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Making HP "Old Reliable" Again

Peter Burrows When Hewlett-Packard held a special shareholder meeting to consider the Compaq merger back in 2002, HP engineer Dan Dove decided to attend to see whether the controversial megadeal would go though. He hadn't planned to speak -- until he heard Chief Executive Carly Fiorina argue that contrary to public opinion, employee morale at HP (HPQ) was in fine shape.

Suddenly, the 22-year veteran found himself standing at a microphone, where he challenged his famous CEO with a directness that brought the room to a standstill. Dove told a story of how the company that had paid for him to get his engineering degree and where he had remained for years despite many lucrative offers from rivals, had just cut the jobs of two people he considered to be among his most effective co-workers. The layoffs and other changes brought in by Fiorina, he said, shattered his and many other employees' faith in HP management.

Now, with the Feb. 10 ouster of Fiorina, HP has a chance to regain the faith of longtime employees and tap into a deep reservoir of devotion to the often-misunderstood "HP Way." This time around, many of those employees are hoping management will see the HP Way as a unique asset to be polished, rather than a problem to be eliminated. "Our corporate culture could have been the best tool Fiorina had to accomplish her goals," says Dove (see BW Online, 2/22/05, "Three Simple Rules Carly Ignored").

"THE ONLY WAY OUT." HP's board should take note. While the HP Way is often derided as an outdated philosophy of interest only to nostalgic HP veterans, that misses the point. In 1939, Bill Hewlett and Dave Packard set out to create a company where talented techies would want to work -- not just for the perks, but because they were given the respect and authority to run their own businesses.

The result was a company that became famous not only for its profits and innovation, but for its integrity and credibility. From taking care of customers to providing secure employment, HP became known as high-tech's Old Reliable. True, its inability to capitalize on fast-changing markets during the Internet boom, when Fiorina was brought in, made it seem hopelessly stodgy. But in today's less overheated market, HP's old traits are back in fashion.

"The core values that made HP great are still there," says Steve Maiwurm, a long-time employee who works in Minneapolis. "Maybe they've been in hiding, but it's time for them to come back to the forefront. It's the only way out of this mess: to go back to what made HP great in the first place."

REPAIRING CONNECTIONS. Of course, HP's management has a lot of making up to do, particularly with investors who had tired of HP blowing past Wall Street earnings expectations in one quarter and then falling short in the next. In that regard, interim CEO Robert Wayman made a great start during the Feb. 16 earnings call with a blunt explanation of rising margin pressures in the printer business.

Many employees believe boring needs to be cool again at HP, at least for a little while. "Let's go back to cold, dead fish," says one staffer, a reference to the old joke that if HP had invented sushi, it would have called it "cold, dead fish."

What should a new boss -- whoever it turns out to be -- do? Along with dealing with investors, repairing those frayed connections with the rank-and-file has to be a top priority. Employees want proof that management is interested in their input.

One idea: Take an extended tour of HP's main campuses. Rather than making speeches, the new boss should arrive with little fanfare, walk the halls, and eat in cafeterias -- in other words, practice some "management by wandering around," a phrase coined by HP's founders. This could provide valuable, unvarnished input from staffers -- and convince HPers that the new CEO didn't arrive with a preconceived formula to fix their broken company.

RETURN TO PROFIT SHARING. The new boss should also roll back some of Fiorina's centralization efforts and push more authority back to HP's many business units. While Fiorina was right to centralize functions such as marketing and procurement, HPers complain that under the current structure accountability is often unclear. Generations of HP managers were trained to manage their own businesses, from R&D to distribution. HP should take advantage of this inbred competitiveness, before it's too late.

Then there's compensation. Back in the options-obsessed 1990s, HP's 50-year-old profit-sharing plan was deemed out of touch. While all employees got a single-digit percentage bonus twice a year, that didn't seem enough incentive to keep HP on a par with Internet highfliers. So Fiorina killed the program and replaced it with a far more complex "corporate performance bonus" (CPB) that was tied to stock appreciation, market share, and other factors.

Since tech's boom days are as defunct as a cold, dead fish, HP should go back to something akin to that old profit-sharing plan. It would create an all-for-one ethos that's badly needed, and it would attract workers who want a collaborative place to work, where financial gains come over time rather than in dramatic stock market swings. "That doesn't mean we're fat and lazy," says Dove. "It just means we value not having to change jobs every two years."

APPLE'S MODEL. And the new CEO should insist that he or she get a true pay-for-performance package. When Fiorina was hired in 1999, she was guaranteed about $65 million to join HP, and she got an additional $21 million in severance to leave -- not to mention a seven-figure bonus for her work in 2004 (see BW Online, 2/22/05, "Dear Carly: Cook Up a Comeback"). Who knows, maybe a symbolic $1-a-year salary is in order, as Apple Computer's (AAPL) Steve Jobs takes. Granted, he gets plenty of stock options as well. But at least his wealth is tied directly to the interests of shareholders.

None of this is to say HP should return completely to its past. Clearly, this company had seen better days when Fiorina arrived. Still, the board needs to show the rank and file that her ouster wasn't just a boardroom power play. No, directors need to show a broader appreciation for the unique corporate culture that continues to mean so much to HP employees. Sure, it needs to be adapted to the times. But as good tech execs know, smart and motivated employees are the best asset they'll ever have. Burrows is Computer editor for BusinessWeek in Silicon Valley

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