The structure of an organisation can be defined simply as the sum total of the ways in which its labour is divided into distinct tasks and its co-ordination is achieved among these tasks (Mintzberg, 1983: 2). Structure follows the strategy like the left foot follows the right (Mintzberg, 1990). The strategy can be achieved when there is effective leadership. Before Fiorina came in as CEO, HP was a flat, decentralized organisation where the individual departments were given a great deal of autonomy. Decisions were made either by consensus or never made.
A firm in several related lines of business should adopt a multi-divisional structure – allows for synergies within each group (Galbraith, 1983). When Fiorina took charge, she developed a plan to transform HP from a ‘strictly hardware company’ to a ‘Web service powerhouse. ‘ As a part of the strategy, she dismantled HP’s structure. Previously, HP had 83 independent product divisions, each focused on a product such as scanners or security software. The company had 83 product chiefs having their own R;D budgets, sales staff, and profit-and-loss responsibility.
To make HP an effective organisation, Fiorina reorganized these units into six centralized divisions. Three of these were product development groups-printers, computers, and tech services ; consulting, (the ‘back-end’ units); and the other three were sales and marketing groups-for consumers, corporate markets and consulting services (the ‘front-end’ units). The back-end units developed and built computers, and handed over the products to the front-end groups that marketed these products to individual consumers and corporations.
Fiorina expected the new structure to strengthen collaboration, between the sales and marketing executives and the product development engineers, thus enabling faster solution to customers. This was the first time a company with thousands of product lines and scores of business units had attempted a front-back approach, a strategy that required sharp focus and proper coordination. In the earlier set-up, most of the strategic decisions were left to the heads of product divisions.
To ensure that most of the important decisions came from the top, Fiorina created an executive council on the investment of resources in the best available opportunities. These measures transformed HP into a tightly coordinated corporate machine where decisions were made quickly and more confidently. The new arrangement solved a number of long-standing problems of HP, making it easier for suppliers/clients to do business with it. Instead of having to deal with an array of salespeople from different product divisions, customers now dealt with only one sales person.
The new arrangement also helped HP’s product designers focus on the design aspect. It gave the front-end markets the authority to finalize deals that were most profitable for the company. For example, they could sell a server at a lower margin to those customers, who opted for long-term consulting services. THE HP-COMPAQ MERGER One of the most significant moves by Carly Fiorina was the decision to buy out one of HP’s major competitors-Compaq, in September 2001. The deal involved HP buying Compaq for $25 billion in stock (the final cost of HP was $19 billion).
This was the biggest ever buy-out in the history of the computer industry. The merged entity was to have operations in more than 160 countries with over 145,000 employees, offering the industry’s most comprehensive set of products and services. The new company retained the HP name and its combined revenues amounted to $87. 4 billion, almost equal to that of the industry leader IBM ($88. 396 billion in 2000). Under the terms of the deal, Fiorina was to continue as the Chairman and CEO of the new company.
Fiorina claimed that the new HP would become the global leader in terms of revenues for servers, access devices (PC’s and hand-held devices), and imaging and printing. It would also have a leading revenue position globally, for information technology services, storage and management software (Refer Appendix 3). The merger was projected to yield savings reaching $2. 5 billion annually by 2004. These savings were expected to come fromThe merger was justified by saying that the size of new HP would enable it to take advantage of volume sales.
Compaq was a leading player in areas like data storage and direct selling, where HP was not. According to Carly Fiorina the post-merger; HP would become more efficient by doing away with the middlemen. Moreover, Compaq was known for its speed, agility and customer focus, which HP clearly lacked. This deal will jump-start both companies in their race for efficiency. Once the merger was implemented, Fiorina planned to lay off more employees as a part of a major cost saving drive. But analysts in fact felt that the merger would yield huge cost mainly because of the layoffs.
NATURE OF LEADERSHIP FIORINA’S LEADERSHIP STYLE Fiorina was a straightforward, articulate and market-focused manager. She was appreciated for her willingness and ability to take on challenges. She was quite successful in spinning off Lucent Technologies. Her major assets as a corporate leader were her capacity for hard work, guts and her ability to build and motivate a team. Some saw her as being smart, brilliant and a visionary; others described her as arrogant, complex and self-serving.
Of her stint at HP, Fiorina had succeeded in instilling a spirit of hard work, customer-focus and good performance into HP employees. The leadership attitude in Fiorina always made her believe in providing the best customer experience. Reflecting her own ‘demanding’ management style, she always asked HP’s customers to demand more from the company and promised that HP would put in the extra efforts to meet all their demands. Earlier the research teams at HP focused on developing innovative products.
Under Fiorina’s leadership, research teams were asked to develop products that focused on customer needs. Fiorina is all about the customer, the customer and the customer. She believed that in today’s market they could no longer do pure research. They have to get out and learn what the customer needs so they know what to make next. IBM, in the early days was in trouble because they were more technology oriented rather than customer focused. More similarly Carly Fiorina followed the way in which Louis Gerstner handled the crisis in IBM and she was more aggressive than Gerstner.