In July 1999, Hewlett-Packard, the world's second-biggest computer maker, chose Carly Fiorina to be its CEO. Thus she became the first outsider to take the reins in HP's 60-year history. Never before had it ever filled a top job with an outsider, and now this. Fiorina at that time became one of only three women to head a Fortune 500 company.
Three years later in May 2002, Fiorina engineered the biggest merger in high-tech history, with Compaq Computer. To do so she had to convince government regulators in the United States and Europe that the merger was not anticompetitive. She also had to get stockholder approval in the face of bitter opposition by Walter Hewlett, son of cofounder Bill Hewlett. She even had to survive a court challenge by Hewlett, who claimed she had misled stockholders into voting for the merger.
By August 2003, it looked like the massive merger and the differing corporate cultures were being well assimilated—unlike the problems of many mergers, including several discussed in this book. Was HP to be the model, a paragon, for bringing together two organizations?
Abruptly on February 9, 2005, the board fired her.
Carleton (Carly) Fiorina disappointed her father, a federal court judge and law professor, by dropping out of law school after one semester at UCLA. (The name Carleton was a tradition that began during the Civil War, when her father's family lost all its men named Carleton. In remembrance, each descendant named either a son Carleton or a daughter Cara Carleton. Carly is the ninth Cara Carleton since the Civil War.)
Before dropping law, Fiorina earned a BA in medieval history and philosophy from Stanford University in 1976. She received an MBA in marketing from the University of Maryland in 1980, and an MS from MIT's Sloan School.
She was 44 years old when chosen for the CEO post at Hewlett-Packard, after nearly 20 years at AT&T and Lucent Technologies. At Lucent, she spearheaded the spin-off from AT&T in 1996, overseeing the company's initial public offering and the marketing campaign that positioned Lucent as an Internet company. In 1998, she became president of Lucent's global service-provider business, a $19 billion operation that sold equipment to the world's largest telephone companies.
Fiorina is known for having a "silver tongue and an iron will," being articulate and persuasive. She has a personal touch that inspires intense loyalty, even giving little gifts like balloons and flowers to employees who land big contracts. Her coddling of customers at Lucent was legendary, as were her sales and marketing skills.[180]
Still, how did a student of philosophy, medieval history, and marketing succeed in being the winning candidate for CEO by HP's search committee? Each member of the committee listed 20 qualities they would like to see in the new CEO. Then they boiled these down to four essential criteria: the ability to conceptualize and communicate sweeping strategies, the operations savvy to deliver on quarterly financial goals, the power to bring urgency to the organization, and the management skills to drive a nascent Internet vision throughout the company. Carly was selected from 300 potential candidates.[181] She was the first outsider in the company's history to become CEO; indeed, no outsiders had even been high-level executives. What qualities did Carly apparently manifest that swayed the search committee to choose her over 300 other candidates? See the following Issue Box for a discussion of two extremes of leadership: charismatic and visionary versus shunning the limelight and emphasizing execution.
HP was founded by Stanford University classmates Bill Hewlett and Dave Packard in 1938. They invented their company's first product in a tiny Palo Alto, California garage. It was an audio oscillator, an electronic test instrument used by sound engineers. One of their first customers was Walt Disney Studios, which purchased the oscillators to develop and test an innovative sound system for the movie Fantasia. From 1938 to 1978, Bill and Dave built a company that became a model for thousands of subsequent Silicon Valley enterprises. In so doing, they created an informal egalitarian culture where brilliant engineers could flourish. Their emphasis on teamwork and respect for coworkers was dubbed the "HP Way."
From 1978 to 1992, John Young directed HP into becoming a major computer company, something AT&T, Honeywell, RCA, and other first-generation electronics companies never were able to do. But Young's efforts to consolidate HP's independent units bogged the company down in bureaucracy.
From 1992 to 1999, Lew Platt, a well-liked engineer who had joined the firm in 1966, guided HP for its growth in the mid-1990s, but he encountered difficulties when PC prices and Asian sales plummeted in the late 1990s. By now, HP had become a staid company, but one with deep engineering roots and old-fashioned dependability.
