Meg Whitman's HP Redeemer

The outspoken, personable, and persistent Whitman is the kind of leader HP desperately needs. She's decisive without being bossy, persuasive without being oily. She's a team builder, and knows that to achieve change for the better, you have to correct hundreds of insignificant flaws, rather than betting everything on a nebulous panacea. Here's Ranno's take on the HP redeemer.

To understand Meg Whitman, the former CEO of eBay and current head of Hewlett-Packard, you have to start 26 years ago. At the time, she had just become a junior partner at BainConsulting, working for the brilliant but headstrong Tom Tierney.

One morning, Whitman improvised her way into his office. The then-31-year-old asked the intimidating boss if he wanted to hear what his employees thought of his leadership style. He nodded. So Whitman grabbed a felt-tip marker and drew a giant steamroller on a nearby flip chart. "That's you, Tom." She explained, "You're too bossy to let us build ****ty leadership."

Tierney was dumbfounded. But he eventually accepted the advice and became less overbearing. Everyone at Bain Consulting benefited. "She was really courageous." Tierney recalls, "What she said to me was a gift. Even though she offered unsolicited criticism, it rather made me like Meg even more."

Shortly after a boardroom personnel change made Whitman HP's CEO, she fell on hard times. In her first year at the helm, HP shares plunged 42 percent while operating margins fell to 2.5 percent. HP seemed powerless to stop its main rival, Dell, from expanding its turf in the server market, and in April 2012, the two computer makers battled for a $350 million server order for Microsoft's Bing search engine team, with Dell winning out. It's the same story: Dell has also won all four of the previous showdowns for Bing's business.

Whitman wasn't willing to just accept defeat. Within minutes, she was on the phone to Microsoft CEO Steve Ballmer, asking him to come clean, just as she once did with Tierney. "Tell me what we're doing wrong." Whitman asked, "Don't gloss over it. I'd love to know so we can do better next time." Shortly afterward, Microsoft sent Whitman a memo containing a multi-page list of nine reasons why HP lost out. "Even if your offer is competitive, you may not win." A Microsoft associate said.

In Whitman's eyes, the memo was not a humiliation but a battle plan. She assembled a team of attackers, including Dave Donatelli, head of Hewlett-Packard's enterprise computing business; John Hinshaw, the company's head of operations; and supply chain whiz Tony Prophet. Their charge: find ways to make HP more competitive; catch up with Dell in presenting new cost-saving measures to Microsoft (a step that's already been accomplished); and commit to fixing software bugs in two days instead of four weeks (a direction HP is working toward). By last summer, HP had found ways to make its customers happier. When Bing purchased $530 million in servers in January, it was time to wash its hands of the humiliation. This time it was HP, not Dell, that won the order.

In the words of Marc Andreessen, an HP director and one of Silicon Valley's top venture capitalists, "She's the best CEO the company has had since the founders of HP."

However, getting the world's largest tech company ($120 billion in annual revenue and employing 330,000 people) back on track is an extremely daunting task. HP, which has made more than 70 mergers and acquisitions in the past 15 years, isn't just bloated, disorganized and out-of-sync, it's perhaps already in a state of decline. Revenue has shrunk for most of the past seven quarters. HP's return on capital is a pitiful 7 percent (compared with 29 percent for IBM and 24 percent for even Dell, which is itself plagued by many problems).

Before the huge asset write-downs, HP was still profitable, but its stock was trading at a price-to-earnings ratio of just 6 times. One major investor claimed that HP couldn't completely quell fears that its P/E ratio had fallen to zero.

Will this deter Whitman? "It's good to have problems, as long as you can solve them quickly." Whitman said over a Cobb salad lunch in the HP employee cafeteria. Today, the cafeteria is plastered with a variety of Whitman's favorite aphorisms, including this one, "Take the bull by the horns and don't shy away." "Meg has grown in her career by solving one of these challenges," says Starbucks CEO Howard Schultz. He's a longtime friend of Whitman's, having met while ****ing on the eBay board.

When Whitman took the helm at Hewlett-Packard 20 months ago (after losing the 2010 California gubernatorial election, which wiped out a lot of campaign money she had put up out of her own pocket), she was dealing with a company that had already ousted four CEOs.

In 1999, amiable self-starter Lew Platt didn't perform well enough; in 2005, charismatic marketing maven Carly S. Fiorina failed to meet profitability goals; in 2010, shrewd and pragmatic data guy Mark Hurd was mired in a reimbursement claims scandal; Whitman's predecessor, Leo Apotheker (LeoApotheker; Chinese name: 李艾科), an aloof figure from Europe, stayed in office for only 11 months. The reason for his failure: blind strategic expansion that sent HP's stock price plummeting.

No one on HP's board was willing to take the risk of choosing and grooming another outsider. But there were only a handful of internal candidates. So in August 2011, when Ike Lee's brief tenure was coming to an end, the directors began to reach a ****ing consensus that Whitman was their best choice. A former successful Silicon Valley CEO, she had joined HP's board in January 2011 and knew the company's problems intimately. With JerryBrown sitting comfortably in the governor's office in Sacramento, Whitman could take on the new full-time job.

