Carly Fiorina: The Reinvention

of Hewlett-Packard
Patricia A. Ryan
. we owe you ... 3 things. We owe you a clear vision and a sense of direction, how we are going
to help you be successful in the next millennium. We owe you enough focus and leverage to execute well, each and every time. And we owe you an understanding of the total experience that we
provide and an understanding on our part of how to make that experience a competitive advantage for you as well as for us.
Carleton (Carly) Fiorina, CEO and President of HP
San Francisco, August 17, 19991
t was July 19, 1999, and Carleton (Carly) Fiorina, spoke with exuberance and confidence as
she thanked Lewis (Lew) Platt, a 33-year company veteran for his leadership as the former
President and CEO of Hewlett-Packard (HP) from 1992 through July 1999. Fiorina was the
first female CEO of one of America's largest companies, the only female heading the ranks at a
Dow 30 company. She did not believe in a glass ceiling; rather argued that competence would
prevail. It certainly seemed she was right; 2 of the 4 finalists for the job were women, and
Fiorina was the only one without significant computer industry experience. How did she
move into the coveted position with the magnum computer company? She convinced the
Board of Directors that computer experience was not what HP lacked; rather it was the ability
to pick up quickly and help the struggling HP develop a stronger strategic vision. She shrewdly
convinced the Board their skills were complementary, turning what some thought to be a negative into a positive. Fiorina was confident and poised at the helm; however, she realized that
as a newcomer to HP, she needed to work diligently to maintain alignment of internal forces
while at the same time move the company forward in a new direction. The former President of
Lucent Technologies, a globai service provider business, Fiorina led the Lucent spin-off from
AT&T and ran the largest IPO at that time, totaling more than $3 billion. Fiorina saw a unique
opportunity in Hewlett-Packard; she saw an opportunity to rethink HP's approach to the
market, structure, and resources the company needed to achieve its objectives.-

Hewlett-Packard designs and manufactures computing and imaging solutions and services for both business and home use. There are 3 major businesses within HP. The first is
Imaging and Printing Systems, which provides laser and inkjet printers, scanners, all-in-one
devices, personal color copiers and faxes, digi&al senders, la) ge format and wide printers,
printer servers, network management software, ne,working solutions, digital photography,
This case was prepared by Professor Patricia A. Ryan, Colorado State University. This case may not be
reproduced in
any form without written permission of the copyright holder. This case was presented to and accepted by the
Society
for Case Research. This case will appear in a 2001 issue of the Business Case Journal. This case was edited for
SMBP8th Edition. Copyright 0 2001 Patricia A. Ryan. Reprinted by permission.
15-1

KERTAS 2
GTIOND
INDUSTRY THREE: COMPUTERS
imaging and printing supplies and software, and other professional and consulting services.
The second arm of HP is the Computing Systems, which provides computing systems for both
commercial and consumer use. The third arm is Information Technology Services, which provides consulting, education, design and installation services, ongoing support and maintenance, outsourcing, and utility computing capabilities.3 She knew she needed to transform
HP into a fast, customer-focused maker of computers and printers and place heavy emphasis
on the company's commitment to e-services.
In recent years, price competition in printers, servers, workstations, and personal computers caused growth rates to slow. On March 2, 1999, then President and CEO Lew Platt
made 2 critical announcements: first that Hewlett-Packard would spin off their Test and
Measurement division later that year, and second that he would retire after a new CEO was
recruited. When Carly joined HP, Platt agreed to stay on as Chairman until December 31,
1999, to assist in the spin-off of the Test and Measurement division (soon to be known as
Agilent Technologies) and to assist Fiorina with her transition.
Hewlett-Packard was in need of reinvention; Carly Fiorina was the person hired to lead
the charge. The company was at a pivotal point; poised to take full advantage of the Internet
age, yet steadfast in its traditional core values.
Reinvention to me is about 4 things. It's about culture, it's about strategy, it's about what you
measure and how you reward those measurements, and it's about business process. All of those
levers need to be pulled.
Carly Fiorina, President and CEO, HP4
Hewlett-Packard had become too slow to react and position itself in the global economy
of the twenty-first century. Platt worked hard to maintain a consensus spirit. Fiorina needed
to preserve the core values that have made the company successful.
History of Hewlett-Packard

Hewlett-Packard became the foundation for the entrepreneurial fountain of American innovation now known as Silicon Valley.5 Two Stanford electrical engineering graduates, Dave
Packard and Bill Hewlett set out on a small business venture upon the advice of their professor, Fred Terman. Professor Terman told them to "make a run for it." After a 2-week camping
trip to the Colorado mountains, Packard and Hewlett decided to join forces to form the
seedling of what was to become known to the world as Hewlett-Packard. They soon found
there was a demand for a lower priced audio oscillators similar to the type they developed
while at Stanford. Interestingly, the ordering of their names was determined by a coin toss in a
small Palo Alto, CA, garage. In 1940, total revenues were and Dave and Bill had 3
employees. Business was boosted significantly by the war effort and high defense spending; HP
was able to internally finance all its growth through World War Il. Their expertise in
microwave technology developed through the war years, and HP had little difficulty expanding its product line to meet the burgeoning electronics industry in the postwar boom. It was
not until 1957 that the company went public with 10% of its shares. At that time, 4 divisions
were created, divisions that remained up to the spin-off of the Test and Measurement division
in 1999. In 1962, Hewlett-Packard joined the Standard & Poor's 500 where the company
remains today. In 1999, revenue topped $47.1 billion, and HP employed over 124,000
throughout the world. (See Exhibit 1 for historical milestones.)
Walt Disney was one of their first customers with the purchase of 8 audio oscillators to
test the sound equipment in the movie Fantasia. In the 1950s, Hewlett-Packard developed
their corporate objectives and began globalization of HP. The philosophy that was to become
known as the "HP Way," depictive of the innovative and generous relationships with employ-