"Some might say we're stodgy, but no one would say this company doesn't have a shining soul," Fiorina said when she took over.[182] HP had not had a major breakthrough product since the inkjet printer in 1984. And the "HP Way" had evolved into a bureaucratic, consensus-style culture, somehow not conducive to being in the forefront in a time of rapid technological innovations.
A bloated bureaucracy seems to be a concomitant of many old, successful organizations. We have encountered others in this book, such as IBM and Boeing. Examples abounded of the bureaucracy run amok that had developed at HP. The company had 130 different product groups. When retailer Best Buy wanted to buy computer products, 50 HP salespeople showed up to push their units' goods. When a vice president at HP wanted an operational change, 37 different internal committees had to approve it.[183]
The dearth of new products went along with the cumbersome bureaucracy and the many different product groups. Managers often were reluctant to invest in new ideas for fear of missing their sales goals. If the proposed new product did not seem assured of healthy profits, or might cannibalize or take away business from existing products, it was not considered further.
The crown jewel of HP's arsenal of products was its printer business, which it had dominated since the 1980s. Ink and toner refills brought HP some $10 billion annually, 15 percent of total revenues. The profitability of the refills enabled the company to sell printers at low prices, much as Gillette sells its razors for bare-bones prices, but makes huge profits on the sales of blades.
In 1998, with revenue growth slowing to the low single-digits, CEO Platt began to act more decisively in combating the malaise. He hired McKinsey & Co. consultants to explore restructuring, which led to the spin off of HP's $8 billion test-and-measurement division, which had little relevance to the faster-growing computer and printer businesses. Platt put his own job on the line, suggesting that the board hire a new CEO. This led to Fiorina's hiring.
Fiorina began searching for a big deal soon after becoming CEO. HP and Compaq Computer agreed to the rough outline of a merger in June 2001, then spent four months planning it before the formal announcement. But she could hardly have expected the controversy of the ensuing merger battle, in which Walter Hewlett, an HP board member, first voted in favor of the deal and then waged a bitter public campaign against it. He voted his family's 24 percent of the ballots against the merger, and it passed by only three percentage points. Not content with this defeat, Hewitt sued, charging that Fiorina and HP had illegally manipulated the vote, but he was unsuccessful and the merger went ahead.
What might have led to serious divisiveness in the organization, and particularly among the higher executive staff, making Fiorina's job difficult at best, had more of the opposite effect. While some had initially resented her as an outsider who didn't understand the HP Way, now most united behind their controversial new leader. "None of us anticipated the conflict. Carly was characterized as someone who destroyed the soul of HP, and we were her willing accomplices," Susan Bowick, HPs personnel chief said.[184] Still, one would expect many employees to resist change, knowing that Fiorina's arrival most likely heralded substantial changes and jobs lost.
The planning and tradeoffs that went into merging the two firms could serve as a model for other successful mergers. One month after the merger announcement, and before it had been officially approved, executives and staff from both firms met to come up with decisions on thousands of matters that would be involved in bringing a smooth integration. These ranged from what product lines to keep to which pension plan to use. The group started with almost 100 employees and grew to 2,500 by the merger's completion. Of the 15 highest-ranking executives, 10 were to come from HP and 5 from Compaq.
When the books of both organizations were opened, striking contrasts became evident: HP was losing $100 million a quarter on an industry-standard product called NetServer, but was making money on a proprietary model; Compaq had the reverse problem. HP's PC (personal computer) sales were mostly from retail, while Compaq had a profitable Web-based business. One company got a better deal from Microsoft on Windows, the other did better with chips from Intel—these small percentage differences amounted to billions of dollars.
The decision was made early on that the practices of only one of the two companies could be allowed to survive in each of the various areas of the new organization, and these changes could not be delayed. The choices involved jobs; the more consolidation, the more jobs lost. For examples: the HP Jornade handheld was dropped in favor of the Compaq iPAQ; the money-losing HP NetServer was killed and Compaq's rival Proliant line kept; Compaq's consumer PC business was axed in favor of the HP business; HP's corporate PC business was killed and Compaq's kept. Table 12.1 shows how the various product categories of the two firms were meshed.
