It Comes Down To Process, Focus, And Experience
I’ve met both Chuck Robbins, CEO of Cisco, and Meg Whitman, CEO of HPE, and the two CEOs are very different interpersonally. However, both have put forth very similar acquisition based strategies for growing their companies but while Robbins will likely execute it is far more likely that Whitman’s strategy will end in yet another HPE disaster or scandal. So why can two nearly identical strategies result in two very different outcomes? In many ways, it comes down to three things. Those three things are process, focus, and experience.
Right now, two firms stand out as having strong merger processes even though they are vastly different in execution. These firms are Cisco and Dell. There are typically two types of mergers (I’m leaving out pure investments), they are fully integrated mergers where the acquired company, or its assets, are folded into the firm, and the wholly owned subsidiary where they aren’t. Cisco was largely built on acquisitions and over the years has developed an impressive process for what is the most difficult type of acquisition. Dell is best at wholly owned subsidiaries, basically they largely leave the acquired company intact but apply their economies of scale to internal processes massively increasing the odds that the acquisition will, on paper, increase in value.
Integration acquisitions have the benefit of fitting more tightly into the firm but have a far higher risk of killing the value of what was acquired and a lower probability of retaining the people which is why they are far more difficult to do. You can approach similar benefits with a wholly owned subsidiary but there are inefficiencies in the result due to company based silos that could reduce the efficiency of the result. Cisco is expert at dealing with the problems of integration and Dell with dealing with the problems of keeping the acquired unit separate.
HPE is like a gun fighter who has developed a talent for shooting his, or in this case, her own foot. Their process, to be kind, sucks. Some of the most disastrous acquisitions in the last decade have been attributed to HPE. In addition, to even consider an integration acquisition you need a stable corporate environment to build off of and Whitman’s inability to stabilize her executive staff has made this stability problematic yet HPE does integration acquisitions.
In short, if you had a child that went out for archery and regularly shot herself in the foot you’d likely advise they try a very different sport, preferably with no sharp objects. Apparently, no one on HPE’s board wants to provide that advice to Whitman.
And here I mean the right focus. One of the problems with integration mergers in particular is that the focus has to be tightly on preserving the identified assets, human and IP, that were acquired. Often, and this is the case with HPE, the focus is instead on both finishing the merger and making the merged company fit into the acquired company’s processes. While the latter does have to be done, particular care has to be taken, and exceptions granted, to assure the best outcome. To be fair to HPE, few companies do this well, but Whitman has a history of doing this particularly badly suggesting she doesn’t really grasp that the overarching goal should be to preserve the asset and not make the acquired company look like another part of HPE even though, eventually, that will be the outcome to an integration merger.
This takes us to executive competency and experience. Some CEOs make it to the top without acquiring key skills needed to do the job. With Carly Fiorina, the key skill that seemed to be missing was understanding the need to develop staff loyalty and recognizing that you need to complete your job successfully before you can move on to something else like politics. Whitman seems to have very similar shortcomings in the loyalty department but also seems to believe that as long as she has a reason to do something stupid it is OK for her to do it. I don’t often see this in top executives because generally the tendency to justify doing something stupid weeds managers out of the process at first or, at most, second level. But Whitman came up in a startup, eBay, and left the firm when it was still relatively small leaping first to a failed run in politics where she defended stupid decisions, to her current role in HPE where, at least to me, she did the same.
Chuck Robbins, the Cisco CEO, came up much more linearly and both seems to understand the need to develop staff loyalty and that everyone makes stupid mistakes, but you learn from them and don’t let them recur. Whitman instead seems to repeat them seemingly as some twisted way to argue they weren’t stupid in the first place hoping that no one will figure out she finds her foot an overwhelmingly attractive target.
While I trained to be a CEO for a large firm, I quickly realized I’d suck at it and the job is far from easy. There are folks like Chuck Robbins and Michael Dell who have developed the key skills throughout their career and do the job well, and those like Fiorina and Whitman which didn’t and don’t. With strategies, it is just as critical to understand your ability to execute them as it is the viability of the process. An acquisition strategy for both Cisco and HPE sounds viable, but once you realize that Cisco has the skills and leadership to execute this strategy and HPE does not you can understand why it would work for Cisco and not for HPE. Before HPE can execute an acquisition strategy it needs a process (including a far more stable corporate foundation), it needs leadership that understands that protecting the asset that is being acquired has priority, and it needs leaders who have developed both the experience and willingness to learn from their mistakes, needed to execute the merger successfully. Otherwise the result will likely be another scandal or disaster.
This is why Cisco can, and HPE shouldn’t, try to execute a strategy to advance by merger.