Reorganizing HP

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The Fiorina Reorganization Contd...

However, the reorganization soon ran into problems. In the past, 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. Though they were still responsible for keeping HP competitive, achieving cost goals, and getting products to market on time, they had to pass on those products to the front-end organizations responsible for marketing and selling them. With no authority to set sales forecasts, back-end managers were unable to allocate the R&D funds accordingly. At the same time, front-end sales representatives had trouble meeting their forecast if their back-end colleagues came up with the wrong products. With HP's 88,000 employees adjusting to the biggest reorganization in the company's history, expenses had risen out of control. According to one HP manager, "It was frantic. The financial folks were running all around looking for more dollars."

Freed from the decades-old lines of command, employees began spending heavily, with dinner and postage expenses running far over the normal amount. Such lavish spending was rare under the old structure where product chiefs kept a tight control on their expenditures.

Analysts also claimed that 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. Neither would the executives responsible for selling thousands of HP products be able to give sufficient attention to each of the products. Moreover, while productivity-linked commissions to the sales force were intended to boost revenues and profitability, they only helping in raised sales for low-margin products that did little for corporate profits.

The new structure did not clearly assign responsibility for profits and losses. With responsibility for growth and profits shared between front-and back-end managers, there was less financial control and more disorder. With employees in 120 countries, redrawing the lines of communication and getting personnel from different divisions to work together was proving very troublesome. According to one HP manager, "The people who deal with Fiorina directly feel very empowered, but everyone else is running around saying, 'What do we do now?'"

HP's customers were not happy either. The front-back reorganization had created confusion internally, and many customers said they had noticed little improvement. According to one computer reseller who had struggled for two months to get HP to work out a customized configuration for one of its new servers, "It's beyond my ability to communicate our frustration. It's painful to watch them mess up million-dollar deals."

HP in Trouble

Apart from these structural problems, Fiorina's tenure reportedly did little to improve HP's business performance. The market share gains made in Fiorina's first year as CEO had begun to recede in late 2000. While HP continued to dominate the inkjet and laser printer business with a 41% market share, its PC share had fallen from 7.8% to 6.9% for the 12 months ended January 31, 2001.

Sales of HP's Windows servers had dropped from 10.6% to 8.2% in the same period. HP did not perform well in the software, storage and consulting businesses where it had only a single-digit market share. However, HP's share of the high-end Unix server business had increased to 28% in the quarter ended January 31, 2001, (up from 23.3% the year before). According to analysts, Fiorina had tried an approach that had never been attempted before at a company of HP's size and complexity. She was accused of being over-ambitious in trying to tackle all of HP's problems together at the same time. They said that putting in place such sweeping changes was tough anywhere - more so in the case of the tradition-bound HP, already suffering from the slowdown in the technology sector.