HP has proven to be a successful company but the recent recession, strong competitors, and expectations of stakeholders for improvement has initiated some problems within the company. This report examines some leadership issues at HP and proposes solutions for them. An organization’s leadership plays an important role in defining the ethical values, innovation standards and its culture.
An organization’s culture can become more of a liability when the shared values are not in agreement with the leaders that will further the organization’s effectiveness, especially when they are hired externally and not properly socialized into the organization’s core values. HP experienced similar negative impact with the initiation of external hiring trend for CEOs in 1992. We suggest the implementation of an “Executive Socialization Plan” to prepare new Chief Executives for their roles as leaders at HP.
The high turnover rate of leadership at HP due in part to ethical issues was initiated by the 2006 spying scandal and has continued to date. To ease the negative impact of these issues and to prevent them in future the leadership at HP should implement “Values based Decision making model”.
Problems surrounding the HP’s creativity emerged with Fiorina’s centralization of the company. The company has been making efforts to revert back to their creative roots with new products. In order to sustain this momentum and help propel HP back to its success in creativity and innovation we recommend that HP revert to its decentralized structure, making each product line independent and autonomous. HP should also increase its R&D budget in order to keep up with rapidly developing IT industry.
Hewlett Packard: Changing of the Guards
INTRODUCTION
HP was founded in 1939 by classmates Bill Hewlett and Dave Packard. The company has come a long way since its first product, an audio oscillator, which was built in a Palo Alto garage (Hewlett-Packard, 2010). Since then, the company has created a staggering amount of new products and services that has ultimately led to its expansion and success today. HP’s success is largely due to the shared corporate values which were set by its founders. These values are based on results driven through teamwork, meaningful innovation, uncompromising integrity, and a passion for its customers, (Hewlett-Packard, 2010).
It is these values that have enabled the company to continue to not only thrive in an extremely competitive market, but to drive its brand to one of the most recognizable household names in the world (Hewlett-Packard, 2010). Unfortunately throughout the past decade, HP has not been able to adhere to its own company standards. Since 1999, HP has seen three different people take the leadership position as the company’s CEO. As a result, various problems have arisen that have not only affected the company financially, but have also destroyed the reputation that the founders have strived so hard to build.
This report analyzes the impact that HP leaders have had on the company. The first section of the report discusses past cultural, ethical, and creative problems that occurred under the leadership of Carly Fiorina and Mark Hurd. The second section discusses current problems that have occurred under the current CEO Léo Apotheker. It also considers future problems that may arise if no changes are made. The third section of the report discusses organizational behaviour related solutions to HP’s cultural, ethical, and creative problems. Lastly, the report contains an implementation plan that will facilitate the execution of our recommended solutions.
PAST PROBLEMS
Culture
With the hiring of Carly Fiorina as HP’s new CEO in July 1999, the corporate culture and core values of HP began a dramatic change. Fiorina, an executive with AT&T prior to joining HP in 1999, brought her expertise in marketing and public relations (Hewlett-Packard, 2005). She had an impressive track-record of being a successful leader and manager beforehand. Unfortunately, her marketing and PR specialties did not agree with the operations and the mindset that was already endowed upon the technical, engineering based organization. One of Fiorina’s first major projects as the new CEO was facilitating the acquisition of Compaq. She viewed the acquisition of Compaq as a way to give HP the ability to rival IBM in size and revenue (Taylor, 2001).
Although financial advantages may be the initial attraction of an acquisition, whether the acquisition actually works seems to have more to do with how well the organizations’ cultures match up (Langton, Robbins, & Judge, 2010). Compaq had previously experienced a bad merger with Digital Equipment Corp and the two companies were never able to successfully merge their individual work cultures (Taylor, 2001). Consequently, when HP acquired Compaq, the organization had to manage the merger of three separate work cultures. Mergers and acquisitions can blur the lines of authority and make it unclear as to where employees fit in (Langton, Robbins, & Judge, 2010). This ambiguity can make it difficult for employees to form a unified culture and the company can suffer as a result. Financially, HP’s acquisition of Compaq was unsuccessful and caused HP’s share price to drop drastically (OS News, 2005). This could have been partially due to HP’s inability to successfully integrate its culture with Compaq’s.