KERTAS 3
CASE FIFTEEN CARLY REINVENTION OF HEWLETT-PACKARD 15-5
3. Fields of Interest: To participate in those fields of interest that build upon our technologies, competencies, and customer interests, that offer opportunities for continuing
growth, and that enable us to make a needed and profitable contribution.
4. Growth: To let our growth be limited only by our profits and our ability to develop and
produce innovative products that satisfy real customer needs.
5. Our People: To help HP people share in the company s success which they make possible;
to provide them employment security based on performance; to create with them an
injury-free, pleasant, and inclusive work environment that values their diversity and recognizes individual contributions; and to help them gain a sense of satisfaction and
accomplishment from their work.
6. Management: To foster initiative and creativity by allowing the individual great freedom
of action in attaining well-defined objectives. 8
These corporate objectives form the basis of the "HP Way"an ideology that sought to
create a work environment designed to allow well-trained, innovative, enthusiastic, and competent people to give their all for the company.
With new leadership comes change, and Carly would do just that. Carly Fiorina saw the
HP culture needed to be reshaped more along the revolutionary and radical lines developed by
Hewlett and Packard in 1939. In order to see revolution, the culture had to accept radical and
not always popular decisions. For example, HP created the first handheld calculator, a revolutionary change; HP also created flexible work hours on the factory floor, a revolutionary
change. Fiorina saw her challenge to reignite the spirit of HP and focus on the inventive nature
of the original core business.
In a speech on November 15, 1999, Fiorina emphasized the need to maintain balance
while focusing on innovation, invention, and change. "In many ways we are truly returning to
our roots" she emphasized the changes were necessary to maintain a competitive position in
the marketplace.
Top Management

The main executive offices in Palo Alto, CA, serve as corporate headquarters. (See Exhibit 2 for
Executive Officers and Board of Directors and Exhibit 3 for Selected Executive Compensation
and Stock Options.)
Carleton (Carly) S. Fiorina, 45, President and CEO of Hewlett-Packard. She assumed that position on July 17, 1999, and on July 23, 1999, was elected to the Board of Directors. Prior to joining
HP, Fiorina spent nearly 20 years with AT&T and Lucent, most recently as the President of the
Global Services Provider Business of Lucent Technologies after having worked her way up the
executive ranks. Perhaps her most successful accomplishment at Lucent was spearheading
Lucent's initial public offering and subsequent spin-off from AT&T. In addition to leading HP
into the new millennium, Fiorina served as a member of the Board of Directors of the Kellogg
Company and Merck and Company and was recently appointed to the U.S. China Board of Trade.
Ann M. Livermore, 41, President of the Enterprise and Commercial Business Division. One of
the frontrunners to succeed Lew Platt as President and CEO, Fiorina worked quickly to maintain
Livermore as an ally, naming her to her current position in October 1999. This highiy visible
division would responsible for many of the e-business initiatives HP would like to take on in
the immediate ruture. Livermore also served on the Board of Directors for the United Parcel
Service and on the Board of Visitors of tne Kenan-Flagler Business School at the University of
North Carolina in Chapel Hill.
Antonio M. Perez, 54, President of Consumer Business. Appointed by Fiorina in November
1999, Perez had previously served HP in the capacity of General Manager and later President of
Inkjet Imaging Solutions.

KERTAS 4
TIOND INDUSTRY THREE: COMPUTERS
ees, was formally developed in this decade of change and growth. The company went public
on November 6, 1957, with 373 products, $30 million in net revenue, and 1,778 employees. In
the late 1950s, marketing emphasis was placed on European markets in Switzerland and West
Germany. In the 1960s, the computing division bloomed and the Test and Measurement division became known for its progressive position in the market. Hewlett-Packard was respected
as a well-managed company. The 1960s brought joint ventures in Japan and Germany. John
Young was named CEO in 1978 and served in that capacity until 1992. Young succeeded in
growing the company into a major computer giant. By the 1980s, the increasing global presence of HP was partially due to the onslaught of personal computers and peripherals. HewlettPackard strove to provide high performance at reasonable cost. In the early 1990s, Young's
efforts to corral the company's independent units led to bureaucracy that bogged the company
down. In 1992, the popular engineer Lew Platt was named President and CEO of the computing and measurement giant. That same year, Hewlett-Packard introduced a new atomic clock
that became the world's most precise timekeeper. The remainder of the 1990s brought accelerated Web-based information and increased focus on the computing side of the company. In
the very fast growth period of that decade, Hewlett-Packard struggled to keep up with all the
new technological breakthroughs while operating in multiple industries. It became clear that
some action would now have to be taken to streamline the company. Platt succeeded in managing HP's growth in the 1990s, but missed the Internet revolution in the late 1990s.
Corporate Culture: The HP Way
Hewlett-Packard, from its early beginnings, was a company that emphasized invention, innovation, and worklife balance. However, along the road, worklife balance appeared to take a
stronger position in the triad, leaving innovation and invention to suffer in a rapidly changing
technological environment.
The most important thing about HP's culture is the assumption it is built upon, namely, that
people want to do a good job, a creative job, and will do so if given the right environment.
Bill Hewlett, referenced by Lew Platt6
Hewlett's statement was central to the culture at Hewlett-Packard. This culture operated

with 5 basic values:

