HP and Meg Whitman: signs of a Silicon Valley in transition

HP, as Silicon Valley's biggest and most mature corporation, is more big business now than Silicon Valley startup. Meg Whitman has to help HP figure out which way to go from here.

Long the symbol of Silicon Valley, HP could now be coming to represent new challenges facing America's idea factory.

From the days in 1939 that Bill Hewlett and Dave Packard founded their venture in a one-car garage in Palo Alto, Calif., Silicon Valley has been the province of the young and brilliant. From Hewlett and Packard to Apple's Steve Jobs and Facebook's Mark Zuckerberg, Silicon Valley thrived by producing young entrepreneurs who understood the needs and wants of individual consumers and how to meet them through technology.

But HP is now America’s largest high-tech company with revenues of $126 billion, and its recent troubles in finding an effective CEO reflect a company caught between the Silicon Valley way and a more traditional model for big business.

In short, HP has until now remained a player in the printer and PC market that made it famous, but it has also expanded into business-to-business platforms. The difference is fundamental, and as Silicon Valley's most mature startup, HP is perhaps the first to face this transition – thinking more about the needs of General Electric or General Motors than the general populace.

As the new CEO of HP, Meg Whitman faces the decision of whether to continue to try to balance these goals or to abandon one for the other. The difficulty of that task – and the doubt about whether she can do it effectively – has driven HP stock to a six-year low.

“If you look at those companies which have been enormously successful in Silicon Valley in the last five to 10 years, you find that they are largely founded on the business-to-consumer model,” says Faisal Hoque, CEO of BTM Corporation, which analyzes the convergence of business and technology management.

Leaving the garage behind?

But he suggests HP is now based primarily on the business-to-business model that much of Silicon Valley does not understand. And that has caused problems, he says. This lack of understanding – by both CEOs and the boards that fire and hire them – is what is behind the musical chairs of management.

Yet the rough transition is to be expected, in some ways. Business-to-business savvy comes from experience – from operating in the corporate world – and that comes only with experience, Mr. Hoque says

“There is a vacuum of understanding at this level of needed knowledge and creativity, and it won’t be solved by the appearance of a Steve Jobs-type genius," he says. "The whole region needs to go through a growth curve, and it will take lots of time. Most high-tech creators are very young, and this coming new era requires a skill set of great experience – possibly by working within the giant businesses themselves, from the ground up.”

There are differences of opinion about whether Ms. Whitman has the background to do this. Whitman took over eBay in 1998 as a startup company and in 10 years made it into one of the country’s most dominant e-commerce companies. But Hoque suggests that her experiences at eBay – and later at Hasbro toys – were consumer-based, and therefore won't translate well.

But others feel that her basic creativity, and ability to forge something new out of nothing will be relevant.

“It’s true that Silicon Valley is in a somewhat confused transitional stage,” says Tom Drucker, founder and CEO of Consultants in Corporate Innovation, who has worked for Xerox and other global companies. But Whitman’s creative and organizational skills could be just the ticket for this period of incubation, he says.

“Yes, eBay started as a consumer business that helped individual people sell things, but it developed into one that launched entire entrepreneurial businesses for hundreds of people who now make very good livings out of their homes and which didn’t exist before Meg Whitman,” says Mr. Drucker.

Her run for California governor in 2010 has also given her national and international experience that will serve her well, he says.

Change at the top

To others, the hiring of Whitman is evidence that HP is embracing its transition. It is trying to find its way into “the new reality of computer enterprises and perhaps moving away from where their traditional strength was,” says Robert Beck, chair of Villanova University’s department of computing sciences.

HP has been a global leader in printers and has made advances and then retreats into the PC market over the years, merging with Compaq in 2002.

“It’s puzzling to me that HP is trying to find different directions from what their traditional business was,” says Professor Beck. “They seem to be going into areas where they perhaps shouldn’t be and that’s possibly what’s behind getting rid of their old CEO" Léo Apotheker.

The past years have seen lots of changes at the top, a signal which has worried investors. Carly Fiorina was forced out in 2005. Then in 2010, CEO Mark Hurd resigned amid scandal. He was followed by Mr. Apotheker, but the HP board of directors was reportedly dissatisfied with the way that Apotheker recently announced that HP was looking to get rid of its PC division.

Partly because of the rocky start, there is no shortage of interest in watching how HP responds and what it means for Silicon Valley.

“Whitman needs to do two things: focus the company on core competency and then convince markets that HP now has focus,” says Peter Zaleski, an economist at Villanova. “She is very capable of doing both. The key questions to Whitman are: What are the company’s strengths to be leveraged and which divisions are mere distractions and need to be discontinued?”

HP stock was down 90 cents – or 4 percent – at $21.90 in midday trading Friday, after hitting $21.50, its lowest level since May 2005, according to AP.

“HP could possibly be a smart buy now because any sign of progress that Whitman can deliver will be a boost to HP’s stock,” says Zaleski.