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Parsing The Biggest Tech Break Up Of All Time With HP CEO Meg Whitman

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Meg Whitman has led HP as CEO since September of 2011. In October of last year, she and her fellow board members announced their intent to split the PC and printers business from its enterprise products and services business. The former would be known as HP Inc., and the latter would be known as Hewlett Packard Enterprise. This would amount to the largest technology firm break-up of all time, creating two companies with revenues in excess of $55 billion.

The date of the split (November 1) is fast approaching, and I was curious about her thoughts about how things had progressed between the time of the announcement and now. Our interview was one of the first after the company's most recent earnings release. Though she acknowledged that the news was mixed, she indicated that enormous progress has been made in breaking up the two companies, and that she is as confident as ever that the breakup is the right move.

We also spoke at length about her career path, her thoughts about increasing the number of women in executive positions at technology firms, what she learned from her time running for governor of California, and a variety of other topics.

(To listen to an unabridged audio version of this interview, please visit this link. This is the 14th interview in the IT Influencers series.  To read the prior 13 interviews with Sal Khan, former Mexican President Vicente Fox, Jim Goodnight, Sir James Dyson, and Walt Mossberg, among others, please visit this link. To read future articles in the series, please click the “Follow” link above and to the left.)

Peter High: Meg, you recently reported earnings to Wall Street.  I wonder, if you could reflect for a moment, were there aspects of what was reported that you feel validate the splitting of HP into Hewlett Packard Enterprise and HP Inc.?

Meg Whitman: I think what has been born out is that these are two very different businesses. The printing and PC business has quite a different customer set, different cost structure, and different industry dynamics than the Enterprise business which is more around how customers take their IT infrastructure to the next level, and how they secure their digital assets, and empower a data-driven enterprise. So they are very different businesses, and you can see that borne out in the results of the company this quarter. The  Enterprise side of the house did very well. EG [Enterprise Group] had probably the best quarter I have seen since  I have been here. Enterprise Services turned the corner, and the printing and PC market did well in a very tough market.  I think the focus and the capital structure that each company will have will just allow these two companies to be more nimble, more focused, defining the industry trends, and have better responsiveness and be better partners for our customers. I think it will be borne out that this was the right thing to do.

High: Can you provide a brief overview of the progress made in splitting up the companies? So how have things progressed, and what is left between now and that date?

Whitman: This has been an enormous undertaking as you can imagine, because this is not a typical carve-out of a small company being carved out of a big one. This is the creation of two new Global 50 companies. We announced the separation last October, and starting August 1st we’ve been operating as two separate companies - two IT systems, two separate supply chains, finance systems, sales operations. We are  invoicing, receiving payment, and have all the goods flowing through two separate supply chains. And this was a big undertaking. I have to say I am incredibly proud of the HP team because we have to work with more than 3,500 customers and partners to make sure that they were ready, in many countries around the world. I have to say it has gone almost flawlessly. I have not heard any issues at all from partners and customers that have not been resolved in a matter of minutes or hours. Our sales teams have a lot of confidence that this did not disrupt their partners or customers. So we are feeling really good about it.

The major milestone that we have to accomplish in the next two months are the investor roadshows for these two companies, because we have to tell the story to investors and they have to decide whether they want to invest in one or both. We have to migrate the debt, because, of course, all the debt on the company sits on HP today. The spin-out company in the US is Hewlett Packard Enterprise, so we have to migrate the debt from one to the other, which should be fairly routine, but you have to make sure that it goes well. So, I would say that we are  almost all the way through and feeling really good about our execution of the split thus far.

High: As you mentioned, this is a herculean effort, and one that does not have a clear precedent in size and scope. How did you think about the sequencing of the change?

Whitman: We do have some experience with this because our Enterprise Services group did the Mondelez-Kraft split, the Medco-Medtronic split, among others, so we have some expertise here, and have partnered with Deloitte who has a very significant practice in helping companies split. They did the eBay-PayPal split, for example. So, we have a lot of knowledge about how to split the IT internally, and Deloitte has been a great partner of ours as you think about how you roadmap this. But, this is where being an engineering company is actually very helpful, because we knew we had to split on November 1st, and we simply worked backwards and divided it into major work streams, minor work streams, with key milestones that involved every part of the company. You're right, we had to map 255,000 people to one company or the other. We had to sort out our tax and legal entity separation. We had 886 legal entities around the world. We only operate in 170 countries, so you can see what some of the problems there were. We had to make sure that the business processes were the right ones as we split into these two companies.

The way we approached this was we had dedicated resources to the separation. We had  a separation management office staffed by some of our most talented executives who worked 100 percent of the time on this, and then we had 400 full time people who did nothing but the separation, and obviously a very significant percentage of our IT staff. The rest of the company was focused on delivering for customers. That has worked really well. If you are an R&D executive or a sales executive, or pre-sales person your world was not terribly disrupted, and that was, of course, the agenda.