We have trust and respect for individuals.
We focus on a high level of achievement and contribution.
We focus on a high level of business with uncompromising integrity.
We achieve our common objectives through teamwork.
We encourage flexibility and innovation.
7
Lew Platt was proud of HP's positions as one of America's favorite employers and spoke
frequently about worklife balance, the need for a company to assist employees to maintain
the appropriate balance between their work life and home life. He felt strongly that worklife
balance was important to maintain happy, creative employees and believed the employees
were the most significant assets HP had.
The HP Way, as defined by top management, included 6 key elements. They are
1. Profit: To achieve sufficient profit to finance our company growth and to provide the
resources we need to achieve our other corporate objectives.
2. Customers: To provide products and services of the highest quality and the greatest posSible value to our customers, thereby gaining and holding their respect and loyalty.

KERTAS 5
CTION D
INDUSTRY THREE: COMPUTERS
Exhibit 2
Executive Officers and Board of Directors
Name
Carleton S. Fiorina, 45
Ann M. Livermore, 41
Antonio M. Perez, 54
Carolyn M. Ticknor, 52
Duane E. Zitzner, 52
Robert P. Wayman, 54
Raymond W. Cookington, 56
Susan D. Bowick, 51
Debra L. Dunn, 43
William V. Russell, 47
Stephen L. Squires
Joshi Vyomesh
Name
Carleton S. Fiorina, 45
Robert P. Wayman, 54
Philip M. Condit, 57
Pati icia C. Dunn, 46
Sam Ginn, 62
Richard A. Hackborn, 62
Walter B. Hewlett, 55
George A. Keyworth Il, 60
Susan Packard Orr, 53
Lewis E. Platt, 58
Thomas E. Everhart, 67

David M. Lawrence, M.D.

John B. Fery, 70
Jean-Paul G. Gimon
Title
President and Chief Executive Officer
President, Enterprise and Commercial Business
President, Consumer Business
President, Imaging and Printing Systems
Computing Systems
Executive Vice President, Finance, and CFO
Vice President and Controller
Vice President, Human Resources
Vice President and General Manager, Strategy
and Corporate Operations
Vice President, Enterprise SyStems and Software
Vice President, Chief Science Officer
President of Imaging and Printing Systems Business
Board of Directors
Inside or Outside
Executive Since
1999
1995
1995
1995
1996
1984
1986
1993
1999
1998

1980
Director
Inside
Inside
Outside
Outside
Outside
Outside
Outside
Outside
Outside
Inside
Outside
Outside
Outside
Outside
Affiliation
President and CEO, HP
CFO, HP
Chairman and CEO, The Boeing Company
Chairman and Co-CEO, Barclays Global Investors
Vodafone AirTouch
Designated Chairman, HP, effective January 2000
Chairman, Vermont Telephone
Chairman and Senior Follow, The Progress &
Freedom Foundation
President, Technology Resource Assistance Center
Retiring Chairman as of December 31, 1999
President Emeritus, California Institute of
Technology, retired September 1999

Chairman and CEO, Kaiser Foundation Health

Plans, inc, Kaiser Foundation Hospitals
Retired Chairman and CEO, Boise Cascade
Corporation, retiring from the Board
February 2000
Retired General Representative in North America
Credit Lyonnais S. A., retiring February 2000
Source: 1999 10-K, pp. 5556, and 1999 Annual Report.

KERTAS 6
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15-7

KERTAS 7
TION D
INDUSTRY THREE: COMPUTERS
Carolyn M. Ticknor, 52, President of Imaging and Printing Systems. Ticknor was known as a
take-no-prisoners operations whiz. Her goal was to pioneer e-publishing, the ability to manipulate images in cyberspace.9
Duane E. Zitzner, 52, President of the Computer Products division. Zitzer served HP as General
Manager of the Personal Information Products Group since 1996. The most recent promotion
came 1 month after Platt announced the spin-off of the Test and Measurement business into
what became known as Agilent Technologies.
Robert P. Wayman, 54, Executive Vice President of Finance and Administration and Chief
Financial Officer (CFO). Additionally, Wayman has served on HP's Board of Directors since
1993. He has held the position as CFO since 1984. Wayman was an outside member of the Board
of Directors of Sybase, Inc,. and CNF Transportation. Finally, he was active in academia, serving
as a member of the Kellogg Advisory Board to Northwestern University School of Business.
Raymond W. Cookington, 56, Controller. Cookington has served as Controller since 1986 and
was elected a Vice President in 1993.
Susan D. Bowick, 51, Vice President of Human Resources. Bowick was elected a Vice President
in November 1999. She previously served as Business Personnel Manager for the Computer
Organization and Personnel Manager for the San Diego site.
Debra L. Dunn, 43, Vice President and General Manager, Strategy and Corporate Operations.
Dunn was elected Vice President in November 1999. Prior to that, she served as General Manager
of HP's Executive Staff and Manager of Video Communications Division. She joined HP in 1994.
William V. Russell, 47, Vice President of Enterprise Systems and Software. Russell was appointed
to his current position in October 1999. Prior to that, he was the General Manager of Europe,
Asia, and the Middle East for the Computer Systems organization and later the General Manager
for the Enterprise Systems Group.
Stephen L. Squires, Vice President, Chief Science Officer. Squires was well known as an architect of
the Strategic Computing and High Performance Computing programs that work with the
Internet, maximizing performance and speed. He had also worked on long-term strategic issues

