British entrepreneur Mike Lynch, whose company Autonomy was bought by the US technology giant Hewlett-Packard for £7bn last year, is leaving the company as part of a worldwide layoff of 27,000 staff.
Lynch's departure is the latest in a stream of resignations by former top executives at the UK software company amid accusations that HP is too bureaucratic, and counterclaims that Lynch and his team failed to deliver on revenue targets.
But it now means that Lynch – a Cambridge graduate whose out-of-hours tastes include koi carp and model railways – could set up a new business in the "big data" sector, where Autonomy and its rivals are competing to process and make sense of huge amounts of information.
"He's not going away," said a source familiar with Lynch's thinking. "He still has entrepreneurial ambitions."
HP announced Lynch's departure as part of its second-quarter results presentation late yesterday. Net profit was down 31.6% year-on-year to $1.98bn on revenue down 3% to $30.7bn.
Even so, the results bettered expectations on Wall Street, where HP is seen as a once-great business trying to transform itself into a rival to IBM and failing because its management can neither execute nor inspire innovation from the ranks. The fact that the company is on its third chief executive in as many years is telling too. The firm said the savings made from staff cuts – around 8% of its global headcount of 340,000 – would be used to "boost investment in innovation".
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.)
After founding the company in 1996 with Richard Gaunt, Lynch encouraged risk-taking as part of Autonomy's culture, to stay ahead of the technological curve. As computing power increased exponentially along with the vast amount of information needing to be processed, the company thrived. It has 20,000 clients, with management contracts for giants such as Citigate and Shell. Autonomy also drives the UK police's Holmes 2 system, which can tie together fingerprints, witness statements and police reports.
It was known as a lean ship with few management layers – completely unlike HP. The signs that the takeover was not working became clear quite quickly as the head of financing, marketing and several sales chiefs left after the takeover was completed in October 2011. "It's not just Mike," said a source who knew of the departures at Autonomy.
It is ironic that HP was seen as too bureaucratic. For years it was regarded as a touchstone for innovation – producing, among other things, the inkjet printer, still one of its major income streams.
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 with the 27,000 job cuts. (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 [HP's] 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 clients 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."
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 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 the running of Autonomy.
HP sources also indicated that the board did not try to persuade Lynch to stay on – a sign that the two cultures, of the entrepreneurial Cambridge mathematician and the Silicon Valley giant, were never going to fit. 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. Your overall chance, if you switch, becomes 2 in 3. (Try drawing a grid of the options.) A longer explanation is at Wikipedia.
