A legendary Mark Hurd speech to HP employees in Israel
Mark Hurd is CEO of Oracle, and was CEO of HP before that. While at HP, he made many speeches about cost. His general philosophy was best illustrated by my favorite event, an all-employee meeting he hosted when visiting Israel.
[Special request to those who have bought the print version of Customer-Centric Cost Reduction: Please read this short post the whole way through. There is an error in some copies of the book, as will be explained.]
At the time, the HP acquisition of Ross Perot’s Electronic Data Systems was new news. Mark described his first meeting with the full EDS leadership team in Plano, Texas. His story went something like this:
“… and I said ‘You have $25 billion in revenue and $1 billion in operating profit. I bet I can tell you what your costs are.’ They seemed puzzled. They looked at each other around the table. There was an uncomfortable silence. I said ‘Hey, it’s not difficult. Your costs are $24 billion.’ More silence. Then the CFO said, ‘That can’t be right.’ So I asked him for the correct number. He said he would have to get back to me. Later the same day he told me the cost number was $32 billion. Interesting. Apparently 25 minus 1 equals 32 at EDS.”
For the sake of fairness, I suppose I should explain that the $32 billion number was the result of a strange EDS business practice of marking up internal cost transfers. For example, if it cost the real estate people $6,000 per employee to provide office space each year, they would charge each department about $8,000, so the real estate people could fund their own investments. When reporting the cost numbers to Mark, the CFO added up all the charge-outs, rather than the true costs.
What’s the point?
The point of the speech is of course that everything other than operating profit is indeed a cost. Everything, without exception. I was about 30 years into my professional career and had never thought about cost that way. Of course, Mark was correct. He thought in terms of good costs and bad costs. Good costs directly drive revenue growth. Bad costs are everything else. Whether at NCR, HP or Oracle, Mark has been obsessed with ensuring there is enough cash available for good costs, particularly sales people. Anything that does not drive growth directly, including indirect things like Marketing, have always been in his reduction cross-hairs.
Special message to readers of the print version of Customer-Centric Cost reduction
While archiving some old material, I discovered that a slightly defective version of this book was live on Amazon for some time. Unfortunately, I am not able to say exactly when it was available in the incorrect version. My suspicion is that it only affected about 30 copies of the book. The defect is simple to understand. The title and first part of the story above are missing from the book, due to an editing / submission error on my part. The Kindle versions are fine. It is easy to check whether your printed copy has the error. Look at the table of contents. Chapter 2.2 should have the same title as this blog post (‘A legendary Mark Hurd speech to HP employees in Israel’). If you have anything different as chapter 2.2, please go into your Amazon order history and email me a screen grab at firstname.lastname@example.org. I will then reimburse you by PayPal for an order for the Kindle version under the Kindle Match program. If you have a different need or suggestion, please let me know.