It's Friday, 7:48 am, and Mark Hurd, chairman, CEO and president of HP, who is in Israel for a two-day visit, is pacing the lobby of the David Intercontinental Hotel in Tel Aviv with an earphone, and looking busy.
”He’s simply thinking,” the company’s Europe and Middle East spokesperson would tell us later, “A man with responsibility like that needs to think a lot.” Hurd, who is responsible for 320,000 employees around the world, doesn’t just think. He took advantage of the small amount of time he had before the interview with “Globes” to make phone calls and leave voicemail messages --- his customary way of passing on instructions and comments to those under him. When you wake each day at 5:00, you have plenty of time to do that.
World’s most competitive CEO
Hurd is no ordinary manager. He goes into the fine details, particularly if they include numbers, and demands that employees should abide by strict revenue and expense measures. His charisma isn’t overwhelming, like that of Microsoft CEO Steve Ballmer, nor as sophisticated as that of IBM CEO Sam Palmisano, but it’s much more personal. Even his smiles --- a typical product of corporate America --- have not been honed to an art form like those of his colleagues in other giant companies. So, deliberately or not, he radiates much more genuineness and approachability.
They say that he is the world’s most competitive CEO. It’s no wonder then that at least four times in the course of the interview he made remarks to the interviewing team about their laptops, which were not HP products. The first time, the comment was accompanied by a smile and a disclaimer that “it doesn’t really bother me.” The other times, the comments were more serious. “Just don’t photograph me next to the computers,” he demanded.
This was Hurd’s first visit to Israel after four years in his post, and he was geared up for a regional tour which he made stops in several countries. In Israel, he mainly met customers, partners, CEOs, and HP workers. This time, Hurd forwent the pleasure of doing the rounds of ministers and government officials.
HP, which aims at both the consumer and business markets, has felt the economic crisis keenly, although when the quarterly financials were released a month ago, Hurd hinted at some improvement. “We saw improvement in terms of demand in China and also in the US, but we still need more data in order to understand the change. The big question is how 2010 will look, and we’ll know that only in the summer of 2009,” he says. “My expectations are that companies will spend more and the situation will be better. How much better? It’s too soon to tell.”
Declines in all segments
Two years ago, HP overtook IBM to become the world’s largest computing company. Its second quarter revenue was $27.3 billion, 3% less than in the corresponding quarter of 2008. The company posted a bottom line profit of $1.7 billion.
The fall in company sales spanned all segments, apart from services, where EDS (acquired a year ago for $13.5 billion), contributed to a doubling of sales to $8.5 billion, making it the company’s largest activity.
Buying EDS was a brave move for a company whose previous acquisition on such a scale --- that of Compaq for $20 billion at the end of 2001 --- went awry, and nearly dragged it into the abyss. It also led eventually to the departure of then CEO Carly Fiorina.
”We saw EDS as the best services provider on the planet. What needed to be improved at EDS was mainly the costs structure. The EDS acquisition is strategic, we knew that we wanted to leverage its services capabilities more.”
In this respect, HP is following in the footsteps of IBM. In the past decade, IBM has been transformed into a company that derives 90% of its net profit from its software and services businesses. At HP, profit from services and development accounts for 40% of total operating profit, which amounted to $3.1 billion in the second quarter. It therefore looks as though the company has something to aspire to as far as growth and entry into new areas are concerned, and some of this aspiration will be fulfilled through acquisitions.
”The rumors that we are trying to buy a big company every 15 minutes are exaggerated,” Hurd remarks about the speculation, “We bought 37 companies in the past four years, and this pace won’t continue. We are always trying to pay attention to what there is in the market and that is relevant for us.”
A criticism raised against Hurd is that he manages the company with too much stress on managing costs, which does not allow for growth in R&D expenditure. However, precisely in services, where R&D is usually seen as lees important, Hurd sees a clear need for R&D capability, something that partly stems from his previous career as CEO of NCR. There, he came to the realization that a services company won’t stay around long if it can’t do R&D.
Pay must match performance
HP’s market cap has leapt since Hurd has been in charge. One of the unofficial reasons for Fiorina’s ouster from the company was Wall Street’s lack of sympathy for her. During her term, HP’s market cap declined 54%. Hurd succeeded in rehabilitating the ranks, boosting sales 40% between 2005 and 2008, and HP’s market cap is currently about $90 billion.
The result is that the shareholders love Hurd, and he takes home a pretty nice salary. He is one of the highest paid managers, and the highest paid in Silicon Valley, at least in 2008. Last year, Hurd received a salary of $25 million, and $17 million more in options.
Hur is clear that salary levels must be directly linked to company performance. “I believe that a CEO should be compensated according to an equation similar to the one that applies to the company’s other employees. We don’t pay the worker, we pay the job. If our performance is better than the market’s, then I personally and the whole company will receive better pay. A situation in which the company is not showing good performance, the workers are not paid well, but managers are, is impossible. Pay according to performance is the right thing.”
We won’t transfer activities from Israel to China
HP employs about 5,000 people in Israel: 1,800 in the digital printing division acquired from Indigo, which has centers in Kiryat Gat (two factories), and Nes Ziona (a factory and a development center); the wide-format printing division (following the acquisitions of Scitex and Nur), with 850 workers; the software development center, which became part of HP after the acquisition of Mercury, and has 900 workers; the sales and service center in Ra’anana, which has 900 workers, and which another 850 workers will join once the acquisition of EDS in Israel is completed.
”We tried to make Scitex and Indigo’s businesses global, so that we would be sure we had the ability to produce their printers in Asia, and so that we would be able to distribute them globally more efficiently and quickly. There is no reason that we shouldn’t expand here in the future.”
Hurd, who openly declares that he mainly thinks about the bottom line, carried out two rounds of mass layoffs at HP last year, shedding 31,000 workers. Might HP not transfer some of its activity from Israel to the Far East or other, cheaper markets?
”No,” Hurd says decisively, “It doesn’t help us to find cheap people who can’t innovate. We need people who will invent the next touch screens or the next printer, we need smart people. We want the smartest people in the world to work at HP, and we’ll go wherever we find them. If there are people just as smart somewhere else but cheaper, fine. But just cheaper? That doesn’t interest us.”
Published by Globes [online], Israel business news - www.globes.co.il - on June 17, 2009
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