HP's Turnaround Strategy

HP's mid-2000s turnaround under Mark Hurd shows what a cost-and-focus turnaround actually looks like in practice: brutal simplification of the cost base first, then a narrower bet on the businesses that were actually making money, before any talk of growth.

The turnaround runs in order left to right: cut costs first, narrow the focus, then grow.

The sequence of HP's mid-2000s turnaround: cost and focus before growth.

Reach for this when…

A business is losing money across too many fronts and leadership is still talking about growth initiatives.
IT, procurement or back-office costs have sprawled across a fast-grown company and nobody owns simplifying it.
A turnaround plan tries to fix everything at once and is going nowhere.

How to run it

Cut cost first and visibly, even where it's unpopular - credibility for the harder changes depends on this.
Centralise fragmented back-office functions like procurement and IT rather than let every division run its own.
Simplify the organisation chart and cut layers between leadership and the front line.
Refocus investment on the businesses that are actually profitable, and stop propping up the ones that aren't.
Only once the cost base is under control, reinvest in R&D and sales to drive growth.

A worked example

Situation. When Mark Hurd took over as CEO of HP in 2005, the company was sprawling across printing, PCs, servers and services with a bloated, duplicated cost base left over from the Compaq merger.

Applied. He cut around 15,000 jobs, roughly ten percent of the workforce, and consolidated HP's 85 data centres down to just six, alongside a sharp reduction in the IT department and the number of software applications HP ran.

Result. Margins and profit recovered within a couple of years, and HP's stock price roughly doubled over Hurd's tenure, though the scale and speed of the cuts remained a debated part of his legacy.

HP's most-cited move was centralising IT and procurement that had sprawled across divisions.

The catch

This is a real, specific case, not a generalisable formula - what worked for a company HP's size with HP's cash reserves can gut a smaller company that cuts too deep too fast. It also says little about product strategy; HP's later struggles show cost discipline alone doesn't guarantee durable competitive position. Read it as evidence a cost-first turnaround can work, not as a template to copy line for line.

Cost cutting buys you time and credibility. It is not, by itself, a growth strategy - HP still had to answer what came next.

Origin: Mark Hurd (HP)

connecteddale