Exit Carly

“THIS is not a change related to strategy; this is a change...to accelerate the strategy.” Thus Patricia Dunn, hours after becoming chairman of Hewlett-Packard (HP), one of the world's largest technology firms, tried to explain in a call to financial analysts on February 9th why she and her fellow directors had, a day earlier, asked Carly Fiorina to resign as HP's chairman and chief executive. But what exactly is HP's strategy?, Robert Wayman, HP's finance chief and now interim chief executive, was asked in a second call with the press. After a hem and haw, Mr Wayman replied that there are “a variety of strategies”, which all have to do with HP's “unique portfolio of businesses”. This begs the real question: uniquely what?

Although Ms Dunn and Mr Wayman bravely insist that Ms Fiorina's shortcomings lay in execution, not in setting a wrong overall direction, almost everybody else disagrees. “Execution problems usually follow from a flawed strategy,” says John Slocum of the SMU Cox School of Business in Dallas. HP's real challenge, he thinks, is that “they have to decide what they want to do. What is HP?”

That this question is now so hard to answer is in large part Ms Fiorina's fault. She became HP's boss five years ago, just as the technology industry was peaking. Her mandate was to transform the company. Her chosen strategy was to do this through a controversial merger with Compaq, a Texan firm a world apart culturally from HP's Silicon Valley ways but, like HP, struggling to cope with fierce competition in the computer industry. By turning two large and bloated rivals into one huge and leaner operation, Ms Fiorina hoped, HP could make its computer business as profitable as its printer business, in which it is the unchallenged world leader.

Blame Dell

That is not at all how things turned out. In printing and imaging, HP is doing as well as ever. But in almost every other line of business it has run into problems. In personal computers, HP has been fighting a disastrous price war with Dell, a rival that sells direct to customers rather than, as HP does, through many channels, and whose supply chain is much more efficient. In corporate computers, HP has been squeezed between Dell at the cheap end of the market and IBM at the expensive end. HP is also losing market share to focused rivals such as EMC in corporate data-storage systems. In information-technology services, HP lags far behind IBM, Accenture and EDS. In consumer electronics, HP is up against everybody from Kodak to Sony.

With such sprawl, perhaps it is not surprising that the firm's performance has suffered. Ms Fiorina apparently resisted suggestions that she hire a chief operating officer who could have helped her to cope with the details. As a result, says Carl Claunch at Gartner, a technology-research firm, execution has been “inconsistent”, not only from one quarter to the next—HP had an embarrassing earnings dip last August, for which Ms Fiorina fired three of her top lieutenants on the spot—but also between divisions. In corporate computing, for instance, HP has been touting a vague slogan about the “adaptive enterprise”, but has found it hard to explain to customers what that actually means. In particular, HP seems to have lost its way in the highly competitive data-storage industry. With frustration running high inside the company and resentment growing over Ms Fiorina's tough management style—which clashed with the collegial culture that HP staff were used to—managers started leaving to join rivals.

Ms Fiorina laboured on through the criticisms, doggedly defending her merger with Compaq and insisting that “synergies” would eventually make HP a leader in all of its businesses. The stockmarket, however, ignored HP's public-relations blather and answered the question “what is HP?” in a brutally clear way. Since the merger, HP's market capitalisation has been roughly equal to the value of its printer business alone. To Wall Street, in other words, HP is a printer company, with a few worthless distractions on the side.

This horrid performance has led to calls that HP be broken up. One of the first to make this case, a year ago, was Steven Milunovich, an influential analyst at Merrill Lynch. Other analysts have since taken the same position. But the closest that Ms Fiorina—who in her previous job at AT&T spun off its telecoms-equipment arm, Lucent—came to engaging in this debate was to concede that HP's board discussed the issue three times, and then decided against a break-up. As if to tie its own hands, HP even announced in January that it would merge the printing and the personal-computer business into one division, in effect making the winner subsidise, or cover up, the loser.

The ousting of Ms Fiorina therefore does not automatically mean that a break-up is now likely. The same board that has decided against it three times already, and this week pledged allegiance to HP's strategy—whatever that is—will now be looking for a new chief executive.

Even so, HP's shares jumped by 10% in the hours following the announcement of Ms Fiorina's resignation. At least in part, that was because “the long-term probability of a break-up of the company is rising”, says Mr Milunovich, who promptly raised his recommendation to “buy” from “hold”. His favourite to replace Ms Fiorina would be Michael Capellas, who ran and sold Compaq to Ms Fiorina in the first place, and who now runs and is negotiating to sell MCI, a telecoms firm.

Gartner's Mr Claunch, by contrast, thinks that HP's board, if it even remotely believes its own rhetoric about better execution, is unlikely to hire an avowed deal-maker such as Mr Capellas, and should instead look for a “details guy”. As for Ms Fiorina—elegant and intellectually versatile—nobody expects her, at 50, to disappear with her $21m severance package. Even at HP, she never quite dispelled rumours of an interest in politics.