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Perimeter

8/19/2011
02:50 PM
Rob Enderle
Rob Enderle
Commentary
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HP's Biggest Problem: Securing Its Message

HP's stock has fallen more than 20 points this week largely because its change in direction was leaked and HP's message was lost

I'm not talking about the security of HP's products -- but, rather, the security at HP. For more than a decade, HP has been plagued by leaks from every level, including its board.

Almost a decade ago, leaks from HP crippled its CEO, and when the company moved to find out who on the board was leaking, its investigation cost the company most of the board. When looking for a replacement for Mark Hurd, parts of HP seemed to be going around the board and lobbying for one of the internal candidates; this got so bad that when the new CEO was chosen, the press and financial analyst community were already poised to support the wrong candidate. Most recently, HP executed a strategy that had been planned for some time: to turn HP into more of a software and services company. But internal leaks caused HP to lose control of the message. The end result was a near 20-point drop in the stock market, and HP had to discontinue trading.

Many of these events resulted in SEC investigations and both executive and board changes -- but the leaks continued. In the end, HP's biggest problem might be internal security because perceptions drive its valuation, and it's unable to control perception largely because of the leaks.

Both Apple and IBM have gone to great lengths to prevent internal leaks. Apple aggressively looks for the source of leaks; it regularly tests for leaks by releasing inaccurate information selectively inside and then seeing what shows up outside to identify the source. Employees at Apple not only know they will be fired if they are caught leaking information, but that they are likely to be caught. Most recent leaks on Apple’s products were either accidental (like leaving an iPhone at a bar) or from a supplier.

The demand for information about Apple is vastly higher than any other firm, so the fact that it can contain as much as it does showcases how successful it has been. Apple currently is trading not only at a high from its own historic perspective, but is challenging for the most valuable company in the world. This is largely because Apple controls the perceptions of Apple.

From day one, employees must be told that only those with responsibility for talking to media are allowed to do so. This includes executives and board members -- otherwise these leaders set the wrong example, and the rule won’t be obeyed. I should point out selective enforcement of rules like this can result in successful wrongful termination litigation, so it is important it be enforced top to bottom.

One of the difficulties in a decentralized model like HP's AR/PR is poor coordination for major events or problems.

Decentralization works better for product launches because it puts the resource closer to the product, but when it comes to controlling corporate image -- which is what is killing HP’s stock at the moment -- it can work at cross purposes because the leaks are likely coming from one of the decentralized groups. That's because they have the contacts, but could have conflicting direction from lower-level executives who want to drive different outcomes.

At steady state, the advantages of a loosely coupled AR/PR effort likely outweigh the advantages of a central organization, but when a firm is undergoing a massive change, like HP is, centralization is critical for the CEO's survival and the success of the effort. If investors and customers are more concerned with the direction of the firm during times of change than they are with products, then the importance of the integrity of the corporation’s voice is crucial.

In short, part of HP's problem is that it needs one voice, but instead it has many -- some with clearly conflicting agendas.

If parts of the company are disagreeing with other parts through leaks, or if competitors are better able to position a change because they can talk about it first, you might as well retire now because your firm is likely to fail.

Protecting the ability of a company to tell its own story is critical. Firms like Apple and IBM do this best, and their results showcase this as a successful strategy. Fixing this problem should be a priority for not only HP, but for your firm as well.

Rob Enderle is president and founder of The Enderle Group. Special to Dark Reading

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