Entrepreneur is latest executive to leave 'too bureaucratic' HP as tech giant announces 27,000 job cuts and drop in net profits
British entrepreneur Mike Lynch, who built his company Autonomy from the ground up to a $11.2bn (£7bn) acquisition by US tech giant Hewlett-Packard, is leaving, the company announced abruptly on Wednesday night.
Lynch's departure was the latest in a stream of resignations by former top executives at the Cambridge-based company, amid accusations that HP was too bureaucratic, and counter-claims that Lynch and his team failed to deliver on revenue targets.
But it now means that Lynch – a Cambridge graduate whose off-hours tastes include koi carp and model railways – could set up a new business in the "big data" space where Autonomy and rivals are competing to process huge amounts of data.
"He's not going away," said a source familiar with Lynch's thinking. "He still has entrepreneurial ambitions."
Lynch is a brilliant mathematician whose initial work exploited a branch of mathematics called Bayes's theorem – essentially, determining how you make choices as data becomes available.
Its simplest exposition is called the "Monty Hall" problem, from the US TV show Let's Make a Deal.
You're shown three doors and told that behind one is a car, and behind two others nothing. Choose the one with the car, and you'll win it. So you pick a door. But then the host – who knows what's behind which door – opens one of the other two, with nothing behind, and gives you the chance to change your choice. Should you? (The answer's at the end.)
Lynch, who founded the business in 1996 with Richard Gaunt, also encouraged risk-taking as part of its culture to stay ahead of the technological curve.
As computing power has increased exponentially and the amount of data available – and needing – to be processed has grown astronomically, that has served him well.
Autonomy's systems drive the UK police's Holmes 2 system which can tie together fingerprints, witness statements and police reports.
It has 20,000 clients, with management contracts for giants such as Citigate and Shell. Yet it was known as a lean ship with few management layers – completely unlike HP.
The signs that the takeover wasn't working became clear quite quickly as the head of financing, marketing and several sales chiefs left after the takeover completed in October 2011. "It's not just Mike," said a source who knew of the departures at Autonomy.
That HP was seen as too bureaucratic is ironic, as it was for years the company seen as the Silicon Valley touchstone for innovation – producing, among others, the inkjet printer, still one of its major sources of income.
Sources close to Lynch indicated that he and his former team had been unhappy at the scale of bureaucracy after the merger.
"It's not the kind of environment that helps this sort of company," said the source. "It was a clash of cultures. Mike was previously dealing with a small, nimble atmosphere. Whereas HP is the size of a small city. It's a hard place to do what you need to do."
HP is trying to shrink that city, formally announcing 27,000 job cuts – about 8% of its workforce of 340,000. (That's almost as many people as live in the Australian capital city of Canberra.)
Those cuts will be completed by November 2014, and will be used "to boost investment in innovation around its three areas of strategic focus: cloud, big data and security, as well as in other segments that offer attractive growth potential," the company said.
Autonomy, by contrast, was the size of a village: around 1,800 people, split between the UK and US, with key accounts in banks and large enterprises. Autonomy's software can sift emails, documents and even phone calls and elucidate the meaning inherent in them.
"Our technology allows computers to make sense of human conversations," Lynch told Director magazine in May 2011. "That's the unfair advantage that allowed two slightly nerdy people from Cambridge to create a FTSE-100 company." A few months later, it was the subject of a colossal offer from HP.
Now the shine has come off the takeover. HP announced Lynch's departure as part of its second-quarter results on Wednesday night, with net profits down 31.6% year-on-year to $1.98bn, on revenues down 3% to $30.7bn.
Even so, the results were ahead of Wall Street expectations, where HP is seen as a once-great business that is trying to transform itself into a rival to IBM – and failing because its management cannot execute, and can't inspire innovation from the ranks. The fact that the company is on its third chief executive in as many years is telling too.
HP's former chief executive Leo Apotheker led the bid for Autonomy in August 2011. The deal was concluded even after Apotheker was forced out by a boardroom revolt over his leadership of the company in September, when former eBay chief executive Meg Whitman took over.
But it is the failure of HP so far to integrate Autonomy, and to keep its managers happy, that has drawn the focus of investors and analysts.
"I think [Lynch] took the money and ran," said one analyst. "If you look at the price HP paid, it was an excellent deal for the Autonomy shareholders. I wonder to what extent he has really put his shoulder to the wheel since."
Even so, HP is still betting its future on Autonomy. "This big data field is as hot as mustard," said an HP source. "The challenge is how you scale that business from being $4bn in revenues to $8bn in revenues, which Meg [Whitman] knows about from eBay."
An HP executive, chief strategy officer and enterprise software executive vice-president Bill Veghte, will take over Autonomy's running.
HP sources also indicated that the board didn't try to persuade Lynch to stay on – a sign that the two cultures, of the entrepreneurial Cambridge mathematician and the gigantic Silicon Valley giant, weren't ever going to see eye to eye. But everyone will be watching to see which door Lynch next opens.
• The doors problem? You should switch. When you originally chose, you had a 1 in 3 chance of being right. If you switch, you have a 1 in 2 chance of being right. (Try drawing a grid of the options.) A longer explanation is at Wikipedia.
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