Sorry, Carly…

…only the best-financed women get to be called “Senator” instead of “Ma’am.”

In a day when the GOP tide swept across the Midwest but failed to reach the Pacific time zone, the former HP CEO appears to have failed in her efforts to dislodge her better financed rival. (Fiorina had noticeably fewer TV ads than her opponent or either gubernatorial candidate.) Longtime incumbent Barbara Boxer won despite (as one otherwise sympathetic reporter put it) having “lower approval ratings than 49ers quarterback Alex Smith.”

What really struck me, however, was an article Monday in the Merc, whose editorials strongly backed Boxer for decades. The front page story offered a surprisingly sympathetic report of a Fiorina unrecognizable in the Boxer attack ads — or even her own:

Several voters who came to see Fiorina in person on the campaign trail last week said they were struck by how different the candidate is in person from how she's depicted on TV. Fiorina warmly recalled her early life, including her amazement at seeing oranges on trees when she moved to California as a girl and her early stumbles finding a career path. With the ease and command of a talk-show host, she went on to describe some of the personal triumphs that eventually brought her to the highest rungs of corporate America.

"She's much more genuine in person than she is on TV," said Raquel Unger, a real estate agent who arrived at a campaign stop in Orange County undecided on the Senate race but left counting herself a Fiorina supporter.

"She wasn't like she's shown on TV -- all the stuff about firing people and sending jobs out of the country," Republican voter Ethel Lover said after a different Fiorina event.

Warm? Genuine? These are not terms I would have used for Fiorina when I moved to Silicon Valley eight year years ago, and had yet to forgive her for destroying the “HP Way” en route to saving the company. But Fiorina demonstrated good humor and even humility in her remarks Tuesday night.

Who knows if Fiorina could have won with a more human strategy? Even in a blue state, Boxer has always been the most vulnerable statewide officeholder (next to Gray Davis), far more so than the widely popular (onetime centrist) Dianne Feinstein. But it’s still a very blue state, as all but one statewide office went to the Democrats Tuesday. And — like all political rookies — we don’t know whether if elected Fiornia would have been effective (like a Bill Frist) or a fiasco (like the Governator.)

With her re-election, Boxer gets to extend her tenure as senator from 18 to 24 years. Sen. Boxer has a few contradictions, such as blasting Fiorina for sending HP jobs offshore while running a campaign event at Cisco, which like HP has also been growing its jobs overseas (something even her hometown paper noticed.) Like most successful politicians, she has successfully managed contradictions before.

A year ago, Boxer famously noted that it’s hard to become a Senator. As AmEx likes to say, Membership Has Its Privileges(™). A six year re-election cycle provides senators a luxury no other elected official in this country enjoys.

Carly reconsidered (III): Craig Barrett's testimonial

The editorial page of this morning’s Merc had an interesting business/political tidbit: a glowing testimonial to former HP CEO Carly Fiorina from former Intel CEO Craig Barrett. The dead tree headline was

Fiorina was architect of Hewlett-Packard’s success

while the online version says “History straightens out facts: Carly Fiorina positioned HP for success.” A few excerpts:

Under Carly Fiorina, Hewlett-Packard recognized that the computer industry needed consolidation and engineered the largest high-tech merger in history, combining HP and Compaq. There were plenty of skeptics to the bold actions taken by HP. But history has a way of straightening out the facts and the noted opinions of outside experts.
…
Carly Fiorina, the architect of the HP-Compaq merger and now a candidate for U.S. Senate, deserves great credit for her actions while CEO of HP. She understood the challenges of the marketplace, the dangers of the status quo, and the need for companies to move forward with bold actions to ensure their success.

As CEO of Intel at the time, I remember watching those plans unfold with more than casual interest, as HP and Compaq were two of Intel's largest customers. It was a ringside seat to an industry-changing event. It wasn't always pretty, but it was carefully planned and well-executed, and the bottom-line result was exactly on target.

As one of those skeptical “outside experts,” I’ve freely admitted that Carly was right and I was wrong. Barrett’s comments also fit what current HP employees say about her role in setting up the implementation being overseen by Mark Hurd.

Barrett concludes with a political defense of Fiorina, in (futile) hopes of inoculating her against the mud that Barbara Boxer allies will dredge up if she survives the primary.

In the current political campaign, many accusations have been leveled against her and her tenure at HP. As someone who knows the industry well and was there watching all the details, I have to respectfully disagree.