High: You will be the Chief Executive Officer of Hewlett Packard Enterprise, and the Chairman of HP Inc. How do you foresee splitting your time across the two sets of responsibilities?

Whitman: The majority, I would think almost 75 percent of my time, will be spent on Hewlett Packard Enterprise, because that is where I am the Chief Executive Officer. And the chairman of Hewlett Packard Enterprise will be Pat Russo, who you might know from her Alcatel-Lucent days. Twenty-five percent of my time, maybe going down a bit, will be as non-executive chairman of HP Inc. My job is to make sure that company gets off on a good foot, and make sure that Dion [Weisler, the future CEO of HP Inc.] lands very well in his first CEO job, and that that board of the directors has the right culture. You know, boards have cultures just like companies, and we have got two new boards of directors that need to come up to speed very fast and get a great productive culture that will be helpful for both companies. I would say 75-25 initially, and then maybe going to 85-15, and maybe ultimately 90-10. We will see how it goes, but I am not the Chief Executive Officer of HP Inc. Having been a CEO for many years, I know the role of the chairman and I know the role of the CEO, and they are not the same.

High: Yet you will have reason to remain very involved in HP Inc., just as you're spending the majority of your time at Hewlett Packard Enterprise. Do you see ongoing synergies between the businesses?

Whitman: I do. We have to remember that we should be each other's best partner. We use a little analogy that is "We were born in a one-car garage, and we're moving to a two-car garage." We do not want to lose some of the synergies that have made this combination powerful. Number one is supply chain. HP is Intel's biggest customer, Microsoft's biggest customer, many of our suppliers' biggest customer. We do not  want to lose that position with those customers, so we have a very good supply chain agreement between HP Inc. and Hewlett Packard Enterprise. So, for example, we will be buying chips from Intel as one company with a supply chain agreement. The same with Microsoft, with Seagate, and many of our memory suppliers. That is going to be an important area.

Almost all of the HP offices around the world have just simply split. Maybe it is a four story building in Tokyo. Two will be E [Enterprise] and two will be I [Inc.]. I want to make sure that if there are customers that want to buy servers plus PCs  in one order, that we can do that seamlessly and effectively.  If  I am a sales guy out at Proctor & Gamble for Hewlett Packard Enterprise, and I understand that they are making a big PC buy, I want to make sure that the other company knows that is happening. So, we have got, I think, incentives in place, but this is going to be much more about the cultural alignment between the two companies. What we are hoping is that we get the benefits of smaller, more nimble, and more agile companies with the right capital structure, but we do not lose some of the things that have benefited customers and benefited the company in the long run.

High: You led one of the iconic companies of the original dot-com boom in eBay. Now, of course, you run one of the foundational Silicon Valley companies. There were lofty valuations then, in a period when you were acquiring tech companies. There are again lofty valuations in Silicon Valley and elsewhere. I assume you will continue to be an acquirer of businesses, at least selectively. Do the valuations of companies today give you pause? Is it anything like the original dot-com boom?

Whitman: I think some of the valuations in Silicon Valley are very high today. Some of the companies will grow into their valuations, and some of them will not. As an acquirer, we have to be very disciplined, particularly as Hewlett Packard, because we are a big established company with a price-earnings ratio that is significantly less than some of these very high-flying companies.  We are just very disciplined about it. We figure out how much it is worth to us, how we could accelerate revenues by putting some of these companies into our distribution channel, and I think the best example is Aruba. We paid, I think, a full and fair price, but it made sense because we knew we could do a reverse-integration of our networking business into Aruba. Dom [Dominic Orr, Aruba’s CEO] was a great leader, and we could put Aruba through our distribution channel, whether it be partners or our direct distribution sales force. Aruba is already making a lot of sense for us. We will continue to do smaller acquisitions. You saw Stackato, ConteXtream, and Voltage, and a couple of others, but a very large acquisition at high multiples is probably not in the cards for HP.

Now, what I will say is that I think there is an opportunity for us to curate Silicon Valley for some of our bigger enterprise customers and partners. Security being a perfect example. There is a new security company starting in Silicon Valley every week. We could not buy them all, even if we wanted to. So, can we help companies say "Here are the six or seven point products that could really make a difference to your efforts to secure your digital enterprise"? We know they scale, we know they are enterprise-ready. We have a technology services organization that can service them, and that may be another way that we can bring the best of Silicon Valley to our customers without having to pay very high premiums. If a new security company comes in and supersedes one that is part of the program, we can swap out, and that gives real benefit to the customers.

