Global CIO: Hewlett-Packard's Hurd Creates Growth Engine In R&DGlobal CIO: Hewlett-Packard's Hurd Creates Growth Engine In R&D

"So I think the way you should think about it it's just like somebody asking me if more field selling cost means more sales people. And the answer is no, because you have to break down all of the costs that sit in the R&D bucket or the field selling cost bucket. We've had times in the Company historically, where field selling cost goes up, but sales head count doesn't. And you have to peel back these numbers to understand."

The financial reality of Hurd's ongoing attempt to strip unproductive costs out of the R&D operation and function came into sharp light six months ago as we reported that Hewlett-Packard had slashed quarterly R&D spending by $228 million (25.5%) on a year-on-year basis and by $49 million (6.9%) on a sequential basis for the three months ended July 31.

Not to bombard you with numbers, but take a look at the magnitude of the cuts in raw R&D spending that Hurd had begun to impose while simultaneouly requiring higher levels of innovative output and new-product outcomes:

--R&D spending for the 3 months ended July 31, 2008: $895 million.

--R&D spending for the 3 months ended April 30, 2009: $716 million.

--R&D spending for the 3 months ended July 31, 2009: $667 million.

As Hurd and the HP team have tracked fairly close to that thinned-down level in the past two quarters—$704 million for the period ending Oct. 31, and $681 for the Jan. 31 quarter—new products have continued to have an impact in the market. Here's how Hurd described those contributions in his opening remarks to the financial analysts, per the SeekingAlpha.com transcript:

"And in HP, we continued to innovate. We delivered new high performing products with compelling value for customers. In Q1, as the server, PC and printer markets returned to growth, HP was positioned to capitalize and gained share in each of these markets. . . . Our G6 servers give customers a short payback period and are being adopted more quickly than any previous generation. . . . Our innovative line up of notebooks and TouchSmart PCs continued to push our share gains and ASPs higher, as customers vote with their wallet. . . . We will continue to invest heavily to ensure that we maintain our technology advantage and align our portfolio to lead the evolution in the marketplace."

Hurd's strong emphasis on R&D's outcome touches on one other aspect of HP's revised approach: tapping into the "open innovation" movement that's become increasingly popular in the past few years. In our blog post from six months mentioned above—called HP Slashes R&D Spending By $228 Million--we cited a New York Times article that described the new philosophy HP senior VP for research Prith Banerjee was infusing into the R&D operations:

"Under Mr. Banerjee, former dean of engineering at the University of Illinois at Chicago, H.P. Labs has not only narrowed its focus, placing larger bets on fewer projects, but has also systematically sought outside ideas."

Those ideas included an annual online contest seeking grant proposals in eight areas of advanced research of particular interest to HP.

All in all, Hurd has led an overhaul that's resulted in an entirely new approach to R&D at HP, from idea generation to process to rigorous cost-justification. If that new approach continues to produce solid results for HP, we can expect to see many other companies attempting to employ it as well.

RECOMMENDED READING: Global CIO: Why Hewlett-Packard Must Articulate Its Enterprise Strategy Hewlett-Packard CEO Hurd's Strategy: The Infrastructure Company Global CIO: Hewlett-Packard's Hurd Says Bad IT Means A Bad CEO Global CIO: An Open Letter To Hewlett-Packard CEO Mark Hurd Global CIO: The Top 10 CIO Issues For 2010 Global CIO: Oracle Dumps HP After Co-Creating 'Most Successful Introduction Ever' Global CIO: Hewlett-Packard Recruits Microsoft To Raid Sun's Customers Global CIO: Do CIOs Still Matter? Global CIO: Hewlett-Packard And Oracle Layoffs Are Ugly But Essential Bob Evans is senior VP and director of information's Global CIO unit.

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