HP dismisses Fiorina, citing execution rather than strategy problems

By Douglas Hayward, Senior Analyst

HP said today that Carly Fiorina has stepped down as chairman and CEO. Board member Patricia Dunn becomes chairman, and CFO Robert Wayman is interim CEO while the board searches for a successor.

Dunn said Fiorina was replaced because the board wanted someone better at "hands-on" execution, but added that HP's strategy remains unchanged: "This is not a change related to strategy." Neither was it prompted by HP's upcoming Q1 results, due out next week, which are in line with expectations, she added.

Fiorina executed the Compaq merger "in a superior fashion", but didn't have the right execution skills to lead the company forward, Dunn said. HP shares rose more than 10% following news of Fiorina's departure. Dunn said she expected the new CEO to come from outside the company, although she didn't rule out internal candidates. She is chairman for the foreseeable future, so it looks like HP may be splitting the two roles.

The question is whether HP needs new direction, or just a new driver. Our view is that HP has a broad portfolio whose separate parts don't work well enough together. Fixing that will require changes to strategy, not just execution.

The profitability of most HP divisions lags that of more focused best-of-breed companies. While HP undoubtedly has good products and services, Fiorina failed (with the exception of the printing group) to combine the hardware, software and services businesses so that they performed better than if they were spun off. That's ironic for a CEO who arrived from Lucent, itself a spin-off.

Dunn said that the board judges the business units against their best-in-class competitors - by that criteria, it's not so surprising that it asked Fiorina to go. The poorly-performing PC division is a case in point, all the more obvious since IBM's decision to sell its PC operations. But it's not just that.

HP has failed to create a powerful virtuous circle of cross-selling between services and product lines in the way that - for example - Accenture has done with outsourcing and consulting services. Dunn specifically said that she wants HP to "drive value between the portfolio businesses", and we see this as the company's key challenge going forward. HP must either create these virtuous connections, or get rid of the bits that don't help to drive revenue and profit growth. We suggest it starts right now with the PC business.

Douglas Hayward is Senior Analyst and Editor of EuroView Daily, the ground-breaking Ovum information and advisory service. He can be directly contacted on douglas.hayward@ovum.com.