The corporate culture continued to change when Mark Hurd replaced Carly Fiorina as HP’s CEO in March 2005. Prior to his position in HP, Hurd was the CEO of NCR Corp. (Hewlett-Packard, 2010). Hurd’s management style was that of aggressive cost-cutting, exemplified by the 15,000 layoffs made shortly after becoming CEO (Gustin, 2010). Hurd was successful in raising profits and steering HP in a more economically beneficial direction. Under his leadership, HP reported a 25% jump in profit (Gustin, 2010). However, these financial benefits proved to be short-term because Hurd’s strategy of improving HP’s financial position largely came from cost cutting and financial discipline (Madden, 2010).
The large cost cuts and employee lay-offs were unfavourable with many of the company’s personnel and consequently led to a sense of unease and distrust among employees (Thibodeau, 2010). Hurd’s management of HP allowed the company to survive and grow during the recent recession (Thibodeau, 2010); however, it seems that Hurd did not account for its effects on HP’s core values. He redirected the company’s objective from innovation, as set out by its founders, to one that focused on cost-cutting (Thibodeau, 2010).
Ethics
Leadership can be considered one of the most important aspects in of any company. Organizational success often starts at the top; therefore it is vital to understand that a good ethical culture does as well. Ethical and moral leadership facilitate the creation of a healthy and successful organizational culture (Costa, 1998).
Under Hewlett and Packard’s leadership, HP was considered to be a center of excellence for its ethical culture. In 1976, David Packard claimed that any employee would be fired if they were disc problems. Specifically, HP’s previous CEO Mark Hurd and members of the Board of Directors have been accused of various issues (Stewart, 2010). In 2006, HP’s Board of Directors was caught up in a scandal involving leaks and spying on reporters. As a result, HP faced the California Criminal Court and later Federal criminal charges were brought up due to these spying scandals. Ultimately, the chairperson and several board members resigned due to these issues (Open, 2010).
In early August 2010, Hurd was forced to resign as he was facing various accusations. These included filing false expense reports (Stewart, 2010) and lying to the Board of Directors (Menn, 2010). Additionally, Hurd was involved in a sexual harassment scandal with Jodie Fisher, a former HP contract employee (Schumpeter, 2010). Hurd’s recent resignation has brought up many ethical considerations for the company. His alleged sexual harassment case along with his lack of moral leadership has created many ethical problems, which ultimately affected his credibility. Although Hurd positively affected the company in terms of operational growth and efficiency, his unethical behaviour outshone any benefits he brought to HP.
Creativity
Many problems emerged when Carly Fiorina became HP’s CEO in 1999. She reorganized HP’s organizational structure from 83 product divisions to six centralized divisions. Before her arrival, each product division was largely independent, and responsible for its own research and development (“R&D”), production, and sales. After the reorganization, product development was reduced to three divisions – printers, computers and tech support, while the other three divisions focused on marketing and sales (Eduljee, 2007). The restructuring separated the product development and manufacturing divisions from the customers, as the marketing and sales divisions were now in charge of selling the products.
Therefore, the product divisions got most of its feedback from the sales division, to make their products more “sell-able” rather than meet customer’s requirements, and HP focused more on marketing and selling products rather than developing them. Analysts have stated that HP products became more “ordinary” and emphasized more “style rather than substance” (ICMR Case Studies, 2001). Centralization also concentrated HP’s decision making among the top management which reduced the
autonomy of each product division. This further reduced the company’s ability to produce innovative products, as HP’s top management was focused more on the financial aspect of the company, rather than its technical foundations (ICMR Case Studies, 2001). Hurd’s cost cutting strategies reduced HP’s R&D from 4.5% of its revenue in 2005 to only 2.2% as of 2010. HP also terminated development projects on improving many of its products (Krazit, 2005). As a result, HP lost its ability to produce innovative products, which it was previously known for. HP had become a “generic company” instead of a trend-setter (Ante, 2010). In addition, HP’s latest costly acquisition of data-storage provider 3PAR was attributed to the termination of its own data-storage development project (Yarow and Angelova, 2010). Analysts argue that HP’s cutting costs on its R&D would actually cost them more in the long run (Sherman, 2010).
