In a new research report (http://bit.ly/ihyzrk) published by MGI Research, Tony Leng - a leading CIO executive recruiter with Hodge Partners, defines key success factors for CIOs and how CIOs can position themselves for top non-IT jobs within a company.
The task of replacing Hewlett Packard's just-departed CEO Mark Hurd won't be easy. With revenues of $120 billion, HP is the largest IT global provider of IT hardware, software and services in the world. During his tenure as CEO, Hurd had more than doubled the market capitalization of the company, and launched a number of major initiatives - many of which are incomplete. As we highlighted in a companion piece (see MGI Research "Departing CEO Hurd Leaves Hewlett Packard Shares Dead Money", the company is in good financial health, as evidenced by its strong MGI-X score of 2220. The incoming CEO needs to bring a breadth of skills appropriate to the job - and herein lies the challenge for the CEO search committee of Hewlett Packard board of directors.
Here's a summary of the key requirements for a candidate to be considered:
A successful track record of running a $20+ billion business.
An individual who is both experienced with and is well-respected by institutional investors. HP needs to recover almost $9 billion in lost market capitalization due to the fallout of Mark Hurd's departure.
Understanding of complex technology or industrial businesses - experience with enterprise computing and large corporate and government sales environments preferred.
Experience with large M&A transactions. HP needs to make the EDS integration a success. This remains an unfinished question mark and past HP buys (both before and during Hurd's tenure) have had mixed long-term positive results, to state it mildly.
Track-record in driving financial performance, with a preference for stimulating innovation and building new revenue streams.
Vision to leverage HP's position as the world's largest enterprise technology supermarket into compelling high-margin, high-growth product and category excellence.
Outstanding personal leadership skills - vision, charisma, energy, competence, and integrity.
Age- in a perfect world, the board would like a relatively young executive who could lead the company for five years+. However, it's conceivable that the board would hire an older caretaker candidate who could manage the company through the next 3-5 years with no expectation of staying longer than five years.
The Dow 30 List of Potential Candidates
Executives out of one of these companies in the Dow 30 would bring necessary management breadth and depth, complex product lifecycles, sophisticated sales and contracting landscapes, M&A deal-making and integration experience (nota bene - Lockheed Martin is not in the Dow 30, but close enough to be considered). While the IT industry may be different than others, we believe that any complex industrial product/services company with revenues greater than $30 billion provides ample training for an executive to provide effective leadership to a large IT company. Ford CEO Alan Mullaly exposed the myth of the single-industry experienced CEO. His retort to those who dismissed his lack of automotive industry expertise was direct - "I don't know the auto business, however I'm accustomed to delivering a product that flies 500 m.p.h. at 40,000 feet, has an operational life of greater than 25 years, and is made of more than 600,000 parts manufactured by suppliers around the globe." Senior executives from this list of companies are likely to have the right stuff - and depending on the individual, could lead HP into the next decade.
The Dark Horse Candidates
Ray Lane, partner, Kleiner Perkins (KPCB). Billionaire Lane is credited with having built Oracle's robust consulting division and transforming the company into a process-driven machine. As COO of Oracle, he helped scale revenues from $1 billion to $10 billion, and was widely respected on Wall Street. Although he is local to HP's headquarters, it would take a hard sales pitch to lure Ray back into the day to day operations and travel grind required to run a global business.
Accenture - there may be one or two partners inside consulting firm Accenture who could bring the organizational and leadership skills necessary to run HP.
Tim Cook, Apple. Well-respected Cook has been a loyal Apple insider, and is recognized for his steady hand on the rudder through the tumult of Apple founder and CEO Steve Jobs' health issues (not to mention Jobs' famous temperament). With the Apple CEO-slot within reach, and the opportunity to be #2 at the most innovative company on the planet at present, Cook is a long-shot candidate.
Safra Catz, President, Oracle. Catz has been Ms. Insider to Oracle CEO and founder Larry Ellison's Mr. Outsider. With Ellison showing no signs of letting go of the reins anytime soon, Catz may not get a shot to run Oracle, and the CEO position at HP could be a tempting challenge. She brings the full package - having served as Oracle CFO, led numerous acquisition and integration projects, has a thorough grasp of corporate and government IT buyers, and a laser-like focus on profitability and shareholder value. HP shareholders could be richly rewarded by a leader familiar with Oracle's operating model and valuation metrics.
Todd Bradley, age 51. Of the current crop of HP executives, only one appears to us as possessing an attractive mix of skills, management breadth, strong health, and capable of passing most, if not all, of the requirements listed above.
