Ann says she's going to make it work.''

So who is Livermore? To many, she remains an enigma--either a managerial diamond in the rough who has toiled in relative obscurity at HP or an opportunistic operative who parlayed her candidacy for CEO to reposition herself as the latest Internet whiz. The answer? She's somewhere in the middle. She never ran a Net business until last November. And while the $5 billion software and services division she oversaw before that outpaced the growth of HP's slumping hardware units, it's still seen as an underachiever. Some analysts say that Livermore managed it too cautiously. Rather than capitalize on the consulting bonanza that has made IBM Global Services a $29 billion gold mine, she failed to overcome HP's habit of tying services to its hardware. The result: Service revenues of just $6.6 billion in 1998.

That's why her rapid rise has left some of her peers miffed. For starters, Livermore, who got her first profit-and-loss responsibility in 1996, hasn't had a chance to prove she can deliver sustainable results, since she has been promoted annually. ''She never even got a chance to put her stamp on an organization,'' says an HP executive. And some are frustrated by the fact that Livermore, after years of toeing the HP line, is now making hay as a rebel to the HP way. ''I would not call Ann a glass-breaker, which is what HP has needed for a long time,'' says the HP executive.

''TONED DOWN.'' But Livermore is only now beginning to show what she can do as an executive. Never mind her prematurely graying hair, plain-Jane wardrobe, and pragmatic ways--all of which make her almost an alter ego to the charismatic Fiorina, who stood out at Lucent for her take-no-prisoners sales tactics and her ability to build Lucent's brand, not to mention her stylish Armani suits. Close associates say there's far more to Livermore than the image she projects. ''She has been very toned down'' because she thought it fit with HP's egalitarian culture, says Calico Commerce Vice-President Amanda North, who roomed with Livermore while at Stanford business school. ''But she's a lot more dynamic than most people give her credit for.''

Livermore's drive surfaced early. While raised to be the perfect Southern lady, by 12 she had persuaded her father to teach her to drive--there's still car paint on the pole of a basketball hoop near his home in Greensboro, N.C., to prove it. Despite childhood diabetes, she became a tennis doubles champion and was captain of her high school basketball team. A brilliant student, she won a prestigious Jim Motley Morehead scholarship before attending the University of North Carolina at Chapel Hill and then Stanford business school. ''She's always been a go-getter,'' says older sister Jane Martinelli, a lawyer in Raleigh, N.C. During the family's one-week reunion at a North Carolina beach in early August with her husband, Tom, and nine-year-old daughter, Livermore devoured four novels. ''There's even competition when it comes to leisure reading,'' laughs Martinelli.

Nor is Livermore always the pragmatist she appears to be. As a teen, she repeatedly tempted fate with high-risk adventures--like hang-gliding without her parents' permission. After an outdoor leadership program, she returned to her native Greensboro with hair-raising stories of rappelling down mountainsides.

That same gutsy nature made her a rising star at HP. By coupling her Southern charm with a willingness to make tough decisions, she helped HP increase its software and services business 50% over two years. James L. Arthur, HP's former services chief, says she avoided getting bogged down by ''terminal niceness''--a common HP affliction that prevents fast decision-making. ''She just makes things happen,'' says Arthur.

By 1998, however, Livermore was frustrated with HP's mediocre performance and decided to push for big changes in the company's time-worn structure. ''She felt that if we didn't do anything [on the Net], we'd end the century in a very weak position,'' says Nick Earle, head of marketing for her unit.

That's when the bold side of Livermore reemerged. She led an effort to break from the decentralized structure to create one organization that would drive a Net plan. ''I felt we could be the most powerful company in the industry if we could get our hardware, software, and services aligned,'' she says. By last November, with a rudimentary plan on paper, Platt agreed to put Livermore in charge of the overall enterprise division, which includes server computers, services, and software.

Working with a team of longtime HP managers and cyber-savvy consultants, she quickly pulled together the E-services strategy. The idea is that in the future, more corporate customers will want to outsource computer operations to companies like HP and its partners, who can manage complex applications and Web sites for them. And rather than charge customers for computers and related technology, Livermore thinks as much as 80% of HP's enterprise revenues could one day come in the form of monthly service fees--much like utility bills--paid for the outsourcing. ''An electric utility doesn't get paid for its power plants--and they cost a lot more than computers,'' she says.

FIGHTING WORDS. By mid-February, she put E-services into overdrive. On Feb. 17, she spelled out the significance in a memo to her 44,000-person unit. ''We need to focus,'' she wrote. ''But focus implies discipline and a willingness to make tough choices. That means that some people's favorite projects may be realigned or redirected.'' That may be tepid stuff in harder-edged companies, but they were fighting words at HP.

Livermore rapidly moved beyond just an organizational makeover. She gave the go-ahead on a $1 billion-plus spending spree to fill in the technical holes in HP's portfolio. Within months, her unit made equity investments in E-banking software company Security First Technologies and E-commerce supplier Broadvision Inc. It also struck an innovative deal with electronic marketplace

MARCHING ORDERS. To make deals happen in Internet time, she began ''timeboxing'' them--that is, setting dates by which a deal had to be done. When talks began to provide Web application host Qwest Communications (QWST) with $500 million in HP equipment in exchange for a cut of future Internet service billings, she laid down a law for the negotiating team: ''At no time during our negotiations do I want to get a call that we're moving too slow.'' It worked. HP landed a deal that could bring in $1 billion in revenues during the next three years. So far so good. While HP's stock has jumped 50%, to 106, since March on surging printer and PC sales, E-services could bump it to $130-plus in short order, says Salomon Brothers Smith Barney analyst John B. Jones Jr. That hinges, however, on execution and whether she can pull together technologies from inside HP and its partners. These technologies range from information appliances to software that links customers to suppliers.

Bolstered by such successes--and by a shortage of other internal candidates-- Livermore's name was already being considered to replace Platt when the search started in earnest last spring. And when she publicly confirmed that fact, something other HP execs declined to do, the rumor mill began to focus on her. While some accuse her of unseemly ambition, she did little else than express her interest in the job when the press asked. ''My objective was to position HP as a leader in the Internet space,'' she says. ''But all anyone wanted to talk about was the CEO search.''

Some say Livermore might have been HP's new CEO if she'd been at her current post longer than just eight months. That knowledge made Fiorina's appointment tough for Livermore to swallow, say friends. ''Of course I'm disappointed,'' she told BUSINESS WEEK on the day HP announced Fiorina's selection. ''I wouldn't be very human if I wasn't disappointed.'' And at the family reunion, Livermore made it clear she wanted gin rummy, miniature golf, and fried seafood more than talk of HP politics. ''I got the message right at the start that we were there to have a vacation and there wasn't going to be any business talk,'' says her father.

What's Livermore likely to do? Insiders say Fiorina wants her to stay and is renegotiating her contract. And Livermore says she's thrilled to work for Fiorina. ''She's a great leader, and my initial impression is that I'm going to learn a lot,'' says Livermore. Still, don't expect her to stick around long. Since Fiorina is only five years older, it's unlikely Livermore will ever get another shot at HP's top job. ''If she was offered the right position, I think she might go for it,'' says North. ''She came so close that she could taste it.''

For all the questions around high-tech's newest superstar, one thing is for sure: She'll get plenty of opportunities to leave HP.

To read a letter to the editor about this story, click here.

To read a correction/clarification about this story, click here. By Peter Burrows in Palo Alto, Calif.

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Is Ann Livermore the Hottest Property in the Valley?

PHOTO: Ann Livermore at Age 1

RESUME: Ann Martinelli Livermore

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