Reorganizing HP

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The Fiorina Reorganization

Fiorina immediately introduced several changes, in an attempt to set things right at HP. She began by demanding regular updates on key units. She also injected the much-needed discipline into HP's computer sales force, which had reportedly developed a habit of lowering sales targets at the end of each quarter. Sales compensation was tied to performance and the bonus period was changed from once a year to every six months. HP Labs, the company's R&D center had only been making incremental improvements to existing products. This was because engineers' bonuses were linked to the number, rather than the impact of their inventions. To boost innovation and new product development, Fiorina increased focussed 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 (See Exhibit III). To achieve this plan, Fiorina dismantled the decentralized organization structure.

In early 2000, HP had 83 independent product divisions, each focused on a product such as scanners or security software. The company had 83 product chiefs having their own R&D budgets, sales staff, and profit-and-loss responsibility. In a bid to make HP an effective selling organization, Fiorina reorganized these units into six centralized divisions (See Exhibit IV). Three of these were product development groups - printers, computers, and tech services & consulting (the 'back-end' units) and the other three were sales and marketing groups - for consumers, corporate markets, and consulting services (the 'front-end' units).

The back-end units developed and built computers, and handed over the products to the front-end groups that sold these products to consumers as well as corporations. Fiorina expected the new structure to strengthen collaboration, between sales & marketing executives and product development engineers thus helping to solve the customer problems faster. Industry experts said that 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.

The new arrangement solved a number of long-standing HP problems, making the company far easier to do business with. Rather than too many salespeople from various divisions, now customers dealt with one person. It helped HP's product designers focus on what they did best and gave the front-end marketers authority to make the deals that were most profitable for the company. For instance, now they could sell a server at a lower margin to customers who opted for long-term consulting services. The new R&D strategy resulted in the doubling of patent filings from HP in 2001 to 3000, putting the company among the top three patent filers in the world.

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