that involved joint issues in biology, information technology, and the physical sciences. An accomplished scientist, Squires worked to provide technical leadership in information security.
Joshi Vyomesh, President of Imaging and Printing Systems Business. Vyomesh joined HP in
1980 as a Research and Development scientist and had worked his way up the ranks mainly
through the Inkjet business. He led the team that developed the first HP color inkjet cartridge
and, in 1995, led HP's entry into the digital imaging business. More recently, Vyomesh led the
company's Inkjet Systems business as well as the latest efforts in digital imaging including the
development of the digital camera, photo scanner, and photo printer offerings.
-$4
Board of Directors
Hewlett-Packard's Board of Directors consisted of 14 members with the majority of them outside directors. Inside directors include President and CEO Fiorina and CFO Wayman.SOthe'j
board members are listed in Exhibit 2. The Board of Directors represents a widely diverse
group of industries including aircraft manufacturing, financial services, technology, medical
and education. Family members Walter Hewlett, son of Cofounder Bill Hewlett, and Susan
Packard Orr, daughter of Bill Packard, sit on the board.
The Tightening Computer Hardware Industry
The computer hardware industry was very competitive throughout the 1990s. The main PC
players in 1999 were Dell, Compaq, Gateway, IBM, and HP. In 1999, Dell enjoyed the largest
market share of PC shipments of 17.1%, up from 13.4 % in 1998. Compaq was second with a

TEKS 8
CASE FIFTEEN CARLY FIORINA: THE REINVENTION OF HEWLETT-PACKARD 15-9
15.3% market share in 1999 compared to 15% in 1998. Gateway came in third, accruing a
market share of 9.3% in 1999, up from 8.2% in 1998. And Hewlett-Packard came in fourth
with 8.2% market share in 1999, down from 8.4% in 1998. Finally, IBM dropped market share
from 8.9% in 1998 to 7.6 % in 1999. In sum, both Hewlett-Packard and IBM lost market share,
while Dell, Compaq, and Gateway gained. All 5 companies saw unit salesfincrease in 1999 over
1998 with Dell enjoying a 56.5% increase, Compaq a 24.9% increase, Gateway a 40.1%
increase, Hewlett-Packard a 19.4% increase, and IBM a 5.3% increase. 10 These numbers show
that significant increases in unit sales translate to small changes in market share; for example,
Compaq saw a 24.9% increase in unit sales, but only a 0.3% increase in market share. HewlettPackard and IBM both saw unit sale increases, but market shares losses. These numbers reflect
a growing industry and indicate that it was difficult to increase market share via increased
sales. T--here were more smaller competitors entering the market each year, making market
share points harder and harder to come by; however, Hewlett-Packard had good name recognition as did the other leaders in the market. Therefore, they had the opportunity to leverage
their brand name into increased revenue and market share if they operated efficiently and
strategically in this ever-tightening market.
Lew Platt's Era
Lew Platt was not HP's first choice to replace John Young as CEO in 1992. Their first choice
was Dick Hackborn who had built their industry-leading printer business from scratch.
Hackborn declined the position, and HP then chose Platt, a competent yet low-key manager
and conservative dresser who some believed lacked the innovation of Hackborn. Platt was a
competent leader but did not catch on to the Internet revolution until too late, which left HP
in a secondary position in the Internet market in 1999.11 Platt was wise to see the need to split
HP into 2 divisions, divesting the company of the Test and Measurement division that they
started years earlier. Platt was able to make this decision with the clarity and foresight that few
top CEO's would recognize, shrinking the size of his empire down to allow a new CEO to
come in and reinvigorate the company.
After 2 years of spotty growth, Platt's move to separate the 2 companies and leave HP was

seen as a bold move, one that placed HP ahead of personal goals. Clearly a successful CEO, he
would have other opportunities, and at 58, he appeared interested in moving toward a slightly
lower profile company with fewer internal pressures. At HR there was a lot of money and market share at risk. Demand was booming in the United States and wireless communications
were expanding rapidly through Latin America and Asia. During Platt's first 6 years as CEO,
HP succeeded in tripling revenues and increasing profits 5-fold.
Platt was a strong advocate of worklife balance, recognizing the difficulties many of
today's working families had in maintaining the proper balance between work and home life.
He attributed part of his consideration to the passing of his first wife and the realization of
how difficult it was to maintain a career and be a good parent to his children. He recognized
this challenge was greater in the Silicon Valley than in many other areas because of the sheer
speed of business development and the demand on employees to commit more than full time
to their job. Along these lines, Platt expanded HP's level of absence policies to allow for greater
flexibility, developed an HP financed insurance program for elder care to assist eroployecs caring for aging parents, provided assistance with dependent care, implemented alternative work
schedules including telecommuting for employeesall with the thought of assisting the
employee to better balance their work and home life. Platt clearly saw that a happy employee
was an empowered employee and worked more effectively.
From an analysts' perspective, Platt agreed HP was hard to analyze since the company
was involved in so many diverse areas. Known worldwide for computers and printers, HP

