Hewlett Packard announced yesterday that it was not going to sell its PC business after all, but rather, it would keep the $40.7 Billion division. According to the Wall Street Journal,
Meg Whitman [H-P’s CEO] said Thursday that H-P will keep its $40.7 billion PC division, backing away from its prior plan—endorsed 69 days ago by Ms. Whitman and other H-P directors—to explore splitting the company. H-P said a new evaluation had found the move was simply too costly.
Too costly to sell? Not exactly a ringing endorsement for a division that was lagging industry rivals with a 5% margin. What kind of message does that send to its customers, parters, suppliers and stakeholders? What it tells me is that when the divestiture costs of selling the division become more acceptable, then it will once again be on the chopping block. Who wants to invest in H-P computer products with that type of risk hanging around?
The article went on to give other reasons for not selling the division.
Separating the PC business would have required one-time expenses of about $1.5 billion, said Cathie Lesjak, H-P's finance chief.
In contrast, the review done for the earlier decision pegged the total cost at around $300 to $400 million, according to people briefed on the matter. Ms. Lesjak declined to comment on the number.
The latest study found that other changes, such as reduced purchasing power and the elimination of joint branding opportunities would have cost H-P about $1 billion a year. "It slowly but surely became very clear that the math just wasn't going to work on this one," Ms. Lesjak said.
What's most significant about H-P's rationale for reversing their earlier decision is what was not said. You never heard H-P say that they actually wanted to be in the business. You didn’t hear anything about H-P being committed to the business - no reassurance, nothing. And you didn’t hear anyone from H-P expressing any type of optimism that they could successfully grow the business and increase margins. It was all about reasons not to sell, not the reasons to be in the business in the first place.
I asked this question a few weeks ago here; the same question needs to be asked of H-P again today.
If you weren’t already in the PC business today, would you choose to enter it now?
Based on what H-P has been saying (and NOT saying) over the past 24 hours, I’d say that the answer to the question is “No”.
Here’s the takeaway: Just as Peter Drucker challenged GE’s Jack Welsh with the same question thirty years earlier, H-P needs to also think about their reasons for staying in the PC business today.
This past Tuesday, the Washington Post ran a front page article titled "Veterans' unemployment outpaces civilian rate." The piece, written by Michael Fletcher, highlighted the struggles that many returning veterans face in today's sluggish economy. Accrording to the Bureau of Labor Statistics, veterans who left military service in the past decade have an unemployment rate of 11.7 percent, well above the overall jobless rate of 9.1 percent.
Featuring a veteran by the name of Brian Joseph who was a former radio operator, the article talked extensively about Mr. Joseph's challenges in leveraging his past military experience into a civilian job.
My response to the article was to send off a letter to the editor at Post. Imagine my surprise when it was published yesterday in the paper's opinion section. The reprint is below:
The valuable skills veterans acquire
Michael A. Fletcher’s Oct. 17 front-page article, “Veterans returning to jobless welcome,” noted that Brian Joseph’s military experience meant little to civilian employers. That’s disappointing but not surprising, given that employers and veterans alike are focusing on the wrong traits. It’s not Mr. Joseph’s experience as a radio operator that matters most but rather the critical-thinking skills behind that experience.
Mr. Joseph, like tens of thousands of other returning veterans, has accumulated tremendous decision-making and problem-solving skills; and in many cases, these skills have been honed under the high-stakes pressure of combat. These are the traits — the critical-thinking skills behind the military experience, and not the experience itself — that returning veterans need to highlight during the interview process.
Patrick Lefler, Far Hills, N.J.
The writer, a former Marine Corps officer, serves as a volunteer mentor to service members entering the civilian workforce through the American Corporate Partners program.
Here's the takeaway: For veterans transitioning back into the workforce, always focus on the critical skills behind the experience, and not the experience itself.
The US Postal Service is back in the news. Estimated to lose billions of dollars this fiscal year, the folks in Washington are trying to find a way to keep the Post Office from going bankrupt. Both the President and Congress have decided to focus their efforts on improving the service’s cost model--allocating x for letters, y for magazines and z for junk mail. The problem with this is that these costs are not real; but rather they are simply allocations that don’t have much to do with the reality of the Postal Service’s huge fixed cost structure.
Bill Waddell over at Evolving Excellence--experts in the field of lean accounting and common sense in general--has an excellent essay regarding this fallacy.
