REORGANISING HP

PRESENTED BY
THE TITANS
HP THE COMPANY
Founded in : 1938 in California
Founded by : Bill Hewlett & David Packard
Started as an electronic instruments company
Growth aided by heavy purchases by the US govt.
during World War II
Present product/service portfolio : desktops, laptops
& other handheld devices, scanners, laser printers,
printer paper, consultancy, security software, Unix
servers, ink cartridges, digital cameras, home printers
Segmentation : B2C & B2B
AGENDA
HP the company
Question 1
Structural transformation of HP,pre-Fiorina era
Question 2
The Fiorina era
Advantages
Disadvantages
HPs business performance



Question 1
HP had consistently transformed itself to
meet the needs of the changing business
environment over the years. Analyse the
companys reorganisation efforts in the pre-
Fiorina era & comment on their efficacy.
STRUCTURAL TRANSFORMATION
OF HP
Pre - Fiorina era
1950s the Mechanistic model
High specialisation
Rigid departmentalisation
Clear chain of command
Narrow spans of control
Centralisation
High formalisation
Product development team
4 smaller efficient groups
Concentrated on a family of related products
1 senior executive reporting to VP R&D
Design engineer to concentrate only on
divisions products & work closely with field
sales people.
1960s(till mid) departmentalisation by
divisions/products
Extension of the Mechanistic model

Each an integrated,self-contained organisation
Developing/manufacturing/marketing its own product
Empowering each division with decision making
Own sales organisation to manage growing product portfolio
1968 the Organic model
Shift from the mechanistic model to the
organic model
Size of the organisation is growing different
divisions, functions, markets
Group or matrix structure with
departmentalisation by markets

The Organic model
Cross functional teams
Cross hierarchical teams
Free flow of information
Wide spans of control
Decentralisation
Low formalisation
1968 Contd.
A group consisted of divisions related with
product lines and markets
Each group headed by a group manager

2 objectives :

To enable compatible units to work together more effectively on a
day-to-day basis

To decentralise some top management functions
Efficacy of the group structure
Improved field marketing activities

Better understanding and selling of the entire line of related
products
A sales engineer was the representative of a specific group,
selling and supporting only that groups product.
1970s - decentralisation
Extension of the Organic model; now the
name of the game was decentralisation
From centralisation in the mechanistic model
to decentralisation in groups, it was further
decentralisation in divisions now

LOCAL DECENTRALISATION

a division given full responsibility for a product line(when it
had grown large enough) at a separate but close location


Efficacy of decentralisation
Simple & direct communication

Co-operation between individuals and co-
ordination among operating units

Flexibility of a small company

Strengths of a large organisation
ability to draw on corporate resources & services
shared standards, values & culture
common goals & objectives
single worldwide identity
1980s decentralisation continues
Synergies across all divisions
Decentralisation leads to problem
Perceived as 3-4 companies as different
divisions worked autonomously with no
coordination

eg. - software loaded on a HP computer did not support
graphics for an HP printer
1990s network of committees
An important structural change which led to a
major problem for the lifeline of a technological
company the slowing down of decision making
in new product development

From an organic structure it was again turning
into a bureaucratic structure and bureaucracy
hindered innovation

CEO John Young dismantled committee network
Cut a layer of management from the hierarchy
Restructuring by segments
Further decentralised decision making in the 2 primary
groups :-

B2C PCs, printers and other products sold through dealers
B2B for workstations and minicomputers sold to large customers

For quick response to market needs, each group was
given its own sales and marketing team

This structure boosted market share in B2B segment
Strategic Business Units
Business divided into 4 major divisions :

Home PCs, handhelds, laptops
Scanners, laser printers, printer paper
Consulting, security software, Unix servers
Ink cartridges, digital cameras, home printers

HP spins off its test and measurement unit


Head of each division had the same powers as
that of the CEO
Question 2
Examine the restructuring plan put in place by
Fiorina and critically comment on its
advantages and disadvantages in the light of
the companys performance after the plans
implementation.
The Fiorina era
HP returns to the strict hierarchical
mechanistic model under Fiorina
dismantling the decentralised organisation
structure
The Fiorina era, contd.
Demanded regular updates on key units
Eliminated slack from sales forecast
Sales compensation tied to performance
Bonus period from 1 year to 6 months
Incentive program for researchers
Transform HP from a strictly hardware
company to a web services powerhouse.
Year 2000
To ensure effective selling, HP was reorganised
into 6 centralised divisions:

Back-end: product development groups, printers,
computers, tech. services & consulting

Front-end: sales & marketing groups for
consumers, corporate markets & consulting services
Fiorinas 3 phase restructuring plan
Phase 1, 1999 (prepare the ground)
Spread the gospel - coffee with Carly to boost the morale across
20 countries
One image invent campaign
Spark innovation big-bang projects

Phase 2, 2000 (improve growth & profits in core
businesses)
Consolidate 83 product divisions into 6
Set strategy strategy council to allocate resources
Cut costs revamping internal processes to tap the web

Phase 3, 2001 & beyond (build new markets)
Trigger new product categories cross company initiatives
Woo customers handling customer accounts
Good corporate citizen low cost computer centres
Advantages
Single point of contact for sales
To each man his best designers focused on
new product designs & marketers made the
most profitable deals
New R&D strategy resulted in doubling of
patent filings in 2001
Disadvantages
Back-end managers unable to allocate R&D funds according to sales
forecast
Front-end sales representatives faced trouble meeting forecast if
wrong products were delivered
Expenses rose out of control
Back-end designers unaware of customer needs
Front-end executives unable to pay sufficient attention to each
product
Increased sales in low margin products hampered portfolio
profitability
Profits and losses were not clearly assigned between the front and
back end leading to financial disorder
With employees in 120 countries communication amongst them
and getting them to work with each other was becoming
troublesome
Front-back reorganisation had created internal confusion
HPs business performance
Market share receded in the late 2000
Inkjet laser printer dominated with a 41% market share
PC share fallen from 7.8% to 6.9%, Jan31,2001
HPs Windows servers share dropped from 10.6% to
8.2%
Did not perform well in the software, storage &
consulting businesses where it had a single digit market
share
HPs share of high end Unix server business increased
from 23.3% to 28% in 2001.
Thank You