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Hewlett-Packard CEO Mark Hurd's single-mindedness is paying off for the tech company in profits that will be hard to beat in 2008
Mark Hurd, chief executive officer of the world's largest technology company, doesn't chase the public limelight. He doesn't go to high-profile international business conferences like the upcoming World Economic Forum in Davos, Switzerland. He doesn't flaunt a personal flair or high-flying style. All of Hurd's energy, it seems, is trained completely on one and only one task: leading Hewlett-Packard (HPQ).
That laser focus is paying off. For the fiscal year ended Oct. 31, sales rose 13.7% to $104.3 billion, and earnings jumped 17% to $7.3 billion. Those numbers have translated into sharp gains for investors too: For calendar-year 2007, the Palo Alto (Calif.) company's shares rose 23% to $51.36, compared with a 13% gain for IBM (IBM) and a 2% decline for Dell (DELL). "Businesses at HP that were problematic have been cleaned up," says Roger Kay, president of market researcher Endpoint Technologies Associates. "It shows the whole company is doing well."
No wonder BusinessWeek editors and readers have selected Hurd 2007 Businessperson of the Year. The low-key executive, who has quietly cleaned up a mighty mess at the venerable Silicon Valley bellwether, beat out some big names on our list of top managers, including tech neighbor Steve Jobs and media mogul Rupert Murdoch. While legitimate arguments can be made for many of the names on our list (BusinessWeek.com, 1/2/08), Hurd stands out for his remarkable skill navigating the intensely competitive and complex computer business. During his three-year tenure, HP has become a rare example of a tech company succeeding in the delicate balancing act of selling to both consumers and corporations.
Staying on Track
Hurd, 50, is a classic example of a no-nonsense operator hammering away at a struggling business to get it moving in the right direction again. The marching orders: squeeze out costs and improve efficiency. When Vyomesh Joshi, who leads HP's printer business, told his boss he was moving the entire team that works on black-and-white laser printers from Boise to China, where most of that product's sales potential lies, he got Hurd's enthusiastic approval, recalls Joshi.
Taking a page from Jack Welch's book, HP has become more disciplined and pulled out of businesses where the company isn't the No. 1 or No. 2 player, such as digital cameras. "The really big thing for us is to have built a long-term plan and long-term strategy for the company, and we stayed on track with that," says Hurd.
Indeed, a lot went right for Hurd and HP in 2007. With a 19.6% worldwide share of the PC market, HP stayed firmly at the top of the heap, according to researcher IDC. (Dell, which lost the lead position to HP in 2006, currently has a second-ranked share of 15.2%.) How has HP managed to turn around a business that was hemorrhaging just a few years ago? It embraced a strategy known inside the company as "decommoditization," or, in plain language, casting PCs as more than mere boxes looking just like the next guy's. HP redesigned its machines, infusing them with a slew of features, such as one that lets customers play a DVD or listen to music without booting up the entire machine.
Building a Software Portfolio
HP also worked on the look of its PCs, giving some a glossy black finish meant to blend into the living room or home media room. And it launched celebrity-laden marketing campaign. Consumers have responded. According to research firm TechnoMetrica Market Intelligence, 14% of PC buyers cited HP as their preferred brand, up from 9% a year ago.
Hurd has turned HP's software business around, too. In 2005, the software unit posted an operating loss. The company simply didn't have much of a software portfolio to interest corporate computer buyers. But a string of acquisitions, such as this year's $1.6 billion purchase of Opsware, a developer of software to help companies automate their data centers, helped bulk up the business. In 2007, revenue for the unit grew a healthy 78%, to $2.3 billion, and operating income was $347 million, up from just $85 million a year ago.
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.