TEKS 9
SECTIOND INDUSTRY THREE: COMPUTERS
started as a test and measurement company and kept that division until 1999. Platt was not
a media personality, but rather a relatively quiet man who spoke when he had something
to say. He recognized HP was now in a position in which they needed someone with
more flash, a more outgoing personality, and most likely an outsider to the company. HP
needed a fearless leader, one without bias, without inside allegiances, commitments, or
relationships.
In retrospect, I wish I was more rebellious. We live in a world where visibility and what you say
have become more important. Leaders in the industryMichael Dell, Scott McNealy [of Sun
Microsystems]generate a lot of interest. There's a positive aura that surrounds their companies because they're upfront. I was brought up in a world that said, "Do great things and the
world will notice." 12
Lew Platt, former CEO, Hewlett-Packard
Under Platt, the vision for developing HP's presence on the Internet was developed. He
believed HP's future was tied to the tremendous growth of the Internet. In a speech at Edison
Electric Institute Annual Convention in Long Beach, California on June 13, 1999, he spoke
about this exponential growth. In the past 5 years, approximately $70 billion of business was
conducted on the Internet. Platt estimated that $2.7 trillion of business would be done via the
Internet between 1999 and 2004. Platt emphasized that by 2003, 10% of all U.S. business
would be conducted over the Internet.
The Current Situation and Industry Trends
Hewlett-Packard's main geographic offices are located in Cupertino, CA, Geneva, Switzerland,
and Hong Kong with suboffices and manufacturing facilities in Colorado, Delaware, Oregon,
Texas, Washington, Idaho, and Utah. International facilities include Canada, France, Germany,
India, China, Japan, Malaysia, Ireland, Netherlands, United Kingdom, Korea, Taiwan, and
Israel. 13
Hewlett-Packard's computer business, which constituted 84% of revenues, included personal computers, servers, workstations, and printers. Additionally, they provided service and
support in each area. Their servers and workstations run both HP's version of the Unix oper-

ating system and Windows NT. Unix sales have lagged in recent years, but printer sales
remained a strong point. HP was especially well known for its position in the printer market
with the popular HP LaserJet and DeskJet family of printers. Hewlett-Packard dominates the
printer market despite very aggressive pricing from competitors such as Lexmark. Printers
were 1 area where the HP brand name appeared to dominate.
While enjoying annual revenue growth in the 20% range in the mid- 1990s, growth slowed
significantly in 1998 and 1999. Really facing a somewhat uncertain future, HP suffered
through months of sluggish growth after the burgeoning mid 1990s, all of which placed
tremendous pressure on Lew Platt. After all, the country was still in one of the largest bull
markets in American history, yet HP was stagnating. Faced with inconsistent financial performance, HP needed a jump start and a strong sense of direction.
Hewlett-Packard's industry is one that demands constant change ana ;nnnvation. Market
share and customer base may be easily lost if the company cannot keep up with ever-changing
demand. Furthermore, product life cycles are short and investment commitments are genually long term. Often management will have to accept the risk and move forward on a particular path while still uncertain about the outcome. Such decisions involve large capital investments. Transition from one product to another must be smooth and with 36,000 products in the
business, HP faces enormous challenges to maintain the competitive edge in the marketplace.

TEKS 10
CASE FIFTEEN CARLY FIORINA: THE REINVENTION OF HEWLETT-PACKARD 15-11
Inventory management is complex and requires constant updating to maintain accurate database control.
Hewlett-Packard uses third-party distributors to market and sell their products, especially
personal computers and printers. The reliance on these third-party vendors is significant and
HP is reliant on the financial strength of each distributor to maximize.'frarket access. While
the company has maintained third-party distributorship to accommodate changing customer
preferences, Fiorina realizes there are risks inherent in this decision.
Hewlett-Packard relies heavily on patent, copyright, and trade secret laws in the United
States and around the world, as well as agreements with employees, partners, and customers to
establish and maintain proprietary intellectual property rights for technology and products.
Since intellectual property provides companies such as HP with significant competitive
advantage, it is critical these rights not be violated. Clearly, management faces sabstantial costs
if such a violation would occur and must protect intangible and intellectuat property as much
as possible.
Over half of Hewlett-Packard's revenues are generated outside of the United States.
Additionally, significant manufacturing occurs abroad. In this light, Hewlett-Packard must
carefully watch international issues such as other country's political and economic conditions,
trade protection measures, import or export licensing requirements, multinational tax structures, regulatory requirements, different technology standards, foreign currency exchange rate
risk, as well as unavoidable natural disasters.
Gordon Moore, founder of Intel, was the first to quantify the speed of improvement and
the microprocessor. In what became known as Moore's Law, he has shown how the functionality and performance of a microprocessor and similar technology doubles roughly every 18
months. While the speed of change may present its own problems, there are significant business opportunities for Hewlett-Packard because of the new challenges in the computer and
peripheral market not to mention electronic commerce. In this environment, invention must
remain a top priority and HP must fund their research labs. It is common for businesses to
decrease the funds allocated to research and development during economic downturns since

much of these expenditures are intangible. HP cannot afford to do this; rather it must do the
opposite. Research funding must remain a top priority for management because of the sheer
speed of product improvement.
The Repositioning of Hewlett-Packard
In her October 1, 1999, presentation to security analysts, Fiorina outlined what was working
well for HP and what areas needed improvement. She first mentioned printers and imaging
products, noting that color LaserJets had done especially well over the past year. Increased
market share in this area was an important focus point. Also faring well was the PC business,
both home and business. Market share was improved in Europe and in the Asia-Pacific.
Previously weak, the Unix server line was doing much better in Europe and Asia. Finally,
Fiorina noted increased strength in e-services.
When discussing areas of concern, Fiorina first spoke of.North American sales of the Unix
server product line. To improve sales in this area, HP reccntly changed their compensation system for the North American sales staff and planned to implement an incentive-based compensation system in November 1999. She felt this system would work better than the salary
structure many were used to and would reward and provide direction for top performers.
Second, Fiorina discussed the earthquake in Taiwan in mid-1999. While this was not an
event HP could control, it had a significant impact on revenue since many of the semiconductor products were manufactured in the now destroyed facilities. This situation created a back-

