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Case Analysis---HP under Fiorina’s Tenure
Founded in 1939, HP originally made medical instrument and it was not until 1966 that the
company introduced the first computer. HP achieved its golden age in 80s, however in 1998,
the company records decline in net income and the revenue growth was slower than its
competitors, Dell. [1] The company was in need of a new CEO who can guide HP to change and
Carly Fiorina was chosen to take this place because she can deliver quarterly financial goals,
bring an urgency to the company [1].
Before Fiorina’s arrival, HP was proud of its reliable products and it was positioned to be clan-
oriented. People in HP worked like families , managers used a strategy called “Managing by
Walking Around”, of which “managers spend a significant amount of their time making informal
visits to work area and listening to the employees so as to to collect qualitative information,
listen to suggestions and complaints, and keep a finger on the pulse of the
organization”(Business Dictionary.com). [5] The control of HP was decentralized and people are
given their own rights. The advantage was that people feel powered, and they can be
motivated, as stated in the “Three-Needs Theory” proposed by McClelland. But the problem is,
after Fiorina got the position of CEO, she found that the leader of each department are not
familiar with the situation of the other departments and failed to work as a unified whole.
According to her memoir, Duane Zitzner, the person-in-charge of PC, only recognized himself
and the colleagues in the team, and he were working as if in his own company[3].
Apart from that, before Fiorina’s arrival, HP paid little attention on marketing. This is due to its
engineering background and the in-coordination of individual departments. After Fiorina took
the chair, she recognized the need to make the marketing process systematic so as to come up
with the keen competition of other technological companies. It is the external force which
pushed HP to change its traditional way (“HP way”). To facilitate change, she tried to improve
the company image but that was opposed by family-led shareholders in the company because
she attempted to change the organizational culture. She changed HP from a pragmatic
company to one which cares about its public image. People opposed this because this conflicts
the traditional core value of company. [1]
Fiorina centralized the right of decision to herself.[2] In a meeting of 1998, she said the
authority will be centralized.
"Successful companies, like successful people, embrace change," says Fiorina. "They see
change as the way forward rather than fear it." (Techdivas.com)
However, this caused sacking of staff and limited the budgets of different departments. This
hurt the morale of HP and a bad relationship between Fiorina and staff because their needs for
authority could not be satisfied.
She also changed HP into a market-oriented company. She used market control(sales) to assess
an employee’s performance. If he/she is incompetent, no chance will be given.
“Management sees performance as a measure of potential, not potential as a measure of
performance.”
Moreover, she focused on growth of profit (benchmarking with other competitors) instead of
the amount of profit itself. This deviates from HP traditional culture (“HP way”). As Fiorina had
mainly one-way communication with the staff and she failed to use facts to persuade her staff
that the changes were needed, employees had strong resistance to adapt the changes.
She also reduced hierarchy and hoped to have efficient flat organization. When Carly took over
HP, there were 83 units and this caused HP’s clients, such as Ford, Boewing feeling annoyed
because different marketing staff from different departments contacted them for individual
products rather than a technological solution. Fiorina restructured the 83 groups into 2
categories, using the functional departmentalization, breaking the manufacture and sales of
equipments apart, namely product-facing group and customer facing group.[1] There are sub-
groups under product-facing group, of which the manufacture and technical support of
products were separated. But it was proved to be ineffective because the accounting section
was unable to allocate the budget for the 2 sections. As the employees in the sales section
needed to meet the quota, they lacked co-ordination with the sales section so they took a lot of
unprofitable orders and affected HP’s net income. As a matter of fact, using product
departmentalization would be more effective and this was what Mark Hurd’s, the successor of
Fiorina did. He allowed each department to produce its own strategy on sales so that the
process of decision making can be efficient as well as effective.[7]
One of her major decision was to acquire Compaq Comp Corp in 2002. This was controversial at
that time because of shrinking future of computer business and lack of successful examples but
now many people consider the merger as successful because it is a consolidation merger so HP
can increase its market share. Fiorina went to great strength to make this happen, despite
objection from family-led shareholders. According to her memoir, she noticed in the 21st
century, a new era has been come and customers expect network solution and services instead
of merely supplying product. She recognized the merger of HP and Compaq can generate
synergy and HP can make use of the strength in servers of Compaq.[8] As a matter of fact, more
and more people use the low-end server, and the operation of HP improved due to the
acquisition of Compaq company. Fiorina had a vision. But according to Bloomberg Business
Week, the problem was that she did not communicate with the board of directors [4]. As a
result, many executives who originally came from HP quitted so there was a bitter time
afterwards. The performance of HP was unsatisfactory.