The companies' four incompatible e-mail systems were consolidated into one, connecting 215,000 PCs and 49,000 other devices. Before the merger, HP and Compaq had more than 1,000 locally set policies on such things as rebates for customers and dental coverage for employees. These were unified into a single set of rules for 160 countries.
Opportunities for cost cutting abounded. Here are some examples:
The old HP spent $140 million a year for printing documents, manuals, and brochures, with an estimated $50 million of these unused; expenditures for the combined giant were now reduced to $130 million, with only $10 million of estimated waste.
Table 12.1. How HP and Compaq Meshed
Sources: Company; and Quentin Hardy, "We Did It," Forbes, August 11, 2003, p. 80.
Commentary: We can see from this meshing of the various products and systems that there was no major duplication. In most areas, where one was weak, the other was strong. The weak one then was eliminated or absorbed. This probably accounted for Fiorina's success in getting the merger approved by U.S. and European antitrust regulators.
Servers
HP servers made money on Unix, not Linus.
Compaq made money on Linus, not Unix.
Commercial PCs
Compaq made money. HP lost.
Consumer PCs
HP made money. Compaq lost. (In order to maximize retail shelf space, HP closed the Compaq commercial line, but kept the brand.)
Printers
HP was the world leader. Compaq contracted it out.
Handhelds
Compaq's iPAQ won over HP's money-losing Jornada.
Software
Compaq had software for individual servers to work harder. HP had software to manage big groups of servers.
Direct sales over the Internet
Compaq had a $500 million engine. HP needed one.
Headquarters
Compaq's Houston base was closed. HP stayed in Palo Alto, California.
HP's manufacturing costs in the first year of the merger were down 26 percent. All HP vendors were organized into just five supply chains, and most suppliers were connected to HP via the Internet and got consumption data and replenished orders automatically, for a saving of $1 billion. Inventory was sliced from 48 days' supply to 40 days, thereby freeing up $1.2 billion in working capital.
Accounts receivable were shrunk by four days, and the faster customer payments freed up $800 million.
17,000 jobs were eliminated after the merger.
Through these and other cost savings from the complex merger, Fiorina was able to cut $3.5 billion in annual costs—a billion more and a year earlier than promised.[185]
In the first full year after the merger, the results were impressive. Some 3,000 new patents had been racked up and 367 new products introduced. The patents spanned every part of the technology complex, from print technology to molecular computing. HP gained market share in key categories, and won a 10-year, $3 billion outsourcing deal with Procter & Gamble. Combined sales to Disney more than doubled since 2001. HP built technology for Walt Disney World's newest ride, Mission: Space, and wireless headsets that explained the theme park in five languages.
The sales and profit quarterly results for fiscal 2002 are shown in Table 12.2. The first two quarters reflect the figures for the two companies before the merger, the last two quarters are afterthe merger. The last quarter's figures, ending October 31, 2002, made Carly Fiorina particularly proud: "During the fourth quarter of fiscal 2002, we returned to profitability after incurring nearly $3 billion in significant restructuring and other acquisition-related charges, which led to an overall operating loss of $2.5 billion in the third fiscal quarter. The charges were primarily for eliminating redundant positions and offices around the world, in-process research and development, and employee retention bonuses incurred in accordance with the acquisition-integration plans we drew up in the first half of the year."[186]
On the basis of HP's apparent success in its merger with Compaq, Fiorina began pitching to corporate America that you have to consolidate and you have to cut, and we can help you do it because we have done it ourselves. HP portrayed itself as The Greatest Case Study Ever Told. In merging its systems with Compaq's, HP could boast that it had erected a single communications network linking more than a quarter million PCs and handhelds; it handled 26 million e-mails a day. It also cut the number of software applications used from 7,000 to 5,000, and of components bought from 250,000 to 25,000.
We can perform similar miracles for you, Fiorina and her colleagues told such clients as General Electric, the Department of Homeland Security, and the Walt Disney Company, as well as many smaller firms. HP's approach, known as "adaptive enterprise," used new technology and smarter consulting to help organizations lower their overhead. HP guaranteed in written contracts that its adaptive model would save 15–30 percent in operating costs. HP claimed that its own information technology budget had fallen 24 percent after the merger by making use of this adaptive approach.
