Reorganizing HP

ICMR regularly updates the list of free cases. To view more free cases, please visit our site at frequent intervals.

"If there are people who thought it would be over and done within 12 months, I would have said to them that they do not have an appreciation for what it takes to change a very large, very complex, very successful company -- because this company has been successful for decades."

- HP CEO, Carly Fiorina, commenting on the restructuring, in February 2001.

 

"She's playing CEO, visionary, and COO, and that's too hard to do."

- BusinessWeek, February 29, 2001.

Reorganizing HP: The Problems

In the mid 1990s, global computer major HP1 was facing major challenges in an increasingly competitive market. In 1998, while HP's revenues grew by just 3%, competitor Dell's rose by 38%. HP's share price had remained more or less stagnant, while competitor IBM's share price had increased by 65% during 1998. Analysts said 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. Analysts felt that instead of Lewis Platt, HP needed a new leader to cope with the rapidly changing industry trends. Responding to these concerns, the HP board appointed Carleton S. Fiorina (Fiorina)2 in July 1999 as the CEO of the company. Revenues grew by 15% for the financial year ended October 2000 (Refer Exhibit I), prompting industry watchers to say that Fiorina seemed all set to put HP's troubles behind for good. However, for the quarter ended January 31, 2001, the net profits were well below the stock market expectations. Soon there was more bad news from the company.

In late January 2001, after forcing a five-day vacation on the employees and putting off wage hikes for three months in December 2000, HP laid off 1,700 marketing employees. By early February 2001, HP's share price fell 18.9%, from $45 in July 1999 to $36.

In April 2001, citing a slowdown in consumer spending, Fiorina announced that HP's revenues would decrease by 2% to 4% for the quarter ending April 30, 2001. She also said that HP would in all likelihood show no growth for the next two quarters. Many analysts and competitors were surprised at this announcement. According to some analysts, the major reason for the shortfall in revenue was Fiorina's aggressive management reorganization. They said that with the global slowdown in the technology sector, it was the wrong time to reorganize.

Things worsened when HP laid off 6,000 more workers in July 2001. The lay-offs came less than a month after 80,000 employees had willingly taken pay-cuts. The management also sent memos saying that layoffs would continue and just volunteering for pay-cuts would not guarantee continued employment. According to company insiders, though these changes were necessary, they had affected employee morale. Many employees had lost faith in Fiorina's ability to execute her reorganization plans.

Next >>

---

1] With net revenues of $48.78 billion, HP ranked 19th in the global Fortune 500 list in 2001. The company was the second largest computer manufacturer in the world, and was the market leader in desktop computers, servers, peripherals and services such as systems integration.
2] The first CEO from outside HP, Fiorina had 20 years of experience at AT&T and Lucent.