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Meg Whitman says Hewlett-Packard Co. must be “maniacally focused” to win in a changing market that is “creating both opportunities and challenges for HP and every one of our competitors.” Her choice of word is unfortunate but emblematic of what many corporate executives have adopted as the right strategy for making their businesses competitive.
Whitman, president and CEO of HP (NYSE:HPQ), says the company plans to lay off an additional 16,000 employees probably in the second half of 2014 as part of a restructuring program first announced in 2012. By the time this program is completed, up to 50,000 employees would have been terminated by the company to “make HP a more nimble, lower cost, and more customer and partner centric company,” according to Whitman.
“Overall, I am very pleased with the progress we have made but we still have a lot more work to do,” said Whitman on May 22 while presenting the company’s latest quarter results to analysts. “Our focus continues to be driving innovation, simplifying our organizational structure to speed decision making and reducing cost. These initiatives are particularly important as we continue to navigate a rapidly shifting marketplace.”
That HP needs to change a lot about its operations is not in doubt. The company is challenged on many fronts and is facing enormous difficulties growing sales and keeping market share. Annual sales have tumbled to $112.3 billion as at the fiscal year ended October 2013 from $120.4 billion in fiscal 2012 and $127 billion in fiscal 2011. Analysts are estimating HP’s fiscal 2014 sales will be on average down from the previous year at $110 billion. So, this company needs to do something drastic to spark growth, drive market share and improve profitability.
What it doesn’t need are maniacal actions. Chopping off 50,000 employees falls in that category. No matter how much Whitman and her executive team try to justify this action it will have unintended and disastrous consequences for the company over the longer term and many of the objectives she has spelled out will fall victim to this move.
"We have more work to do to improve the consistency of our execution and lower our cost structure to drive overall profitability," Whitman said. "We’ve actually increased the number of people who will leave the company a couple of times during this program. And actually on earlier call, we signaled that there might be more opportunity. And I am actually not disappointed at all with how we're doing, we just see more opportunities to lower our cost structure, streamline our operations without impairing our effectiveness, making us a more nimble and decisive company. It will be across almost all the business units and across all the geographies and particularly in some of the functional areas that sort of help the businesses grow."
HP isn’t alone in this line of reasoning. All across corporate America, especially, the axe is the first tool of choice for many embattled executives and while I am not taking Whitman’s use of the word “maniacal” literally, it nonetheless makes me wonder if there isn’t a hint of insanity behind many executives’ obsession with cost-cutting in what is often a desperate bid to “save” a troubled enterprise.
Will Meg Whitman “save” Hewlett-Packard? It depends on what those in her circle and investors consider a “saved” company. In my opinion, a “saved” company is a growing, profitable enterprise that is successfully defending and adding to its market share. It is also innovative, brings out new “must have” products and projects a positive image about its future and prospects. HP isn’t currently in this group and does not appear to be heading in that direction.
Savage cost-cutting is what is happening currently at HP. It may satisfy analysts and investors but it is also digging up holes under employees, the critical part of the foundation needed for growth. Many of HP’s more talented employees aren’t waiting to be axed. Their resumes are flying out to competitors; if your family’s livelihood was similarly on the line you would be crazy to simply wait to be sacked.
Massive layoffs of the type going on at the company are highly disruptive. They project loss of control, make customers and suppliers nervous, embolden the competition, drain the business of highly-skilled and experienced employee resources required for rebuilding, dampen innovation and morale and generate waves of uncertainties about all aspects of the company’s operation.
Analysts and investors are, of course, delighted. The stock price was up about one percent in mid-day trading on Thursday. After sinking to a low of $20.25 in the last year, HP’s shares have recovered nicely and are now trading close to the 52-week high of $34.09. Investors should hold their celebration. Other enterprises that adopted a similar slash and burn strategy of massive layoffs in response to challenges are instructive of what the future might hold for HP. Nokia went down that same path. So did BlackBerry, Lucent Technologies, Motorola and years ago Nortel Networks. The results weren’t pleasing.
HP may not suffer the same fate but it will emerge a shrunken company, much diminished in the eyes of customers, suppliers, employees and investors. It’s been repeatedly stated that an enterprise cannot cut its way to growth. HP isn’t going to be different.
DISCLAIMER: Bolaji Ojo is editor-in-chief and publisher of Electronics Purchasing Strategies. The views expressed in this blog are those of the author alone who promises to base his sometimes biased, possibly ignorant, occasionally irrelevant but absolutely stimulating thoughts on the subjective interpretation of verifiable facts alone. Any comments should be sent to the author at bolaji.ojo@epsnewsonline.com.
