Carly Fiorina: Is she Helping or Hurting HP?

A Leadership Analysis presented to Dr. Walter Makovoz of National

University

In partial fulfillment of the requirements for the degree of

Master of Business Administration

By

Federico A. Garcia, III

May 31, 2003

 TABLE OF CONTENTS

Carly Fiorina: Is she Helping or Hurting HP?..........................................................1

table of contents......................................................................................................2

Abstract...................................................................................................................3

Introduction.............................................................................................................3

Leadership .............................................................................................................5

disruptive innovation...............................................................................................6

The HP – Compaq Merger......................................................................................7

Recommendations..................................................................................................8

Conclusion..............................................................................................................9

References............................................................................................................10
 ABSTRACT

This paper will show how one CEO took her own leadership style and completely

transformed a company. Carly Fiorina’s strategies for the success of computer

giant, Hewlett Packard, has faced much criticism. Organizational change,

specifically to the management of the company’s corporate culture, has brought

about much of the criticism. In the paper we will look at the leadership style of

Carly Fiorina, details of the HP-Compaq merger and the effects of the merger,

further changes in HP strategy, and finally, provide recommendations.

INTRODUCTION

In 1999, Carly Fiorina accepted the position of CEO of Hewlett Packard. The

challenge for Fiorina was to help the company grow in the Internet Age without

eliminating the very things that had brought the company to where it is now; the

corporate culture of Hewlett Packard. In accepting the position, Fiorina became

the first woman to head a DOW 30 company and the first outsider to take control

of HP.

Hewlett Packard is a computer company that sells everything from $25 ink

cartridges to million dollar supercomputers. Bill Hewett and Dave Packard

founded the company in 1937 in 1937. By 2001, the company had over 85,000

employees and operations in 120 countries.

During the 1980s and 1990s, companies began to downsize, while Hewlett

Packard continued to offer their employees job security. The following extract,

from the company’s Corporate Objectives (1995), illustrates the main values

underpinning the HP Way.

‘Our People’

• To help HP people share in the company's success, which they make

possible.

• To provide job security based on performance..4

• To recognize their individual achievements.

• To help them gain a sense of satisfaction and accomplishment from their

work.

• Relationships within the company depend upon a spirit of cooperation

among both individuals and groups, and an attitude of trust and

understanding on the part of the managers towards heir people. These

relationships will be good only if employees have faith in the motives and

integrity of their peers, supervisors and the company itself.

• Job security is an important HP objective ... the company has achieved a

steady growth in employment by consistently developing good new

products, and by avoiding the type of contract business that requires hiring

many people, then terminating them when the contract expires.

• To foster initiative and creativity by allowing the individual great freedom of

action in attaining well-defined objectives.

 • Insofar as possible, each individual at each level in the organization

should make his or her own plans to achieve company objectives and

goals. After receiving supervisory approval, each individual should be

given a wide degree of freedom to work within the limitations imposed by

these plans, and by our corporate policies.

Although Fiorina possesses a leadership style and strategic vision that has

contributed to the success of previous companies that she held leadership

positions in, HP wasn’t ready for the organizational change she thought would be

necessary for the future of HP.

LEADERSHIP

Fiorina first showed her unique style of leadership when her company, Lucent,

was spun off from AT&T. The night before the company was to go public, she

stayed up all night to make sure the stock offering was perfect. She also offered

her personal support to a fellow executive when his wife was ill. Fiorina made

sure the couple received medical advice, doctors, and emotional support. It is

that type of attitude and leadership that made her an excellent candidate for the

top position at Hewlett Packard.

New leadership was in order for HP. The company had over 130 different product

groups, many of the time competing with other HP product groups for external

customers. Managers didn’t embrace innovation for fear they wouldn’t meet their

own goals. An employee poll taken in 1997 revealed that HP employees believed
that the company needed an infusion of new thinking and more customer focus.

(Burrows, 1999).

Fiorina focused not only on improving growth in revenue and profitability for

Hewlett Packard, but also in greater innovation. She wanted to also focus on

making the company customer-centric, or having a customer focus while the

company embarked on being a leader in the Internet Age.

DISRUPTIVE INNOVATION

Although the initial intent in organizational change and new strategies for Hewlett

Packard were for the better, Fiorina has faced increased criticism from business

analysts, and worse, the family of the founders of Hewlett Packard.