Table 12.2. Quarterly HP Results Before and After the Merger
Source: Hewlett-Packard Company Reports. | ||||
|---|---|---|---|---|
Commentary: You can see from the profit realized for the fourth quarter ended October 31, 2002 that Fiorina had reason to feel that the merger had been well orchestrated and the two firms rather quickly integrated. The big loss in the third quarter reflected the extraordinary expenses and write-offs due to the merger, and these were now behind the company as it looked to 2003 and beyond. | ||||
For Fiscal Year Ended October 31, 2002 (millions) | ||||
Before Merger | After Merger | |||
Jan. 31 | April 30 | July 31 | Oct. 31 | |
Net revenue | $11,383 | $10,621 | $16,536 | $18,048 |
Earnings (loss) from operations | 625 | 414 | (2,476) | 425 |
The most awesome competitor to HP's services and consulting business was IBM. IBM called its approach "on-demand computing," and it was well equipped to dominate this market. While IBM's annual revenue was only $9 billion more than HP's $72 billion, the market value of its stock, at $142 billion, was more than twice HP's. IBM made huge profits, more than double HP's, even though IBM employed more than twice as many people. IBM was already a major factor in higher-profit services, whereas HP still got most of its revenue from hardware, such as printers, servers, and PCs, many of which barely covered their costs. In a recent quarter, for example, HP's $5 billion PC business had a profit margin of only 0.025 percent. Furthermore, IBM had several years up on HP in promoting its Business Consulting Services, part of its $36.3 billion Global Services unit. And it could boast that it too had recently slashed $3 billion in costs by selling off three factories, shifting manufacturing to cheaper locations such as China and Ireland, and simplifying product designs. In the process it reduced inventories by a third, cut suppliers by half, and found other economies, such as packaging PCs in cheaper cardboard boxes and recycling components from old mainframes.[187] Table 12.3 shows selected comparisons between IBM and HP.
Table 12.3. IBM and HP Selected Comparisons, 2002
IBM | HP | |
|---|---|---|
Sources: "The Top 500 Companies in America," Forbes, April 14, 2003, p. 144; Quentin Hardy, "We Did It," Forbes, August 11, 2003, p. 82. | ||
Commentary: With the Compaq merger, HP approaches the size of IBM in sales and in assets. The loss in income is hardly a true comparison with IBM because of the nonrecurring expenses of the merger. HP shows surprising strength in R&D spending and in patents in the past year. But its much lower cash flow is an impediment against IBM, and the sales staff is far smaller. | ||
Sales (000,000) | 81,186 | 63,082 |
Profits (000,000) | 8,060 | (680) |
Assets (000,000) | 96,484 | 72,093 |
Annual Cash Flow | $13.8 bil. | $4.8 bil. |
Annual R&D | about $5 bil. | about $4 bil. |
Total patents | 38,000 | 19,000 |
Patents in past year | 3,288 | 3,000 |
Size of sales army | 35,000 | 21,750 |
Still, HP could claim one of the fastest and most effective mergers in all of business, and by far the biggest in the computer industry. It saw its adaptive model as a technology and strategy that could be sold to other firms contemplating mergers and strategic changes. The first big test was a $3 billion Procter & Gamble contract, for which the bidding specifications ran 10,000 pages. HP was the underdog against the likes of IBM and Electronic Data Services. But it won the contract on the first round, selling the potential cost savings, data virtualization, and new across-the-company roles for the 2,000 P&G technicians that it agreed to involve in the deal. IBM claimed that HP took a big future loss on the P&G contract to get a trophy win. "It's good news to hear that," said HP veteran Ann Livermore, who ran the services business. "They're still underestimating our capabilities."[188]
With this win, selling moved into high gear at HP. See the following Information Box for a discussion of the importance of selling at all levels of an organization.
Skeptics of the HP merger with Compaq for a while appeared to be proven wrong. CEO Fiorina impressed analysts with cost cuts faster and deeper than they had ever imagined. She unveiled a host of new consumer products, and a new vision. Investors were willing to attribute anemic revenue growth to the deep recession in technological spending.
