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Palo Alto Online

Publication Date: Wednesday, April 10, 2002
DROP QUOTE: "The HP Way was a way of life. We ate, slept and breathed HP for much of our careers." -- Carl Cottrell, former head of HP's European division

The rise and fall of the HP Way The rise and fall of the HP Way (April 10, 2002)

Merger may spell the end of company's guiding philosophy

by Jocelyn Dong

For some workers, the HP Way bordered on religion. They considered it inviolable.

A management philosophy emphasizing integrity, respect for individuals, teamwork, innovation, and contribution to customers and the community, it earned the abiding loyalty of thousands upon thousands of employees since the company was founded 63 years ago in an Addison Avenue garage. Bill Hewlett and Dave Packard's legendary management style has been the subject of case studies by ivory-tower and Wall Street professionals alike. When Packard and Hewlett passed away in 1996 and 2001, respectively, obituary writers noted their enduring legacy was not the multi-billion dollar tech giant -- it was the HP Way. Or so it seemed. But times have changed. The high-tech industry that grew up with the company also grew more cutthroat, showing no mercy to man or management philosophy. Even before the founders' passing, some industry watchers contend, the HP Way showed signs of wear in the increasingly competitive business environment. The possible merger of Hewlett-Packard Company and Compaq brings to some minds the probable end to the HP Way as it's been known and practiced. (At press time, results of the proxy vote had not been announced.) Pragmatists say even if the HP Way is altered in the battle for market leadership, the basic intent of the philosophy will remain. Others argue that HP's distinctive culture has been forsaken, that "new practices" have been nothing short of a trampling of company's heart and soul. Events of the past year, including the proxy fight, have left followers of the "original" HP Way shaking their heads -- and fists. "The HP Way was a way of life. We ate, slept and breathed HP for much of our careers," said Carl Cottrell, former head of HP's European division. Fairly or unfairly, Carly Fiorina, HP's chairman and CEO, has gotten the heat for the HP Way's seeming demise. She was hired from outside the company in 1999 and therefore did not have a history with the HP Way. The board hired the former sales executive to shake up the organization. Whether she has shaken too hard is a subject of endless debate. She has been accused of mishandling layoffs, valuing profits far more than her people, and creating a "cult of personality." Employees say there is a culture of fear that did not exist before, and blame her for launching the first salvo in what became a bitter proxy fight. Retirees are bitter over what they feel has been her complete disregard for their advice and contributions. Bill and Dave would never have run the company like she does, they say. In the beginning

Hewlett and Packard formalized the HP Way in 1957, the year the company went public. With the business growing in leaps and bounds, the founders realized they needed a set of corporate objectives to guide their division managers. The objectives were unusual for their time. The six objectives (a seventh was added later) began with a focus on profit; however, Hewlett and Packard also had a broader vision -- seeing profit as an enabler of other, equally valuable objectives, including people (employees) and citizenship. (See sidebar.) When Jaime Ash joined HP in the early 70s, he read the objectives and was impressed. Prior to HP, Ash said, he had moved from company to company for 13 years. When he got to HP, he stayed for 28 years. "I realized what kind of company it was. It was something very special," said Ash, a retired engineer. "The people running the company thought it out well as to what kind of company they wanted and how you make a company successful in the long run, not just increasing the stock value and getting out. These people really had a vision in the long term. The fact that it had been successful, the way they had succeeded, it meant that it was a sustainable thing." When former employees reminisce about the HP Way, they toss around words like "integrity," "trust," and "team." They tell stories about how Hewlett and Packard regularly roamed the halls, talking with employees about their projects; how employees put on annual skits where they ribbed their bosses, including Bill and Dave; how co-workers were reassigned to new jobs rather than fired; how the company for a time implemented a shortened work week for all employees so certain individuals would not lose their jobs. "Everybody respected everybody else. Management was part of the team," Cottrell said. "Something you'll notice is that even retirees talk in terms of 'we.'" Following the founders' lead, managers were expected to know their employees and share with them what was going on in the company. "There was not the feeling like 'this is something only managers should know about,' " Ash said. Both Hewlett and Packard spent time at various HP sites, talking to employees at all levels. "They had a pretty good feeling of how people felt," Cottrell said. "We've lost a lot of that at HP." Hewlett and Packard also believed in creating a loyal and dedicated work force. They practiced "reassignment" rather than firing, with some employees searching for up to six months for a position in which they would thrive. Employees who couldn't be reassigned were allowed to "quit," so their record would not be hurt. The pair turned down short-term contracts, so they would not have to lay off chunks of their work force after the contract was over. Packard said they didn't want to run a "hire-and-fire operation." From the earliest days of the company, Hewlett and Packard also practiced management by objective -- "the antithesis of management by control," Packard wrote in his book, "The HP Way: How Bill Hewlett and I Built Our Company." Under "MBO," managers allowed employees to determine how best to accomplish agreed-upon goals, thus fostering innovative thinking and an entrepreneurial spirit. But to Hewlett and Packard, and their employees, it also meant something more: Trust. "Belief in people had been fundamental at HP," said retiree Al Bagley. "Trust in people was such a big thing." Nancy Mar, a research-and-development engineer at HP spin-off Agilent Technologies, started her career at HP. She believes that trusting employees to do their job epitomizes the HP Way. She spoke with respect about how one manager, trained in the HP Way, operated: "He only put in his oar when the project was on the line. Then he'd make some comments, guiding us to some direction. When the direction was established, he stepped away." The fall

