Since taking charge at technology giant Hewlett-Packard (HP) in April 2005, new CEO Mark Hurd has only made minor changes to the running of the company: changing a few sales teams here, hiring some new staff there. But in July, Hurd unveiled his master plan.
As expected, Hurd's focus is on operations, on transforming HP into a streamlined efficient competitor. To achieve that, just under 15,000 jobs are to be cut from the worldwide organisation – roughly 10% of its worldwide workforce – which its board predicts will save $1.9 billion annually. HP faces a quarterly charge of $1.1 billion as a result of the layoffs.
"Our cost structure is putting HP at a competitive disadvantage," Hurd told employees after announcing the job cuts. "It is simply unsustainable." Jobs will mainly go from operational departments such as finance, human resources and IT. Sweeping as they are, these job cuts were not unexpected. At the time of his appointment, Hurd was touted as the cost cutter who would reverse the operational laxity that former CEO Carly Fiorina's strategy-focused leadership supposedly cultivated.
Hurd is also tightening his grip on the reins of the organisation. He recently bemoaned the 14 layers of management between the customer and himself in parts of the company, and promised to flatten the organisational structure.
The rearrangement of its hierarchy should make it more responsive to customer requirements, according to Gartner analysts Andrew Butler and Jeffrey Roster. "It makes HP's organisational structure more democratic and logical," the pair state in a report. "With more executive vice presidents reporting directly to the CEO, business units and other functions have more autonomy to execute their own strategies, but with closer accountability."
One layer of management to be wholly removed is HP's Customer Solution Group, the unit responsible for unified sales to enterprise clients. This duty will now be split between its Technology Solution Group, Personal Solutions Group, and Imaging Solutions Group. "The message from HP is simplification of decision making, and transfer of power to those who know the customer best," says Douglas Hayward of analyst group Ovum.
Alongside the redundancies, Hurd has also strengthened the management team with more of his own appointees, notably Randy Mott, the former Dell executive, who will now be HP's CIO. Mott brings with him experience of highly tuned supply chains, not only from Dell but also from his previous position at Wal-Mart. Mott will be expected to trim the inefficiencies from HP's logistical operations, and deliver further cost reductions.
Those hoping that Hurd's new approach would include spinning off its highly lucrative printing business look set for disappointment. Recently appointed managing director and senior vice president for EMEA, Francesco Serafini, told analysts that there was no major change of strategy planned for HP, but that it is working to make its current strategy run more efficiently.
This attitude will please investors in the short term, but some question how long HP can continue without asserting a definite direction. "Focus and clarity are good," says Hayward, "but for HP to be more than a holding company for a series of disconnected businesses, Hurd has to figure out which parts should be driving the growth of which other bits."
Hurd will now need to demonstrate his efficiency plans can deliver shareholder value if he is to cement his reputation as an operational fixer and convince the remaining employees of his leadership capabilities.