When someone says the cost of a first class letter is X, while the cost of a piece of junk mail is Y, the only way they could have arrived at those numbers is to have made a bunch of allocations. The actual cost of delivering a letter is pretty close to $NADA. The cost of opening up all of those post office doors and firing up all those trucks, however, is astronomical. They get to the cost of each type of item by going through some undoubtedly very clever arithmetic that ends up telling them x.xxx% of funny truck expense is assigned to letters and y.yyy% is assigned to magazines. Just because someone conjured up a slick equation, and has some pretzel logic to justify the math doesn't make it so, however. The cost of the truck does not in any way shape or form depend on what sort of stuff it is being used to deliver on any given day. It is simply the cost of the truck and trying to make it into the cost of anything else leads nowhere other than to bad decision making.
Both the President and the Congress are advocating solutions that continue to try to solve the problem of allocated costs by “giving USPS the ability to better align the costs of postage with the costs of mail delivery.” Translation - allow the postal service to raise prices on those products (i.e. junk mail) where allocated costs (that have no relation with the actual cost of delivery) are deemed too high relative to the actual postage. This is the wrong approach.
The reason the post office lost $8.4 billion last year is not because their prices were too low on some products. It is because they have a huge installed capacity (and the associated fixed costs) that was grossly under-utilized. The solution is greater volume. No matter what the price charged for the volume, since the direct cost is zip, any revenue they get for the additional volume will help to cover the fixed costs. That being the case, the key to increasing volumes is not to raise prices - it is to lower them.
No fan of artificial cost allocations, the author takes a strong stance (to say the least) against the practice:
Cost allocating is sending the Post Office down the drain - and a whole lot of our money with it. Pricing has nothing to do with cost. It is set by the market as a function of the value created relative to the value proposition of the competition. It is destructive thinking to believe that COST + PROFIT = PRICE. So long as the government institutionalizes the wrong formula, the Post Office is doomed.
Allocating costs leads to silly conclusions like believing delivering magazines is unprofitable, which leads to price increases, which leads to lower volumes, which leads to allocating the same fixed costs over smaller volumes, which leads to cost increases, which leads to further price increases ... you get the picture.
The are no easy fixes to the postal service’s financial dilemma, but the first step needs to be a realization by its stakeholders that the problems are far deeper than to be dismissed simply as pricing issues. And to make matters worse, the Postal Service’s reliance on using (artificially) allocated costs as a proxy for pricing criteria is accelerating the organization’s downward spiral.
Here’s the takeaway: Let the market (not cost) determine price.
Today would have been John Wooden's 101st birthday. Born in the small town of Hall, Indiana on October 14, 1910, the former UCLA basketball coach passed away last year at the age of 99. While Wooden’s accomplishments are well known, it’s interesting to note that the coach didn’t win his first championship until 1964, when he was 53 years old. He had been the head coach at UCLA for sixteen seasons prior, but his teams had enjoyed limited success during those years. Before the breakthrough 1964 season, Wooden’s teams appeared in only five NCAA tournaments and on four of those occasions, they never made it past the first round.
All that changed with the 1963-64 squad, when Wooden won his first NCAA championship with a team that finished the season with a perfect 30-0 record. Eleven years and ten national championships later, Wooden retired from coaching with a record that may never be matched. His streak of seven consecutive national crowns during that time period included three more teams with perfect 30-0 records; during one three-year stretch, his teams won a record 88 straight games.
So what happened—what was the tipping point—that allowed Wooden to begin this incredible streak of success after previously experiencing sixteen seasons of relative mediocrity? According to Wooden, “Six or seven of my teams, in my opinion, had the potential to win the NCAA championship before the 1964 team succeeded. Each might have been good enough to win, but the ‘if’ always arose...‘if’ we had done this or ‘if’ we had done that, it might have been different.”
The “if” that Wooden was talking about ended up being an error that Wooden himself acknowledged shortly after retirement that he had blundered badly early in his career by associating too much with yes-men. The criticism was not directed so much at his assistants—many of whom were outstanding coaches in their own right—but at himself and the way his strong personality seemed to enable their passive behavior at times when a more forceful approach was needed. After disappointing exits in both the 1962 and 1963 tournaments, Wooden realized that to get to the next level, he needed to change the way he managed his assistants.
The perfect man to test Wooden’s newfound style was an argumentative assistant named Jerry Norman. Norman had been a player for Wooden in the early 1950s, and his relationship with the coach had been strained from the start. Wooden remembered Norman as “very headstrong, set in his ways and profane. Jerry gave me fits. I don’t believe I ever had a boy more strong willed, more sure of himself and more outspoken.”
