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Don't Mess With Carly

July 1, 2003
Related Topics: Corporate Culture, Change Management, Mergers and Acquisitions, Featured Article
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It’s a warm spring morning in May and Carly Fiorina, CEO of Hewlett-Packard Company, is in her element. It has been exactly one year since the company’s controversial merger with Compaq Computer, and the high-tech rock star is on stage celebrating with the announcement of major new products. Inside the San Jose Convention Center, dozens of journalists capture her words in notebook computers as Fiorina, speaking without a single note, details the highlights of the new software and services. She’s direct. She’s articulate. And she makes her points without revealing a trace of humor or personality. She’s a well-rehearsed businesswoman with a buttoned-down message to customers that echoes HP’s new marketing theme: "Demand more."

It’s a daring slogan for a company that promises to meet the demands of the most demanding IT customers. But the words could also describe Fiorina’s own management style. Opinions vary on the stylish 48-year-old leader with the multimillion-dollar paycheck, who has been described as everything from brilliant and visionary to arrogant and self-serving, but on one point people agree. Carly Fiorina--who rises at 4:30 a.m. and routinely puts in 16-hour workdays--is a furiously driven executive who expects the very best from herself and her 141,000 employees.

"She’s not in our offices every day beating on us, but she expects us to be on top of what we’re doing," says Shane Robison, executive vice president and chief strategy and technology officer. "She believes our culture should be based on performance, self-motivation and high achievement."

Those high standards have had an extraordinary impact on HP’s workplace. When she arrived in 1999, employees were used to working for a company in which layoffs were exceedingly rare. Today, pink slips are common. By the end of October, 17,900 people will have lost their jobs. One disgruntled veteran, who has been at the company for 20 years, declares, "Employees are now viewed as assets or tools, no different than machines or buildings."

When Fiorina arrived, HP was a flat, decentralized company, and individual departments were given a great deal of autonomy. Decisions were made by consensus, or not at all. Today, HP is a tightly coordinated corporate machine where the most important decisions come from the top. "Before, we never talked about members of the executive council (a team of senior vice presidents who report directly to Fiorina)," says Renee St. Denis, general manager of product recycling solutions. "Now we not only know who they are and what they do, we know they have ‘super votes’ that can override others."

Under Fiorina’s tutelage, HP also conducted the largest technology merger ever: the $19 billion deal with Compaq Computer. It initially was criticized, in part because HP’s khaki-wearing, laid-back culture was so vastly different from Compaq’s caffeine-fueled Type A workforce. Today, the merger is hailed as one of the finest ever. Even Tom Ridge, director of Homeland Security, has sought Fiorina’s advice on how to merge 22 disparate government agencies into one forward-thinking organization.

Wall Street likes what it sees, too. "From a financial point of view, it looks as though the increased centralization and focus on performance are working to integrate HP with Compaq," says Joe Beaulier, a Morningstar, Inc. stock analyst.

A predatory animal
    As her example demonstrates, organizational change really does start at the top. HP today is a different and more predatory animal than it was four years ago, and the culture mirrors Fiorina’s own style. HP is driven, decisive, customer-focused and successful. In the first quarter of this year, four out of five of the company’s business segments were profitable, despite the fact that the technology sector remains depressed. Second-quarter earnings handily beat Wall Street estimates. And in April, the company signed its largest contract to date: a $3 billion deal with Procter & Gamble. As James J. Cramer recently wrote in TheStreet.com, "It wasn’t supposed to be this good. Hewlett-Packard should have screwed up."

Carly Fiorina was hired by HP’s board of directors to turn around a company that was desperately in need of change. HP had become sluggish. It had failed to capitalize on the personal computer and Internet revolutions, and missed nine quarters in a row during the biggest technology upturn ever. Hopes were high for Fiorina, who, unlike her predecessors, was not an engineer or HP insider. She was a willful, market-focused executive skilled in major organizational change. Just three years earlier, she had orchestrated the spin-off of the 120,000-employee Lucent Technologies from AT&T. But just because HP needed to change, that didn’t mean employees were ready for it. From the get-go, Fiorina’s slick market-savvy focus was at odds with the company’s relaxed engineering culture.

"In the old days, when HP execs would visit, they would rent a car from Hertz," says a management employee from the Fort Collins, Colorado, plant. "But Carly traveled in a stretch limo; she wanted to be treated like a movie star."

"Previous CEOs talked about the company as a we," says Barton Coddington, a former employee who now works for the company as an independent contractor. "Carly may have used the word I too much."

But if Fiorina had difficulty in her new role before the merger announcement, it was nothing compared to what came afterward. She announced the proposed merger with Compaq in September 2001. She liked the company because it was strong in areas that HP wasn’t, including data storage and direct sales. Compaq was also known for its speed and customer focus--characteristics that were glaringly absent from HP. "HP was more analytical and methodical," says a former Palo Alto employee, "which means they moved a lot more slowly."