CURRENT AND FUTURE PROBLEMS
Culture
HP’s current CEO, Léo Apotheker joined HP on November 1st, 2010. Earlier, he was CEO of SAP and was also hired externally. Apotheker may not be the best fit for HP’s leadership position due to the cultural and strategic differences between SAP and HP (Valentino-DeVries, 2010). SAP has a very rigid culture and centralized business structure with only one product line to look after. On the other hand, HP is a more decentralized company that focuses on a number of different product lines (Valentino-DeVries, 2010). This does not help the difficult cultural transition that HP must make once again with a new leader. In the highly competitive IT industry, HP is still continuing to purchase companies and consequently purchase new cultures as well. With the additions of many new cultures, both large and small, HP may continue to have issues with keeping its culture alive while trying to preserve the positive aspects of other companies that they acquire.
Ethics
Important ethical issues have arisen under HP’s current CEO Léo Apotheker. Apotheker has recently been accused of being involved in the theft of Oracle’s software while he was CEO at SAP. SAP has been accused of illegally downloading mass amounts of software and using it as their own products (Finkle, J., 2010). As the new CEO, Apotheker’s objective is to bring back stability and credibility to HP; however Apotheker is already facing ethical challenges regarding his own credibility due to the accusations surrounding Oracle software. Currently HP is facing a lot of trust and loyalty issues relating to Shareholders. If they do not improve their ethical culture they may not be able to gain the lost trust again.
Creativity
The same creative problems continue under Apotheker’s new leadership. HP’s centralized structure has created a gap between customers and product developers. The product divisions in charge of manufacturing and developing HP’s product lines are separate from the marketing and sales division involved in selling them. This negatively affects their ability to innovate their products, as it takes a longer time for the developers to get customer feedback. Moreover, the developers have to meet the sales division’s requirements, which are more focused on saleability rather than innovation (Eduljee, 2007). What HP needs is more innovation and there are doubts on whether Apotheker will be able to provide it. Critics believe that Apotheker’s enterpriseoriented perspective will not help HP in its shift in business applications. The IT industry is continuously and rapidly evolving, and HP should continue to develop and improve its products to keep up with its competitors.
RECOMMENDATION
HP has been facing many leadership related issues and has consequently lost credibility. They are facing challenges maintaining their corporate culture and creativity in innovation. HP needs an environment where they can promote their open culture and the creativity that they had years ago while possessing an ethical and moral face of leadership that will be helpful in improving their credibility and building trust amongst their investors and clients. HP needs Moral Leadership (Costa, 1998 – See Appendix A).
Although Léo Apotheker has been hired as HP’s new CEO, his hiring has been recent enough that his ability to harm the organization’s culture, ethics, and creativity has not been devastating. Decisions can still be made that will have positive effects. Our analysis of HP reveals that large problems in culture, ethics, and creativity stem from the organization’s leader, its CEO. For this reason, we believe in adopting change in a “top-down” approach beginning with HP’s upper management (its Chief Executive and its Board of Directors). Employees are required to be socialized by the organization in order to help them adapt to company values and ensure their fit (Langton, Robbins, & Judge, 2010). Socialization on the executive level is equally, if not more, necessary and must be handled differently as the organization has a tendency to follow the direction of its leader. For this reason we propose an “Executive Socialization Plan”.
To be implemented by the board of directors, the Executive Socialization Plan requires board members to be proactive in educating new Chief executives or leaders as they enter HP. They must be careful not to force or impose rules on new Chief Executives as this may strip away ideas and innovation that the person already has, but rather educate in a non-invasive way (Fondas & Wiersema, 1997). After a candidate has been hired, certain expectations of the new Chief Executive by the organization should also be clearly set (role requirements) such as performance expectation and managerial discretion. These requirements are meant to provide a base for the individual to set their own goals and should not be imposed so strongly as to prevent the CEO from exploring creative opportunities and changes in company operations to suit their vision for HP.