The board of directors of Hewlett Packard is now confronted with the reality of its decision to negotiate the exit of Mark Hurd - namely the unenviable job of finding a new CEO. HP has a huge carrot to dangle in front of potential hires - the biggest job in IT today. Finding someone willing to engage with HP given its past decade of CEO and board shenanigans is a tall task, not to mention the challenge of finding an individual with the panoply of skills required to succeed in the job.
What the Press and Analysts Missed in Intel's Q2 2009 Earnings Call
The strength of Intel’s management
and operating expertise was highlighted once again in the 2Q results. Intel
(INTC; MGI-X: 2,048) took specific and significant corrective actions to adjust
for very tough market conditions, to the delight of press and analysts
alike.What do Intel’s results
(and commentary) say about its management team, companies with high MGI scores,
and the overall outlook for tech spending for the rest of 2009 and 2010?
Beyond the heaping
accolades after their 2Q09 earnings call on Tuesday, July 14, 2009, three
things stand out, and went notably under-reported.First, after several quarters in which revenues fell dramatically
(from $10.2 billion in Q3 last year, to $7.1 billion in Q1 of this year), Intel
managed to perform well on multiple fronts: it eliminated 2,000 employees(approximately 2% of total employees)
and part of a continuous effort to streamline operations, the sales force delivered above (much reduced) revenue expectations
although ASPs were down, and R&D programs remained on track.Not many companies can simultaneously
cut their workforce, execute in sales and marketing with pricing under
pressure, and maintain an intense focus on R&D all in one 90-day
period.There is a reason Intel’s
management has consistently outperformed its peers.Intel’s MGI scores, a measure of management effectiveness
and overall corporate efficiency, have always been significantly better than
competitors like AMD (MGI-X: 650).Companies with high MGI scores tend to strongly outperform their
market.CEO Paul Otellini is
proving he is a much more capable executive than “just a sales and marketing
guy” as some cynics sniped when he was elevated to the CEO position.Further, the high MGI scores and
impressive results of the second quarter attest to Intel’s culture of sound
management.Intel is the rarest of
IT companies that is on its third generation of executive leadership, and is
long past the days of being led through the force of a single personality or
founder. INTC’s high MGI scores have stood the test of time and successive
The second under-reported
highlight of the earnings call was management’s quotes on IT demand through
this year and into 2010.Specifically, Otellini said,”we
are not out there thinking that there’s a recovery to prior levels in the
aggregate.In terms of the
enterprise, I actually, -- we are not planning for a refresh this year.”He went on to say that while he sees a
refresh coming at some point given the aging of corporate desktops and servers,
“we’re not counting on that happening in
large measures in 2009”.An
additional comment on overall demand was, “you
can’t lose sight of the fact that there is still a lot of economic volatility
out there.We still see a weak
enterprise market…” While press and analysts are eager to report the glass
being half full, a sanguine observer would simply note the fill level of the
glass – the demand picture is unclear, and Intel management does not see
obvious demand drivers for the rest of this year, and into 2010.Separate from the INTC commentary, our
research indicates that the historical refresh cycle may be fundamentally
broken.Most companies have
abandoned the 3 or 4 year refresh of PCs and servers, and are simply replacing
machines as they break.Further,
there is little evidence that Windows7 will be a demand driver like Windows95
or WindowsNT was in the Glorious 1990s of tech.
Finally, a third
observation on INTC is what an exception Intel is.Few companies command the global market share that Intel
does. It’s no wonder some consider it to be a monopoly/oligopoly.This unique position gives Intel the
enviable ability to price aggressively and optimize margins across its product
portfolio – and puts more wind in Intel’s sails even with light demand.Intel also competes in a broad array of
market segments and in every geographic region of the world. This allows it to
benefit from things like the stimulus spending in China – something management
referred to in the call. Not many companies have the product breadth and geographic
reach of Intel.HPQ, IBM, and
Oracle come to mind, but none of them has the market dominance of Intel.
The bottom line is that
INTC delivered a solid Q2 – as befitting a high MGI scoring company.Companies with MGI scores above 2,000
are more likely to perform well against their lower MGI-rated competitors.One should use caution in reading too
much into the Intel results. As exceptional as Intel is, management’s muted
comments on tech recovery is telling – strong signs of IT demand drivers for the
rest of 2009 have yet to emerge.As a final point, our updated MGI scores for the June quarter will be
available once the company files its quarterly 10Q with the SEC.Given our initial review of the results
we hope to see some improvement in the MGI scores, however, one of the
advantages of MGI’s quantitative model is that it helps identify and isolate
specific strengths and weaknesses of the results that are not necessarily
visible at first glance – so we will withhold our final view until we see the