TEKS 11
IOND INDUSTRY THREE: COMPUTERS
log problem for HP and their competitors alike. Fiorina noted the disruption was temporary,
albeit significant for 1999.14
Hewlett-Packard was started over 60 years ago as a company of inventors. Today, they are reinventing themselves again. They also believe the future knows no limits and guiding this vision is a CEO
who perfectly represents the bold and groundbreaking spirit. If her new position makes headlines,
and yes, even history, it's the history she's about to make that is the most exciting thing of all.
Eric Chappt, Chairman and CEO, Ziff Davis
Introducing Carly Fiorina as a speaker at COMDEX, November 15, 1999
Hewlett-Packard faces aggressive competition in all areas of business. Competitors range
from the large, multinational firms like Compaq and Dell to small, high technology specialized start-ups that sought a competitive edge in 1 or 2 product lines. Product life cycles are
short, which forces constant innovation at HP. Furthermore, the consumer base is price sensitive, which can easily cut into profit margins.
In the last quarter, HP did a good job increasing unit shipment of its Unix serversthey were up
16%. But because of price pressures, revenue increased only 5%.
Kelly Sprang, Industry Analyst, Technology Business Group!'
Fiorina faced a challenge unlike what she had faced earlier with Lucent. She successfully
took Lucent public for over $3 billion, now she needed to define Hewlett-Packard in the
Internet age. Unlike previous technological advances, the Internet age promised to be different. Successfully taming this animal meant reaching out to consumers with products that use
the Internet. The future of information technology was to bring information technology to
the masses, not the select.
The Financial Situation
Fiorina saw HP's respect and service to customers and the community as the shining soul of
the companyso much so that she believed it was this that provided HP with its competitive
edge. 16 Analysts have had concern about HP's asset intensity compared to many of their competitors. Wayman noted that one benefit from spinning off Agilent would be to gain 2 distinct
business models. Capital expenditures dropped in 1999 when Agilent was taken out of the

equation. Balance Sheet, Income Statement, Statement of Cash Flows, and Selected Industry
Ratios are shown in Exhibits 4, 5, 6, and 7 respectively. Exhibit 8 shows the stock price history
from January 1998 through the spin-off in November 1999. Wall Street rewarded HP with an
appreciating stock price through October 1999, when the price dropped because management
stated they might not make analysts' earnings estimates for the year ending October 31.
Additionally, Agilent Technologies was receiving much media attention as the largest Silicon
Valley initial public offering in history, scheduled the next month. After the spin-off, HP's
employee base dropped from 123,000 to 85,000.
Immediate goals for HP included aggressive profitable growth and increased consistency Of
financial results. Fiorina also planned to work hard to improve the total customer experience,
which, if done successfully, should transfer to the bottom line. HP would also have to aggressively seek to improve U.S. sales of its Jnix server line. In his address to security analysts, CFO
Robert Wayman commented that the "Nevv" HP would be more focused on growth by
Defending and growing our key printing and server businesses.
Investing in carefully chosen growth opportunities.
Continuing to demand and reward superior performance.
Accelerating key operational initiatives.
Eliminating redundant activities.

TEKS 12
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TEKS 14
TEKS 15

TEKS 16
Marketing
CASE FIFTEEN CARLY THE REINVENTION OF HEWLETT-PACKARD 15-17
Finally, Wayman commented that the initial ratios would likely reflect the diseconomies
caused by developing 2 separate infrastructures, but HP planned to offset some of these
expenses with reduced infrastructure costs in information technology, operations procurement, human resources, as well as real estate and site services. Financial management must
also manage risk by carefully hedging with derivatives, covering exposed positions, and holding a diversified portfolio.
Hewlett-Packard was not known for its marketing expertise. Rather than be vocal about their
products and services, HP tended to be modest and unassuming, a strategy that caused the
company to slip in world markets. The company was reactive rather than proaetive, defensive
rather than offensive. Recently, the company had begun to consolidate their sales and challenge management activities to focus on emerging markets and better capitalize on their
growth. For example, in electronic commerce, HP merged with Verifone in a $1.3 billion
stock-for-stock transfer. The intent of this agreement was to leverage the power of the Internet
to offer new products and services.18 Fiorina referred to the early marketing programs as
modest and unassuming, and indicated the need to become more vocal about the company's
abilities. 19
Fiorina planned to institute a $200 million brand campaign in December 1999 to promote the spirit of HP. Since many of their competitors appeared to do a much better job of
tooting their horns, Fiorina set out to improve HP's marketing program. The goal was to reinvigorate and relaunch the HP brand name in the marketplace as a symbol of a new, energized
company that is moving forward into the new millennium, rather than stagnating. The
essence of the campaign went back to the "Rules of the Garage" where Bill Hewlett and Dave
Packard started in 1939. The campaign was designed to be a reminder of the inventive capability of the employees. Fiorina set out to build an organization where roles and responsibilities are clear, but there is also a strong demand for interdependence and collaboration. The
spirit she intended to present was that the company and its people were unbeatable by leveraging the human resource capabilities the company had.

