Hp's Carly Fiorina: The Boss

Her challenge will be to propel staid Hewlett-Packard into the Internet Age without sacrificing the very things that have made it great.

Carly Fiorina has a silver tongue and an iron will. When the 44-year-old was considering the CEO post at Hewlett-Packard Co., she met board member Richard A. Hackborn for lunch at the Gaslight Club in Chicago's O'Hare airport. Hackborn, who had built HP's printer business into a gold mine in the 1980s, had decided to leave HP's board to devote his time to charity work. But over salads and "what felt like 10 gallons" of iced tea, Fiorina persuaded him not only to reconsider but also to step up as chairman. "You can't tell me there's a better person for the job," she told Hackborn as Gaslight's waitresses, clad in skimpy uniforms and fishnet stockings, made their rounds. Over the course of three hours, Hackborn agreed. "And no, I did not put on fishnet stockings," Fiorina says with a laugh. "Don't even go there."

It will take all of the charm and mettle Fiorina trotted out that afternoon to get her where she wants to go at HP. On July 19, the granddaddy of Silicon Valley announced that Fiorina would become its new chief executive, making her the first woman to head a Dow 30 company--and the first outsider to take the reins of the venerable computer giant. Indeed, in HP's 60-year history, this is the first time it has reached beyond its homegrown troops for any of the top jobs at the company, let alone Numero Uno.

But then, these Internet times are anything but business as usual. With rivals IBM and Sun Microsystems leading the E-business revolution, HP has seemed little more than part of the clueless Establishment. That's why the company has gone to the outside for a fresh face and a fresh approach. Fiorina's challenge is a ticklish one. In the coming months, she must strike a delicate balance between propelling HP's stodgy culture out of its moribund ways and into the high-speed Net Age while not losing the elements that have made the company an American icon--its deep engineering roots and its good, old-fashioned dependability. "Some might say we're stodgy, but no one would say this company doesn't have a shining soul," Fiorina says.

The star executive from Lucent Technologies Inc. may be just the person to bring out the best, again, at HP. Just as the computer giant needs to shed its lumbering ways, so too did Lucent--AT&T's slow-moving communications-equipment business. Fiorina managed the highly successful spin-off of Lucent in 1996. She then launched a bold, $90 million brand-building campaign that helped transform the company from a humdrum maker of phone equipment into an Internet player supplying the gear for the New Economy. And in 1998, after being promoted to president of Lucent's $19 billion global service-provider business, she helped to turbocharge product development by the long-coddled Bell Labs engineers. "She has it all," crows Vodafone AirTouch PLC Chairman Sam Ginn, an HP director who headed the search committee.

Now, Fiorina is going to try to do it all over again. In an extensive BUSINESS WEEK interview just one day after the announcement, she mapped out a set of priorities for herself. Job One is to craft a compelling vision of HP as an Internet company that can stitch together a vast range of products--from $25 inkjet cartridges to $1 million supercomputers--for any customer that has to compete in the online and offline worlds. "Customers need a sense of how HP's broad product portfolio translates into real advantages for them," she says. "We haven't given them that yet."

LONG DROUGHT. Jump-starting HP's innovation machine is tops on her list, too. HP hasn't had a mega-breakthrough product since the inkjet printer was introduced in 1984. Until recently, even its record on shipping new versions of its computer servers has trailed rivals. "It's not rocket science that we need to be innovating at a rapid rate," Fiorina says. Then there's the problem of HP's staid brand. While synonymous with quality, "we have to make sure it represents the next century rather than the last one," she says.

And, unlike her predecessors, Fiorina must recalibrate HP's vaunted culture, dubbed the "HP Way." Founders Bill Hewlett and David Packard were renowned for emphasizing teamwork and respect for co-workers. But in recent years, that has translated into a bureaucratic, consensus-style culture that is at a sharp disadvantage in the Net-speed era. "They have this ready, aim-aim-aim, fire culture," says Bain & Co. consultant Vernon E. Altman, who has worked with HP. "These days, it has to be aim, fire, re-aim, re-fire." Disposing of the bad habits while retaining the good shouldn't be a problem, says Fiorina, who plans to use a scalpel and not a machete. "Our people are very proud and smart. So, first, you reinforce the things that work," she says, "and then appeal to their brains to address what doesn't."

