Over the past few weeks, electronics giant Hewlett-Packard has been taking a real drubbing on Wall Street. Last month's announcement by C.E.O. Leo Apotheker that his company will spin off its personal computer business in order to "sharpen its focus" has caused investors to reel in fear and customers - even committed ones - to back away.
Now, I don't claim to understand Mr. Apotheker's industry (I call my desktop machine a "confuser" for a definite reason!); however, I certainly feel some empathy for him as a corporate leader. A decision like this cannot be easy; furthermore, one would never expect the majority of observers to fully comprehend the reasoning behind it.
Sadly, though, even many with strong ties to the computer world are also shrugging their shoulders. For example, Frank Cervone, vice chancellor for information services at Perdue, said that H-P's announcement appeared "to just come out of the blue without a really good explanation."
Well, I'm not certain of the explanation, but I have a pretty good guess.
Hewlett-Packard has decided to turn its back on the traditional desktop market because there's no future in it.
Let's allow that to sink in for just a moment.
Here we have a world-wide corporation which stands as the undisputed leader in the manufacture and sale of personal computers, whose revenues are measured in the hundreds of billions of dollars, who currently ships an astounding annual average of two new machines every second...and they're saying that the day of the desktop "confuser" has passed by.
There's no future in it. Leo Apotheker understands that. Tomorrow's (and most of today's) users are buying portability, with handheld devices of various types already outselling desktop units three-to-one. Based upon current trends, in less than two years, what we now know as a personal computer, complete with a tower and chained to a table, will account for less than 20% of all sales.
Surely, many companies have been given the same sort of signs through the years, providing ample time for major course corrections. Yet, for whatever reason(s), they ignore them - at their peril. Think Eastman Kodak. Once the greatest name in consumer photography (essentially creating the amateur "snapshot" market back in the 1880s), it waited too long to embrace digital technology and distance itself from the world of conventional film and chemical processing. Even though that firm is credited with inventing the first digital camera (through the work of Steven J. Sasson in 1975), it is now struggling for its very survival.
What does this mean to us, specifically (and to business in general)?
Certainly, we should allow visionaries the freedom to challenge traditions and make those decisions, however difficult they may seem to be, which will ultimately advance our craft. Al Perlman's personal set of business rules included this profound bit of philosophy: "After you've done a thing the same way for two years, look it over carefully. After five years, look at it with suspicion. And after ten years, throw it away and start all over."
Folks who are good in business tend to trust their instincts and, when wagering, do so rationally - and well. As Don Schlitz' mythical Gambler said, you "know when to hold 'em, know when to fold 'em." The ultimate question might not be how profitable a business is today, but how profitable it will be tomorrow. How do the numbers look? Maybe one should sell out at the peak and let someone else ride it down, using the freed capital to invest in something new.
We should also never allow rank sentimentality to get in our way, much less let it be our downfall. When it comes to railroading, this is my weakest point; but, an awareness of that fact hopefully saves me from most major blunders.
Lou Menk was never hesitant to admit that he "wasn't a railfan." Even though, later in life, he would wistfully recall train trips taken as a youth with his father, he knew nostalgia could never cover a payroll. "Somewhere along the line I became a businessman," Menk once told Kiplinger's Personal Finance editor (and railroad historian) Fred Frailey, "and businessmen don't like to sit around and see something lose money." It should be no surprise, therefore, that the pre-merger Burlington Route, once famed for its fleet of streamlined Zephyrs, underwent a 180-degree change of heart during Menk's mid-1960s administration. His broadside, no-holds-barred attack on the Q's varnish was uniformly vilified at the time. Given a clearer historical perspective (and a half-century breather), most see his actions as not only justifiable, but precient.
To be painfully honest, I still struggle with that one.
Barring regulatory challenges which, even today, cause the occasional problem, our industry has proven to be adept at challenging traditions and embracing new technology. Responsible betting? Certainement! Keeping wistfulness at bay? De rigueur!
Adapt or die. It's a harsh imperative, but absolutely necessary.
Now, if I could only get Kenny Rogers' music out of my head!
And, the same reasoning should apply today as railroad execs look at their overall position. Perhaps the days of high speed coast to coast container trains is heading for the scrap heap as fuel costs rise, localization becomes the vogue, US consumers wither away? Perhaps, more flexible container/piggyback short hauls could be a competitive alternative to trucking? Continual rethinking of sure positions based upon good feedback loops and intelligent, open minded environmental scans combined with willingness to take risk is the hallmark of good management. There are also personality factors to consider, as in being a really good maintenance manager vs a risk taking visionary manager: what looks good at any one time may not be the best choice of manager in the long haul. My two cents.
Garl and oa: Some good thinking from each of you. In the HP situation, I see signs of similarity to what IBM went through about 15 years or so ago. It, too, got out of the "hardware" business and remade itself into a services company. It prospers. HP appears to be trying the same conversion, but also is burdened by the Compaq acquisition that made it the largest PC maker, and a fractious board that has bounced two CEOs in a relatively short time.
Railroads appear very well managed compared to much of the economy, and who ever thought that would be said about railroads? With capital generally available, rail managers can afford to take intelligent risk. I can remember when risk was a four-letter word and no railroad could afford to take a risk and be wrong. That's one reason why Lou Menk's advocacy of building the coal line south of Gillette, WY, was so important. It was the largest rail construction project in nearly a century and he essentially bet the BN's survival on it. Today, the industry is quite adaptive and is being rewarded for its flexibility. Containers? The length of haul over which railroads can compete with truckers has come down, largely driven by trucking's problems - driver shortage, driver demand for pay, high fuel expense, insurance, etc. This allows railroads to serve a growing domestic intermodal market and make money. The import/export intermodal market already belongs to the railroads and is pretty much saturated with little growth. Put enough volume over any piece of railroad and the profitability curve gets quite sharp as the high fixed cost is covered and additional revenue drops to the bottom line rather quickly. Now, if we could just get the STB to stay out of things where it is not needed.