Boosting 3000 Effectiveness with Experience
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CEO Leo's prescription for healing HP's way

After six weeks of search, the HP board of directors chose a computer executive from outside the company to fill its CEO post. Leo Apotheker will start working in the fresh HP fiscal year starting November 1. A few articles have referred to the 57-year-old SAP lifer as wearing a name that translates in German to "pharmacist." But their prescriptions for him to heal the HP Way have ill-administered at best, as reported in the business press.

Apotheker Analysts have puzzled about why Apotheker was picked over HP's own "deep executive bench," to use the phrase HP offered while it was firing Mark Hurd. A sentimental favorite of some in the 3000 community, Ann Livermore, was passed over for the third time in about a decade. Livermore leads the HP operations which control the fate of HP's servers and software for enterprise customers. But Carly Fiorina seemed a better choice to the HP board, and about five years later Mark Hurd was fitted for HP's vacated crown. Livermore likely has little interest in leading all of HP, a company which has mutated mightily from the business where she cut her teeth selling HP's support products such as LaserROM -- an innovation of the industry's first collection of business system documentation on a CD.

So in an interview with Livermore I saw a view of one of two HP areas where Apotheker will try to reform the HP Way: support services. It's not the area analysts expect him to impact, software, but if he achieves that it will increase support business by extension. Customers can expect his continued pressure on the support business, where HP just raised its prices to increase the cost of owing an HP enterprise server. This is what you do when your innovation sags: boost the price to remain a customer of a complex product.

HP already opened the door for this impact with a paid-only patch policy for its business users starting Sept. 17. Apotheker has been profiled as an exec who worked to raise such costs at his last job leading SAP. Customers revolted and price hikes were pushed back. That kind of cohesive defense against higher costs will be tougher to mount against a company the size of HP, however, where thousands of products across many operating units will be probed for profit increases. Support revenues are the most lucrative HP operations other than lawsuit-driven licensing challenges. These revenues are also the final product that an enterprise customer like the 3000 user is likely to purchase before dropping HP.

The business press is examining Apotheker on a less tactical prescription: what he can do to improve HP's standing in software. Consider the bar he must try to carry the company over: a series of acquisitions that have increased HP headcount and drained off cash that could've been used for R&D, even while their impact has been meaningless to meager. Allbase is a great example of a software acquisition which few needed in the HP enterprise customer base, way back in the 1980s. (One large customer needed indexes that IMAGE couldn't do, and a serviceable third-party add-on for indexing was not HP's choice to please this customer.) The software track record hasn't gotten much better in the ensuing 25 years. HP OpenView has been a software exception to the rule of weak and me-too additions.

What I hope Apotheker will understand is that HP needs the kind of innovation which grows from inside the company's software engineering labs, rather than adding technical genius from small companies now ordered to perform on Battleship HP just like they did in their cruiser-class corporations such as Palm. A half-dozen key Palm engineering managers and creators fled HP once the merger was sealed this summer. There's little doubt about why. HP's internal measures show that two-thirds of its employees would leave if a better job was available. The job-slashing that got popular under the past two CEOs is a big reason to get away from HP if you can migrate under your own plan.

During the CEO search process, Apotheker must have hidden his record regarding SAP employee trust -- or had it discounted by the directors. After cutting 4,000 jobs out of SAP during the recession, only half of the remaining 46,000 employees had trust in top management, a drop from 75 percent. Watching cubicles empty out will inspire few people who are considered top creators and innovators.

But the Economist was not alarmed by a CEO choice that drove HP's share price down about 5 percent after the hiring news. "It may be a clever choice," read the article by "Babbage," one of the clever columnist names the magazine uses to cloister its writing staff. Babbage acknowledges that Apotheker "did not make many friends among SAP's customers, particularly the smaller ones in Germany." Such small customers make up the largest share of 3000 owners, even the ones who've stuck with HP and made the move to HP-UX (occasionally) or Windows-ProLiant (far more often). Small companies will get pushed around by HP policy changes which are tough to revolt against. A loss of teeth is not the worst thing to brave when you fight a big vendor to retain the value you were promised. Months of bitter complaints rolled back those SAP support hikes, just a few months before Apotheker was handed his hat.

What sparks this October's praise of the surprising Apotheker seems to be his different stripes as a human: Revolting against high school rules against smoking, and losing a few teeth in the skirmish; growing up the son of two Polish Jews who fled the Germans to avoid concentration camps (he's been labeled a son of Holocaust survivors, which fogs up the accuracy of "survivor" that usually accompanies tattooed forearms, starvation and worse); or his command of five languages including Hebrew, or being the first HP CEO born outside the US. All of this difference makes the Economist guess Apotheker might start as a good listener. He says he wants to start with a tour of listening.

One group of speakers who should earn his ear are HP employees who signed on to build rather than integrate, or to please customers rather than enrich shareholders who've been joyful since mid-decade -- at least until Hurd's undertow sparked his firing, then drew off $10 billion of HP's market valuation.

But Babbage's column acknowledges that acquisition is the standing order of HP's days. It draws hope from an acquisition Apotheker engineered three years ago, rather than any innovation initiative that SAP rolled off its own programming force. Innovation is not a part of the SAP experience. Purchasing Business Objects was a big SAP 2007 deal, at $6.8 billion, big enough that only a couple of HP's purchases have cost more. But the SAP future doesn't look better because of that buy.

SAP is software installed at very large companies, implementations that can take four years and more to complete. Some HP 3000s are still running at migration-bound companies, now becoming independent support customers, because fitting the 3000 ops into existing SAP infrastructure is more complex than expected. Integrators have been known to describe SAP as an ERP solution "with 15,000 switches to set" on implementation. A move to make this software better fit to small companies has not helped SAP much, not to mention some customers who hoped it would work as well as it did for HP.

Hiring Apotheker doesn't signal a new way of HP performance, nor does it offer hope of the return of the old customer-focused HP Way. The Economist called its column "The Leo Way." His new face on an HP board that has careened toward big earnings off smaller R&D budgets -- that's a way likely to cost customers using HP's unique technologies over the long run. 3000 owners have always invested for the long run. Once all the listening stops, I hope HP acquisitions and job cuts will halt, too. HP's grown large enough to let competitors like Sun or IBM get richer. HP's last CEO now works for the former firm, and SAP grew out of a hide-bound IBM that changed its ways long ago. Big companies change to improve the value of their products. The best we can hope for is that this fresh, multi-lingual voice can make his board hear the merits of creation, instead of hoarding the innovations of others. Leo will need to lead a new way to help a wayward HP.