HP’s Ousting of Hurd Reveals Unhappy Employees, Ridiculously Low R&D Budgets

Former HP CEO Mark Hurd officially resigned because the company’s board of directors found that he violated the company’s standards of business conduct, linked to a sexual harassment lawsuit and inaccurate expense reports. But there’s probably much more to the story than those outside of HP’s upper management will ever know. A New York Times article published today peeked beneath the surface and revealed some alarming statistics.

Mark Hurd led significant growth at HP and cut costs dramatically. Much of the cost cutting came in the form of layoffs, salary reductions and cutting many expenses to the bone. Needless to say, none of these activities boosted employee morale.

Rob Enderle, a well-known technology consultant, noted that in recent internal surveys, nearly two-thirds of H.P. employees said they would leave if they got an offer from another company — a staggering number. “He didn’t have the support of his people,” Mr. Enderle said. Although he was good at “holding executives’ feet to the fire, he seemed to be the only one benefiting from H.P.’s success,” Mr. Enderle continued. “He alienated himself from the people who might have protected him.”

We usually don’t discuss business issues such as this here at GottaBeMobile, but I find it worth discussing because years of cost cutting is making it difficult for HP to compete in some arenas. For example, HP didn’t have a booth at CES 2010, with the TouchSmart tm2 and other new PCs relegated to a small meeting room and a couple of unofficial events. In previous years, HP showcased just about every consumer product it produced at the largest booth on the show floor.

The cost cutting measures are crimping HP’s culture of innovation as well.

Charles House, a former longtime H.P. engineer who now runs a research program at Stanford University, openly rejoiced when he heard that Mr. Hurd was leaving. “I think the sexual harassment charge was a total red herring,” Mr. House told me. He didn’t care. “I was delighted,” he said…The way H.P. made its numbers, Mr. House said, was not just cutting any old costs, but by “chopping R.&D.,” which had always been sacred at H.P. The research and development budget used to be 9 percent of revenue, Mr. House told me; now it was closer to 2 percent. “In the personal computer group, it is seven-tenths of 1 percent,” he added. “That’s why H.P. had no response to the iPad.”

I’m hoping that whoever takes over the reigns at HP will revive “The HP Way.”