Hewlett packard organizational change

A Hewlett-Packard Change Story: Managing a Merger Around 7 a.m. on March 19, 2002, Hewlett-Packard’s CEO Carly Fiorina and CFO Bob Wayman were on the phone to Deutsche Bank trying to make one last ditch effort to convince them to vote yes. 1 The vote, scheduled for later that morning, was an important one. It would determine the future of the proposed Hewlett-Packard (HP) and Compaq Computer Corp. merger and the future of HP as a major player in the technology industry. 2 The months preceding the vote had been tumultuous. After the announcement of the proposed merger had taken place in September 2001, Walter Hewlett, the son of the co-founder of HP, had publicly opposed the proposition, which required shareholder approval. 3 Fiorina and her team faced serious and accumulating opposition to the merger, but there was also growing concern for HP’s future if the deal was rejected. A Merrill Lynch portfolio manager said at the time, “If the deal is voted down, I don’t know what I’m left with. I don’t know if the board will stay, if management will walk out the door, or what the strategy will be. Sometimes the devil you know is better than the devil you don’t.” 4 In the lead up to the vote, HP was confident that a yes vote by Deutsche Bank was a sure thing. Representatives of Deutsche Bank such as George D. Elling had been public supporters of the merger and had reportedly even given HP a $1 million contract to uncover the voting plans of other institutions. 5 Word of a change in Deutsche Bank’s thinking reached Wayman and, despite reassurances from his contacts that the merger would be supported, talk strongly suggested that they had, in fact, reversed their decision. On the morning of the vote, Fiorina and Wayman were given their first and only opportunity to pitch the deal to the investment team at Deutsche Bank. Fiorina, using her innate ability to impress, gave a compelling and persuasive argument questioning the company’s future if the merger did not go ahead. The Deutsche Bank team decided that a failure to continue with the merger would be more disastrous than the merger itself. 6 On March 19, 2002, the merger was approved by a shareholder vote 7 —a result that would have been more difficult had Deutsche Bank not supported the merger. 8 Premerger Back in 1999 when Fiorina joined HP, the company was in serious need of guidance. The personal computer division faced growing competition, the sales force needed better coordination, and the company was losing market share to rivals such as Dell and Sun Microsystems. 9 Fiorina joined the organization with aspirations, and external pressures, to change how it functioned. In her view, the culture of HP could be changed by “going back to the roots of the place.” 10 One of the ways she set out to achieve this was by working with a local ad agency and the head of Human Resources to create a set of “Rules from the Garage” that outlined what she hoped the culture at HP would become. “The customer defines a job well done” and “Invent different ways of working” became signifiers of the company’s direction and aspirations. 11 She decided to restructure the company. Customers such as Ford and Boeing were frustrated by the separate sales teams from HP that were constantly marketing individual products to them. They wanted a complete package that addressed the needs they had in their entirety. 12 In light of these uncommunicative operational units within HP, Fiorina reorganized the company into “quadrants,” creating two “front-end” sections that consisted of sales and marketing and two “back-end” functions where manufacturing and research occurred. 13 There was considerable, but subtle, employee resistance to the change. Fiorina’s vision of HP creating a new interface with customers may have been sound, but, as a radical change, it was not widely welcomed by many who were part of the HP “system.” 14 Post-Merger In the aftermath of the merger, and the ensuing lawsuit that opposed the merger and attempted to dissolve it, 15 Fiorina had a huge task ahead of her. The integration of the two corporate cultures was made more difficult by the strained relations Fiorina had with her own staff, many expressing serious concerns regarding the merits of the merger. 16 The transition was made slightly easier by the 65,000 new personnel who became a part of the HP community after the merger. They were more at ease with creating an organization in the way that Fiorina envisioned. According to Fiorina, the necessary cultural adjustment was simplified by this injection of “new DNA.” 17 Following the merger, Fiorina embarked on a series of technological symposiums and “coffee talks” with HP engineers. 18 Although the merger had already been undertaken by HP and Compaq, there were still many employees who were not convinced of the validity of HP’s riskiest move, some of whom faced being victims of the job cuts resulting from the merger. 19 To win over the 147,000 employees worldwide, Fiorina used a range of methods of communicating including the “management by walking around” style that Packard and Hewlett had originally advocated within the organization. A company employee commented on her style and interaction with all members of the company by saying that her actions and down-to-earth nature “earned her a lot of points” with transferees from Compaq. 20 The company faced challenges in the way of significant competition from both Dell in the PC business and IBM as a service provider. 21 Communicating a vision for the future of the company post-merger remained a key issue for Fiorina. 22 Three years later, in February 2005, Fiorina was ousted from HP and replaced by Mark Hurd. 23 In one of his first acts as the new CEO, Hurd undid some of the radical changes from his predecessor’s reign. 24 He cut jobs and engaged in a restructure, breaking down the four quadrants into product divisions because they were too “matrix” in design. 25 Some commentators, in referring to “the debacle of the Carly Fiorina years,” argue that many of the changes Hurd has made are “designed to unscramble the forced attempt at synergy attempted by his predecessor, instead handing back clearer responsibility to divisional managers for their own operations.” 