The plaque outside the ramshackle two-family house at 367 Addison St. in Palo Alto, Calif., identifies the dusty one-car garage out back as the "birthplace of Silicon Valley." But the site, where Dave Packard and Bill Hewlett first set up shop, in 1938, is more than that. It's the birthplace of a new approach to management, a West Coast alternative to the traditional, hierarchical corporation. Sixty-five years later, the methods of Hewlett and Packard remain the dominant DNA for tech companies -- and a major reason for U.S. preeminence in the Information Age.
The partnership began when the pair met as students at Stanford University. Packard, an opinionated star athlete from the hardscrabble town of Pueblo, Colo., had a commanding presence to match his 6-ft.-5-in. frame. Hewlett, whose technical genius was obscured from teachers by undiagnosed dyslexia, favored dorm-room pranks and bad puns. While different in temperament, the two soon discovered a shared passion for camping and fishing -- and for turning engineering theory into breakthrough products.
The result was one of the most influential companies of the 20th century. Hewlett-Packard Co. (HPQ) (they flipped a coin to decide whose name went first) cranked out a blizzard of geeky electronic tools that were crucial to the development of radar, computers, and other digital wonders. Still, the pair's greatest innovation was managerial, not technical. From the first days in the garage, they set out to create a company that would attract like-minded techies. They shunned the rigid hierarchy of companies back East in favor of an egalitarian, decentralized system that came to be known as "the HP Way." The essence of the idea, radical at the time, was that employees' brainpower was the company's most important resource.
To make the idea a reality, the young entrepreneurs instituted a slew of pioneering practices. Starting in 1941, they granted big bonuses to all employees when the company improved its productivity. That evolved into one of the first all-company profit-sharing plans. When HP went public in 1957, the founders gave shares to all employees. Later, they were among the first to offer tuition assistance, flex time, and job sharing.
Even HP's offices were unusual. To encourage the free flow of ideas, employees worked in open cubicles. Even supply closets were to be kept open. Once, Hewlett sawed a lock off a closet and left a note: "HP trusts its employees."
If HP's policies were progressive, there was nothing coddling about either man. Until his death in 1996, Packard was a fearsome paragon of corporate integrity. He was famous for flying to distant branches to make a show of firing managers who skirted ethical lines. Neither man would hesitate to kill a business if it wasn't hitting its profits goals. The result: HP grew nearly 20% a year for 50 years without a loss.
Today, the behavior of the two founders remains a benchmark for business. Hewlett, who died in 2001, and Packard expected employees to donate their time to civic causes. And they gave more than 95% of their fortunes to charity. "My father and Mr. Packard felt they'd made this money almost as a fluke," says Hewlett's son Walter. "If anything, the employees deserved it more than they did." It's an insight that changed Corporate America -- and the lives of workers everywhere. By Peter Burrows