Due to unsatisfactory performance (at the end of 2004,HP’s performance was 23% below than
its projected figure[1]) and tense leader-follower relationship, the board of directors in HP
“advised” her to resign. After her resignation, we are left with questions to think.
Fiorina was unsuccessful in repositioning the company as the colleague failed to co-operate
with Fiorina. She used an autocratic decision-making style and authority-obedience leadership
style. Due to the lack of communication with her employees and the firing of high-caliber
directors, employees of HP had low morale and resisted Fiorina’s policy. The measures cannot
be implemented smoothly and as scheduled. However, she had the vision to lead the company.
She could give a direction on where the company can develop but failed to co-ordinate to
implement the measures.
Another problem faced by HP was failed innovation. From 2002 to 2004, the proportion of
money spent by HP on Research & Development decreased from 6% to 4.4%[1], showing the
neglect of innovation under Fiorina’s tenure. Innovation is important to keep its competiveness.
According to Blue Ocean Strategy proposed by W. Chan Kimand Renée Mauborgne, it laid
emphasis on creating new market demand and get rid of competitions in the existing markets.
In this way, the company can get more market share in the first place. This is constantly
required by a company, especially in the technology market. The decline of Walkman/MP3
player to the birth of iPod/ iPhone showed that a product will get out-dated in tens of years and
there is needed for constant innovation.
Was she the right choice? I am afraid not. She had charisma but failed to implement the policy
effectively due to a number of reasons. Fiorina was too aggressive. She failed to recognize HP
had a strong culture---“the HP way” which lay emphasis on profit and people, but Fiorina
wanted to recast the company in a few years. She paid much attention to media and press, but
did not build trust with her staff. Some staff complained “Carly was not on the same boat with
them”, while some expressed anger on poor communication. As a result, there was a
tremendous friction when implementing policies. Moreover, Fiorina unveiled problems for HP,
but she implemented the measures too fast so it was counter-productive. She needed to
compete with Dell in the low-cost PC market, get the company a celebrity image and undertake
the biggest merger in IT history [6]. She could not paid attention to details of the reform other
than the aspect of marketing so problems aroused. When talked about her strategy, “Fiorina
lacked numbers to back up her choice, and lacked legitimacy to make people believe she’d
done the right thing for the company’s long-run future.”(10 Reasons People Hate Carly Fiorina)
Many people doubted whether she can manage and improve the performance of the company
effectively.
After Fiorina quitted HP, the successor Mark Hurd used the direction/policies of Fiorina but
made further adjustments on them. The organizational structure was simplified, so did the
bonus system so the company could increase its efficiency. One of the most significant reform
was that he decentralized the rights, and one department can come up with its marketing
strategies. This made the people worked like a unified whole, instead of pointing mistakes to
one another. Some staff was laid off so only “the fittest survive”. Fiorina’s legacy was justified
and was relevant in today’s technology driven environment. In the past, HP lost aggressiveness
according to a consultant’s report[1] but now they did not only sell product and solutions but
also carry out follow-up work to receive feedback from customers.[9] This does not only satisfy
the hygienic factor of customers, e.g. the product itself but also satisfy motivators(follow-up
services to made tailor-products that fulfill customers’ expectation). This made HP more
competitive and the staff can have a clear target to follow.
A change in leadership may solve HP’s problem. Fiorina had no engineering background. She
had the vision but she failed to understand the limitation. She implemented the measures too
abruptly and failed to focus on specific targets. [6] She failed to use evidence to convince
stakeholders that what she did was crucial. The successor of Fiorina should reflect on the
policies suggested by Fiorina, and paid attention to the employees. He should first improve the
relationship of employees before carrying out further changes. In my opinion, HP should go
ahead to innovation and entrepreneurship as there is keen competition in the industry. HP
should grab the opportunity. If HP still sells printer/off-shelf products, they should head to an
environmentally-friendly way as people are so conscious on the cost, not only the purchase
price, but also the running cost (ink, power consumption) etc.