Can Fiorina, a medieval-history and philosophy major, succeed at this storied engineering company? HP's search committee members say there isn't a better fit. The leaders--Ginn, Hackborn, and current CEO Lewis E. Platt--came by their decision after each one detailed 20 qualities they would like to see in the new CEO. Then they boiled it down to four essential criteria that played to Fiorina's strengths: the ability to conceptualize and communicate sweeping strategies, the operations savvy to deliver on quarterly financial goals, the power to bring urgency to an organization, and the management skills to drive a nascent Net vision throughout the company. Ginn says the committee looked at 300 potential candidates, four of whom "would have been excellent CEOs. Ginn says the committee looked at 300 potential candidates, four of whom "would have been excellent CEOs." Included in the finalists was Ann Livermore, HP's enterprise computing chief. "But Carly was the best," says Ginn. "We see her being HP's CEO for a very long time."

That Fiorina made it into the corporate world at all is a small miracle. Her father was a law professor who moved so often that Carly went to five different high schools. She was extremely close to her mother, a painter who passed away last December. After graduating from Stanford University with a BA degree, Carly went to the University of California at Los Angeles' law school to follow in her father's footsteps. But after a semester, she realized she hated law. Although she says that telling her father she was leaving UCLA was one of the hardest things she ever had to do, it gave her a sense of freedom to do whatever she wanted with her life.

PERSONAL TOUCH. She took full advantage at AT&T. After Fiorina started out in the core long-distance business, she made what many thought was a career-killing jump to the Network Systems group, the sleepy telephone-equipment manufacturing business. "It wasn't the choice most people made," says Daniel C. Stanzione, Lucent's co-chief operating officer. But "she's comfortable in uncomfortable situations." Indeed, she thrived. She became the company's first female officer at 35 and was heading the North American operations at 40.

As a leader, she has a personal touch that inspires intense loyalty. She's known for giving balloons and flowers to employees who land big contracts. When Lucent was spun off from AT&T in early 1996, Fiorina stayed up all night with Comptroller Jim Lusk and other employees to make sure the prospectus for the stock offering was perfect. And it's not just business: When the wife of a senior Lucent executive fell ill recently, Fiorina helped make sure he got medical advice, doctors, and emotional support. "I think the world of Carly. She's a great leader," says Nina Aversano, president of North America for Lucent's global service-provider business.

Fiorina not only brings leadership to HP but also savvy marketing and sales techniques. Her coddling of customers at Lucent is legendary. In early 1998, Bell Atlantic Corp. wanted to cut down the amount of time it took to order telephone equipment, including The digital switching gear that routes voice and data calls Around the country. While the process used to take nine months, Fiorina rallied her troops and whittled the time for critical orders down to three months. "She stepped in and made sure it got done," says Paul A. Lacouture, group president for network services at Bell Atlantic.

Fiorina also understands that what customers need is not always what they ask for. For example, when one large telecom company requested a switch for their wireless business, Fiorina pressed its executives to tell her why. Once she got a full explanation, she realized that Lucent could supply them with a switch that could handle wireless and long-distance traffic--for the same price as the original request. "She never just tries to sell a customer a box," says Aversano. "I remember we were talking with the chairman of a major Internet company and she asked, `What keeps you up at night?' That's the attitude that she has."

While Fiorina brings the right attitude to HP, the company was far from floundering before she arrived. Since the Mar. 2 announcement that Platt would step aside to make way for a replacement, the company has been on a rip reminiscent of its old hard-charging ways. On that day, Platt announced the company would spin off its $8 billion test-and-measurement division, which had little to do with its faster-growing computer and printer businesses. Platt also set out to make the company more nimble by giving CEO-like authority to four divisional heads. And a grassroots movement by a group of maverick engineers and marketers has sprung up in the high-end computing unit that promises to catapult HP into the Internet fray.

The computer giant already is reaping rewards. Thanks to a slate of new products and recovering sales in Asia, growth is expected to return to 13% in the second half of the year, up from 2% in the first half of 1999. And HP is gaining share in some key markets. In the sale of inkjet printers favored by consumers, HP enjoys a 42.4% share, including a fast-growing piece of the sub-$150 printer market, just six months after its entry into that segment. And its $10 billion PC unit is expected to post 30%-plus unit growth and healthy profits in the second quarter--even as Compaq Computer Corp. and IBM suffer losses. All that has helped HP's once-depressed stock to surge 62% since the beginning of the year, to $111. "We're putting up some of the best profit margins in a decade," says Platt. "And our growth opportunities are as good as they've ever been."

