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Friday, July 29, 2011

Essay on Hewlitt-Packard and its Board of Directors

As one of the biggest companies, Hewlett-Packard has always been the center of attention.  Two years ago, Hewlett-Packard was once the center of a major scandal as it admitted conducting pretexting spy techniques to investigate allegations that its own Board of Directors leaked information to the media about its future strategic plans. 

What made bigger news for HP was its firing of its flamboyant Chairwoman and Chief Executive Officer Carleton (Carly) Fiorina.  When she accepted the position in 1999, some stockholders, directors and analysts questioned the decision as she was not only an outsider from HP but she was also a marketing specialist, unlike the company’s founders who were engineers.  In her book Tough Choices, Carly Fiorina revealed that she was actually surprised and confused by her dismissal.  She acknowledged that the stock price was down, HP missed on its target and that Wall Street was not so excited about the future of HP.  In an interview, however, she defended herself and reminded the public to look into the environment at the time she accepted the post and at the time of her dismissal, to wit:

“Remember where we were. Of course, it's not good to miss a quarter. Of course, it's better when the stock price is up. But remember the context. We'd just come through a massive merger, a tech recession, a bear market and an economic downturn. Despite that, we had gone from losing $900 million in 2002 on a GAAP basis, to a profit of $3.5 billion in 2004 on a GAAP basis. Every one of our businesses was profitable.”  (Sharon Gaudin, 2006, p.1)

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A review of the past actions of Carly Fiorina reveals Carly Fiorina’s actions should not be judged solely on the basis of the merger with Compaq that she spearheaded.  She made some tough but great decisions even before the merger.  Her actions should be evaluated objectively and based on the totality of her strategies, management style and decisions. 

One of these decisions was the change in company priority from the nurturing of employees to financial performance (Johnson Craig, 2008, p.1).  This marked a dramatic shift from the company’s values, aptly called the “HP Way,” which is based on the principles that the success of the company depends on a high level of commitment and loyalty from its employees.  Under Carly Fiorina’s leadership, she did away with profit sharing, flex time, catastrophic insurance and tuition assistance to employees focusing instead on financial results, sales, revenues and growth.  From her point of view, the HP way was a major contributing factor for mediocrity in HP’s performance.  As a result, those executives and managers who resisted the change were terminated.  At first glance, this may seem to be a decisive move.  However, the swift and sweeping change in company policy within a span few months is too much for every employee to take.  Transitions are always not easy and employees and executives needed time to adjust to the new environment.  The strategy of immediate expectations of producing good numbers will later on be used against Carly Fiorina as the board quickly became impatient in waiting for the results that she promised she will deliver. 

The second strategy is when she replaced the company’s profit sharing plan with an incentive program that rewarded employees with a bonus if the company reaches its financial targets (Johnson Craig, 2008, p.6).  As a result, employees who formerly received salaries earned commissions based on their sales.  While Carly Fiorina reached its target of reducing overhead costs of the company, this however substantially affected the morale and productivity of the employees (Dean Takahashi, 2005, p.1).  More employees resisted the changes she implemented even calling her as a witch. 

The third strategy is its focus on organizational structure (Johnson Craig, 2008, p.7).  Before Carly Fiorina’s assumption, there were several divisions in HP’s operation which acted as independently in the development and sale of different products.   Carly Fiorina changed this structure by cutting down the divisions from eighty three (83) to four (4).  She emphasized the need for front office customer interface, which targeted consumers and corporations, and back office, which concentrated on R&D.  (“Online Extra: Q&A with Carly Fiorina,” 2001, p.1) Customers however will say that they noticed no improvement with HP’s new organizational structure.  For some employees, it even created more disorder and confusion and less financial control. 

Carly Fiorina’s management style is essentially about financial results.  She demanded form the employees and from the executives quick results. She never gave them enough time to adjust to the new culture she wanted to create.  She made swift and sweeping changes within the organization never stopping to listen and get advice from fellow executives at HP who knew the HP culture very well.  She was very autocratic as she imposed her will to the company.  In the end, her rise and fall is based on her ability to deliver quick results.  This was also what the board expected from her.  She failed and did not deliver as agent of change.  She cannot complain that she was not given enough time. 

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