Carly Fiorina, who started her career as a receptionist and rose to be the first woman to run a Fortune 20 company, tackled the most difficult issues and brought exactly the right approach to a company that would have faced a more uncertain future otherwise.

I found the column remarkable, because normally Intel CEOs have commented on things important to Intel, not its customers or partners. Apparently Barrett got to know Fiorina well during their overlapping tenures: Fiorina was HP CEO from 1999-2005, while Barrett was Intel CEO from 1998-2005, succeeding Andy Grove.

While Barrett is entitled to his opinion, I would take issue with one claim: “HP has always been and still is an innovative company bringing great products into the market.” The New HP (both Fiorina and Hurd) is about cost-cutting, including cutting materials costs (ala Toyota) in hopes of reducing costs without noticeably reducing quality.

News headlines also implied that Hurd cut the HP Labs from 700 employees in 2005 to 500 employees in 2009. This makes sense if (as I concluded in February), Fiorina-Hurd decided that HP’s future lay as an efficient commodity IT producer rather than a high margin differentiated one — but it’s hard to argue that HP is as innovative as it was 20 years ago.

Carly reconsidered (II): she was right, I was wrong

Even before her November announcement that she was running for the US Senate on a pro-business platform, I had begun to wonder whether I needed to reconsider my long-time antipathy to former HP CEO Carly Fiorina.

I hadn’t thought about Fiorina in years until she announced her candidacy. I also ended up examining new information when I had my students examine HP’s recent business during all three of my courses last fall.

In fact, in the face of new information, over the past few months I’ve had to admit that I was wrong (at least in part) about Fiorina’s strategy, even if I have no new information about her winning personality.

Destroying the HP Way
During her tenure at HP (July 1999-February 2005), I thought she was destroying the company. As an HP contractor — with my company at one point supplying most of the Mac software for HP’s inkjet printers — we worked closely with HP engineers and watched the company cut quality to save pennies. The engineers who wanted to make great technologies like those that had made the company famous were getting shoved aside by boot-licking MBA types that would do Fiorina’s bidding.

Carly’s top priority was obliterating the “HP Way” — to break the culture of Bill & Dave and remake it in her own image. A symbolic example was the mandate that every voicemail recording proclaim “The New HP” — to the point that if a worker didn’t change his/her voicemail, her manager would do so. At the time, this seemed like a massive ego-driven (successful) effort to get her face on the cover of Forbes, Fortune and Business Week.

Fiorina’s signature proposal — and the flashpoint for opposition to her — was the 2001 Compaq acquisition, then sold as a “merger.” I agreed with Walter Hewlett — and HP hagiographer Mike Malone — that the “merger” was a terrible idea. On March 19, 2002 — a few months before taking a job here in Silicon Valley — I even flew up to the shareholder’s meeting where employees and shareholders voiced their futile opposition to it.

The merger went through, I commiserated with my HP friends about how terrible the merger and culture change were, and shared in their schaudenfreude when the resulting acrimony cost Fiorina her job.

The initial results of the merger were inconclusive, and after railing against Carly in my undergraduate strategy class from 2002-2003, I lost interest and went back to studying open source and later mobile phones.

Carly, Mike and Mark
HP’s finances have turned around around under the operational focus of Mark Hurd, CEO since 2005. Current employees say that Hurd is really just executing on Fiorina’s strategy — he’s providing the execution skills that Fiorina lacked (but might have had available if she’d kept Michael Capellas around.)

How has Hurd done it? Reporter Chris O’Brien decided to answer that question by reporting facts that have been sitting in plain sight. As he wrote in Sunday’s Merc:

When their companies stumble — as HP did in the 1990s — most CEOs generally use only two strategies to fix things: fire lots of people, or buy another company.

Beginning with the arrival of Carly Fiorina in 1999, and continuing under her successor, Mark Hurd, HP has undertaken a staggering transformation, as it pursued both strategies with a vengeance.

What O’Brien found interesting is that (according to SEC filings) HP has fired 75,505 employees over the past decade, a number expected to hit 84,000 by the end of this fiscal year. (HP had 88,000 employees in 2000).

O’Brien continued

Why do I find HP's job cutting so extraordinary?

First, let's start with some context. To find job-cut numbers of this magnitude, you have to look to the automotive or airline industries. General Motors, for instance, has announced 195,000 jobs cut since 2001, according to outplacement firm Challenger Grey & Christmas, and Delta Air Lines announced cuts of 51,154.