As technology has evolved, the way Chief Executives decide to operate and present their organizations, and themselves, evolve as well. In today’s modern era of social networking and instant information via the internet, executives have the opportunity to reach and address all their stakeholders (employees and shareholders alike) at the touch of a button. From a public relations point of view, there is no better spokesperson for an organization than its CEO (Liu, 2010). Surprisingly, over 64% of CEOs have no online engagement with external stakeholders (Shandwick, 2010 –see Appendix B). HP has the opportunity to once again set the standard, not only with its products, but with its operations. We suggest that HP take advantage of this statistic and use social media as a proven method to reach its stakeholders. The most effective medium is video, and can be easily incorporated as a blog on the company website or YouTube channel (Liu, 2010). Even blog posts as rare as annually have shown to increase interest and trust among a company’s stakeholders (Shandwick, 2010). By using these mediums to update and interact with stakeholders on a regular basis, CEOs will be able to form a more personal connection not only with shareholders and the public, but also its thousands of employees thus garnering trust and effectively showing an effort by HP to surge ahead of its competition yet again. Should HP decide to hire a new Chief Executive, we recommend reviewing the screening process prior to deciding on a candidate. Board members and HP’s Human Resource department must proactively work together in setting strict criteria and expectations for the ideal candidate. Having set criteria that is agreed upon for hiring individuals is necessary in ensuring that qualified professionals are recruited and that the rest of the organization, including shareholders, can trust that their employees are an adequate fit in the company. Hiring an
individual to lead a multi-national corporation with thousands of employees and shareholders is an important process with lasting implications and should be handled as such. Criteria should be based on factors including (but not limited to):
Amount and type of previous experience
Similar prior positions
Ethical history in past jobs
Culture/management style in past leadership roles
Career Path
Level and type of education
Personal characteristics including locus of control and self-efficacy
(Fondas & Wiersema, 1997).
Aristotle suggested in Nichomachean Ethics that morality cannot be learned by
simply reading it. It can only be learned by witnessing the moral conduct of other people. This is called “patterning” or “mentoring” (Gini, 1997). Tom Peters and Bob Waterman stated: “The real role of leadership is to manage the values of an organization” (Tom Peters, 1982). The mentoring
9
Hewlett Packard: Changing of the Guards
described by Gini can be extrapolated to provide a “Values based Decision making model”: This is an ongoing and interactive training provided to all employees of an organization to get a sound understanding of the ethical codes of conduct of the organization and should help them how they decisions can comply to those codes (L.Craft, 2010). The employees should be trained how to make business decisions according to the ethical code of conduct of the organization (L.Craft, 2010). A sample could be:
1. Does this decision have strategic clarity? i.e. does it promote innovation in the organization, does it promote respect for all relationships involved. 2. Does this decision promote respect and dignity? i.e. does it promote job safety and dignity for all the related employees?
3. Does this decision promote fairness? i.e. does it promote fairness of wages and intellectual rights of all the parties involved?
4. Does it promote honesty? i.e. does it promote transparency and integrity within the organization?
5. Does it promote Justice? i.e. does it provide equitable opportunities and rewards for all?
This training should be interactive like any other technological or cultural training of the organization. It should involve real life decision making cases and help the trainees identify the decisions appropriate to the ethical code of conduct. Caffarella and Barnett (1994) supports interactive learning model for adult learners. The adults need acknowledgments, use of prior knowledge and active involvement in learning. As all employees are adults they will benefit more if the ethics training is done in an interactive manner (L.Craft, 2010). In correcting its cultural and ethical characteristics, HP will be able to re-establish the trust it has lost from their lack of ethical standards in their past Chief Executives (Kinick and Kreitner, 2008).
As a company in the extremely competitive IT industry, creativity and innovation are necessary qualities that HP must gather in order to succeed. We believe that a reversion to a more decentralized organizational structure, as it was before, would be beneficial. Decentralized structures are characterized by the degree to which control and decision making is distributed to lower-level employees. Product divisions should be integrated with sales and marketing, and each product line should be responsible for the development, manufacturing, marketing and sales of its products thus allowing more independence and autonomy within the divisions. This would lead to better customer feedback specific to each division and will enable them to develop products that are more suited to customer requirements instead of meeting the specifications set by the marketing and sales departments.
A decentralized structure would also give the divisions more freedom in decision making. It is important for the product divisions to have their own discretion in decision making rather than having upper management decide for them since they are more knowledgeable about their products. This may increase job satisfaction among employees as it will result in a horizontal hierarchy, where the lower-ranking employees are more empowered and involved in decisionmaking. (Langton, Robbins and Judge, 2009). HP should also increase its R&D budget to increase its ability to invent and innovate. HP’s current R&D budget of 2.2% of its revenue, or $2.96 billion, puts it behind its competitors (IBM’s R&D budget is $6 billion or 6% of its revenue) (Nagarajan, 2010). R&D is critical for companies dependent on technology, such as HP, since their products quickly become obsolete and must be continuously improved.