BLOATED BUREAUCRACY. That's a far cry from HP's prospects just six months ago. The company had been through two years of falling sales and inconsistent profits brought on by the Asian flu, plummeting computer prices, and painful product delays. Quarterly growth ground nearly to a halt, measuring less than 5% year-over-year from mid-1998 on.

To understand the issues Fiorina will have to grapple with, rewind the clock to the halcyon days of the mid-1990s. Throughout the decade, HP had been on a tear. The company's booming success in printers and PCs was driving sales from $13.2 billion in 1990 to $38.42 billion in 1996, with profits more than keeping pace. But problems were developing. With 130 different product groups, the bureaucracy was becoming overwhelming. One example: When four managers from retailer Best Buy Co. wanted some computer products, 50 HP employees showed up to push their units' wares, says a former executive. "I left HP because I did not want to spend 80% of my time managing internal bureaucracy anymore," says Packard Bell NEC Inc. Vice-President Jeffrey L. Cooke, who says he once had to clear an operational change with 37 different internal committees.

HP's culture also began to crimp innovation. Managers often were reluctant to invest in new ideas for fear of missing their quarterly goals. In 1993, researcher Ira P. Goldstein showed Platt a prototype Web browser--two years before Netscape Communications Corp. became the first Internet superstar with its Navigator browser. But after an enthused Platt told Goldstein to run it by the company's computer division, his browser died an ignominious death. "They just couldn't see how it would help them sell more computers," Goldstein recalls.

And Platt, a 33-year veteran, found it difficult to counteract the malaise. Despite the lack of new products, he issued no inspiring call to arms. Instead, he continued to focus on the softer side of the HP Way. During the mid-90s, his personal hoshins--Japanese for stretch goals--included promoting diversity in the workplace and a more humane balance of work and personal life for HP employees. That might have been a noble goal, but it did little to crank the company up to Net speed. "I think people at IBM work just as hard as HPers, but [IBM CEO Louis V.] Gerstner isn't running around talking about work/life balance," says one former HPer now at IBM. "It was like our own chairman didn't realize how tough it was out there." Platt fumes at such a notion. "I don't see these so-called soft issues at odds with the tough business environment we're in today," he says. "Anyone who calls this stuff soft is soft himself. These are major issues for all CEOs." Indeed, Platt's focus on hiring women paved the way for Fiorina and other women to reach top management at HP.

"CHESS GUY." By late 1997, employees were crying out for stronger direction. That December, a poll of the 300 top staffers revealed that HP's workers thought the company needed an infusion of new thinking and more customer focus. Stunned, Platt tried to take action, say insiders. At the annual general managers meeting in January, 1998, Platt lambasted managers about the need to be more creative. But the speech backfired. Rather than being energized by Platt's talk, many executives grumbled that Platt was asking them to fix HP's ailments when he was the problem. What they needed was decisive leadership. Says a consultant who worked with Platt at the time: "Lew is a man of great integrity, but he seemed like a chess guy in a video-game world."

By last summer, with revenue growth slowing to low single-digits, Platt began to make dramatic changes. He hired McKinsey & Co. to explore a variety of radical restructurings--ultimately deciding to spin off the test-and-measurement unit. Even more important, Platt put his own job on the line: He wanted the board to consider hiring a new CEO. The board took him up on the idea, leading to Fiorina's hiring.

Platt's moves have clearly paid off. In recent months, HP has gotten its act together, pumping out products and keeping costs down, while devising the first glimpses of a bold Internet strategy. In Platt's last days, he can bask in the marked improvements. But so, too, can a band of mavericks who decided they would push change up from the bottom.

It started in April, 1998, when Ann M. Livermore, then head of software and support, joined with Unix computer chief William V. Russell to explore a Net strategy for HP. By the end of a powwow between their highly independent groups, Livermore and Russell had agreed to cooperate to commercialize a host of Web technologies. "This was a big deal--like bringing two armies together," says Nicholas J. Earle, chief marketing officer for HP's Enterprise Computing Solutions Div. "The Net became the great unifier."

In September, Livermore and other execs worked to figure out how to turn HP's gaggle of more than 20 stand-alone products into compelling wares for the WEb. They packaged computers and software from the two divisiOns into simple, problem-solving packages for buyers, such as technology for helping small companies set up shop on the Web. Bolstered by this progress, Russell and Livermore took a radical step: They asked Platt to merge their organizations--and pledged their support regardless of who got the top job. "We said combine our divisions, and do it now," says Russell, who agreed to be Livermore's second-in-command when Platt O.K.'d the merger on Oct. 16.

