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Founded in 1939, HP originally made medical instrument and it was not until 1966 that the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