CONCLUSION
From its humble beginnings in a Palo Alto garage, HP has made significant leaps in making itself a leader and a successful brand in the IT industry. By developing a culture based on creativity, innovation, and customer satisfaction, HP experienced massive gains in profit and market share, and was considered to be a leading example of corporate success. However, due to recent problems in leadership, the company has experienced substantial financial losses, decline in customer satisfaction and an increasingly negative public image.
Cultural, ethical, and creative problems have arisen under both Carly Fiorina and Mark Hurd. Unfortunately, these problems continue under Leo Apotheker, the current CEO of HP. As a result, HP suffers from cultural ambiguity and a negative ethical image. HP’s R&D also suffers due to the lack of attention to innovation. In order to fix these problems, HP should focus on developing moral leadership. Moral leadership can be implemented by following a specific timeline using the top-down approach. HP needs a CEO who is ethical and moral because an organization’s leader influences the actions of its employees and also represents the company to the outside world. Additionally, HP needs a CEO who understands the importance of a unified corporate culture and the importance of development and innovation. Once moral leadership is achieved, HP will be able to drive and maintain success in all aspects as the company will be respected both internally and externally.
CITATIONS
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http://blogs.wsj.com/digits/2010/10/01/live-blogging-as-h-p-explains-ceo-decision-toanalysts/tab/liveblog/ Costa, J. D. (1998). Ethical Imperative: why moral leadership is good business. Toronto: HarperCollins Publishers Limited.
Craft, J. (2010). Making the case for ongoing and interactive organizational ethics training. Human Resource Development International, 509-606.
Dawn Kawamoto, T. K. (2006). HP outlines long-term strategy. CNET News. Eduljee, Ed (2007): HP: Hewlett Packard’s Corporate Governance Woes. Heritage Institute Finkle, J., (2010, November 3). HP’s new CEO to testify at Oracle-SAP trial. Reuters. Retrieved from http://in.reuters.com.
Fondas, N. & Wiersema, M. (1997). Changing of the Guard: The Influence of CEO Socialization on Strategic Change. Journal of Management Studies, 3-23.
Gini, A. (1997). Moral Leadership and Business Ethics. Journal of Leadership and Organizational Studies, 64-81.
Gustin, S. (2010). Hewlett-Packard’s 25% Profit Jump Signals Tech Comeback. Retrieved November 15, 2010, from http://www.dailyfinance.com/story/hewlett-packard-posts-25profit-increase-boosts-outlook/19362606/
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Kinicki, A., Kreitner, R. (2008). Organizational Behavior: key concepts, skills & best practices. Boston: McGraw-Hill Irwin.
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Liu, A. (2010). Socialize your CEOs and Engaging Them Online with Stakeholders. Retrieved November 16, 2010, from http://www.marketingbyann.net/socialize-your-ceos-andengaging-them-online-with-stakeholders Menn, J. (2010). HP’s new chairman accuses Hurd of lying. Financial Times, p. 26.
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Appendix A: Moral Leadership (Costa, 1998)
1. Strategic clarity. HP is currently facing issues related to creativity and innovation of new products (Ante, 2010). The leadership at HP should try to shift their focus more on product development and research rather than marketing and selling them. 2. Respect dignity. With massive layoffs and pay cuts, employees lose trust and confidence in the company. Harsh actions without warning and assistance from the company may result in employees feeling a lack of respect from upper management. 3. Fairness. The leadership at HP was already faced with the challenges of dealing with the inequitable pay amongst different levels of employees (Sherman, E., 2010). This is aggravated by the appointment of the current CEO Leo Apotheker who is accused of being involved with the recent illegal downloading of mass amounts of software and using it as SAP’s own products (Finkle, J., 2010).
4. Honesty. The HP leadership should focus on the decentralization of their structure; this in turn will improve the transparency and access amongst different levels of the hierarchy. If this transparency was imposed before, former CEO Mark Hurd would not have been able to pull off with his filing false expense reports (Stewart, 2010) and lying to the Board of Directors (Menn, 2010).
5. Justice. The leadership at HP should focus more on the justice and equity amongst their employees. The former CEO Mark Hurd was involved in inequitable methods of cost cutting which was discriminative between him and
