By DAVID P. HAMILTON
Staff Reporter of THE WALL STREET JOURNAL
At a company event in June, Carly Fiorina told employees that she envisions a remade Hewlett-Packard Co. as "a winning e-company with a shining soul."
Pacing back and forth in a smart business suit, pausing only for an occasional sip of bottled water, Ms. Fiorina exhorted employees to "aspirational performance" and asked them to commit "your hearts, your minds and your souls" to her mission. H-P, she said, "must be known as much for its strength of character as it is for the strength of its results."
The staid company long known as the Gray Lady of Silicon Valley has a new chief executive who often sounds like a New Age inspirational speaker. But the first outsider to take the reins in H-P's 60-year history also has used what she calls "well-placed shocks" to goad the technically accomplished but slow-moving manufacturer into the Internet age.
Soon after arriving about a year ago, she unveiled plans for a major corporate reorganization. Her top executives told her it would take a year to pull off; she ordered it done in three months. It was.
Without layoffs or a merger, Ms. Fiorina, 45 years old, aims to overhaul a company of 85,000 employees making everything from scientific instruments and laser printers to "big iron" server computers and PCs.
So far, H-P seems to be responding. The company's revenue growth, which had slowed to just 3% in the late 1990s, has accelerated again to 15%. Its share price has jumped 25% since she took over, to a split-adjusted $111.25, though that is down from its 52-week high of $155.50.
Not long ago, the company seemed in danger of missing the Internet era altogether, as it was overshadowed by such competitors as Sun Microsystems Inc. and International Business Machines Corp. H-P still has plenty of heavy lifting to do. For example, Sun continues to best H-P in sales of large server computers to companies integrating the Internet into their operations.
For all her pep talks, Ms. Fiorina's firm demands for improved performance have taken a personal toll at the company. A modest number of H-P middle managers have elected to leave, although the company won't say precisely how many.
Running Ragged
Some remaining executives and employees, including those who applaud Ms. Fiorina's changes, admit that keeping up with her can be wearing. A number of veterans worry about preserving the "H-P Way," a revered corporate tradition of employee support and innovation.
Unless subordinates consciously carve out time for their own initiatives, Ms. Fiorina's requests and directives can consume the entire day, says Robert Wayman, H-P's chief financial officer. He has cut back on outside commitments and canceled a family vacation to keep up.
"I don't think anyone is sleeping very much," Antonio Perez, another top executive, said in November. Since then, he has retired from H-P but praises the Fiorina shakeup. He says he left the company only because he wanted a shot at being a chief executive himself, which he has done at Gemplus SA, a French maker of "smart" cards.
Similar turnaround attempts at other troubled, conservative companies have foundered when leaders demanded what turned out to be too much change too quickly. In June, Procter & Gamble Co. ousted reformer CEO Durk Jager after just 17 months. Xerox Corp. dumped its outsider chief executive, Richard Thoman, in May; managers there say they don't know when the company will return to profitability.
H-P could run into similar problems adjusting to sudden change. Founded in a Silicon Valley garage in 1939 by William Hewlett and David Packard, the paternalistic company was long governed by a few simple maxims: Treat employees with respect, plan for the long term, and hold bureaucracy to a minimum by dividing business units when they get too big.
Those ideas served H-P well for decades, but by the mid-1990s, it was stagnating. When Ms. Fiorina arrived, H-P had splintered into 83 autonomous businesses that had no overarching strategy. Most of the units exercised nearly total authority over their budgets, often to the detriment of broader goals.
Just over a year ago, H-P lost a Chinese banking-system deal worth roughly $50 million to rival IBM. The main stumbling block: A midlevel H-P manager in the U.S. declined to spare $50,000 to build a prototype of the system for the would-be customer. "Things like that happened all the time," Cheng-Yaw Sun, H-P's general manager in China, says with a sigh.
Ms. Fiorina, a former executive at Lucent Technologies Inc., quickly saw parallels between H-P and her former company. Like Lucent during its 1996 spinoff from AT&T Corp., H-P needed to take several bold steps simultaneously to dislodge an entrenched culture, Ms. Fiorina says.
She actually had experienced that culture many years earlier, when she worked briefly as a secretary at Hewlett-Packard. That was before she tried law school, dropped out and eventually received an M.B.A. She later joined AT&T and, following the Lucent spinoff, rose to head the telecommunications-equipment provider's global-services business.
In her first three months as H-P's chief executive, she unleashed a new advertising campaign, starring herself and emphasizing the H-P brand over the former hodgepodge of product names. She tore up the company's profit-sharing program in favor of a strict performance-based bonus system.
Most dramatically, she launched a plan to consolidate H-P's 83 businesses into only 12. She also aligned the reduced number of divisions into two "front-end" groups that would focus on customer activities, such as marketing and sales, and two "back-end" organizations devoted strictly to designing and making computer and printer products.
Old-time H-P executives were shocked. "I was a deer caught in the headlights when she described the front and back end," says Carolyn Ticknor, who now presides over the merged printer unit. Several of these executives protested that employees weren't ready for a major reorganization.
Some executives fretted that managers wouldn't wield "real" authority if they couldn't control both product development and marketing. "It took some of the glory, if you wish, out of the job," says Mr. Perez, the departed executive.