But there was a problem: Whitman didn't want the position. She told HP directors RajGupta and Anderson that the work of the board, the work of private equity and possible political appointments were enough to keep her busy. "I don't want to run the company anymore." She told one board member. But on a private plane ride back to the Bay Area after an HP board meeting, other directors began lobbying her. They cited HP's illustrious history as Silicon Valley's first garage startup. That company was founded in 1939 by engineers Bill Hewlett and David Packard. They also spoke about HP's importance to the California economy and as a global icon of innovation.

"Suddenly, the conversation turned to what she would do when she took office." Anderson recalled, "I saw that sparkle in her eyes. I said to myself, 'I think we've impressed her.'"

Whitman knows that playing in the tech industry doesn't usually give second chances. Fall behind and you're out of the game. But there were two notable exceptions in the 1990s: the return of Steve Jobs to Apple and the reform of IBM by Louis Gerstner (LouGerstner; Chinese: 郭士纳). after studying both models, Whitman, 56, quickly ruled out Jobs as a model. "Steve is the business wizard of our generation." She said, "It's hard for anyone to emulate him." Besides, there is no magic iPod or iPhone in HP's future, she said, adding that Gerstner's example of IBM's turnaround "might be more useful."

Like the outsider who got the Blue Giant back on track, Whitman began her first board meeting as CEO in October 2011 by saying, "The first rule is to fix what we already have." She pushed back on Lee Ike's plan to sell the PC business at a throwaway price. She argued that the business could be fixed, especially with a greater focus on booming markets like tablets and other mobile devices. Whitman stuck to a deal offered by Ike Lee to buy British software company Autonomy for $11 billion, but it had the opposite effect.

To keep things simple, Whitman split HP into two clusters. One cluster targeted enterprise technology customers and consisted mainly of Donatelli's enterprise hardware division. In one quarter, HP's servers, storage and networking equipment contributed 43 percent of operating profit. Theoretically, all those ferrosilicon products should be supported by related software and services divisions.

But when it comes to mergers and acquisitions in the software space, Autonomy is just about the most costly flop. Over the past 10 years, HP has spent nearly $19 billion total*** acquiring numerous companies, yet they have contributed only 7 percent to overall profits. The services division, which supports other companies' technology programs, barely breaks even. The unit is struggling to rebuild after writing down $8 billion in assets last August.

Another HP cluster sells printers, PCs, laptops and mobile devices to consumers worldwide. Unfortunately for Whitman, the days of relying on the printer business to make a lot of money are in the past (in 2002, the printer business contributed 104 percent of HP's total operating profit, as all other businesses were losing money. Today, that contribution is only 29%). Businesses are still buying printers and ink cartridges in bulk, but consumer appetite has waned. Companies like Google, Facebook and Dropbox have enabled a new era of sharing pictures and documents without cartridges.

To keep HP's two traditional businesses going, Whitman began overhauling the company's sales approach. Internal surveys showed that more than 20,000 HP salespeople rated the inside sales tool at just 7 out of 100 points. HP once took three weeks to develop a quote for a complex order. Competitors could do it in a few days.

Many customers got angry, and others moved on. When John Hinshaw, Whitman's director of operations, suggested ditching the aging Oracle Siebel sales software in favor of salesforce-com's new tool, she approved it to get the company to make the switch as quickly as possible. Hewlett-Packard's quoting time was reduced by 75 percent, and ratings for the inside sales tool soared to the mid-70s. Salespeople's ulcers were gone, and relationships with customers were becoming more cordial.

In addition to more timely quotes, customers needed HP to know what it was doing. Toward the end of Ike Lee's tenure, "we were quite concerned that HP was going to fall apart." Dana Deasy, BP Group's chief information officer, recalls.

So Whitman hit the road. In the past year, she's had a staggering 305 one-on-one meetings with customers and sales channel partners, and 42 smaller roundtables, according to aides. Her schedule for the past 60 days shows she's traveled to Munich, London, Brazil, India, New York and Wal-Mart's hometown of Bentonville, Arkansas. "She makes more external communications and contacts than her predecessor." said Chris Case, president of SequelDataSystems in Austin, Texas.

Procter&Gamble IT chief Jim Fortner said he asked Whitman at length about HP's PC strategy last year. The consistent answers reassured him a lot. "It's important to us." "We buy a lot of PCs," Fortner said, adding that BP's Dietrich said that during one of Whitman's trips to London, he complained that HP didn't do software installations on time. So Whitman made a few phone calls and found a loosely managed team that hadn't put anyone in charge of prompt delivery. Dietrich says the project is now back on track.

Just as she gave Tom Tierney that lesson uninvited when she was at Bain & Company, Meg Whitman likes to use charts to illustrate her points. When I asked her to talk about the long-term challenge facing Hewlett-Packard -- how to get its corporate growth engine roaring again -- she reflexively reached for a piece of paper. "Even when your existing products are still growing, you have to introduce new products." She said. On the sales graph she sketched out, she pointed to the long downhill leg of the curve and said, "When you don't start launching new products until that point, it's back to the drawing board.

The result is that we get acorns when we need acorns." She can't play catch-up through acquisitions: the HP stock price is too low, and a past history of profligacy is unsettling to Wall Street. HP is trying to reduce its $5.8 billion in operating debt from last year to zero.