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FEBRUARY 10, 2005
By Ben Elgin Can Anyone Save HP? [Page 2 of 3]
HACKSAW HANDY. While a miracle turnaround can never be ruled out, the more likely scenario is an eventual breakup of HP. That would spell the end of an era. Ever since its founding in a Palo Alto garage 66 years ago, HP has represented the triumph of a special brand of entrepreneurialism that came to represent Silicon Valley. At its heart it's an engineering-driven culture that values teamwork and rewards ideas and inventions, not pedigrees (see accompanying HP history slide show). In truth, Fiorina was battling HP's storied culture from the day she arrived. A dynamic sales exec from Lucent Technologies (LU ), she was the first outsider to head the company. And she didn't hesitate to take out her hacksaw. Immediately, she began to reel in HP's 80-plus autonomous business units into a more centralized, four-division giant. She eventually laid off tens of thousands of workers. Battling decades-old inertia, Fiorina began to centrally manage tasks such as branding and advertising. Even her critics say that these steps were needed, and that she fought some important battles to streamline HP's organization. "Carly recognized the need to start leveraging the common strengths of the company," says Bojana Fazarinc, HP's former director of marketing services and branding, who is now an independent consultant. DEFINING MOMENT. She was decisive, no doubt about that, and a gifted communicator. But even early in her reign at HP, she began to demonstrate the weaknesses that would lead to her fall. First, she fired or scared away execs in droves, including such prominent figures as Antonio Perez, now president of Eastman Kodak (EK ), and Mary McDowell, now a senior executive at Nokia (NOK ). She also resisted changing course -- a dangerous trait in an industry in which the most successful leaders have been those who don't fall in love with their strategies. Throughout her tenure, say insiders, she continued to blame HP's woes on the company's culture -- not on severe management shortcomings, including her own. "She didn't develop enough effective lieutenants," says Stephen P. Mader, vice-chairman of Christian & Timbers, the headhunting firm that recruited Fiorina into HP. "Twice she passed up...opportunities to have a chief operating officer. Looks like it bit her." The Compaq merger was the defining moment in Fiorina's reign. By buying Compaq, she created a giant with tremendous scale and all of the clout and economies that come with it. But she did not fundamentally change HP's ability to fend off Dell in the low end of computing or match IBM's sophistication in the enterprise. So HP has come up short against both of them. DEEPER WOES. Equally important, the battle over the merger divided the once-collegial company into angry, partisan factions. Insiders say the contentiousness of the dispute was a key part of why Fiorina became so wedded to her plan for HP. But Fiorina's soaring vision ran into a wall of opposition. Director and scion Walter Hewlett rose up against it, and huge swaths of employees and shareholders joined the cause. They feared that the deal would dilute HP's lucrative printing and imaging business and an influx of hard-charging Compaq execs would turn HP's hallowed culture upside down. The dispute spiraled into a bitter proxy battle and wound up in the courts. Hewlett was pushed off the board of the company his father founded. While it's convenient for HP's leaders to blame poor execution for their problems, what ails the company runs much deeper than replacing a few top executives. In enterprise computing, HP has failed to improve its lot. While it is still narrowly holds the market-share lead in storage and in key server markets, including Unix and PC servers, it's losing ground to EMC in storage and Dell and IBM in servers. In some cases, its technology just hasn't kept up. In others, it has made bad bets.
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