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The HP Way Out of a Morass

By Peter Burrows In 1999, Antonio M. Perez traveled to the posh San Francisco offices of AirTouch Communications. He was there to interview for the position of chief executive of Hewlett-Packard (HPQ) with AirTouch CEO Sam Ginn, the head of the HP board's CEO search committee.

After a few pleasantries, Ginn laid out his top priority for the new boss: "The first thing we have to do is get rid of the HP Way," Ginn said, according to sources. Perez, who had overseen the construction of HP's inkjet printer and ink empire, protested that Ginn, who could not be reached for comment, was wrong. Needless to say, Perez was never seriously considered for the job.

WINNING PHILOSOPHY. Perez, who went on to become president of Eastman Kodak (EK), may have the last laugh. HP's board went on to hire Carly Fiorina, who did in fact declare war on the HP Way. Yes, lip service was paid to saving elements of HP's famous culture, which is often described as "egalitarian" and "consensus-oriented." Early on, Fiorina often said the goal should be to "preserve the best, and reinvent the rest."

Truth is, perhaps more than anything, it was the culture Fiorina set out to change that needed to be preserved. Her top-down management just wasn't what HP needed, even though it was no longer what it had been during its best years.

Now it's time for HP's board to get back to the philosophies that made the company into a Silicon Valley icon. Certainly, the HP Way has come to mean many things to many people. The original premise when HP was founded in 1938 -- a company's workers are its primary asset -- may seem obvious now, but it was groundbreaking back then.

AUTONOMY WORKED. That basic concept led HP's management to empower its employees. There were no illusions that the exec (or in the case of the founders, the execs) in the corner office had all the answers. Rather, ideas bubbled up from below. And authority was pushed as far down into the company as possible, allowing the people closest to the businesses to make the calls. That turned HP into a hypercapitalistic amoeba -- a collection of small, competitive groups that attacked new markets with a vengeance.

The best thing a CEO could do in that environment was hire the right employees, give them the tools and incentives to do their jobs, and then get out of the way. And let's be clear: The HP Way, when practiced correctly, was not about consensus management. Everyone got their say, but unit chiefs had to make decisions. Those unit chiefs were then expected to use that autonomy to deliver. They sweated it out at annual business reviews, terrified that co-founder David Packard, a 6-foot, 5-inch mountain of a man, would eliminate their unit for not making its numbers.

The carrot, the stick, and the autonomy worked. From 1938 to 1998, HP grew more than 20% a year without a loss -- giving it the longest period of fast growth in the history of American corporations.

LOST FAITH. Still, life was simpler in those days. Over the past decade, HP has gone from being an innovation leader in dozens of smallish tech businesses to a giant in a few huge, cutthroat markets -- particularly PCs. When margins are razor-thin, it's hard to pay for the perks and niceties HP once had been able to afford. Making matters worse, many HP employees had come to see those perks -- the profit-sharing checks, the Taurus company cars -- as entitlements, rather than rewards for a job well done.

Also, Fiorina justifiably concluded that the tribal attitudes of HP's various management groups were making it difficult for the company to deliver a coherent message to investors and customers. But try as she may, Fiorina wasn't able to overlay her corporatewide organizational structures on the vast company. While they looked great on paper, they often merely replaced old forms of bureaucracy and inefficiencies with new ones.

Unfortunately, Fiorina's efforts tore at less tangible but nonetheless important employee morale. Rather than believing they were at a special enterprise, many HP employees came to think of their jobs as just the source of a paycheck. They lost faith in the outfit because they sensed that HP had adopted a new view of them.

THE HP SOLUTION. That was justified. The night the merger with Compaq was announced, execs said the deal would lead to 15,000 layoffs -- though insiders already believed it could go as high as 30,000. All this at a concern that hadn't had a major layoff in decades.

There is good news, however. The HP Way isn't dead. It's dormant -- and waiting for the right executive. "A little of the HP Way would probably work pretty well right now," says Quantum (DSS) Chief Executive Richard E. Belluzzo, a 22-year HP executive who left in 1997. "The strength of HP has always been its culture and its people. By unleashing people and making them feel like they made a difference, we got great results. That hasn't been there for the past few years."

Certainly, it won't be easy. Any new CEO will have many, many hard problems to solve. But HP still has assets such as a world-class research and development lab, enviable distribution power, and tremendous market clout.

Most of all, its culture is waiting to be harnessed. The HP Way was never the problem. But it may be part of the answer. Burrows, Computer editor in BusinessWeek's Silicon Valley bureau, has covered HP for more than 10 years

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