Given the allegiance the HP Way engendered and the universally held opinion that it played a critical role in the company's success, it probably seemed the management philosophy would endure forever.

But change is inevitable, said Stanford Business School professor Charles O'Reilly. Corporate culture is a way that companies accomplish their strategies. HP once focused primarily on developing innovative measurement technologies, but more recently found itself in the extremely competitive personal-computer market. "Think of culture as norms of what's important in the corporation," O'Reilly said. "HP developed a culture for engineers at a time when life-cycles of products were longer. In the last decades, product life-cycles became shorter and profit margins lower." "The infrastructures were built for a different market. They were consensus oriented -- built for a different strategy," O'Reilly said. Indeed, many inside and outside the corporation complained about how encumbered the decision-making process at HP had become by the '90s. What began as a way to foster quality problem-solving through an exchange of ideas ended up being one reason why HP fell behind in revenue growth. "There is an inability to make quick decisions," said one employee who wished to remain anonymous. "We try to make the 'right' decision and over-analyze things. By the time we've finished analyzing, the market window has shifted." Market forces may have challenged the traditional HP way of doing things, but Fiorina turned the company upside down. "She accelerated the trend (away from the HP Way). She believed it was necessary," said Jeffrey Pfeffer, a Stanford business professor. Her actions -- from laying off thousands of employees to making comments that many say were intended to belittle her merger opponent, Walter B. Hewlett -- have led some company watchers to conclude that Fiorina talks about adhering to the HP Way, but does not back those words with actions. Last June, Fiorina asked employees to take a voluntary pay cut and/or additional vacation time to save the company money. According to one source, many employees expected their sacrifice would prevent layoffs -- as had been the case in the past when all employees were asked to take a shortened work week. HP said 80,000 employees signed up for the program, creating an expected savings of $130 million for the remainder of the fiscal year. One month later, however, Fiorina announced she would cut the work force by 6,000, leaving some employees feeling they'd fallen for a "bait-and-switch." Not only that, but the way the layoffs were handled rankled employees and bred distrust, according to insiders. Lower-level managers, who had been asked to give their input in the layoff decisions, were disgruntled when those recommendations were disregarded. Furthermore, Cottrell noted, managers had to "be the executioner" in departments other than their own, preventing a department's own manager from breaking the news to laid-off employees. It was a process some called "cold." Employees also saw little rhyme or reason about who got the pink slips. Even high-performing employees weren't spared, leading remaining employees to speculate that Fiorina simply wanted to show them who's boss. "She's feeling like HP employees are stuck in their ways, and she wants to rattle that. She wants to put fear in our hearts, and she's done that," said an employee who didn't want his name used. "She was going by the fear principle, but these people have never been motivated by fear. She's trying to motivate them by bringing out the whip, but the HP Way is to motivate them by giving them hugs. Now we're finding scars on our back and no personal touch." Mar, the Agilent engineer, contrasted how layoffs took place at HP and at her own company, which some observers say retains more of the HP Way than the original company. "I was appalled at how fast it happened (at HP): They were informed on Tuesday and out on Friday," Mar said, adding that people were packing for laid-off employees who weren't in the office. By contrast, those at Agilent were informed in what Mar called a "discreet manner." And they had a month to find another job inside Agilent, if they could. The expected lay off of 15,000 Hewlett-Packard and Compaq employees, should the merger be approved, has been a key argument against the action. It was contrary to vision of Hewlett and Packard, said David W. Packard, son of the HP founder, in an interview with the Mercury News. On the issue of profit, some employees complain that Fiorina placed such an emphasis on profitability that she's lost sight of people. By separating out and targeting business units to be responsible for their own profit and loss, Fiorina has raised the probability that workers in unprofitable business units will be shown the door. In the past, more profitable segments of the company supported the unprofitable ones. "It used to be, 'We want to help each other, be one company,' " said one employee. "Not anymore." Dave Kirby, HP's first public relations executive, summed it up recently when he said that he believed Fiorina related well to customers, but not employees. Kirby recalled that when he was hired, Packard said the company's two most important constituents were employees and customers. Although Kirby's first impression of Fiorina was that she was "brilliant," especially with her presentation skills, he said she doesn't understand "the extent and depth of devotion people have to this company." Retirees like Bagley, an engineer who was accustomed to a CEO who practiced "management by walking around," feel Fiorina's been aloof. "She isn't around like she ought to be. I don't think she is as comfortable walking around inside (the company) and hearing what people really think. She's got a lot to learn," he said. Those who valued the engineering-focused identity of the company doubt she has the understanding to lead the way. "The company was started by inventors; the company continued inventing; and the invention she has is to put a logo ("invent") on the sign," Ash complained. And then, there was the proxy battle. Employees say they were shocked when Fiorina sent a Jan. 18 letter to stockholders labeling Walter Hewlett as a "musician and academic" who "has never worked at this company or been involved in its management." (Hewlett is a software developer and chairman of the William and Flora Hewlett Foundation.) Her action transformed what had strictly been a business proposition into a personal political campaign, they say. To them, Fiorina threw the first punch. "I don't like Carly's ethics," said Mar. "Maybe fresh blood isn't a bad thing. If it clashes as egregiously as Carly does, it isn't good." Wrongly blamed?