The reaction to the merger was immediate and negative. Overnight, HP’s stock price tumbled 19 percent. Shareholders and heirs of the company’s founders resisted the plan. So did employees. An external poll revealed that they objected to the deal by a 2-to-1 margin. To make matters worse, just days after the announcement, the terrorist attacks of 9/11 occurred, pushing the already depressed technology sector into a heart-stopping free fall.

Despite the enormous challenges, Fiorina held firm. She was the HP outsider who saw what needed to be done, the courageous executive unafraid of naysayers. As she told members of the Wharton Club of Northern California in March, "If you start making decisions on the basis of conventional wisdom or chatter in the hall, generally speaking, you will make the wrong decision."

Up for the task
    To understand this complex, risk-taking woman, one must go to Austin, Texas, where she was born in 1954. Cara Carleton Sneed--the nickname Carly came along in high school--didn’t follow the course you might expect of someone at the helm of a multibillion-dollar international enterprise. Her mother was an abstract artist and her father was an itinerant law professor who taught at Stanford and other universities. As a child who lived in London, Ghana, Palo Alto and other places, Fiorina grew accustomed to being the new kid on the block.

She graduated with a degree in medieval history from Stanford. She then attended law school for one semester at UCLA, dropping out--she once told Investor’s Business Daily--after learning that law "was all about discovering precedent someone else has set." As a young adult, Fiorina was briefly married, taught English in Europe and worked as a receptionist for a commercial brokerage firm. It was there, while writing deals for brokers, that she became captivated by business. After obtaining an MBA in marketing from the University of Maryland, she landed a job as a sales rep for AT&T, and quickly rose through the ranks. In 1994 alone, she received three large promotions.

In 1995, she accepted one of her most challenging assignments to date: to execute the spin-off of Lucent Technologies. "Fiorina brought all her attributes to the task," says Peter Burrows, author of Backfire: Carly Fiorina’s High-Stakes Battle for the Soul of Hewlett-Packard (John Wiley & Sons, 2003). These included "her capacity for hard work, her gut instincts and her ability to build and motivate a team."

Anyone who has worked with Fiorina will say she’s "scary smart" and relentlessly driven. The only outside interest she has time for is family, which consists of her husband, Frank Fiorina, who retired early from his job as a vice president at AT&T to support his wife’s career, his two daughters from a previous marriage and his granddaughter, whom she calls daily to say good night.

Fiorina no doubt demands so much of others because she expects so much from herself. She’s a white-knuckle flier who travels more than a quarter million miles a year without complaint.

It has now been a year since the merger was finalized, and Fiorina’s impact on the HP culture has been profound. Pre-Carly, HP was a company that concentrated on innovation and product development. Post-Carly, the market reigns supreme. Today, all employees are--or should be--intently focused on customer needs. "Carly is all about the customer, the customer, the customer," says Chandrakant Patel, a principal scientist who’s been with HP for 15 years. "In today’s market we can no longer do pure research. We have to get out and learn what the customer needs so we know what to make next." Patel, who’s talkative and enthusiastic, likes the change but admits that many scientists don’t. "They’d rather work with technology than people," he says.

Customers, of course, love the new mind-set. "In the past, HP had difficulty staying focused on customer needs," says David Thompson, CIO of PeopleSoft, who has worked with HP for nine years. "Carly has been able to turn that around. I’ve been in meetings with her where she’s listened to my needs, and then turned to her staff members and made it clear to them what her expectations were in terms of meeting those needs. As a customer, I like knowing the leadership of the company is in control."

The focus on customers is a 180-degree shift from the way decisions used to be made, says Susan Bowick, executive vice president of human resources and workforce development. And employees are being held accountable for making the shift. On Fiorina’s watch, the profit-sharing plan has been eliminated in favor of a performance bonus that is based on financial and customer metrics. "The idea is to hold employees accountable for displaying behavior that results in increased customer loyalty and fewer at-risk customers," she says.

But in addition to serving customers more effectively, employees are being asked to perform at a higher level for the company overall. An HP middle manager from Fort Collins, who like Fiorina once worked at Bell Systems, says that "Carly instituted the concept of automatically firing the bottom 5 percent of performers." That’s the way it was at Bell. "But HP never did that. If someone was a poor performer, they were given a year to turn around."

