The tech industry gives us so many great business lessons; I guess because the fickle nature of high tech’s whitewater business environment accelerates and amplifies the impact of every move tech companies make. One such business lesson came recently from two tech giants – IBM (#18 on the Fortune 500 last year) and Hewlett Packard (#11). Same industry, similar markets, but very different companies.
What’s the lesson? That a culture of leadership matters – not in some vague, it-feels-good-to-work-here kind of way, but in results so tangible that you can see, taste and (especially) count them.
And now for our story.
In recent months, both IBM and HP changed CEO’s. On September 22nd, Meg Whitman became CEO of HP, and on January 1st, Virginia Rometty took the reins at IBM. Besides the timing, the only notable similarity is that both companies gave the top spot to women with long and credible track records of success. But what the two inherited was very, very different.
The companies’ paths to these transitions tells the story. Let’s begin with IBM. Back in 1993, when Lou Gerstner was brought into Big Blue, he not only began executing one of the most heralded corporate turnarounds in history, he also began to restore the IBM leadership culture and create his personal leadership legacy. Over the next nine years, he groomed senior leaders on his team, finally moving Sam Palmisano into the lead role in 2002. No disruption in strategy, operations or culture. Following Gerstner’s lead, Palmisano did the same. Ten years later, when Palmisano hit 60 (IBM’s mandatory retirement age for CEO’s), his carefully groomed replacement, Ginni Rometty, took over his position. Again, no disruption in strategy, execution or culture.
Contrast this with HP. In the last six years, HP has had three major leadership transitions, with six different people holding the top spot during that period. The only two who were internal to HP were interim CEO’s, minding the store while the board conducted external searches. Whitman’s predecessor, Leo Apotheker (who came from SAP), made it only eleven months, at which time the board forced him out because of questionable strategy decisions and a plummeting stock price. When Whitman stepped in as CEO, her first major move was to reverse the decision by Apotheker to sell off HP’s $40B PC business, calming the nerves of HP’s corporate customers, sales channel and investors around the world.
Now let’s look at the impact on the two tech firms.
One way to compare the results that came from the two companies’ respective leadership cultures is to just look at the news stories coming out during that period. From IBM, it’s been about growth, a steady shift in revenue mix to more services, and a deluge of inventions and new patents each year. But for HP, it’s been a corporate soap opera – open conflict in the board, an internal spying scandal, sexual harassment charges, and strategic whiplash as a parade of new leaders tried to put their individual stamp on the company.
Of course, the real, rubber-meets-the-road comparison comes in the value of the companies themselves. On the chart below (courtesy of MSN Money), you can see that, over the last five years, IBM has effectively doubled its stock price, while HP has lost about a third of its market value in the same period.
Now before you try to write off this whole comparison as unfair and just bad succession management and board politics at HP, let’s open the aperture on the situation just a bit. IBM has about 426,000 employees, and HP has about 350,000. Each of these firms, then, has literally tens of thousands of managers. Every one of those managers creates his or her own little organizational culture, and that leadership culture tends to cascade down and out. So poor leadership from any manager not only creates a toxic culture for that immediate group, but every group below it, and at times even the groups around it. It’s like poison in a water supply - incredibly difficult to contain, and damaging to all those who come in contact with it. And when the top level of the organization is unhealthy, like with HP, the entire firm is at risk, along with its customers and supply chain. Fortunately, IBM shows us that the opposite is also true – a healthy leadership culture contributes to a healthy organization.
Good management and leadership, at its heart, is about long-term sustainability of the enterprise, whether that enterprise is ten people or ten thousand. There is nothing soft about a leadership culture’s impact. Fortunes, jobs and communities are created - or destroyed - based on the health of the leadership cultures in our organizations.
The very good news is that you as a leader choose what kind of culture you create and how you want to approach developing the future leaders for the groups you lead. The legacy of these two companies is rooted in their leadership cultures, and the same is true for your legacy. So pick – IBM or HP?
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