Analyze the companys reorganization efforts in the pre-Fiorina era and comment on their efficacy.

OSD Case write up Reorganizing HP

Presented by Infernalscompanys reorganization efforts in the pre-Fiorina era

1960sAn effort to avoid bureaucracy and to maintain the culture of intimacy, caring for people and good communication, even when HP grew larger.4 product development groups, each for a family of related products.A design engineer working only on one division of product and working closely with the field sales force.Setting up of its own sales organization

1968Too many operating divisions thus a group structure (each group comprising of divisions with related product lines).Each group responsible for its over all operations and financial performanceDecentralization of top management functions. Each group taking its own decisions.HPs field marketing activities improved each sales engineer selling and supporting only his groups products.Early 1970sFrom highly centralized to local decentralization.One division fully responsible for a product line at a separate location.General guidelines, with no corporate direction.

1980sLack of co-ordination between the groups.HP perceived as 3 or 4 companies rather than one.Products created by each division were not fully compatible with each other. 1990sSlowing down of decision making process, specially pertaining to product development.Then CEO John Young cut a layer of management from the hierarchy.He decentralized decision making. Computer business was divided into 2 primary groups, each with its own sales and marketing team.One group sold PCs, printers etc. through dealers while the other sold workstations and minicomputers to large customers.

End Result

Problems came up with growth in size.Significant rise in bureaucracy.83 different product divisions working towards their independent goals rather than the organizational goals.Best Buy, while buying some computer products, had to face 50 HP employees, each trying to push their own units products. Innovation was getting hindered.Focus was on increasing the numerical increase in production and sales, rather than a breakthrough (such as the inkjet printer 1984).Platt focused on promoting diversity and maintaining a humane balance of personal and work life of the employees which did little to help HP.

Revenues increased from $13.2 billion to $38.42 billion.

Fiorinas Restructuring PlanDemanded regular updates on key units.Bonus period was changed to every six months from once a year.Focused on breakthrough projects rather than incremental projects (incentive for each patent filing).Strictly hardware company to Web services powerhouse.Reorganized the 83 independent product divisions into 6 centralized divisions: 3 product development groups (printers, computers, tech services and consulting) and 3 sales and marketing groups (consumers, corporate markets and consulting services).Products forwarded from back end to front end units.Expectation of a strengthened collaboration between sales & marketing executives and product development engineers.

Advantages of the restructuringIncreased coordination among divisionsCustomers could deal with only deal with one person rather than too many sales people Help the product designers to focus on their own product and gave authority to the marketers to make the most profitable deals eg servers sold at lower margins to customers opting for long term consulting services. The patent filings were doubled in 2001 due to the new R&D strategyDisadvantages of restructuring Job being divided the product chief now had a very limited role Had no authority to set sales forecast and were unable to allocate R&D funds accordingly Similarly front end units had trouble meeting forecasts if the back end came up with wrong products In response to the biggest reorganization expenses rose out of controlContd The new structure did not let the product designers be in close contact to the customers Again the selling and marketing team was unable to give sufficient attention to each of the products Profitability had increased only for low margin products Responsibility for profits and losses for not defined Less financial control and more disorder Customers not happy