As the economy and stock market began to improve in 2003, HP stock flirted with a 52-week high of $24 a share until August 20, the day after HP announced it had missed its third-quarter earnings expectations. The explanation was slack European markets, which counted for 40 percent of company sales, plus price-cutting in personal computers and weakness in HP's enterprise businesses. The stock slid 11 percent on this news.
Dell was the big culprit affecting HP's computer sales, and it had turned in a strong quarter by contrast. HP failed to raise PC prices fast enough to keep pace with such components as computer memory. It also missed the boat in forecasting sales for flat-panel computer screens, and had to use expensive air freight to meet the demand. Then Dell announced it was cutting the prices of business computers by 22 percent.[190]
Fiorina planned to excite consumers, who had been steadier customers than corporate clients—consumer-related sales comprised 30 percent of total HP sales— with 150 new products in time for the back-to-school and Christmas seasons of 2003. HP was also testing a "store-in-store" concept at consumer electronics retailers like Circuit City. The HP area within these large retailers would emphasize how all HP products can work together, with assortments well beyond just PCs and printers, as, for example, media-center PCs that link home entertainment and computers together. But adding to HP's worries, Dell announced that it would cut prices on its personal computers and network servers. Sales for HP's personal-systems division, which included notebooks and desktops, rose 4.5 percent in the third quarter, but the division remained unprofitable.
Printers and ink refills have long carried HP, with rising sales and profits. Yet the enterprise-systems group, which generated about 20 percent of total revenue, remained the last of HP's four main businesses to still be in the red as fiscal 2003 drew to a close. The turnaround of the systems group, which made server computers, storage devices, and related software used by large corporations and agencies, was plagued by competition from Dell and IBM, and slow tech spending by corporate customers. Unless this could quickly be turned around, it would represent a continuing black mark on the controversial $19 billion Compaq purchase, which had partly been undertaken to repair the enterprise business.[191]
Whether the merger with Compaq was a model of how best to handle mergers was still unproven at this point.
The situation—and especially the stock price of HP—had not improved by the beginning of 2005. The closing price by the end of January was under $20 a share, which was 15 percent less than when the Compaq deal was announced in September 2001, and 50 percent less than when Fiorina was named CEO in July 1999. (Admittedly, the tech sector had not been robust in the previous four years, but HP had fallen considerably more than its major competitors, IBM and Dell.) The HP board began considering a reorganization that would distribute some of Fiorina's key day-to-day responsibilities to other executives. "She has tremendous abilities" one person close to the situation said. "But she shouldn't be running everything every day. She is very hands on, and that slows things."[192]
Other criticisms centered on the Compaq merger. This was Fiorina's "Get-Big" strategy to compete with IBM. But it seemed to have led to complex and myriad problems. HP's PC unit was taking a beating from Dell. It found itself faltering against IBM in servicing big corporate clients, and had been unable to come up with any big new consumer gadgets. A controversy was brewing around the issue of whether HP would be better off broken into pieces rather than keeping the company whole. The example of IBM was given to support breaking up: "IBM had the courage recently to exit the bleak PC business. By contrast, HP continued to hold fast."[193]
Abruptly, on February 9, 2005, the board fired Fiorina, after she resisted the directors' plan for her to cede some day-to-day authority to the heads of HP's key business units. This was just before she had been scheduled to attend a meeting at the White House with members of the Business Roundtable. Just a few weeks later, HP reported a 10 percent increase in revenue for its first fiscal quarter, better than expected.
Mark Hurd was the man chosen to succeed Fiorina. He had spent 25 years at electronic cash-register maker NCR, working up from a sales job to CEO. Some critics thought Carly was "full of herself and out of touch," whereas Mark Hurd was the anti-Carly, "ignoring all fluff for execution." He became a star of Wall Street, as manifested by HP shareholder value pushing up over 50 percent after he took over. Dell had been almost flat during this time, while IBM shareholders lost money.
