The New Social Paradigm and HP’s Pain

Last week’s doings at HP exposed a lot that few of us ever think about. The basic story is that board member Meg Whitman replaced recently minted CEO Leo Apotheker. The company’s stock price has been floundering for a long time, and many people on and off the board had little confidence in the job Apotheker was doing. But that’s the CliffsNotes version.

According to an article in The New York Times about the “process” employed by the board of directors for selecting Apotheker, it seems the board members had not been playing nice in the HP sandbox for many years. When it came time to conduct the search that eventually led to Apotheker’s hiring, some of the board members never even bothered to interview him or discuss his candidacy.

The naive perception of Silicon Valley is of technologists, engineers and other smart people succeeding by dint of hard work, smarts and a commitment to always doing the right thing. Last week’s revelations shake that belief.

To my mind, last week is not an isolated incident involving one company and its board. It represents an opening salvo in a paradigm shift.

Ready for Spring?

At Dreamforce just a couple of weeks ago, CEO Marc Benioff talked about the Arab Spring and how social media had been so instrumental in affecting change in the Arab world. He made a comparison between what had happened on the international political scene with what would, he predicted, happen in companies as social media remakes global business. He predicted that those companies that failed to embrace social media, mobility and cloud computing — and the cultural openness that goes with these technologies — would be liable to suffering similar consequences to the governments being deposed.

You could take that as so much hyperbole by a CEO on top of his game speaking to a friendly audience, but there is a grain of truth embedded there too. An Arab Spring happens often at the end of a paradigm, and the rapid evolution of social computing is the signal event of one paradigm ending and another beginning.

To be sure, paradigm shifts are a messy thing. They don’t happen on schedule or in the same way, but they happen. In Egypt, Mubarak left willingly and remained in the country, while in Libya insurgents needed to fight almost house to house to wrest the country from its dictator, Moammar Gadhafi.

The paradigm of big iron and big application deployment projects has been waning for at least a decade — probably closer to two. In my view, Apotheker’s ouster from HP is part of this paradigm shift in the technology industry in which older, monolithic companies with decaying business models either retool or get pushed aside.

Risk and Reward

The conventional computing paradigm doesn’t work very well any more. HP revised downward the predictions they gave financial analysts multiple times in the last year. Over the last five years, the stock has not kept pace with the S&P 500. HP is many things, but it is not a growth company at the moment, and the ouster and infighting reflect distress over this reality.

HP is not alone. Take a look at other technology companies’ stock over the last five years and the graphs all start to look alike.

If other companies are tracking similarly, then Apotheker should be joined by others soon. Growth and risk go together, and often minimizing one minimizes the other. It may not be surprising, then, that so many companies in the tech sector have seen their stock performance repeatedly disappoint.

Now, I am not a financial analyst, and I am not certified to give anyone advice about anything financial. But it’s evident to me that the companies doing the best in this environment are the ones reaping the rewards of earlier risk-taking. Take a look at the graphic I got from Google Analytics.

Source: Google Analytics

Source: Google Analytics

The Salesforce story is well known — they’ve been pioneering in the social enterprise and the applications that support it as well as leading-edge programming technologies that will enable people to build a very different computing infrastructure in the future. Oracle has taken many risks too — from buying Sun Microsystems, to rebuilding its application infrastructure by developing its Fusion product. In CRM, Oracle has very good products and is among the leaders in SaaS computing. Oracle has embraced change and tried to lead.

Other companies have played it safe with their business models and now mirror the S&P.

One data point does not make a chart, and if HP remains alone in its troubles, that’s fine and good for business. But I suspect that a paradigm shift is underway and that some of today’s leaders won’t be leading tomorrow. The funny thing about shifts like this is that they accelerate. They are first barely noticeable, then they hit with the force of an avalanche. The paradigm shift might resemble the Arab Spring, but that’s just a metaphor. A more seasonally accurate descriptor might be a winter of discontent.

Denis Pombriant

Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and website. He is the author of Hello, Ladies! Dispatches from the Social CRM Frontier and can be reached at [email protected].

1 Comment

  • I won’t hold my breath waiting for it to happen, but one of the best outcomes if there is indeed more corporate transparency and a true "Silicon Valley Spring" would be for these companies to get away from the cult of the superstar CEO. Boards hire people based on reputation or perceived accomplishments and these people generally turn out to have no idea about the business they’re coming into or the culture of the company. So it takes them at least a year to get up to speed, and in the meantime they start making bad decisions almost immediately, digging the company into an even deeper hole, or at best not making the progress the board thought they were hiring for. Growing leadership talent from within seems either to be a lost art any more, or at least an art not valued by boards of directors. Tim Cook will probably do better at Apple than Meg Whitman will at HP, a company for which her background would not seem to make her well-suited. It remains to be seen how the other high-profile CEO opening (Yahoo) will be handled…

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

Related Stories

CRM Buyer Channels