Reorganizing HP

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Background Note Contd...

By the early 1970s, HP had grown from a highly centralized, rather narrowly focused company into one with many widely dispersed divisions and activities. HP began to use a concept called 'ocal decentralization,' wherein a division was given the full responsibility for a product line (when it had grown large enough) at a separate, but close, location. HP's organizational charts provided only general guidelines. As one divisional manager said, "In no way do charts dictate the channels of communication used by HP people. We want our people to communicate with one another in a simple and direct way, guided by common sense rather than by lines and boxes on a chart. To get the job done, an individual is expected to seek information from the most likely source. HP systems increasingly include products from different groups and divisions. Even though an organization is highly decentralized, its people should be regularly reminded that cooperation between individuals and coordinated efforts among operating units are essential for growth and success.

Although we minimize corporate direction at HP, we consider ourselves one single company, with the flexibility of a small company and the strengths of a large one - the ability to draw on corporate resources and services, shared standards, values and culture, common goals and objectives, and a single world-wide identity."

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 coordination between them. When users of HP 3000 computers went to buy HP printers, they found that the software loaded on their computers (which were made by another HP division) wouldn't allow them to use it for graphics.

In the 1990s, HP found that its elaborate network of committees was slowing down its ability to take quick decisions, especially those pertaining to new product development. To address this problem, the then CEO John Young, dismantled the committee network, and as a part of reorganization, 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 though dealers and the other for workstations and minicomputers sold to large customers. To enable the company to respond faster to market needs, each group was given its own sales and marketing team. These changes enabled HP to gain market share in workstations and minicomputers, and till the mid 1990s, HP performed well. The company's huge success in printers and PCs had increased revenues from $13.2 billion in 1990 to $38.42 billion in 1996, with profits increasing at a fast pace.

However, with the growth in size of operations, came problems as well. With 83 different product divisions, the bureaucracy had increased significantly. For instance, when Best Buy, a retailing company wanted to buy some computer products, 50 HP employees came forward to sell their units' products. A former executive at HP said, "I left HP because I did not want to spend 80% of my time managing internal bureaucracy anymore." He revealed that he once had to get an operational change cleared by 37 different internal committees. There were reports that the bureaucracy was hindering innovation as well⁴. Managers were often reluctant to invest in new ideas for fear of missing their quarterly goals - HP had not had a mega-breakthrough product since the inkjet printer was introduced in 1984. Despite the lack of new products, Platt did nothing to motivate the product development teams. Instead, he focused on promoting diversity in the workplace and on ensuring a more humane balance of work and personal life for HP employees. Analysts felt that while these efforts were praiseworthy, they did little to help the company face the tough business environment in which it was operating.

Meanwhile, HP spun off its test-and-measurement unit (See Exhibit II) and divided its huge portfolio of products into four divisions - Home PCs, Handhelds, and Laptops; Scanners, Laser Printers, and Printer Paper; Consulting, Security Software, and Unix Servers; and Ink Cartridges, Digital Cameras, and Home Printers. The head of each of these divisions was given the same powers as that of a CEO. However, the company's stagnant revenues and the declining profit growth rate in 1998 compounded its problems. It was at this stage that Fiorina took over the company's reins.

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4] In 1993, a researcher showed Platt a prototype Web browser - two years before Netscape Communications became the first Internet Company to release its Navigator browser. Platt reportedly told to show the same to the company's computer division. Eventually, it was not accepted.