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Mercury News’ columnist got it wrong. Headline should be: HP Grows Up ( … with corporate real estate playing role) June 2, 2010

Posted by Bob Cook in Company Case Studies, Financial Planning & Analysis, Profession of Corporate Real Estate, Silicon Valley.
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Today, Columnist Chris O’Brien lambasts HP for finding success – not from innovating like Apple or Google – but from implementing a “ruthless, brutally effective strategy” that he playfully characterizes as “Buy a company. Cut costs. Trim employees. Repeat.” His column was prompted by HP’s latest layoff announcement.

HP should, however, in fact, be lauded for maturing into a well-run enterprise that can successfully compete in a complex world where success – especially for a large company – requires more than just coming up with the latest and greatest. It requires business acumen, discipline, and management – something that has been missing from the many great product-focused, geekdom companies that are now R.I.P. in the Silicon Valley graveyard. Think (and weep, ’cause it was great in many ways): Sun Microsystems.

HP is showing an alternative way for a tech company to succeed – and to do it long term. It’s a way to build an enduring enterprise – a way away from the self-limiting strategy pursued by most tech companies and which I’ll playfully characterize as: “Design breakthrough product. Develop cult following. Sell before competitor catches up. Repeat first three steps as many times a possible, then (inevitably)…. Blink. Hiccup. Crash.”

HP has become a corporate juggenaut by realizing, under the five-year leadership of CEO Mark Hurd, that success requires the careful management of resources: capital, people, assets, infrastructure. The last of these is partially the domain the HP real estate group which is clearly busy with initiatives like the consolidation of HP’s data centers and which is proving its worth to the enterprise.

According to HP’s latest 10-K, of 77 million square feet of space, fully 10 million square feet had been vacated – probably significantly helping on-going P&L, albeit with some large one-time negative hits for write-offs and reserves. While only three million square feet had been sublet such that this vacated space continues to drain cash, once those unneeded leases burn off, the cash flow savings will become as permanent as are the P&L savings already in place. Having said that, subletting three million square feet is no small feat. (Pun intended.) Moreover, let me tell you, vacating 10 million square feet is an even bigger feat. (Yep, pun intended, again.) You might think, “what’s so hard about moving out of real estate”, but it must have involved thousands of decisions, hundreds of presentations, and dozens of approvals to decide which sites to vacate, when to do it, how to do it, who should should pay for it and who should profit from it.

As companies like HP become mature enterprises – managed by professional managers who leave product design and marketing to others and see their job as managing the enterprise – corporate real estate departments become more important. To manage an enterprise is to manage the company’s infrastructure – both hard (e.g. real estate, IT systems) and soft (e.g. culture) – and corporate real estate plays a central role in this area. Products come and go. People come and go. Infrastructure endures.

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