Reorganizing HP

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Case Details:

Case Code : HROB009
Case Length : 10 Pages
Period : 1990 - 2001
Organization : HP
Pub Date : 2001
Teaching Note : Available
Countries : USA
Industry : Computers and Technology

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"If there are people who thought it would be over and done within 12 months, I would have said to them that they do not have an appreciation for what it takes to change a very large, very complex, very successful company -- because this company has been successful for decades."

- HP CEO, Carly Fiorina, commenting on the restructuring, in February 2001.

"She's playing CEO, visionary, and COO, and that's too hard to do."

- BusinessWeek, February 29, 2001.

The Problems

In the mid 1990s, global computer major HP1 was facing major challenges in an increasingly competitive market. In 1998, while HP's revenues grew by just 3%, competitor Dell's rose by 38%.

HP's share price had remained more or less stagnant, while competitor IBM's share price had increased by 65% during 1998. Analysts said HP's culture, which emphasized teamwork and respect for co-workers, had over the years translated into a consensus-style culture that was proving to be a sharp disadvantage in the fast-growing Internet business era. Analysts felt that instead of Lewis Platt, HP needed a new leader to cope with the rapidly changing industry trends.

Responding to these concerns, the HP board appointed Carleton S. Fiorina (Fiorina)2 in July 1999 as the CEO of the company. Revenues grew by 15% for the financial year ended October 2000 (Refer Exhibit I), prompting industry watchers to say that Fiorina seemed all set to put HP's troubles behind for good.

However, for the quarter ended January 31, 2001, the net profits were well below the stock market expectations. Soon there was more bad news from the company. In late January 2001, after forcing a five-day vacation on the employees and putting off wage hikes for three months in December 2000, HP laid off 1,700 marketing employees. By early February 2001, HP's share price fell 18.9%, from $45 in July 1999 to $36.

In April 2001, citing a slowdown in consumer spending, Fiorina announced that HP's revenues would decrease by 2% to 4% for the quarter ending April 30, 2001...

Excerpts >>

1] With net revenues of $48.78 billion, HP ranked 19th in the global Fortune 500 list in 2001. The company was the second largest computer manufacturer in the world, and was the market leader in desktop computers, servers, peripherals and services such as systems integration.

2] The first CEO from outside HP, Fiorina had 20 years of experience at AT&T and Lucent.


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