The biggest criticisms against Fiorina focused on the 2002 Compaq acquisition. But Hurd saw nothing wrong with this and other elements of her strategy. He did not break up the company along premerger lines, as Fiorina's loudest critics sought. She had planned to cut 10,000 to 12,000 jobs; Hurd cut 15,000. She had predicted that HP would be the biggest tech company in the world, and its revenue in 2006 was $87 billion, about even with IBM's. HP was number two worldwide to Dell in PCs, number one in windows, Linux servers, and printers, and number four in tech services. Total operating expenses were 21.5 percent in 2001. By 2006, they were down to about 16 percent. But all but one percentage point of the decline happened before Hurd's cost-cutting campaign took hold.
Some analysts began asking who deserved the credit. Hurd is quick to say that in HP's PC business, "there has been a prolonged sustained march in performance that, frankly, predates me." One analyst suggested that HP's directors "in the end, got the best of both worlds—a charismatic CEO who brought about a hotly contested but transformational merger, and a no-nonsense, operations-oriented CEO determined to make the combined company work."[194]
In the summer of 2006, a nasty scandal wracked HP. The company began investigating suspected leaks by directors to the Wall Street Journal, Business Week, and the New York Times that the board was unhappy with then-CEO Fiorina. The hired investigators used a range of extraordinary tactics, including "pretexting," or the use of deception to obtain phone records of board members and employees, booby-trapped e-mail to invade a reporter's computer, impersonating corporate officials, and physical surveillance of at least one director and a journalist. Criminal investigations were under way by the FBI and the California attorney general. In this atmosphere, chairman Patricia Dunn resigned, as did the general counsel and several directors. The House Energy and Commerce Committee demanded to know how such tawdry tactics could have been used. Pretexting is "an invasion of privacy and probably is illegal," the chairman of the panel said, and wondered why no one "had the good sense and courage to say 'Stop.' " Patricia Dunn and Mark Hurd refused to "accept personal responsibility for what happened." The former general counsel and nine other HP attorneys and investigators invoked the Fifth Amendment right against self-incrimination, and refused to testify.[195]
Unlike many other mergers that quickly soured, such as DaimlerChrysler in Chapter 19 and Maytag in Chapter 17, HP's merger with Compaq at first seemed a qualified success, even though the combined company still had profitability problems. After all, despite being larger now, it still faced the formidable competition of IBM and Dell Computer. The boom in corporate high-tech spending had ended and long-term growth prospects for the industry no longer seemed robust, while a number of marginal firms were on the ropes. With the merger, HP seemed poised to take advantage of a revival of corporate interest, and perhaps a regeneration of consumer interest from appealing new products. All the while, HP still dominated the high-profit ink-refill market. We can identify the major factors that seemed to promise a successful merger:
First of all, it was not a hostile acquisition. Both parties believed that coming together would strengthen the resulting firm, making it a bigger power in the market, and bringing substantial cost savings.
Thorough and objective planning of the merger. For four months before the merger was even announced, a top-level committee was studying the feasibility and planning for the integration of the two organizations. After the approval of the merger, months more of detailed preparation were involved. All conceivable problems or stumbling points were identified and resolved, with prompt implementation once the merger was officially approved.
Involvement of executives and staffs of both firms. The study group began with not quite 100 employees and had 2,500 by the merger's completion. Top-level executives and staff members of both firms participated, apparently in a spirit of equality and objectivity, and many stayed with the new organization.
Redundancies were avoided at all costs. Early disagreements or indecisions were curbed by HP strategist Robert Napier. "Every business decision triggers an IT (information technology) event," he declared. This would force the new HP to reconfigure its systems, which would be costly and time consuming. So a commitment was made to pick just one of the two companies' products and practices and make it law. The new merger mantra became: "Adopt and go."[196]
Compatibility and congeniality were sought. Fiorina joined the rather close-knit HP as an outsider, and had to strive to gain acceptance. The bitter merger battle with Walter Hewlett served to unite most of the organization behind Fiorina. The goodwill apparently carried over with the acceptance of Compaq employees as part of the HP team, even though some 17,000 jobs were eliminated because of redundancies.
Fiorina admitted that one of the toughest aspects of the integration was the reduction of the workforce through a combination of layoffs, early retirements, and attrition. "Although layoffs are never easy, we worked hard to conduct this process with dignity and compassion, recognizing the many contributions our employees had made during their careers."[197]
Perhaps Fiorina could have been a better administrator. Heading a $56 billion firm, perhaps she needed to delegate more, not be too hands-on. Lack of delegation is not an uncommon fault of executives, but it can limit their effectiveness in higher positions.