Nine years later, Wooden brought Norman back to UCLA, first as the freshman coach, then promoted to assistant. “I guess I wanted a rebel,” Wooden wrote, “someone who would stand up to me.” After the 1963 season, Norman pressed Wooden to make needed changes. He forcefully argued that UCLA needed to drop their full-court man-to-man defense and replace it with a zone press.
“I laid out the rationale,” says Norman, who had used a zone press successfully as the coach of the Bruins’ freshman team. Wooden was initially skeptical of his assistant’s idea, but after intense lobbying by Norman, he finally came around to the idea—and the rest is history. The 1963-64 team used the zone press in devastating fashion—the first of many UCLA teams to exploit the zone press to their advantage.
No one knows what the future would have held for John Wooden and UCLA had the coach not gone out of his way to hire more forceful assistants. Prior to the start of the 1963-64 season, the Bruins were unranked and little was expected of the team. Thirty games later while playing Duke for the national championship, UCLA used the zone press—the same press that Wooden would have dismissed had Norman not stood up to the coach and been so forceful—to roll off 16 unanswered points to take the halftime lead. The zone press helped force 29 Duke turnovers for the game—and UCLA won, going away 98-83. It was the first of Wooden’s ten national championships.
John Wooden’s change in the way he managed his staff in the early 1960s was brilliant not so much in the sense that he hired better assistant coaches; rather, it was because he explicitly changed his management philosophy in the hiring of assistants who would challenge him and not back down with their arguments. The abrupt change in results speaks for itself; for today’s strong leader, properly managing your executive staff to encourage open debate can also help turn mediocre performance into championship-class success.
Here's the takeaway: The story of Wooden’s “tipping point” decision and the contrasting results that followed is, perhaps, the most overlooked leadership lesson that can be gleaned from the legacy of John Wooden.
It seems that Hewlett-Packard is now re-thinking an earlier decision to spin off its personal-computer division. If you remember, it was just two months ago that (now-replaced) CEO Leo Apotheker announced the decision to split the computer company into two and sell off the personal-computer division. With Apotheker now gone (and nearly forgotten), newly-installed CEO Meg Whitman is taking a second look at the controversial decision.
According to the Wall Street Journal, Whitman is “crunching the numbers of the proposal” and reports seem to suggest that HP might be better off keeping the personal-computer division, which contributed $40 billion in revenue and $2 billion in operating profit in H-P’s most recent fiscal year. But it seems that the folks from H-P are also looking at other reasons for keeping the business. According to the article:
In particular, separating the PC division would significantly diminish H-P's buying power with component makers because H-P would lose economies of scale. It could complicate H-P's supply chain and decrease profit margins on some products, the analyses suggest.
"If you lose purchasing power and other advantages, then a spinoff isn't worth it," one of these people said.
"The analysis is underway now," an H-P spokeswoman said. "We said we would explore all options and that Meg would make a decision based on the data."
Here’s my advice to Ms. Whitman and the rest of the H-P board. Before you spend one more minute digging through the numbers, you need to be able to answer this simple question:
If you weren’t already in the personal-computer business, would you get into it today?
It's essentially the same aquestion that Peter Drucker challenged Jack Welch and GE to answer thirty years earlier.
Think about it. You have a mature business with declining margins that consumes significant H-P resources--resources could be re-allocated into other growing and higher margin business lines. And if the best reason for staying in the personal-computer business is you might “lose purchasing power and other advantages” if you exit, then I’d say you’ve already answered the question.
If H-P wasn’t in the personal-computer business already, I highly doubt that anyone would recommend they get into that business today. It wouldn’t make sense. So my second piece of advice for Ms. Whitman and her board is to follow the direction of her predecessor and exit the business.
Here’s the takeaway: Every so often you need to ask the same question when you look existing business lines. “If we weren’t already in this business, would we make the decision to get into it today?” The answer might surprise you.