High: As you are going through that curation, what is the process of identifying those companies with whom to be in touch? Is it your contacts, and the company's contacts in venture capital? Are there dedicated people on your team who are sort of scouring the landscape for these kinds of companies, with which you might be in touch? How does that process work?

Whitman: We have a dedicated team, which internally at HP is called HP Pathfinder. It is tucked under HP Ventures. We are not in the venture capital business to make money in venture capital. That is not what we are doing. I think there are plenty of very good venture capitalists out there. What we are interested in is finding these companies who we think can help our customers. You might know that we are pivoting Hewlett Packard Enterprise around four transformation areas that our customers tell us every single day is at the heart of their IT agenda. For example, most customers are saying ‘I have got to transform my existing IT infrastructure to a hybrid environment - that I have got to get from where I am today to where I must be to maintain or even improve my competitiveness in the marketplace’. That would be the first transformation area, and as we look for companies that might be helpful to our customers there,  we are going to do it through the lens of: how can we help customers make that transformation?  We talked about security. That is another transformation area. Big Data - how do you empower data-driven enterprise? We will look for companies that can be helpful in that transformation journey. To your point, some we may buy, some we may partner with. I think it will be a mix, because this world is moving at lightning speed. I have not seen technology move this fast in my entire career. I think this notion of helping our customers and partners figure out what is the next evolution, and what companies have a product or service that could be helpful, is going to make our ability to deliver the transformation areas even more powerful than it would be, even if we only brought to bear the things that we owned.

High: You sit at such a strategic perch given the number of customers you have. As you are looking for where the new trend is, or where the new area to invest in is, how are you using your tremendous reach to draw insight from customers, just as you are doing with your colleagues?

Whitman: I am constantly sampling our direct customers to see what they like, what they are trying to accomplish, what they are seeing out there in either companies, products, or services that they are interested in. Actually that is how Voltage came to us. A couple of bigger customers said "We really like what Voltage is doing.” We looked at them, and it was bite-size, so we bought them. ConteXtream in our SDN controller; again that came to us through some customers who said "These guys are really good.” We also sample our partners. The great thing about having 20,30,40 thousand partners out there - VARs and distributors - is that they are seeing hundreds of companies and what is going on. They are a good source. And, of course, being here in the Valley, connecting to our venture capital friends, being out and about and re-connecting to our roots in Silicon Valley, it is a real advantage for HP to be in Silicon Valley as opposed to the East Coast, or someplace that is not at the center of what I would call an amazing enterprise renaissance. The first ten years when I was back at eBay, this was mostly consumer oriented innovation. I would say there is still a lot of consumer oriented innovation, but the enterprise innovation here is at a pace I have not seen in the Valley in many years.

High: Today, many people lament the relative paucity of women in executive positions in technology firms, for good reason. The statistics were even more dire when you became the CEO of eBay. I was interested to note that each of the boards of the two companies that HP will split into will include four women, which seems like a progressive move certainly - and four very talented and appropriate women. More generally however, how do you think things have progressed across your time in Silicon Valley relative to this issue?

Whitman: I have been in business for a while- I graduated from business school in 1979 - and the progress of women from then to now does not feel fast enough to many of us, but it is enormous progress. When I started at Proctor & Gamble, in my class of one hundred brand assistants, there were four women. Today, it is 55 women out of 100. So, there has been progress in business generally.

Technology has been a bit slower because typically science, technology, engineering, and math has fewer women. My view is companies have to be advocates for STEM education and keeping girls interested and successful in STEM all the way through college and graduate school. And then, we have to work hard at hiring women out of college and graduate school into HP and other companies because, as you go up the ladder in companies, if you do not start with a great group of young people at the start of their career, you will not end up twenty years from now with a 50/50 mix of senior leaders. So, you have to start with elementary school, high school, college, then recruiting women into your company, and then helping them progress their careers.

Having done this now for thirty years, I can tell you that this does not happen by itself. You have to manage this. Change is slow, but you are right. I am very proud of the boards we have put together. I should also mention that they have two African-Americans on the board, and, as you said, four women, and some fantastic other executives as well, but you have to work at it. I think what  you have seen in Silicon Valley over the last several years is a recommitment to making that happen.  We are certainly on board with that. We operate in so many communities, whether it is Houston, Texas; Alpharetta, Georgia; London; Bristol [UK]; Shanghai; Chennai; and it takes work across the globe to bring the right number of women and minorities into what is a tremendously exciting industry.

High: Can you talk about your own path into technology? As you mentioned, you began your career as a brand manager at P&G. You worked at Bain, Walt Disney, Hasbro, etc. - a lot of iconic brands, though none of them technology companies per se - prior to your time at eBay. Can you talk about your own personal evolution towards developing an interest and eventually leaping into the technology field?