Carly Fiorina: Reinventing the HP Way

One of Fiorina's first decisions was to change the salary structure for HP salespeople. She instituted pay for performance rather than set salary, a move that pleased analysts such as Michael
Kwatinetz of Credit Suisse First Boston Advisory Partner. "Let's face it: if you're an aggressive
salesperson and you think you can blow out your numbers, you want to work in a place where
you'll be rewarded for that."20 A new logo was adopted in November 1999 consisting of a single lower case word, "invent" by the lowercase graphic of the initials "hp." The intent of this
logo was partially to remind employees, customers, and investors of the company's creative
roots and frugal beginnings.
Fiorina promoted Duane Zitzner to President and CEO of HP's Computer Products,
leading the company's Unix and NT server products, enterprise storage, and software initia
tives. She kept Ann Livermore as a strong ally by leaving her in charge of all e-service initiatives
as well as HP's services, financing, and consulting businesses.
Ann Livermore, Chief Executive and President of HP's Enterprise Computing Solution
commented, "Quality of service will be one key factor in whether a company wins or loses on
the Internet. The companies that win have technical innovation and business model innovation. We're creating loyalty to HP when we help businesses create their wealth."21

TEKS 17

TEKS 18
USTRY THREE: COMPUTERS
Fiorina made aggressive revenue and earnings growth goals of 12 to 15% for fiscal year
2000. She made it clear that she wanted to reopen Hewlett and Packard's garage philosophy
and reminded staffers that the founders "didn't operate a democracy and they made very fast
decisions."
Separation for Hewlett-Packard and Formation of Agilent Technologies
Hewlett-Packard wanted to revitalize its stifled business. On March 2, 1999, the company
announced a strategic realignment that would essentially spin-off the Test and Measurement
division of the business while maintaining the computing divisions. Test and Measurement,
with an estimated $7.6 billion in annual sales, or 16% of revenues, consisted of several business lines including Chemical Analysis, Healthcare Solutions, and Semicon&uctors and would
go public in November 1999 as Agilent Technologies. The new company went unnamed for 4
months as Hewlett-Packard attempted to realign with a new "HP Way," one that would and
could keep up with the lightning fast speed of change. At the same time, Lew Platt announced
that he would retire after the spin-off, allowing a new chief executive to start with the revitaiized Hewlett-Packard. Hewlett-Packard would continue to focus on computing, imaging, and
peripherals, and the new company would take the other business units and operate independently of Hewlett-Packard. Hewlett-Packard believed this transition would allow better focus
on the remaining businesses since growth rates had slowed significantly since the mid 1990s.
The stock market reacted cautiously to this news with HP earning a modest gain of on the
day of the announcement to close at $68.81.
In 1966, when HP entered the computer business, few would have believed the company
would one day split and the HP name would go with the computer business rather than Test
and Measurement. It was 25 years after the introductions of the HP 3000 series that HP would
formally reorganize and acknowledge the computer division to be its core business.22 Times
change; technology changes even faster. Hewlett-Packard opted to spin off the Test and
Measurement division to enable the remaining HP businesses to place greater strategic focus
on core computing, imaging, and printing businesses. As with any major change, however, it
remained uncertain as to whether or not HP would retain all the benefits the company per-

ceived. In other words, would they regret the decision to realign, or would they gain from the
decision? The key to that issue was only to become available as the future unraveled.
When asked about the spin-off, Fiorina spoke in favor of it.
Focus is crucial for a company, especially a large one. I believe it was a wise decision to spin off
Agilentmaking up HP's former test and measurement, medical products, chemical analysis
and semiconductor businesses. What continues under the HP namecomputers, printing and
imaging products, information technology services and softwarehas a rich history in innovation, outstanding people and technologies, and world-class partnerships. We're confident both
companies will be able to innovate better and faster as separate entities. And there's no reason we
can't partner on certain things.
Carly Fiorina, President and CEO, HP23
Historically, Hewlett-Packard tended to have slowdowns every 6 to 7 years, usually matching the business cycle. However, the Internet revolution presents a much more radical shift in
the way HP will need to operate. It is about speed, agility, nd the ability to change direcCon.
The Internet economy provides a lot of uncertainty, which makes 5- to 10-year business pians
difficult and of limited value. While the core of HP did not need significant change, the HP
Way could hamper progress. While the HP Way made the company successful, it also could
hamper growth, especially as the HP moves into the new millennium. The HP Way does not
promote the change that would be necessary in the Internet revolution. HP was reluctant to

TEKS 19
CASE FIFTEEN CARLY REINVENTION OF HEWLETT-PACKARD 15-19
take risks, and carefully calculated risks were exactly what HP would need to undertake to succeed. HP would need to grow faster, sell more, and do so more profitably. Not an easy task for
managers used to the HP Way.
Ten years may sound like a lot in "Internet time," but it's not in realitynot when you're talking
about something as fundamental as replacing a technology, like silicon, th3t will finally reach its
physical and financial limits. You've got to start now or risk being left behind or missing out altogether. Basically high-tech companies have to do both: continue their efforts to extend current
technologies, and to work on "disruptive" technologies that show great promise for the future.
There are very few companies in the world that have the resources to do both successfully. HP is
one of them.
Carly Fiorina, President and CEO, HP24
The Future of Hewlett-Packard: To Keep the Best
... and the Rest?
With a bachelor's degree in medieval history and philosophy from Stanford, an MBA from
the University of Maryland and an MS degree from MIT, 20 years of experience in the
communications industry, 2 years heading Fortune magazine's list of the most powerful
women in America, Fiorina accepted the challenge to reinvent Hewlett-Packard. She
moved quickly to institute changes immediately upon her arrival. She utilized HP talent
and expected her people to work as hard as she did. After 4 months on the job, HP
announced they had narrowly beat analysts' earnings estimates for the fourth quarter 1999,
which ended on October 31, 1999. On November 18, 1999, HP announced that net income
for the last quarter rose 7% to $760 million or 73C per diluted share from the $710 million
of 680 per diluted share from the same quarter in 1998. The financial results excluded
those of the spun-off Test and Measurement division, Agilent Technologies, and were a
pleasant boost to Fiorina's fifth month on the job. Y2K problems remained a concern, as
did the uncertainty about the success of Fiorina's changes yet to be fully implemented.
However, she appeared to be off to a cautiously optimistic start. "Pieces are in place, there
are no holes in the solution, but mindshare counts for a lot," commented Tony lams, Senior

Analyst, D. H. Brown Associates.

