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Hewlett-Packard, the slow-change artist

The Silicon Valley pioneer has been stumbling for more than a decade now. Call it another case of a corporate giant laid low by the future.

August 28, 2011|Michael Hiltzik
  • Hewlett-Packard headquarters in Palo Alto, Calif.
Hewlett-Packard headquarters in Palo Alto, Calif. (John G. Mabanglo / AFP / Getty…)

Austrian economist Joseph Schumpeter is usually credited with using the term "creative destruction" to describe how capitalism evolves by supplanting the old with the new. But it's a fair bet that Schumpeter never could have imagined how creatively Hewlett-Packard Co. has managed its own destruction.

Arguably the founding engineering firm of Silicon Valley when it was created by Bill Hewlett and David Packard in 1939, HP has been on a more than decade-long stumble dating back to before the appointment of the glamorous Carly Fiorina as chief executive in 1999.

Fiorina was ousted in 2005 and replaced by Mark Hurd, who was the un-Carly, charisma-wise. Hurd's command of financial spreadsheets was a byword but his answer to the company's financial stress and strain was to cut the budget for its fabled research and development program.

Meanwhile there were boardroom intrigues and scandals galore. When Hurd was ousted last year, purportedly as the result of an extremely baroque and still not well-explained scandal involving maybe sex and maybe not, he was replaced by the third outsider in a row, Leo Apotheker, who had been looking for a job months after having been ousted from a top-level post at the German software company SAP.

Since Apotheker's appointment last fall, HP has given the impression of a company that doesn't know if it's coming or going, to quote Billie Holiday. The shares are down about 17% since the beginning of this year; they lost about a fifth of their value in the week after HP announced it would dump its PC business and double down on business services through the $10.3-billion purchase of the British software company Autonomy.

Plainly, HP is grappling with some unique corporate issues. But there's another phenomenon at work, related to Schumpeter's insight. And that's the difficulty all businesses face in managing technological and social change.

Even the most dynamic, best-managed juggernauts can get blindsided by what the future conceals just around the next corner. Google is just now catching up with social networking, and Microsoft had to remake its corporate strategy around the Web in the mid-1990s.

As Marc Levinson documents in a new book, the Great Atlantic & Pacific Tea Co., or A&P, became the biggest retailer in the world in the 1920s and maintained its domination for decades, but didn't see Wal-Mart coming. It's since been reduced to a regional supermarket chain in bankruptcy. Whole industries can be threatened by technology -- in our day, think of broadcasting and, ahem, newspapers and magazines.

In fact, companies that can survive upheavals of the type faced by HP are the exception, not the rule. Of the original 12 components of the Dow Jones industrial average as established in 1896, only one is still in the index: General Electric. Indeed, of the 30 companies that composed the Dow in January 1987, when the index crossed the 2,000 threshold for the first time, nine don't even exist in their 1987 guise anymore.

The roster of companies that have survived multiple technological upheavals, transforming themselves over and over again, is even shorter. IBM is one, and GE another (though GE has been looking a bit green around the gills lately).

Apple had a near-death experience before Steve Jobs came back in 1996 to the company he had co-founded, after a decade in exile. Jobs saved Apple in part by steering it away from PCs and toward a future of profits from mobile devices and content. What is the iPad, after all, if not a shiny, touch-screened invoice for digitally delivered music, movies, words, and applications?

But Jobs' crystal ball has not been flawless. In 1996 he delivered a public harangue about how Xerox botched the opportunity to dominate the business of personal computers, which had been invented at its Palo Alto Research Center, known as PARC.

Xerox "could have been the Microsoft of the '90s," he said. Yet, even though Microsoft appeared to be heading for world domination at the time, it's questionable whether even Microsoft was the Microsoft of the '90s; it's certainly not the Microsoft of the 21st century. By the same token, Google today looks unbeatable, but so did Yahoo, once.

One would have expected HP, with the tradition of first-rate engineering bequeathed by its founders, to be more nimble than most. But somewhere along the way it got lost. When I wrote about Fiorina's ouster in 2005, I did so on an HP desktop personal computer, with my HP laptop and HP laser printer near at hand. But I asked the question then: Why was HP in the PC business at all?

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