Whitman: Well, I think you are right. Really my first major technology job was at eBay. Trust me, eBay did not hire me because of my technology expertise. They hired me because of my expertise in business strategy, in leadership, in helping companies grow. So, I really partnered with Pierre Omidyar, who was the founder of eBay, and really got my technology chops at eBay. Sometimes you learn a lot from being in a foxhole. You might recall that eBay had a very well publicized site outage on June 10th of 1999 at five in the afternoon, and I basically camped out in the NOC for almost the next two months. I said to Brian Sweeney, who was our Chief Operating Officer, and Pierre Omidyar, that you have to run the company because I have to go figure out this technology problem. You learn more in a crisis. I probably learned more about technology in those two months than I would have learned the previous ten years. Then, obviously, we rebuilt the entire IT infrastructure for eBay. Maynard Webb was incredibly helpful there. We hired a great team, but I learned a lot about infrastructure, and technology, scalability, and security. I think what is interesting now is that, for most companies, business strategy and IT strategy are linked very tightly. Every company is a technology company. You might think of P&G, where I sit on the board, as not a technology company. Trust me, how they get insights into consumer behavior, how they run their supply chain, how they develop applications that are designed to make a tighter connection between their consumers and their brand. It is a technology company today. I think having had a background in business for so many years and then IT expertise and trial by fire at eBay has been a pretty good combination. I have to say, I have learned a lot about technology (more the enterprise side of technology) coming to HP.

High: How much business strategy and ideas do you take from the experience of running for governor of California?

Whitman: I ran for governor of California for almost two and a half years. The election was in 2010, and I left eBay in January of 2008, after ten years there. So, I learned a lot from running for governor - some very painful lessons I must say. As a complete aside, we should be glad that people actually want to run for public office, because it is extremely difficult. As challenging as HP has been, it’s easy relative to running for governor of California. But that is a whole other conversation we could have. I learned a lot I would say. California obviously is a big state, and I learned a lot about communicating with large groups of people. In business, we tend to talk in facts and figures, really with a left brain mentality, and that is important for your direct staff and when you are into detailed solution-ing with customers. But, the way you have to capture hearts and minds is not about the facts, and figures, and the left brain, it is about the stories that you tell. I have learned a communication style that has stood me in very good stead at Hewlett Packard, as we had to re-win hearts and minds of customers and employees after quite a difficult time for this company.

The second thing I learned from politics is to have a thicker skin. People say terrible things about companies, about individuals, and I learned that in politics. Really nothing bothers me. Honestly, I think, had I taken this job right after eBay it would have been a lot more difficult, because people had a lot of negative things to say about HP back in the day. You just power through. You do the very best job you can for the company, and do what you know is right. You cannot worry about what all the naysayers say. That was very helpful as well.

I think the last thing that you learn in every job is the right people, in the right job, at the right time, with the right attitude. I took that to heart again when I came back to HP. You have to have the right people in the middle of a turnaround, in a difficult industry situation. You have to have the right people who are up for a turnaround. I have learned that lesson too many times in my business career, but it is the most important thing to have the right people, in the right job, at the right time, with the right expertise and the right attitude.

High: Besides security, data analytics, and some of the social and mobile aspects of business, what other things that are on your radar?

Whitman: I think you've hit some of the big ones. I think the other thing I hear every single day is that there has been more technology change for the enterprise in the last five or six years than in a long time. You know this from following the industry. About every ten to fifteen years, this industry goes through major change. Go all the way back to the mainframe to the client server environment, and client server to Web 1.0. I would say there has been another big change from Web 1.0 to web services and mobility. We are on the cusp of another enormous change. Everything about how technology is bought, paid for and sold, and how people have to think about their IT environment are another big dramatic shift. Cloud is an important part of that - automation and orchestration - a hybrid environment. You have to start with the apps, and what apps are you going to run in your datacenter. What do you want to run in a private cloud, a public cloud, a virtual private cloud, and how do you knit it all together with orchestration, automation, and monitoring that allows you to run an efficient effective IT infrastructure to meet the needs of your lines of business? By the way, people are not paying for things in the same way - this whole move to infrastructure as a service. In our PC business, people want to buy PCs as a service now. Printing as a service. And so, substituting operating expenses for capital expenses is as much a business model innovation as it is a technology innovation. We are on the cusp of another huge tectonic shift, which I think spells tremendous opportunity. As one of the iconic tech companies, we have to be all over that big shift and help customers navigate. All the customers I have talked to know that they have to change their infrastructure in order to stay competitive. Every company is worried about being disrupted: who they see now and who might be there in a year or two can fundamentally change an industry on you.

Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book, Implementing World Class IT Strategy, has just been released by Wiley Press/Jossey-Bass. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Forum on World Class IT podcast series. Follow him on Twitter @WorldClassIT.