How HP is finding success in circularity

It’s been less than a year since Palo Alto–based technology company HP launched HP Renew Solutions, a business refurbishing and selling used computers and printers. In that short time, Renew’s margins have risen to be in line with those of HP’s core business. That’s largely because Renew is “truly managed as a business,” says Dave Shull, who oversees Renew and three other divisions in his role as president of HP Workforce Solutions. “A green business has to be managed as a business to have the credibility that it needs within an organization.”

Shull himself has managed several tech and media businesses in his career. He was CEO of Poly, a technology company that HP acquired in 2022. He was also CEO of TiVo and The Weather Channel. In an interview with McKinsey senior partner Rob Bland at the Green Business Building (GBB) Summit in San Francisco in February, Shull discussed the factors that helped Renew get off the ground, customers’ responses to HP’s new offerings, and the challenges and opportunities that lie ahead. The following are edited excerpts of their conversation.

McKinsey: In 2021, HP publicly stated its goal of reaching 75 percent circularity for products and packaging by 2030. Give us an overview of what that means. What is the circularity business for HP?

Dave Shull: To give you a sense of HP’s scale, we’re talking about a $55 billion company that ships approximately 40 million PCs every year. Today, roughly 55 percent of the plastics in our PCs and printers are recycled. So I would say our forward supply chain—our process for getting our products to our customers—has become quite sophisticated to get us to that point.

The challenge now becomes circularity: we estimate that there are about 300 million HP PCs out there at any given time. That’s just PCs. Printers are an entirely different category—we have to think about not just the printer itself but also the ink and the paper that’s being used. We’re looking comprehensively across all of our products.

About a year ago, we went to the board and said, “We want to commit not just to tackling the forward supply chain but also to taking used PCs back, refurbishing them, and reselling them.” Historically, we’ve done very little of that; it’s all been done by third parties around the world. As the original equipment manufacturer [OEM], we wanted to insert ourselves into the refurbishment and resale business and ensure quality control.

Of course, the board had a very reasonable question, which was, “Are you going to make money?” What’s remarkable is that this business is at least as profitable as our existing PC and printer business. The profit mandate is really what raised it to the board’s attention. It was a big shift for us to start refurbishing and selling used PCs and printers, but the board said, “If the margin’s the same—and it’s what our customers want, it’s the right thing to do, and it helps us achieve the company’s circularity goals—then let’s pursue it.” It was that level of commitment that was required to get this business off the ground.

‘A cultural commitment to sustainability’

McKinsey: So, the board supported a 2030 circularity commitment, and then you had a board meeting about a year ago with ideas for how to help reach it. You’ve gotten off to a fast start. How did you avoid the organizational challenge that many large corporations face, where they say, “It’s a good idea,” and then many months go by before they start to make any progress?

Dave Shull: For one, my unit—HP Workforce Solutions—is a completely new, stand-alone global business reporting to the CEO. That was a big, board-level commitment to start with. We were determined to provide the solutions that our customers want, not just sell them the devices. That was change number one.

Then I hired a senior executive to manage the Renew business end to end. We moved folks from supply chain, customer care, sustainability, and life cycle services all into one group; plus we hired a bunch of new folks. And it was a clear mandate that this all had to be in one location, because outside HP, the ecosystem is already super complex: we have our 150,000 partners, all of whom are doing bits and pieces of this, but then we also have hundreds of partners who are handling refurbishment in all the various geographies around the world where we do business. If we were fragmented internally, managing that ecosystem would have been impossible.

It has to be driven by a business mandate. Otherwise, it doesn’t have the impetus to get through all of the various issues that come up.

McKinsey: Was this a big cultural shift internally? How has HP managed the transition from being a seller of shiny new PCs to becoming a vendor of second-life PCs?

Dave Shull: Without the decades of cultural commitment to sustainability, the transition wouldn’t have been possible. There’s a commitment to the 2030 circularity goal from both the CEO and the board. They all agreed, “This is critical for us as a company.”