26 Greater attention to becoming more efficient and getting better at execution appears to be producing results: in August 2007, Hurd announced HP’s best sales growth for seven years. 27 An IBM Change Story: Transformational Change from Below and Above Change from Below 28 Before using the Internet became as commonplace as watching television, David Grossman and John Patrick took on the mammoth task of convincing their superiors and co-workers at IBM that the Internet was even worth looking at. Their subsequent actions helped to revolutionize Big Blue and drastically change its path into the future. When David Grossman, a computer programmer, stumbled across a rogue Internet site for the 1994 Winter Olympics in Lillehammer, Norway, he was troubled. IBM had the official broadcast rights to the Games, but Sun Microsystems was taking the raw footage and making it available on the Internet under their logo. Although his position as a programmer did not require him to act on his findings, Grossman was deeply concerned about the implications of the branding of the Internet broadcast and the potential effects on IBM. He pursued the issue by contacting the IBM marketing team for the Olympics. The rogue site was eventually shut down, but the lesson had not been learned. IBM had not even begun to comprehend how the Internet could become an integral part of their business dealings. 30 Grossman’s persistence landed him a meeting with the head of marketing, Abby Kohnstamm, and some of her colleagues. It was here that Grossman was able to give a detailed explanation of the benefits of the Internet. He captivated one member of his audience wholeheartedly. John Patrick, a member of the strategy task force, attended the presentation that day and he immediately became Grossman’s ally in the Internet Revolution and an important link to the world of senior management. 31 As a team, Grossman and Patrick complemented each other. Grossman had the more developed technical know-how. 32 Patrick knew how to make the “boundaryless” culture at IBM work to his advantage. 33 Together they created an underground community of Web fans who shared technical information that ultimately helped IBM into the Internet era, albeit working, for the most part, unofficially. 34 The grassroots Web community infiltrated all corners of the company in a way that would have been difficult for an officially sanctioned, top-down group. It was through the advocacy of the lower-level personnel that the Internet message was spread through IBM’s culture. 35 Of course, the downside of being an unofficial part of an organization is the potential lack of financial backing for a group’s projects. However, when it came to finding money for IBM’s first-ever display at an Internet World trade convention in 1995, Patrick was not fazed. By coordinating the funds and the Web technology from various business units and becoming a “relentless campaigner” for the project, he gained support and expertise from multiple parts of the organization. 36 By sharing experienced personnel and resources from many departments, Patrick and Grossman were able to provide departments with more expertise and highly trained personnel when they were “returned” to the area from which they came. This strategy reinforced internal support for the change. 37 Over the years, Patrick and Grossman succeeded in creating a system that revolutionized the way in which IBM does business. Coupled with the leadership of Lou Gerstner, the period from 1993 to 2002 was one of reinvention and change. 38 IBM transformed from a computer manufacturer to a global service provider, focusing on e-business and the Internet. By the late 1990s, IBM’s trading in the e-business sector began to reflect in the bottom line, accounting for almost a quarter of its revenue. 39 Change from Above In 2002, Samuel Palmisano, a lifetime IBMer, took over leadership of the company from Gerstner. Palmisano’s focus changed to emphasize teamwork and collaboration. One of his first steps in demonstrating his new management style, to investors and employees alike, was a readjustment in executive compensation. 40 This involved a cut in the controversial CEO bonus that was redistributed within the top management team. Palmisano claimed that in order to function as a team, the gap between the CEO and his team must be reduced. 41 Insiders said that the amount pooled was $3 to $5 million, approximately half Palmisano’s personal bonus. 42 This was an effective way of communicating to the entire organization his intentions and commitment to his vision. In a BusinessWeek e-mail interview, Palmisano wrote that in planning for change, “I kept thinking about an approach that would energize all the good of the past and throw out all the bad: hierarchy and bureaucracy.” 43 To this end, he disbanded the executive management committee and created three teams with which he would work directly. These management teams—in the areas of strategy, technology, and operations—were composed of people from all over the company, not exclusively top management. 44 His aim in restructuring was to make IBM a flatter, more creative organization striving to meet consumer needs. 45 In addition to the restructure, Palmisano saw a lack of skills in IBM around the delivery of global services. In 2002, IBM acquired PwC Consulting as a way of bringing to it highly specific consulting skills and expertise to assist IBM in providing a full range of services to its clients, “from high-end technology consulting to low-end support.” 46 IBM also put in place other techniques to make sure that it listens closely to its people. For example, it introduced the concept of “jams,” which are online brainstorming sessions where any employee can share his or her ideas about management issues or new product development. Palmisano subsequently expanded the use of jams to include clients, consultants, and employees’ family members in order to share ideas and help the company innovate. 47 It is as a result of such changes from the top that IBM