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Where Fiorina Went Wrong

By Cliff Edwards In the end, the "old cello player" was right. Carly Fiorina's nearly six-year tenure as chief executive of computing and printing giant Hewlett-Packard (HPQ) ended Feb. 8 with the board sacking her and launching a global search for her replacement.

The firing of one of America's most powerful female CEOs helps vindicate Walter Hewlett, the cello-playing son of company founder William Hewlett, who argued vociferously in 2001 that HP's $19 billion buyout of computer manufacturer Compaq would do nothing to help HP grow into a global behemoth rivaling IBM (IBM) in size and power.

In a battle of wills, Fiorina won out. HP has doubled sales in the past five years, but its old-line printing business still accounts for nearly 80% of operating profits -- with most of the money coming from selling replacement ink cartridges.

SAME OLD TEAM. HP's board appointed Chief Financial Officer Bob Wayman as interim CEO. Among the leading candidates to replace Fiorina, sources say, is Michael D. Capellas, the former Compaq chief who left HP after the merger to take over troubled MCI (MCIP). Other top candidates are from rival IBM: John Joyce, senior vice-president and group executive for global services; and Doug Elix, senior vice-president and group exec for sales and distribution.

What went wrong with Fiorina's grand vision? Management experts say Fiorina, through the Compaq acquisition, created a good executive team with a can-do attitude. That helped a rank-and-file, engineering-focused organization consider how to market products instead of simply making them. But the charismatic leader refused to delegate operations to top lieutenants managing HP's far-flung divisions. What's more, she had a tough time getting them to work together, says management expert Jay Galbraith, author of Building Organizations around the Global Customer.

As a result, many of the execs who came to HP through Compaq have jumped ship since the merger. That left Fiorina with much the same slate of HP'ers who were in key positions before the blockbuster deal.

STORMY MEETING. Sources say friction between Fiorina and the board has been building over the past few months. The CEO had been considering a graceful exit strategy since the holidays, but the clash came to a head on Feb. 8 in a stormy meeting, details of which weren't immediately available.

"While I regret the board and I have differences about how to execute HP's strategy, I respect their decision," Fiorina said in a statement. She won't go away empty-handed. Fiorina's severance package of $21.1 million includes stock options and a cash payment based on her salary and bonus, a spokeswoman says.

Board member and new Chairman Patricia Dunn, in explaining the firing in an early-morning conference call on Feb. 9, said the board is now searching for a leader with more experience in operations. "Looking forward, we think the job is very reliant on hands-on execution," Dunn said, "and we thought that a new set of capabilities was called for."

"UNSOLVABLE"? Wall Street reacted favorably to the news, with HP's stock rising $1.36, or 6.8%, to $21.50 in midday trading. Sentiment had been growing that Fiorina didn't have the operational skills to take on IBM in the high-end corporate computing and consulting market while also battling Dell (DELL) in the PC and consumer markets.

Merrill Lynch analyst Steven Milunovich, who has called for breaking up HP, now says he believes management eventually will have to do just that. But the company can beef up its execution in the interim. "There are some strategic issues here that are unsolvable for HP," Milunovich told BusinesswWeek. "Still, between here and unsolvable, there's room for improvement."

Can HP be fixed? A new chief executive will be saddled with a task that none has accomplished in two decades of trying. To succeed, HP may ultimately need to be broken apart. Until then, the battle will be determining what "the HP way" represents outside of its crown-jewel printer business. Edwards is a correspondent in BusinessWeek's Silicon Valley bureau

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