But there are all sorts of hurdles. Our supply chain is optimized to manufacture and ship products to the customer; we can ship directly from our factories to the customer’s home in about 80 countries. There are trading structures, tax structures, and legal structures all optimized to go that direction. Now, we’re trying to go the other direction: we want the customer to ship products back to us. All of a sudden, we have to worry about, “Where are our legal entities? How do the tax issues work? What happens with our IT systems? And can our IT system handle a device going from one spot to another?”

Then, what the customer really wants—which is something we’re building right now—is a kind of passport or DNA on that machine that says, “This is the third life of this PC. Here’s its ancestry and what’s happened to it over time, and here’s what you’re doing to help the planet by buying this used PC.” That information is all being created from scratch, but that’s exactly what the ecosystem needs to be successful. Customers need to understand, “Here are the benefits of a used PC. And it’s as good as new: it’s been refurbished, it’s been certified, we’ve checked the memory, we’ve checked the hard drive.” Customers want an HP warranty behind it. And, of course, there’s a discount.

‘Manage it as a business’

McKinsey: You’ve made it clear that circularity is a business imperative at HP. Why do you think the company set such an audacious goal?

Dave Shull: I think you see behavior change only if you put an aggressive goal out there. I don’t think we would have pursued standing up a whole new business unit—with the dollars that were required, with the systems that were required—without that bold goal out there.

And our customers are thrilled. PCs and printers are a big portion of their supply chain and their carbon footprint, so if customers can address that with a trusted partner like HP and can actually claim sustainability benefits—and it’s quantifiable, it’s in a system, and it’s standardized—that’s a huge benefit to the environment and to them. It’s true circularity in action.

McKinsey: What advice would you offer to leaders who are trying to build a new, green business?

Dave Shull: I manage Renew Solutions the same way I manage my other three divisions. I have profit-and-loss [P&L] targets for all of them. And of course, to get 55,000 people marching in the same direction, I need to be able to explain to them why this is of benefit to HP.

From a corporate culture perspective, sustainability is a great thing, but it doesn’t always drive behavior day in and day out unless you can directly tie it to business benefits as well. So, it’s a longer-term horizon—we’re managing it like a business with a three-year time horizon, say, instead of a three-month time horizon.

‘The customer demand is there’

McKinsey: Would you say Renew Solutions is part of a trend in the consumer electronics industry? Or do you feel like HP is having to carve out a new path?

Dave Shull: When we survey IT buyers, 87 percent of them say sustainable operations are important to them. They’re getting mandates from their boards and, in some cases, from government regulation. France, for example, is saying 20 percent of the items going into any government tender have to be recycled or second use.

One IT manager with more than 100,000 employees globally said to me, “Dave, I want to be able to monitor my PCs, and I want to know when they turn off over the weekend, because the energy savings on 100,000 PCs is a huge issue. Can you provide me the telemetry to know that the devices are actually saving energy?” I said, “Yeah, we can do that.” IT leaders are looking for a comprehensive view. The problem is that there are so many different IT vendors, so they’re asking the large vendors to start first, lead the charge, and set up systems that some of the smaller vendors can then plug into. So, the customer demand is there.

McKinsey: As you think about the next couple of years of HP’s journey, what areas do you think most need to accelerate to help the company hit its 75 percent goal?

Dave Shull: Right now we’ve got Renew up and running in three countries, and we need to do it in 150 countries. In addition, how do we make sure that our 150,000 partners, who are doing high volumes, are enabled to participate in our refurbishment programs with a standard approach? If I can get my big resellers and distributors on board, that’s exciting for them—and they’ll make money.

Let me hit one other point: everyone’s talking about the power of artificial intelligence [AI]. We believe AI PCs are going to require much more rapid upgrade cycles than standard PCs, because the chips are changing quickly. Everyone’s trying to figure out the applications and how to optimize the parameters. That’s another business imperative that is really driving design for circularity: “How do I make sure it’s plug and play? How do I make sure that it can be upgraded in the field?” So, on top of circularity, we have a new business imperative, which is a more rapid upgrade cycle for AI PCs. The convergence of those two is challenging our engineers but in a very, very good way. It’s fun stuff.

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