A few years ago, as a first-year student at The Wharton School and less than a year removed from active duty as a Marine Corps officer, I went through round after round of interviews for summer intern positions. I was the only former Marine in my class, and no one had more self-confidence than I as I eagerly waited to show the awaiting interviewers my stuff—the right stuff, as far as I was concerned, given that I had spent the previous six years as a Marine Corps pilot. But a surprising thing happened on the way to what I thought would be an easy waltz through the summer hiring process: I couldn’t land an offer. Not one offer! Zero! To use a baseball analogy, I was riding a 40-game hitless streak while many of my classmates were hitting doubles, triples and even home runs, landing summer offers from some of America’s most prestigious firms—McKinsey, Proctor & Gamble and General Electric, just to name a few. At first I dismissed my failure simply as bad luck. When that excuse began to lose traction, I turned to blaming the interviewers. I rationalized to myself (and anyone else who would put up with my whining) that because most of these interviewers had never served a day in the military, it was impossible for them to appreciate the skills that I could bring to the table.
As it turns out, I was partially right on that second excuse. The interviewers weren’t getting a good sense of what I could bring to the organization, but it wasn’t because of their lack of military experience. It was because I did a poor job in explaining how the skill set I had used previously as a pilot could directly translate into a benefit for their organization. I focused way too much on the pilot aspect of my military experience at the expense of what really mattered to the prospective employer back then (and what still matters today): the development of superior critical thinking skills that allowed me to become a really good pilot and leader of Marines.
And from what I’ve observed today (based on interactions with veterans as both a conversant and a mentor), many veterans fall down the same way I did years ago. When engaging with potential employers or school admissions officers, they naturally focus on the tasks that they performed while in the military, whereas they need to focus on translating how the critical thinking skills behind their military experiences can directly benefit future employers or the college of their choice.
So what are these critical thinking skills? And, more important, why do they matter?
In this case, critical thinking can be broken down into two distinct skills: (1) problem solving and (2) decision making.
Veterans appreciate more so than most the adage that “a problem clearly stated is already half solved.” Their combat experience, with its constantly changing conditions, has made them experts in being able to quickly understand and effectively articulate what the problem is and what its critical dimensions are. They understand the difference between pinning down a problem and going on a blind hunt for facts. And they also are acutely aware of the need to find cause before prescribing solutions. These skills are developed not in the classroom, but through real-life experiences where critical problems arise on a daily basis. Having the ability to quickly ascertain changing conditions and knowing the difference between what matters to the mission and what doesn’t are highly desirable skills in today’s business world.
The average combat solder or Marine probably makes more critical decisions in a single day than his or her peers in the civilian world do in a month. These decisions all focus on selecting the action that gets the most done at the least cost, all while minimizing risk. Today’s veteran knows the difference between interim, adaptive, corrective, preventive and contingency actions—distinctions valued in the modern business world but not completely understood by the majority of their civilian peers. They also understand the importance of prioritizing decision-making objectives. Distinguishing between “necessary musts” and “nice-to-have wants” helps prevent poor decisions in which essential requirements are sacrificed for the sake of meeting less important criteria.
More so than perhaps any other time in recent history, latter-day veterans bring to the table a rich inventory of these critical thinking skills. The problem, again, is that sometimes neither the veteran nor the prospective employer or college admissions officer has a good grasp of what these skills really are—or, more importantly, how they will benefit the organization. This is where the veteran needs to take the offensive and always frame the conversation in a way that highlights how these critical thinking skills can benefit the organization. Having experience as a combat engineer or an explosive ordinance demolition expert has no real value to most organizations outside of the military, but bringing in new personnel with highly refined critical thinking skills is one of the top goals for those organizations that need to stay competitive in a rapidly changing business environment. When I finally landed that hard-to-get summer job at Wharton, I was hired because of my problem-solving skills, not because I had been previously trained as a pilot. A year later, when I was offered a full-time position at Goldman, Sachs & Co., it was because my employer valued my decision-making skills. It just took me a while to figure out what really mattered to them and other employers—my skill set, not experience per se.
Anytime you speak to someone about your unique military experience, direct the conversation in terms of highlighting the critical thinking skills behind it. Again, years ago, when I was going through the process, I waited far too long during the interview (or many times never even got started) before I tried to explicate, making the connection that the same skills that served me extremely well as a pilot could also be a huge benefit to the organization I was speaking to. Don’t make the same mistake I did, and don’t think that most interviewers will be able to connect the dots in terms of understanding the benefit of these skills. Every so often during the conversation, pause and then say something to the effect of, “…and this is why it matters.” You have to do this at least once or twice in the discussion to ensure that this important point is understood.
Making a good impression in what may be your only chance to speak to a particular organization is just too important to leave anything to chance. Remember, it’s the skill set behind the experience that matters most to corporate America, small businesses—or even start-ups.