Livermore appointed Earle to pull together a strategy and marketing plan--within three months. Says Livermore: "I told him I wanted to get at least three complaints a week about him. I wanted him to push too hard."

WINGING IT. The charismatic Brit did not disappoint. At a Nov. 12 meeting of Livermore's new Enterprise Solutions unit, Earle laid down the new, not-so-democratic rules in the course of a four-hour presentation. "One of the sacred cows we killed was every individual's ability to influence decisions," says Earle. And on Feb. 3, before HP's executive committee had given the thumbs up, Earle told Wall Street analysts of the Net push--and of an accompanying $100 million marketing campaign. Back at the office, Russell asked him, "Where'd you get the $100 million?" Earle's response: "I haven't yet." Russell figures Earle's gambit eliminated six months of internal debate. Says Earle: "HP was like a herd of 46,000 wildebeest. Everyone knows we're there, but we were just meandering around. I wanted to cause a stampede--and then figure out where we're going."

If Earle was fast earning a reputation as HP's top wavemaker, Livermore backed him up all the way. She persuaded Platt to let her reduce her near-term profit goals to make room for the $100 million marketing campaign. And she gave lieutenant Nigel Ball carte blanche to spend $1 billion on acquisitions, equity stakes, and partnerships to fill in holes in HP's technology portfolio. The result: a flurry of 10 deals since February. "They were wanting to move a mountain in a hurry," says Security First Executive Vice-President Charles W. Ogilvie III, who signed an equity deal with Livermore in less than two weeks.

What's more, Livermore wasn't just looking to play catch-up but to forge entirely new ways of making money on the Web. Rather than get paid for computers, HP would give away gear for next to nothing in exchange for a cut on customers' future Net-related revenues. While it's a risky plan, HP has earned kudos for taking bold steps. "Unlike Sun or IBM, HP wants to participate in our business rather than just be a supplier," says Gadi Maier, CEO of the Internet Travel Network, an E-commerce site. "This is much more than just HP's attempt to get on the Internet bandwagon."

YAHOO! DEAL. Indeed, HP is quickly developing into a credible competitor in cyberspace, say analysts. Yahoo! Inc., which was unimpressed when it first heard HP's E-services pitch, is about to announce a deal to use HP technology to help corporations build their own portals, says an HP insider. Yahoo! Vice-President Ellen Siminoff says, "they're really trying to turn themselves into an Internet company, and they're making good progress."

The six-month flurry has been an elixir at HP, but it's barely a drop toward achieving Fiorina's top goals. Now she must take the break-the-mold spirit in Livermore's group and infuse it throughout HP's mammoth organization of 123,000 people. One way is to tackle outdated compensation practices. Employees receive salary, bonuses, and small profit-sharing checks twice a year--but almost no stock options. Just as Fiorina's HP compensation package is based almost entirely on stock and options, experts say HP needs to move in that direction companywide. "It's an area I'm looking at as a first priority," Fiorina says.

HP's services business could use some beefing up, too. As companies scramble to reengineer their operations to take advantage of the Net, they are turning to big companies for new gear and consulting help. IBM, for one, has been cashing in: Its Global Services unit jumped from revenues of $16 billion in 1996 to $23.4 billion last year. To get into the same ballpark with IBM, which has 130,000 consultants to HP's 24,000, analysts think Fiorina will seek a big acquisition--maybe even a giant like Electronic Data Systems Corp. Says Judith S. Hurwitz, president of consultancy Hurwitz Group: "You will start to see acquisitions. It's what HP has to do."

Then there's the task of getting even more out of HP's printer business. With its market dominance, HP has a chance to become a leader in so-called E-publishing--combining computing power with communications smarts to revolutionize the way data and images flow and are printed from cyberspace. So far, HP has blunted its clout by having its inkjet and laser-printer groups following separate agendas. Insiders say Fiorina may consider combining them into a $20 billion colossus, a notion that has been discussed for some months now.

By coupling the new emphasis with Hewlett-Packard's traditional strengths, Fiorina believes the company has turned its back on the dark days for good. "The people of HP are very smart," she says. "They're pretty clear on the things they need to work on." If not, Fiorina has the will to show them the new HP way.