If I were named the new CEO, I would unify the employee first and notice the latest trend of
technology. I will also think of new prospects because the IT industry will get saturated and we
will need to face keen competition (threat). I may consider the “Cloud” technology as more and
more people want storage space online and this is an opportunity. I can also carry out feasibility
study on providing consultation/software service, just like IBM. I will also strengthen the shares
on printers. Due to the rise of 3D technology, I will consider designing 3D printers so people can
print out 3D photos. [10]
From HP cases, we know that the companies nowadays face a number of paradoxes. They need
to innovate but the price is uncertainty. As the challenges are not well-defined, managers need
to use non-programmed decision and uncertainty aroused. Aggressive managers tend to treat
uncertainty as risk. Before carrying out new measures, feasibility studies can be conducted to
find out “maximax”(the maximum/idealistic outcome) and “maximin”(the worst scenario).[2]
Globalization is also one of the issues. One of the reasons is that a local company should
compete with other companies with different cultures. When two cultures influence each
other, the possible consequences are: one culture become stronger and the other fade out, or
two cultures mixed together. “International Division of Labour”[11] is prevalent due to
globalization and the work flows into the area of low labour cost. If there is no bureaucratic
control, the reputation will be affected due to ‘sweatshops’. The employees in sweatshop are
exploited and from Nike case [11]. This breaches social responsibility because social
responsibilities should protect social welfare. A breach in such responsibility will result in being
boycott, which is detrimental for development of company.
On the other hand, it is indeed difficult to transform an organization.
“An individual is likely to resist change for the following reasons: uncertainty, habit, concern
over potential loss, and the belief that the change is not in the organization’s best interest.”
(Management 5)
From HP’s case, the Compaq-HP acquisition was strongly opposed due to the laid-off of staff, as
well as uncertainty on potential benefits. The staff resisted change because there is a conflict
between the new measures with the traditional value. This also applies to other organization.
The solution is to allow all stakeholders participate in decision-making process and to support
the change with evidence. The change will be triggered by external force, such as the changing
business environment due to globalization. In this case, company needs to come up with new
strategies to meet the challenge. This may results some changes. The change will be related to
organization culture, e.g. what the company mainly focuses on, or organizational structure,
such as reforming/simplifying the structure, or the use of latest technology to enhance
efficiency or effectiveness. The company also needs to provide platform for employees to
exchange ideas and learn from each other, so a learning organization exist and can come up
with changes. In this way, there will be flexibility can the company can become more organic.
[2]
The comment on management style of Carly Fiorina is mixed and it is difficult to say whether
Carly did a great job or committed a serious mistake. It left us with a question to think.
Notes:
[1] HP at a Strategic Crossroad: 2005 (2005). Centre for Asian Business Cases, School of Business,
the University of Hong Kong.
[2] Stephen P. Robbins et al., Management, 5th Edition, Pearson Education Australia, 2008.
[3] Carly Fiorina, Tough Choices: A Memoir, Portfolio, 2007
[4] Cliff Edwards,2005, Where Fiorina Went Wrong, Bloomberg Business Week
http://www.businessweek.com/technology/content/feb2005/tc2005029_1044_tc024.htm,
Accessed 3/12/11
[5] management by walking around (MBWA),BusinessDictionary.com
http://www.businessdictionary.com/definition/management-by-walking-around-MBWA.html
Accessed 3/12/2011
[6] 10 Reasons People Hate Carly Fiorina, 2008, Business Pundit
http://www.businesspundit.com/10-reasons-people-hate-carly-fiorina/
Accessed 3/12/2011
[7] 陳偉航, 2007, 踏實的執行力 戰勝競爭的不二法門, 工商時報
http://marketing.chinatimes.com/ItemDetailPage/MainContent/05MediaContent.aspx?
MMContentNoID=40304&MMMediaType=business_management
[8] Tom Krazit , 2006, HP revels in Fiorina's vision, Hurd's discipline
http://news.cnet.com/HP-revels-in-Fiorinas-vision%2C-Hurds-discipline---page-2/2100-1003_3-
6109896-2.html?tag=mncol
CNET.com, Accessed 5/12/2011
[9] 曠文琪, 全靠補足菲奧莉娜沒做到的執行力, 商業周刊, 1018
http://www.businessweekly.com.tw/fineprint.php?id=27091
[10] Marketing Teacher Ltd, Hewlett Packard SWOT
http://marketingteacher.com/swot/hewlett-packard-swot.html
Accessed 5/12/2011
[11]Department of Sociology, The Chinese University of Hong Kong, Globalization - Support
Program on Integrated Humanities
http://www.cuhk.edu.hk/soc/courses/ih/globalization/lect03/e_lecture-chi-06.htm?page=6
Accessed 5/12/2011