Essay on Hewlitt-Packard - Merger between HP and EDS

In August 2008, HP announced that it has completed its acquisition of the Electronic Data Systems Corporation (EDS).  With this acquisition, HP now boasts of having the broadest portfolios in the technology industry which can offer clients opportunity to “accelerate growth, mitigate risks and lower costs” (“HP Completes $13.9 Billion Acquisition of EDS,” 2008, p.1).

 This deal which was worth $13.9 billion is considered its second largest deal since HP’s acquisition of Compaq early in the 21^st Century.   The acquisition will help boost the company’s presence as a market leader in outsourcing services providers.

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From the business standpoint, it seems that the acquisition of EDS is the most logical thing to do as it has given HP the size and scale necessary to compete with IBM.  One of the significant concerns however is that companies are now changing the way their acquire technology from IT vendors (Jeffrey M. Kaplan, 2008, p.1).  In the past years, corporations have been disappointed with the poor performance of traditional IT outsourcing companies, as a result, they have started to look for new ways of improving their technology and make them less dependent on traditional data centers.  These outsourcing companies will however not go out of style within the near future as companies want to avoid the complications of managing their own IT operations.  Thus, one of the recommendations for this acquisition to be a success is to ensure that the acquisition will not only make both companies bigger but also better.  It must ensure that in the delivery of its services which includes data center services networking services and managed security, business process outsourcing, customer relationship management, it must be able to help customers manage and transform their technology.

Business experts say that the acquisition by HP of EDS is merely a continuation of the strategy that Carleton Fiorina started seven years ago.  It would seem that there is a consensus among experts that the HP-Compaq merger was a good move.  (“Compaq-HP Merger was Right After All According to Stanford Business School Research,” 2007, p.1)  Carleton (Carly) Fiorina spearheaded the merger between HP and Compaq, a move which was against some of the wishes of its shareholder and board members.  She was later on fired by the board after she failed in its execution.  There are a number of reasons why Fiorina failed in the execution of the merger between HP and Compaq causing the company to lose its revenues and market share.  The first is that Carly Fiorina has no technical expertise in fusing these two companies together as her expertise is on marketing.  Secondly, Compaq which at the time of its merger had recently acquired DEC, was still coming to grips with its diverse products and services.  Thirdly, she had difficulties merging and integrating the operations of both companies. 

On the other hand, while the deal between HP and Compaq and HP and EDS are essentially the same, this acquisition by HP of EDS is met with much more positive attitude compared to the time of Fiorina.  The difference lies with the person spearheading the acquisition.  Hurd is perceived as an excellent strategist who is capable of educating HP manger and employees on how to realize the cost and operational efficiencies and translate the same into higher margins for each business. (“Compaq-HP Merger was Right After All According to Stanford Business School Research,” 2007, p.1) 

With the acquisition of EDS, HP can now directly compete with IBM in its outsourcing and consulting business.  The synergy between the two companies will help bolster its services and make the company more competitive globally.  It will also help reduce the cost of operation between the two companies.  The trick however is how to accomplish the task of integrating two companies which have essentially different businesses and different philosophies. By nature, HP wants to standardize its processes while EDS has a unique method with every client.  One recommendation for the current CEO is to look into the strengths of both companies and find out if any of these strengths can be acquired by either company without necessarily changing the individuality of either company. 

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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. 

Conclusion

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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