McKinney: Guest Columns: Evidence-based Management (EBM)

Getting Direct with Data

I worked at HP for 34 years, my first job was training the sales force on one of the first computer based measuring systems, and my last job was managing the implementation of the HP/Compaq merger. HP didn't always do everything perfectly, but I believe that one of the reasons that we have been so successful for so long, is that there has always been such a strong commitment to finding and acting on the best facts. To illustrate, let me tell you about a critical time when I was asked to lead the personal computer business.

In 1999, I was asked to lead HP's PC business after five years launching and running HP's consumer PC business. Unlike the consumer business, at this point, Dell's direct model was playing havoc with HP's commercial PC business. The good news was that, just before I arrived, HP had commissioned a comprehensive competitive analysis of Dell, and the consultants who did this work had also made specific recommendations. The facts were all there: Dell was winning, and we knew why.

At my first staff meeting, we reviewed the situation and it was very easy to agree that our top priority was to develop a competitive direct model, particularly to serve our large corporate accounts, where Dell was increasingly beating us. At that time, some of the data was very obvious: Dell was bigger than HP, more profitable than HP, and growing faster than HP. I recall pointing out that it was really hard to pass someone who is bigger and growing faster than you are. While it was easy to agree what we had to do, it turned out to be very hard to actually make these changes. In fact, you could argue that HP, who just passed Dell to be #1 in the world wide PC business, has taken 7 years to accomplish the goal we set in January '99.

We had an excellent analysis of how Dell's sales approach was beating us. In the direct sales model, Dell did the selling, and the Dell sales team was paid on margin as well as revenue. They also had very good visibility into their inventory and related prices, and how material prices would change in the future. They had developed a great process for winning big deals by using their very good cost projections to price bids on the lifetime profitability of the deal. Dell also was very good at up-selling and cross selling once they won a big deal. They had inside sales people, who would sell the customer a more profitable mix than the original deal had. HP, on the other hand, used channel partners to do the selling, didn't pay on margin, priced so that they would make money early in the deal cycle ( when Dell was willing to loose a little money on the first few units), and didn't have a strong focus on up-selling, cross-selling, and managing the profitability of the account. The good news is that we had the data, and the other news is that it was going to take a big effort to create a direct PC sales force with the sales skills, tools, and appropriate compensation.

We started to create this capability with a huge sense of urgency. The head of sales and my self met with the team every week to review the progress using a data driven approach. There were lots of cultural issues that got in the way, since the sales team was very close with the channel and this new direct sales team was creating channel competition. Also, our direct business was relatively small, so it was hard to get the IT resources and compensation to happen. We had the facts and used them to monitor our progress vs Dell and to sell the broader team on the necessity of making these investments.

The supply chain was the other dilemma for us. We also had excellent data on Dell's supply chain to guide us in this area. HP had organized the PC supply chain in a very decentralized way. Each product line (there were three major ones at the time), and each geographic region (4) basically did there own thing. This meant that we had up to 12 of everything, which had a huge impact on our material management and IT resources. To add a supply chain capability, we might have to add it in 12 places, where Dell could add capability once. It was clear that we needed to break with the long standing fully decentralized model and create an overall supply chain organization with the strategic ownership and accountability to match Dell. This was very emotional within the team, because it meant that the Product General Managers would be giving up power to the Group Supply Chain. After much discussion, we agreed that we had to do this, and put our best supply chain leader in charge.

After a few months, it was becoming clear that we were not making the progress we needed, and that the GM's, while supportive during our weekly meetings, were continuing to hold onto power vs. really managing in the way we had agreed. At this point, I found out about a small consulting organization that specialized in operational effectiveness. The owner of this firm had a PhD from Stanford in this field and had developed a methodology to objectively assess organizational effectiveness versus a data base of high performing organizations. We asked this firm to evaluate our effectiveness. The results that came back were not surprising, but we all had to confront the cold hard facts that our supply chain was very ineffective and that our progress in improving it was way too slow. The methodology used also helped us figure out the top priorities for fixing this quickly. This had a very galvanizing impact on the team, and we quickly began to improve our performance. While we had a long way to go, we began closing the gap with Dell every quarter. I think this was a great example of using objective data in many was to get a large and complex organization moving in the right direction.

You might ask why it took so long to really close the gap. There are a lot of reasons, including several large HP reorganizations and a pretty big merger, that slowed down the progress of this important initiative. However, I do believe that the foundation we created back in '99 has been critical to HP finally passing Dell in '06. As was mentioned earlier, when you competitor is bigger than you and growing faster than you, it takes forever to catch them. At least it didn't take us that long.

About Harry W. (Webb) McKinney

Webb McKinney is currently a management consultant with a primary focus on merger integration. Mr. McKinney also serves on the boards of two non profit organizations: Resource Area for teaching (RAFT), and The American Leadership Forum of Silicon Valley (ALF).

Prior to retiring from HP after 34 years of service in Nov 2003, McKinney was the EVP leading HP's ongoing merger integration and global citizenship efforts, as well as HP's organizational effectiveness and governance initiatives.

Previously, McKinney co-led HP's post-merger integration team. His responsibilities included planning and leading the integration of HP and Compaq's systems, processes and people.

Before the merger, McKinney served as president for the Business Customer Organization at HP, with responsibility for worldwide sales of HP products and services and worldwide marketing and delivery of HP products to large companies and small- and medium-sized businesses.

In 1999, McKinney was appointed an HP vice president and became the vice president and general manager of the PC business within the HP Computing Systems Organization. In this role, he had worldwide responsibility for the development, manufacturing and marketing of the Personal Systems Group's commercial desktop, mobile computing and server businesses.

McKinney was named general manager of the newly formed Home Products Division in 1994, leading HP's initial entry into the consumer market for home computing products. Previously that year, he was named general manager of the Interactive Television Appliances Division.

Between 1992 and 1994, McKinney served as general manager of the PC Software Division in Sunnyvale, Calif. He was named general manager of the former Cooperative Object Computing Division in 1990 after having served as general manager of the Santa Clara Information Systems Division since 1988.

In 1986, McKinney was named general manager of the former Office Productivity Division in Pinewood, England. Between 1983 and 1970, he held various research and development and division R&D management positions at the Santa Clara Division, the former Personal Office Computer Division and the Personal Computer Group. McKinney joined HP in 1969 as a sales engineer in the Santa Clara office.

McKinney was born in Upland, Calif. He holds bachelor's and master's degrees in electrical engineering from the University of Southern California.

Posted on November 8, 2006