She resisted the idea of an assistant or vice chairman, and maybe this should have been reconsidered. She was in a difficult situation, with the might of Dell in PCs, and the powerful IBM at the other extreme of the industry. Add to this a resentful Walter Hewlett, who was still influential with the board, and perhaps Fiorina's doom was sealed. (At the end of the chapter, in the hands-on and debate exercises, we invite students to address Fiorina's situation in 2005 before the abrupt termination decision, and also whether the company should have been broken up, as some experts thought, perhaps into printing and nonprinting operations, or into consumer and corporate businesses.)
People rushed to judgment in the days following the ouster news. Shareholders blamed her for the sagging stock price. Long-term employees condemned her for upsetting the company's paternalistic culture. Industry analysts faulted her for HP's sluggish computer business. While Fiorina was a dynamic and charismatic leader who was widely esteemed in the business world, inside HP her rather autocratic management style stirred deep animosity from some employees, and several high-level executives had quit for other positions. Some employees reportedly reacted to her ouster with "jubilant" champagne toasts.[198]
Fiorina seems to have received little credit for the planning and organization that made the merger with Compaq what most experts now have to concede is a legitimate success. As the CEO and primary mover in this merger, this may prove to have been her finest hour.
Carly had great visibility in the media, both before and during her tenure at HP. A gifted speaker with charisma, and some would say the unfairness of her firing, enabled her to continue and arguably even extend that visibility. The deep hurt of that firing was evident in her commencement address in May 2005:
"The worst thing I could have imagined happened. I lost my job in the most public way possible, and the press had a field day with it all over the world. And guess what? I'm still here. I am at peace and my soul is intact."[199]
She spoke at many business conferences, and appeared on the covers of business magazines and even general publications. In October 2006, she released an autobiography, Tough Choices, about her career and her views on such things as how women can thrive in business.
Then she turned her attention to politics. On September 3, 2008, Fiorina addressed the Republican National Convention. She also was involved with John McCain's campaign on issues of business and economic affairs. On November 4, 2009, she formally announced her candidacy in the United States Senate election in California, 2010.
In February 20, 2009, she was diagnosed with breast cancer, and underwent surgery at Stanford University in March, followed by six months of radiation and chemotherapy, which caused her to lose her hair. She was given "an excellent prognosis for a full recovery," and continued her campaign. In an interview for Wall Street Journal, she appeared without her wig for the first time in many months, and laughed that after chemo, Barbara Boxer, the three-term Democratic incumbent isn't that scary any more. [200]
Invitation to Make Your Own Analysis and Conclusions
What could Carly have done differently to have secured her position at HP?
How do you judge the quality of a product, whether a computer or some-thing else? Is it mostly by price? Discuss your perception of price and quality, as well as any ramifications.
"Tradition has no place in corporate thinking today." Discuss this statement.
Giant organizations are often plagued with cumbersome bureaucracies. Discuss how this tendency could be prevented as an organization grows to large size over many years.
Playing a devil's advocate (one who takes an opposing position for the sake of examining all aspects of a decision), present the case against the Compaq merger. (You may want to research the arguments raised by Walter Hewett in his aggressive campaign against the merger.)
"HP is gouging the consumer in charging such high prices for its ink refill cartridges. Sure, it's a high profit item, but such profits cross the line and are obscene." Discuss.
Do you think the 17,000 jobs lost in the merger was laudatory, or should it be condemned? What would swing your opinion?
Why do you think Hurd's efforts were so successful and so quickly accomplished? Support your conclusions as persuasively as you can.
Why do you think Dell lagged so far behind HP in tapping into retail markets?
You have been asked by Carly Fiorina to draw up rationale for eliminating 17,000 jobs. She wants this to be as tactful and persuasive (to the organization) as possible.
Mark Hurd has just assumed the top job at HP. He has asked you as a staff VP to draw up a course of action to get the ailing PC division up to competitive parity with Dell. If you need to make some assumptions, keep them reasonable.