Consternation rippled through the ranks. Managers who had long aspired to run their own autonomous units, known as P&Ls, short for profit & loss, suddenly saw most of those jobs disappear.
Dented Pride
Few parts of H-P resented the changes as much as the proud laser- and inkjet-printer divisions, which together contribute roughly two-thirds of the company's profits. Neal Martini, who ran much of the laser-printer operation, learned he would lose his authority over sales, marketing and manufacturing. He says he watched valued but fed-up colleagues leave for other jobs and often found himself grousing at the office coffee pot.
"The feeling was, here was Carly, who wasn't a long time in the H-P culture, who doesn't understand our business and the H-P Way, and doesn't understand our strengths, particularly in businesses that were viewed as so successful for so long," he says. "It initially felt like a big disempowerment."
The changes were so anguishing that "in the middle of this thing, I didn't sleep for nights," says Vyomesh Joshi, a vice president in the inkjet division. But as Mr. Martini, Mr. Joshi and their colleagues dutifully remodeled their operations, they started to see some advantages of the new organization.
H-P's laser and inkjet printers, for instance, had always used incompatible software and network connections, making it difficult for customers to swap a laser printer for an inkjet. With its design teams merged, H-P plans to introduce a fully compatible line of inkjet and laser printers this fall. Messrs. Martini and Joshi have remained with the company in senior positions in the merged printer division.
Ann Amazon
In a few areas, the results have already been striking. Frustrated customers had long complained that large purchases required them to deal separately with several H-P divisions. So Ms. Fiorina tapped Ann Livermore, who previously ran the server-computer division, to consolidate dealings with the company's top 100 customers.
One of Ms. Livermore's early successes in her new role came with Amazon.com. Ms. Fiorina personally helped persuade the online retailer to install 20 of H-P's top-of-the-line servers to run its site over the busy Christmas season last year. At a party at Amazon in February, Ms. Livermore cornered two executives and offered to supply the company's entire computer infrastructure. The Amazon executives just laughed and asked if H-P was willing to buy a nearby building and fill it with staff to win the deal, she says.
It didn't quite come to that, although Ms. Livermore's sales team did camp out in Amazon's conference rooms for days, eventually proposing to supply Amazon not only with servers, but also printers and personal computers. The deal, worth hundreds of millions of dollars over 18 months, would have been unthinkable at the old H-P, whose disparate divisions couldn't have worked together so easily.
The day after announcing the deal in May, Ms. Fiorina dubbed Ms. Livermore "Ann Amazon, warrior woman" at a morale-boosting session attended by hundreds of employees.
That was a sweet vindication for Ms. Livermore, who was passed over for the top job last year and found herself flooded with offers from the likes of Compaq Computer Corp. and Dell Computer Corp. Ms. Fiorina, however, implored Ms. Livermore to stay and boosted her stock-options package, a bonus that could be worth millions, says a person familiar with the situation.
While she can be generous to keep a top performer, Ms. Fiorina doesn't mind ruffling feathers. During a business-review meeting last August, Bill Russell, then Ms. Livermore's deputy, confessed that sales of the company's Unix servers were lagging so badly that H-P risked missing its financial targets for the quarter.
"I got fairly well lambasted on the point of what we were going to do about it," says Mr. Russell. Ms. Fiorina's pointed questions taught him, he says, that "whatever we thought was good enough, wasn't good enough now." Within days, top executives had cobbled together plans to tighten expenses and close a few big deals earlier -- enough to meet the targets.
Labs Rebound
The new pressure on H-P's businesses has produced some unexpected consequences. One of the biggest came at the company's previously demoralized basic-research division, H-P Laboratories.
Ms. Fiorina took an early interest in the labs, seeing them as a key source of innovation. She has made a habit of passing through the research area every month, once bringing along H-P's entire board. On one visit, she dropped by a lab working on "Cool Town," an effort to use basic Web technology, which is available to anyone, to build a "pervasive" computing environment in which gadgets from PCs to wristwatches can communicate.
"They show me this incredible stuff," Ms. Fiorina recalls, "and then they tell me, 'our funding is about to get cut off' " by the labs' administration.
That quickly changed. With its finances secure, Cool Town is thriving. Sales and marketing managers frequently bring customers to tour the project.
The high-level patronage has reinvigorated morale throughout the labs. Until Ms. Fiorina arrived, Stan Williams, a researcher in nanotechnology, the science of manipulating atomic structures, had planned to move his lab to Agilent Technologies Inc., a test-and-measurement company spun off from H-P earlier this year. Now, H-P is building a new multimillion-dollar nanofabrication facility. It may not generate commercially useful work for years, but the investment could help H-P retain researchers in a field that one day could allow more powerful silicon chips to be "grown" by means of subatomic chemistry and physics, rather than manufactured in complex factories.
Ms. Fiorina wants H-P eventually to be known for three main specialties: Internet infrastructure such as servers; information appliances, from PCs and hand-held devices to "intelligent" printers; and e-services that will anticipate users' needs. It's a tall order, not least because aggressive competitors such as Sun, Dell and IBM have so far been more successful in many of those markets.
Ms. Fiorina, however, predicts that her troops will leap ahead of these rivals. "This is a company of people who can do things no one else can do," she says.