BW's Businessperson of the Year

(page 2 of 2)

Described by former associates as a stellar operator known for his command of the numbers, Hurd, who was CEO of NCR before taking over at HP, now faces a high hurdle for 2008. His sales goal for the coming year is to increase revenue by nearly 7%, but with annual sales already at $104.3 billion, that task is massive. "Its size creates a high hurdle. How can you beat last year?" says Kay.

Tradition of Supporting Customers

Hurd, of course, isn't standing still. He expects to continue cutting expenses, which in 2007 grew at about two-thirds the rate at which sales rose, thereby helping to boost operating margins to 8.3% from 7.1% in 2006. The company will get rid of some real estate holdings and consolidate more data centers, he says. And there will be additional efforts in supply, manufacturing, and logistics expenses. "We've got $95 billion of costs not related to R&D," says Hurd. "That means we have to be as efficient as we can, so we're spending money in the right place. We cannot waste money here."

Hurd knows where HP can improve. With 35,000 engineers, the company is solid in developing technology itself and has a strong tradition of supporting customers when they run into problems, he says. "But taking those technological and service capabilities to market isn't as deep in our DNA. The challenge is building up our go-to-market approach, or demand creation," Hurd says. For HP, even with its 140,000 outside distributors, 80,000 retail outlets, and 20,000 internal salespeople, he says, "…we are under-distributed." The upshot: HP must continue building up its sales force and distribution channels next year.

Those salespeople and distributors, though, are likely to face ever-rising competition. In consumer printers, for instance, Eastman Kodak (EK) entered the market in 2006 amid much fanfare, promoting printers that are generally pricier than HP's but over their lifespan are less expensive to run because the ink costs less. HP also faces competition from the popularity of digital picture frames and services that let consumers view and share photos online, bypassing the printing process.

Dell Looks Like a Challenger

HP's consumer printer business, of course, dwarfs Kodak's, but Kodak's mere presence keeps pricing pressure on HP, analysts say. To cope, HP's printer unit, which in 2007 accounted for slightly over 27% of total revenue and 41% of operating profit, is increasing emphasis on snagging commercial customers that print items such as billboards, banners, and signs that use "liters of ink" instead of the mere cubic centimeters consumed by printing documents or photos, says HP's Joshi.

And next year, HP may not have a weakened Dell to knock around. HP has captured market share as Dell has floundered, but with the return of Michael Dell to the CEO spot, and his new management team, Dell could be on the verge of a comeback with improved products and service. "The coming year could be Dell's year," says analyst Rob Enderle of consultancy Enderle Group.

But Hurd's biggest challenge in the year ahead may be to fend off any sense of complacency, now that HP is at the pinnacle of the computer industry. "It's easier to get motivated when you're behind, but when business is going well, that takes the pressure off," says Enderle. Hurd seems determined to stay out of that trap. "HP's growth is a journey," he says, but it's one with a sense of urgency. "We also look at this as a race."

See BusinessWeek.com's slide show of the best leaders of 2007.

Lee is a correspondent in BusinessWeek's Silicon Valley bureau
.