Rebeca Robboy, an HP spokesperson, attributes the dissent partly to employees' resistance to change and partly to people's lack of understanding of what the HP Way actually was.

There is a difference between core values and how they're practiced, she said. For example, employees one year complained the HP Way was dead when the company stopped serving morning doughnuts. "I would say the HP Way remains and will continue to be our core values for this company. And it will be when we merge with Compaq," she said. Furthermore, Robboy said, Fiorina's actions have been motivated by the need to maintain profitability in response to severe economic conditions. Without profits, the company cannot pursue its other corporate objectives. Regarding last June's voluntary pay cuts, she said, "It was made clear at the time we announced (it) that in addition to those short-term measures that we would take longer term measures," including layoffs. In addition, she said, management had clearly stated that employees were laid off based not just on work performance, but also on skills needed and "criticality of the job" given HP's business strategy and needs. For the actual layoff process, the company relied on a third-party career outplacement firm that employed "industry best-practices," said Robboy. Reactions were mixed as to how the layoffs were handled, and some managers were grateful for the process, she said. (Fiorina, in a Jan. 23 meeting with select employees, admitted that management "did not do a good job of implementing some of those decisions.") Fiorina's style of communicating with employees, while different from her predecessors, is nonetheless active, Robboy said. "The company has certainly grown since the days when Bill and Dave ran the company. She -- and her executive team -- reach out in a variety of ways: face-to-face meetings, employee broadcasts, e-mail communications, and many other means. As well as by management by walking around." And, Robboy said, viewing the Jan. 18 shareholder letter as "a first punch" in the bitter proxy battle is neither fair nor accurate. "I would disagree that that was the first punch. I would say that we received many prior to that. I would not characterize it as a punch. It was important for investors and share owners to understand (Hewlett's) qualifications, and the issue was whether Hewlett had the requisite business (expertise) to challenge a highly experienced board." Fiorina and other board members, she said, sought to depersonalize the debate as Hewlett became "increasing personal and acrimonious." Hewlett declined a request for an interview, citing his pending litigation alleging misdeeds in HP's proxy campaign. Out of Eden

XSome have argued it is easier for a company to promote a strong corporate culture when times are good. And, conversely, that in rough times, companies don't have the luxury of adhering to core values. But those who lived through decades of the HP Way would disagree, pointing out that some of the most trying times in the company's history were also the times when the HP Way was demonstrated most clearly. In fact, Stanford emeritus professor Jerry Porras wrote in his book, "Built to Last," that a strong, almost "cult-like" culture is one of the factors contributing to the overall financial success of visionary companies. The impending merger will undoubtedly change forever how the HP Way is practiced. Officials with HP's integration team say that they will "create a culture that gets the most positive aspects of both of the cultures that we are bringing together." But for some HP employees, all the integration plans and promises don't matter. The HP Way as they have lived it was the only way, the best way. They doubt the new HP will resurrect it. Fiorina and her new company may talk about the corporate culture, but it won't be the HP Way that die-hard followers knew and loved. For those who remember Bill and Dave's HP Way, there is nothing left to do but mourn a loss of a company's heart and soul -- still believing that it didn't have to happen -- and move on.

Senior writer Pam Sturner contributed to this report.


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