Restructuring At Hewlett Packard
Chapter 3 cont...
3.2 Restructuring At Hewlett Packard
The Hewlett-Packard Company, commonly referred to as HP, is an American information technology corporation, specializing in personal computers, notebook computers, servers, printers, digital cameras, and calculators, network management software, among other technology related products.
Stanford University classmates Bill Hewlett and Dave Packard founded HP in 1939. The company's first product, built in a Palo Alto garage, was an audio oscillator—an electronic test instrument used by sound engineers. One of HP's first customers was Walt Disney Studios, which purchased eight oscillators to develop and test an innovative sound system for the movie Fantasia.
Surfacing of the Problems
- Notwithstanding the efforts made by the top management to generate synergies across divisions, the decentralized structure that HP had, till the 1980s, created major problems for the company.
- HP began to be perceived by users as three or four companies, with little co-ordination between them.
- In 1990s, HP found that its elaborate network of committees was slowing down its ability to take quick decisions - slow decision-making. To solve this problem, the then CEO John Young, dismantled the committee network and also cut a layer of management from the hierarchy. He further decentralized decision-making and divided the computer business into two primary groups. One group was made responsible for PCs, printers and other products sold through dealers and the other for work stations and minicomputers sold to large customers.
- With the growth in size of operations - 83 different product divisions, the bureaucracy had increased significantly. This bureaucracy was hindering innovation as well.
- The company's stagnant revenues and the declining profit growth rate in 1998 compounded its problems.
- HP's culture, which emphasized teamwork and respect for co-workers, had over the years translated into a consensus-style culture that was proving to be a sharp disadvantage in the fast growing Internet business era.
Restructuring Activity by the New Ceo .Carleton S. Fiorina
- Fiorina began by demanding regular updates on key units. She also injected the much-needed discipline into HP's computer sales force.
- Sales compensation was tied to performance and the bonus period was changed from once a year to every six months.
- To boost innovation and new product development, Fiorina increased focus on "breakthrough" projects. She started an incentive program that paid researchers for each patent filing.
- Fiorina developed a multiyear plan to transform HP from a "strictly hardware company" to a Web services powerhouse. To achieve this plan, Fiorina dismantled the decentralized organization structure.
- Fiorina reorganized the units into six centralized divisions. She expected the new structure to strengthen the collaboration, between sales & marketing executives and product development engineers thus helping to solve the customer problems faster. This was the first time a company with thousands of product lines and scores of businesses had attempted a front-back approach, a strategy that required laser focus and superb coordination.
Negative Repercussions
1. Earlier HP's product chiefs had run their own operations
from designing of the product to providing sales and support.
In the new set-up, they had a very limited role.
2. In the new structure, the back end product designers would
not be able to stay close enough to the customers to deliver
products as per their requirements.
3. While productivity linked commissions to the sales force
were intended to boost revenues and profitability, they only
helped in raising sales for low margin products that did little
for corporate profits.
4. The new structure did not clearly assign responsibility for
profits and losses. There was less financial control and more
disorder.
5. With employees in 120 countries, redrawing the lines of communication
and getting personnel from different divisions to work together
was proving very troublesome.
6. The front back reorganization had created confusion internally.
7. These changes had affected employee morale. Many employees
had lost faith in Fiorina?s ability to execute her restructuring
plans.
Analysis
What went wrong at HP?
Improper Implementation of Restructuring Strategies - Sweeping changes were initiated in a very short span of time without allowing employees time to understand the changes in the spirit in which they were introduced & adjust to the same.
Improper Allocation of Authority & Lack of Coordination - This can be substantiated by the following reasons:
- With no authority to set sales forecast, back-end managers were unable to allocate the R&D funds effectively.
- At the same time, if the back-end colleagues came up with the wrong products - because of their lack of close association with the customers - the front-end sales representatives had trouble meeting their forecast, thereby not being able to contribute positively to the corporate financial objectives.
Top down Management Approach & Autocratic style of Leadership by C. FIORINA - According to some analysts, the major reason for the shortfall in HP's revenues was Fiorina's aggressive management restructuring.
Improper Timing: The time chosen for initiating Business Restructuring was inappropriate as there was a global slowdown in the technology sector.
Lack of Prioritization - Fiorina was accused of being over-ambitious and trying to tackle all of HP?s problems together at the same time.