But when we talk about those industries, we talk about failure. As they dance in and out of bankruptcy and receive government intervention to stay afloat, we wonder whether they will collapse completely.

By comparison, HP is a fairly healthy company.

O’Brien’s reporting is remarkable, because the overall magnitude of the job cuts has been ignored for a decade. It hasn’t gone unnoticed by current (and now-former) HP employees, who have been whispering about the massive layoffs and the end of the former culture for years — as well as the use of the current economic crisis to cut salaries permanently.

Commoditizing HP
In 2000-2002, I thought Fiorina was destroying HP’s traditional business model and turning it into a commodity, low-innovation company. As both an engineer and an academic researcher, I felt she was destroying the great engineer-driven culture of the founders and replacing it with a by-the-numbers, penny-pinching, bean-counting mentality.

It turned out that I was right, because that’s what Fiorina (and then Hurd) did: end what had made HP great.

The problem with my argument was that I assumed that HP had a choice. In retrospect, it didn’t: Fiorina saw this and I didn’t.

HP during its heyday created the HP 35, various minicomputers, workstations, calculators and other innovative products. (That’s not counting the test instruments that Fiorina’s predecessor dumped into Agilent in 1999). There were many opportunities for innovation, and HP exploited them.

However, the reality is that overall IT industry growth ended with the NASDAQ peak of March 2000, and since then the industry’s revenues have been about replacing existing products rather than growing its overall share of the economy.

These issues were highly salient in the arguments for and against the Compaq merger. Re-examining the claimed costs and benefits of the merger:

• Opponents’s Claim: The merger would increase HP’s exposure to the commodity PC industry. Reality: True.
• Supporters’s Claim: The merger would give HP’s commodity business cost advantages through superior scale. Reality: True. Under Hurd, HP is a better commodity PC maker than even Dell.
• Supporters’s Claim: The merger would help HP increase service revenues. Reality: False. What was left of DEC wasn’t worth much, and so in 2008 HP spent $14 billion to buy EDS.
• Opponents’s Claim: Adding Compaq would dilute HP’s printer cash cow. Reality: True, but it didn’t matter.

It was this last point that I should have seen coming as someone who spent almost 15 years working full-time writing printer software. I had a front-row seat watching the commoditization of HP’s printer business as it was dragged into price wars with Epson. Its HP DeskJet 900 of 1999 ($400) — strong enough for our toddler to sit on — was supplanted a couple of years later by the disposable HP DeskJet 3300 ($100).

In retrospect, the period from about 1984-1999 was a period of rapid innovation for inkjet and laser printers. HP was able to gain competitive advantage by being only a few years ahead of its rivals at a time when a few years mattered. In 15 years, HP went from a 96dpi monochrome printer (the 1984 ThinkJet) to a 300 dpi monochrome printer (the 1988 DeskJet), and then a decade later to 600 dpi color with the 1999 DeskJet 900. While dozens of new models have been created since then, chances to offer users dramatically better print quality have not.

In other words, there was 15 years of innovation-based differentiation, but when opportunities for meaningful differentiation disappeared the emphasis of necessity shifted from innovation to cost cutting. With or without Carly Fiorina, around 2000 it was clear that HP’s printing margins were eventually going away, and new sources of revenues were needed to replace them.

Conclusion: Carly Was Right
Fiorina and Hurd have destroyed the old innovative, employee-friendly HP. The HP that once had a no-layoff policy has fired a quarter of its workers. The company that once had great labs and R&D is now a commodity, penny-pinching company that’s trying to (and succeeding at) out-Delling Dell.

Alas, commoditization is the future of the ICT industry: it’s happened to HP, Dell, Sony, Toshiba, Acer, Lenovo making PCs, and HP, IBM and Sun making larger computers.

Even with its quasi-monopolies, Microsoft is having to worry about open source, SaaS and other price pressures as it’s unable to add new features that buyers will pay for. IBM, SAP, Oracle, and other firms are facing the maturation of the industry and limited growth.

Meanwhile, the one type of computing devices that have recently witnessed dramatic innovation and growth — smartphones — are at the brink of commoditization if (as predicted) Android doubles its market share in 2010.

There’s only one differentiated systems company left — and that only as long as Steve Jobs is healthy. For most of the remaining IT industry, such differentiation is but a pipe dream: it’s either make commodity products cheaply or lose money.

