HP: 5 Steps to Clean Up the $125B Train Wreck

We all make mistakes. But to destroy tens of billions of dollars of shareholder value, threaten thousands of jobs, and attract the scorn of Wall Street and Silicon Valley alike, it helps if you're an incompetent CEO or the chronically dysfunctional board that hired him. With all due respect, of course.

What's got me all riled up is yesterday's news that HP's board is looking to dump Leo Apotheker, the CEO it appointed just 10 months ago. The report literally made me LOL. Not because it's a mistake - it's not a mistake - but because HP's board finally appears to be coming down from a yearlong bad acid trip.

If you happened to catch last month's How to Kill the World's Biggest Technology Company, then you know what I'm talking about. In case you missed it, here's what it was about:

If you had just one year to kill HP, here's how you'd do it, step by step, starting with firing the only competent CEO the company's had in a decade, Mark Hurd, and ending with Apotheker's crazy plan to transform HP from the world's biggest technology and computer company into a second rate software firm. As I wrote then:

Yup, it's been one helluva year ... Just when you thought a board couldn't be more incompetent than the folks that brought you Enron, WorldCom, and Yahoo - that's right, I'm never going to let the Jerry Yang thing go, never - now we've got HP's board to kick around.

Is HP's board right to fire Apotheker? Absolutely. All those naysayers calling him a fall guy or crying that the board didn't give him enough time to carry out his strategy have no idea what's going on.

Want to know what's going on?

Last month I said that HP's loony restructuring announcement "demonstrates that Apotheker really doesn't seem to know what the heck he's doing. I'm thinking SAP's board reached the same conclusion just before they dumped him."

That's what's going on.

The truth is that HP never should have hired the guy in the first place. That's not 20-20 hindsight, either. Lots of people knew it at the time:

- Oracle CEO Larry Ellison knew it when he wrote, "HP had several good internal candidates...but instead they pick a guy who was recently fired because he did such a bad job of running SAP. The HP board needs to resign en masse ... right away. The madness must stop."

- I knew it when I wrote, "Apotheker has no successful CEO experience. His tenure as chief of SAP was, simply put, a disaster" and "I happen to share Ellison's view of H-P's board, which I think is chronically dysfunctional and screwed up royally when it forced out former CEO Mark Hurd," among other things.

- SAP's board apparently knew it too. In 2002, when Apotheker was promoted to SAP's executive board, SAP and Oracle were about the same size in terms of revenue. When it ousted Apotheker as CEO, Oracle was nearly twice SAP's size and profits were two and half times that of SAP. Numbers don't lie.

- Even Wall Street -- usually the last to know anything -- knew it, lopping off almost half of HP's share price since the day Apotheker was hired and goosing the stock over 10% intraday on news the board may finally be coming to its senses.

So, does HP's board get a mulligan for screwing up? No way. It's not as if this past year has been something new and different for a board that ...

- hired rock-star CEO Carly Fiorina, who acquired Compaq for $17 billion in perhaps the most disputed and controversial merger in history that sparked a bitter proxy war; then

- got behind chairman Patricia Dunn who ousted Fiorina and then got ousted herself for spying on other board directors in a nutty attempt to plug media leaks; then

- hired Mark Hurd who did an amazing job of turning the company around and then dumped the guy over a nonexistent scandal in what Ellison called the "worst mistake since Apple fired [Steve] Jobs;" then

- surprised everyone by hiring Apotheker, who had just been canned by SAP nine months before; then

- rubber-stamped Apotheker's bizarre strategy moves of 1) promising to put WebOS on everything from smartphones and tablets to PCs and printers, then 2) turning around and announcing plans to pull the plug on all those newly launched and heavily promoted products just a few months later, and 3) telegraphing plans to sell off HP's $41 billion PC group so far in advance that the unit becomes a market lame duck overnight; all of which, ironically, will finally undo Fiorina's ill-fated Compaq merger and bring us full circle.

So, what do I think HP's board can and should do now to set things right? Well, that's a tough one, but if I was chairman Ray Lane - who, incidentally, went on the road with Apotheker to explain the merits of that nutty restructuring just a few short weeks ago - here's what I'd do, in this order:

1. Not hire Meg Whitman to replace Apotheker. The company wasn't a distressed turnaround when Apotheker got there, but it sure as hell is one now. This company needs a turnaround CEO like Lou Gerstner or, that's right, Mark Hurd. Since neither guy is available, I don't know who they're going to get, but it sure isn't Whitman, who has never executed a turnaround and has no experience with a giant enterprise like HP.

2. If there are any great candidates left within the company that weren't so incensed by the Apotheker hire that they've already bolted, I'd look very carefully at them. If not, it's start from scratch with an executive recruiter, but they're going to need an effective interim CEO since Apotheker is now an unofficial lame duck. Can Whitman serve that role? Nope. They'll need someone with major operations / supply chain chops, like a Tim Cook type.

3. You know that nifty strategy of transforming HP from the world's biggest IT and computer company into the fifth - that's right, fifth - largest software firm behind IBM, Microsoft, Oracle and SAP by selling off the personal systems group? Just hit the delete button on that move. Make like it never happened. Meet with all the affected executives and tell them it's a whole new ballgame and their jobs are safe. Get that message down through the ranks and out to the channels, too. And pronto. Let the new CEO figure out a coherent strategy for this company.

4. As for the proposed acquisition of Autonomy, that depends on what the agreement says. If it's not too painful to get out of the deal, that's what I'd do.

5. Once the new CEO's in place and things have settled down, I think all the board seats should be up for grabs, especially Lane's. Until then, as pathetic as the past year or ten have been, everybody should remain seated and ride it out. There's been enough strategic seesawing and executive monkeying around at this company to last a lifetime. Another six months won't make much difference one way or the other.

Update - 9/22/11 9:20 am PST: According to Kara Swisher at All Things D, HP is close to a deal to sign Meg Whitman as HP's new CEO - its seventh in 12 years, and not interim, but permanent - to be announced after the market closes today. I'm on the record saying the board's once again demonstrating its dysfunctionality by taking such a huge risk with Whitman. Here we go again.