25
The spin-off of the Test and Measurement Division, to be known as Agilent Technologies,
posed certain risks for HP shareholders. The spin-off allowed HP shareholders to retain 84%
ownership in Agilent Technologies. Agilent was scheduled to go public in November 1999 and
distribute the 84% ownership to HP shareholders in June 2000. Since stock prices can fluctuate wildly, especially around an initial public offering (IPO), there was considerable uncertainty as to the value HP shareholders would receive in June 2000.
Exponential growth is based on the principle that the state of change is proportional to the level
of effort expended. The level of effort will be far greater in the twenty-first century than it has
been in the twentieth century.
Bill Hewlett
Cofounder Hewlett-Packard26
VVhere does the future lie for HP? Hewlett-Packard must work hard to capitalize in e-ser
vices and digital imaging while continuing to aggressively defend and develop their core business. The company needs to maintain and grow its positions as a global provider of computing and imaging solutions, but must focus heavily on the opportunities the Internet provides
with the proliferation of e-business and e-services. The Asia-Pacific region remained a concern as did the struggling Unix server lines. Marketing would be revamped. E-services would
be revolutionized. If they can do that and earn more, faster, and more efficiently, they will suc5

TEKS 20
CASE FIFTEEN
Exhibit 1
Historical Milestones in the History of Hewlett-Packard
CARLY FIORINA: THE REINVENTION OF HEWLETT-PACKARD
15-3
Date
Mid-2000
July 17, 1999
March 2, 1999
1998
1997
1996
1995
1994
1993
1992
1990
1989
1988
1987
1985
1980
1977
1970
1969
1966
1965
1964
1963

1962
1961
1960
1959
1958
November 6, 1957
1951
August 18, 1947
1940
1938
Event
Agilent's independence is achieved when Hewlett-Packard distributes its remainmg Agilent stock holdings to Hewlett-Packard shareholders.
Carly Fiorina joined HP as the new President and CEO; Platt would remain on board 6 months.
Hewlett-Packard announces strategic realignment into 2 companies.
Sales reach $47.1 billion with 124,600 employees. The companfs Pavilion PC reached its peak in the
U.S. market.
Acquired Verifone, the industry leader in electronic-payments systems, through a stock-for-stock
merger valued at $1.29 billion.
Cofounder David Packard dies of pneumonia.
Introduced HP Pavilion PC for the home computing market.
Sales topped $25 billion with 98,400 employees. Introduced HP Color LaserJet printer and HP OfficeJet
printer/fax machine/copier.
Dave Packard retired as Chairman. Lew Platt named Chairman, President, and CEO. Shipped 10 millionth LaserJet printer. Company sales were $20.3 billion with 96,200 employees.
CEO John Young retires; Lew Platt named President and CEO.
Opened research lab in Tokyo. Company sales were $13.2 billion with 91,500 employees.
Listed on 4 European stock exchanges: London, Zurich, Paris, and Frankfurt. Acquired Apollo
Computer, workstation manufacturer. Original HP garage was designated a California State Historical
Landmark in this fiftieth anniversary year.

Company sales reached $10 billion, were listed on the Tokyo Stock Exchange, and were ranked #49 on
the Fortune 500.
Bill Hewlett retired as Vice Chairman of the Board of Directors. His son, Walter Hewlett, along with
Dave Packard's son, David Woodley Packard, were elected to the Board.
HP Laboratories opened research facility in Bristol, England. HP sales reached $6.5 billion with 85,000
employees.
Sales reached $3 billion with 57,000 employees. Introduced first personal computer, HP-85.
John Young named President (appointed CEO in 1978).
Sales reached $365 million with 16,000 employees.
Dave Packard was appointed U.S. Deputy Secretary of Defense (196971 )
HP Laboratories formed as the company's central research facility. It went on to become 1 of the
world's leading electronics industry research centers.
HP entered analytical-instrumentation field with acquisition of F&M Scientific Corporation, located in
Avondale, PA. HP sales totaled $165 million with 9,000 employees.
Dave Packard elected Chairman; Bill Hewlett elected President.
First joint venture in Japan.
First HP Listing on Fortune's list of largest U.S. industrial companies at #460.
Listed on the New York and the Pacific Stock Exchanges.
Established first U.S. manufacturing facility outside Palo Alto, in Loveland, CO.
Established first presence overseas in Switzerland and West Germany.
Sales topped $30 million with 1,778 employees and 373 products.
First public offering, wrote first corporate objectives. Company began manufacturing in new facilities
in Palo Alto, CA.
Sales were $5.5 million with 215 employees.
Incorporated, annual sales were $679,000 with Ill employees.
Sales: $34,000, employees. 3, products: 8.
Bill Hewlett and Dave Packard began working part time in a garage at 367 Add!son Avenue, Palo Alto,
CA, with an initial investment of $538.