Despite an industry wide economic downturn, Fiorina was determined to up the

growth and profits of HP. In 2000, HP experienced a growth in revenues of 15%

and earnings up 5.9% from the previous year (Rothschild, 2001). Fiorina was

driven to increase the profits even more by trying radical changes.

The changes are highlighted as follows.

• Fiorina fostered a top-down approach to management. This approach

conflicted with the old-style of HP: a completely decentralized

management approach. Although change can be good, when Fiorina did

away with the companies decentralized approach, she did away with a 60

year tradition. Company employees were not happy about this.

 • Taking on too many revolutionary company projects at one time: wireless

service, digital imaging, and commercial printing. The original founders of

HP had continuously taken given product lines and made them better, not

taking on innovations.

• While Fiorina was at Lucent, she had become frustrated with the buying

process from HP. For this reason she created selling teams and

completely changed the way the sales forces was compensated.

• HP employees no longer possess the job security that they had in the 80’s

and 90’s when the economy and computer industry was lagging. By May,

2003, the company had cut nearly 20,000 jobs (Fried, 2003).

• Fiorina has led the company to its most widely scrutinized strategy yet; the

merging of HP with Compaq.

Since then, most of the nastiness has come from the side of HP management. It

began with a newspaper ad quoting the late David Packard in apparent

agreement with the idea of the merger. This led to an angry response by David

Packard Jr. that his father would never had countenanced the company's growth

through such a massive acquisition. Especially not with a culture so alien to the

legendary HP Way. (Malone, 2002).

THE HP – COMPAQ MERGER

When the children of the founders of HP were notified of the possible merger with

Compaq, they publicly stated that they would vote their shares (18%) against the
merger. Fiorina responded by taking out full page advertisements and press

releases denouncing the heir and most vocal family member, Walter Hewlett.

(DiCarlo, 2002).

Fiorina and other top HP executives were able to get the deal done. In July 2002,

HP-Compaq briefly became the top personal computer maker with more

worldwide shipments of personal computers than it’s top rival, Dell Computers.

By the end of the 3rd quarter in October, 2002, HP-Compaq saw it’s domination

fall again to Dell who had a 23% market share compared to HP-Compaq’s

15.5% share.

The dual brand strategy of HP-Compaq makes things even more difficult for the

company. Top executives must be able to market both Hewlett Packard and

Compaq products, as the company has no plans to do away with either brand.

Shortly after the merger, the company’s president, Michael Capellas, announced

that he was stepping down as president of the company.

RECOMMENDATIONS

Knowing the financial condition of HP in 1999, we know that change was in

order. Fiorina should not have tried to make so many drastic changes in such a

short period of time. There is no reason that Fiorina should have made such

drastic changes, when the company was not in danger of collapsing.

Fiorina should attempt to restore a decentralized approach. Autocratic

management was never needed and completely went against a 63 year tradition.

Strategies for the company should be formulated by senior HP-Compaq

management and discussed thoroughly as to the success of the strategies.

CONCLUSION

Overall, it seems that the Hewlett Packard-Compaq merger has been successful.

HP-Compaq earnings have gone from 13 cents a share in first quarter 2002, to

22 cents a share for this years first quarter. Analysts are starting to believe that

the merger might have been a good thing after all.

Bill Hewlett and Dave Packard pioneered “The HP Way”. This ideal valued the

company’s people as well as profits. I believe that the success of the company

ultimately lies in getting back this way of thinking, The HP Way, but also in being

innovated as it relates to tackling new technology challenges and opportunities,

but not at the expense of its people.

 REFERENCES

Burrows, P. (1999).

HP’s Carly Fiorina: The Boss. Business Week.

Retrieved May 18, 2003, from

http://www.businessweek.com/1999/99_31/b3640001.htm.

DiCarlo, L. (2002).

Fiorina Makes Promises, Promises. Forbes.

Retrieved May 18, 2003 from

http://www.forbes.com/2002/01/28/0128carlystrike.html.

Fried, I. (2003).

HP tops Estimates, Plans more job Cuts. CNET.com

Retrieved May 20, 2003 from

http://news.com.com/2100-1014-1008181.html.

Malone, M.S. (2002).

Failure to Communicate. ABC News.

Retrieved May 18, 2003 from

http://abcnews.go.com/sections/business/SiliconInsider/SiliconInsider_020

212.html.
Rothschild, B. (2001).

CRN Interview: Carly Fiorina, Hewlett Packard.

Retrieved May 18, 2003 from

http://www.itp.net/features/97530934230617.htm.