Bowick agrees that the company’s philosophy is different, and for good reason. "HP has always had a performance distribution system, but if you looked at where folks were placed, we were not dealing with unacceptable performance. We had literally nobody ranked as ‘improvement needed,’ " she says. "Prior to the recession, quite a few companies, including GE, Cisco and Intel, used performance distribution as an ongoing way of refreshing the workforce," Bowick says. "But we’d never put teeth into that practice. When we started ranking, we made it clear to employees that the hurdle had been raised, and that we would terminate people who did not have competitive skills. Carly wanted to make sure people would be rewarded and promoted based on results, not other factors such as longevity or who they knew."

More than 16,000 jobs have been cut since 2001--the majority of them related to the merger--and those job losses have escalated the workload of remaining employees. "The idea of work/life balance is a joke," says a manager in one of HP’s product groups, who routinely puts in 60-hour workweeks.

"Everyone is working harder now," Bowick concedes. "A lot of jobs just aren’t doable in a 40-hour week, and people have to be willing to make that choice for themselves. For some of us in key jobs, work/life balance is not a goal to have."

Perhaps the biggest change since Fiorina’s arrival is the loss of the company’s decentralized consensus-based culture. Long-term employees don’t like the transformation. "It’s now a top-down, do-as-I-say company," says a 25-year veteran of the technical staff.

But for others, the change is welcome. "HP had a very consensus-driven style," Barton Coddington says. "This may have worked when the company was small, but as it grew, it was taking too long to get things done. It was difficult to get any large-scale programs off the ground because all the power was concentrated at lower levels."

Renee St. Denis adds that in the old days, nothing got done when there was no consensus. "Today, the reality of the corporate caste system has set in, and that’s a good thing. You need hierarchy--a final decision-maker--to get things accomplished."


"Before, people were reluctant to make decisions until they had all the facts. Carly has changed that.
She’s made it okay for people to take risks and go with just 80 percent
of the data."

Decisions at HP are also made more quickly now, St. Denis says. "Before, people were reluctant to make decisions until they had all the facts. Carly has changed that. She’s made it okay for people to take risks and go with just 80 percent of the data. For example, I work in product recycling, and our work is leading edge. Instead of making us churn out a business case for everything we do, Carly says just go ahead because recycling inherently makes sense."

Keep The best, Dump the rest
   
The sweeping changes that have taken place at HP were accelerated by the merger with Compaq. That was part of Fiorina’s plan, says Webb McKinney, executive vice president, merger integration and organizational effectiveness. Compaq was stronger than HP in many areas, he says, including speed, customer focus and agility.

"Her approach was to keep the best and do away with the rest," McKinney says. Instead of wasting time trying to blend the cultures and create something new, she challenged the integration team, which was composed of representatives from both companies, to determine which company had better products, processes and people in a given area and run with them. Compaq, for instance, had a better sales force, so many of the top sales jobs in the newly merged company went to former Compaq employees.

The strategies are working. Last December, the company achieved $2.5 billion in merger-related cost-savings 18 months ahead of schedule. In January, HP’s personal computing business reclaimed the No. 1 market share in the global PC industry. And in May, HP took the top worldwide position in total server revenue away from IBM. "This is an integration story I believe will go down in history as one of the finest," says Larraine Segil, president of The Lared Group, a Los Angeles-based strategic alliance consulting firm, who has researched the merger.

Of course, not everyone is happy with the merger or with HP’s new culture. "It’s a culture of fear right now," says a former director-level employee who provides consulting services to the company. "Nobody believes their job is secure, and it’s become habitual to wonder when your number is going to come up."

Bowick acknowledges that morale is suffering in some parts of the company. Mid-level managers who were used to running their own empires now have to coordinate their activities. And the back-office employees who weren’t accustomed to interacting with customers now have to exercise those skills. "If we hadn’t gotten a CEO like Carly, I would have left because we were gradually winding our way into an also-ran," the 26-year HP veteran says. "We were not relevant, we were not competitive, and employees had given up hope. It was a great company, but it was dwindling."

On May 1, Standard & Poor’s raised HP’s credit rating to "stable," citing its strong financial profile, and in June, financial analyst James Cramer urged readers to buy HP stock because of its "gigantic cash flow and a chance for a big boost in the dividend." With such high-profile endorsements, Carly Fiorina’s Hewlett-Packard dwindles no more.

HP'S WAY

Pre-Carly Today
There were no mass layoffs To date, 16,000 people have been downsized
Employees were nurtured Employees must meet bottom-line performance goals
There was great respect for competency; little respect for rank Rank and competency matter
Decisions were made by consensus Decisions are often made at the top--quickly
Managers and departments had a great deal of autonomy Departments have to coordinate their efforts
The organizational structure was flat The structure is more hierarchical; the executive council has greater authority
The focus was on products and engineering The focus is on sales and customers
Research and analysis were important Research and analysis are still important; but so is speed
Risk-taking was frowned upon Risk-taking is encouraged

Workforce, July 2003, p. 15 -- Subscribe Now!

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