Michael Dell, founder and CEO of Dell Computer, had his sights set on invading HP's lucrative printer and ink refill business. As an advisor to Carly Fiorina, what action, if any, would you recommend taking to try to thwart Dell's incursion. Be prepared to support your recommendations.
Place yourself in the position of Carly Fiorina at the beginning of 2005 facing a critical board, skeptical stockholders, and a negative press. Lay out your strategy to protect your position. Do you think this would have saved her job? Why or why not?
The search committee for a new CEO is seriously considering Carly Fiorina. Based on the information in the case, debate the controversy: should we hire this woman who is an outsider, or look for someone else among our 300 candidates?
Michael Dell is seriously considering a change in the PC distribution strategy. Instead of sticking with his founding strategy of going directly to consumers by Internet and telephone, he is thinking of distributing more through retail stores. Debate the pros and cons of such a decision.
Identify and evaluate the various personality factors that can turn an organization against its leader. For each, seek contrary opinions. For example, one of these could be charisma. Discuss the pros and cons of a CEO's charisma, among board members, fellow executives.
How has HP's operating performance fared since 2007?
Has Dell become a bigger factor in this market? Is it solidly in retail stores?
Has price competition become more aggressive in the ink refill market?
Whatever happened to Walter Hewett?
Was Fiorina able to win a Senate seat from California?
[180] Peter Burrows, with Peter Elstrom, "HP's Carly Fiorina: The Boss," Business Week Online, August 2, 1999.
[181] Ibid.
[182] Ibid.
[183] Examples cited in Burrows and Elstrom, pp. 4–5.
[184] Quentin Hardy, "We Did It," Forbes, August 11, 2003, p. 80.
[185] Ibid., pp. 76–82.
[186] HP Annual Report, 2002, CEO Carly Fiorina's Statement, January 31, 2003, p. 25.
[187] Daniel Lyons, "Back on the Chain Gang," Forbes, October 13, 2003, pp. 114, 116.
[188] Hardy, p. 82.
[189] Adapted from Carol Hymowitz, "Business Leaders List Books That Inspire and Inform Their Work," WallStreet Journal, October 14, 2003, p. B1; Quentin Hardy, "We Did It," Forbes, August 11, 2003, pp. 80, 82.
[190] Quentin Hardy, "HP Slips Up," Forbes, September 15, 2003, p. 42.
[191] For more details, see Amy Tsao, "Carly Fiorina's Next Big Challenge," Business Week online, August 22, 2003; Pui-Wing Tarn, "Man on the Hot Seat at HP's Struggling Enterprise Unit," Wall Street Journal, August 19, 2003, pp. B1 and B5.
[192] Pui Wing Tarn, "Hewlett-Packard Board Considers a Reorganization," Wall Street Journal, January 24, 2005, pp. A1 and A5.
[193] Jesse Eisinger, "Carly Fiorina Fails at Hewlett-Packard After Betting Badly," Wall Street Journal, January 26,2005, pp. C1 and C2; Ben Elgin, "Carly's Challenge," Business Week, December 13, 2004, pp. 98–108.
[194] Alan Murray, "HP Lost Faith in Carly, But Not in Merger," Wall Street Journal, May 24, 2006, p. A2. Fora sampling of the many articles on this newsworthy story, also see Chana R. Schoenberger, "Carly Resur-rected," Forbes, July 24, 2006; Christopher Lawton, "Hewlett-Packard's Net Income Increases 51%," WallStreet Journal, May 17, 2006, p. A3.
[195] Marilyn Geewax, Cox News Service, as reported in Cleveland Plain Dealer, September 29, 2006, pp. C1 and C5.
[196] Hardy, p. 81.
[197] HP's 2002 Annual Report, p. 23.
[198] Pui-Wing Tarn, "Fallen Star: HP's Board Ousts Fiorina as CEO," Wall Street Journal, February 10, 2005, pp. A1 and A8.
[199] "Fiorina's Commencement Address," Business Week. May 5, 2009."
[200] John Fund, "She Wants to Reboot California," Wall Street Journal, Saturday November 28, 2009, p. A13.