Under Bill & Dave, HP was an engineer’s paradise that was a role model for what a Silicon Valley company should be, at one time emulated by Apple and the other startups of the 1970s and 1980s. Under Mark Hurd, HP no longer makes the lists (like Fortune’s) of the best companies to work for — while higher margin companies like Intel, Microsoft, Intuit and Qualcomm do. (Interestingly, neither Apple nor IBM make the lists anymore, even though their respective financial positions over the past decade have been much more secure than HP’s.)

So while I accurately diagnosed Fiorina’s impact on HP employees and their morale, I completely missed that the environment was changing under HP’s feet and it had to change with it. As an engineer, entrepreneur, researcher and teacher whose career spanned the glory years of the PC and the Internet, it took me several years to recognize (or admit) that the world had changed forever.

The IT industry has become a slow/no-growth mature industry where commoditization is the unescapable reality. Economies of scale and scope are the only hope for even successful differentiated companies like Google to maintain their lead.

Now I admit it: Commodities are HP’s future, and recently it’s been working well. Today, the only alternative seems like more of the same — good for shareholders, but bad for employees.

Carly reconsidered (I)

Carly Fiorina announced her candidacy for US Senate on Wednesday, two days after my undergraduate strategy students presented their analysis of the HP-Compaq merger. Both events have caused me to reflect on her qualifications as a CEO and a politician — and to admit that I may have been wrong about the former.

Ever since she made noises about entering politics, I’ve been seriously conflicted. On the one hand, I had a front row seat as she single-handedly worked to dismantle “The HP Way.” On the other hand, I would certainly agree with her politics more than many politicians who might run for office here.

Compared to joining HP just before the bursting of the dot-com bubble, Fiorina’s timing for her inaugural run looks to be perfect, both on the issues and on personalities.

Incumbent Barbara Boxer has a near-perfect record as judged by her “liberal quotient” compiled by the Americans for Democratic Action , crossing the ADA only once from 2003-2008 — by voting for George Bush’s trillion dollar Medicare prescription drug benefit. If last week’s elections are any indication, 2008 could mark the high water mark for the Democrat party‘s liberal wing.

Fiorina has positioned herself as an economic conservative and social moderate (particularly on abortion), perfect for reaching independent and Republican women. My wife is a big fan after reading her memoir, despite having lived through Fiorina’s fight over The HP Way. If my wife and sister-in-law are any indication, Fiorina will get the enthusiastic support of educated soccer moms (both stay-at-home and career-oriented) if she can articulate a coherent story about why the government should live within its means the way that private citizens have to do.

On the one hand, Fiorina’s reputation would be a liability running against a well-liked figure. As a CEO, Fiorina was a polarizing figure — criticized as being abrasive and imperious — even if that might be less noticeable in the US Senate, where every Senator considers him/herself one promotion away from becoming president.

On the other hand, Boxer has shown her own imperious side, whether in dealing with the US military or as a committee chair. When it comes to egos, Fiorina may have met her match challenging a politician who — as columnist Dan Walters put it — “has written two novels with a fictional version of herself as the heroine.” Meanwhile, Fiorina’s recent (thus far successful) fight against breast cancer could serve to humanize her.

In terms of managerial and economic aptitude, Fiorina is grossly overqualified. Law school graduate senators can’t manage their way out of a box, let alone successfully micromanage a $14 trillion economy. Whatever her mistakes, Fiorina credibly initiated and supervised one of the most difficult mergers in US history, and thus should be able to manage a US Senate office of 80 boot-lickers as well as understand broader issues of job creation and economic growth.

I’ll be curious to see whether Boxer underestimates her opponent. Fiorina is one of the smartest and most disciplined public speakers I’ve ever heard, while Boxer seems to generally assume that she’s preaching to the choir (perhaps because she began her career in a safe Marin County district). An open debate between the two women would play to Fiorina’s strengths.

My sense is that if the election is on economic issues, then (barring some unexpectedly rapid economic recovery) Fiorina should win easily. However, Boxer will try to make the election a referendum on Fiorina (and vice versa), and the election will go to whoever is most successful in that regard.

The other thing she’ll need is a campaign staff. California Republicans once had an impeccable brain trust that won all but 2 gubernatorial elections from 1966-1994. But the party has been unable to win statewide elections since then, the governator not withstanding. And business execs-turned-politicians have a terrible track record of cultivating and heeding the advice of seasoned campaign professionals.

Photo from Fiorina’s campaign tour taken from her campaign website.