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HP philosophy gets political in Compaq deal

Hewlett-Packard executives may find that the toughest challenge in their acquisition of Compaq Computer is purely philosophical.

Stephen Shankland principal writer
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Stephen Shankland
7 min read
Already faced with the economic downturn and shareholder dissent, Hewlett-Packard executives may find that the toughest challenge in their acquisition of Compaq Computer is purely philosophical.

See special coverage: A Fight to the Finish As one entity, the companies want to create "one strong new culture," Susan Bowick, senior vice president of the combined companies' human resources division, told high-level managers at a recent meeting.

"Our intent is to honor the past and build on the past, but (to) secure our future by consciously designing something that is still meaningful but different from exactly what HP and Compaq have done," added Bowick, who was quoted in a regulatory statement recently filed with the Securities and Exchange Commission.

HP is a company that has long paid homage to its early beginnings, maintaining a corporate culture called the "HP Way" that founders Bill Hewlett and David Packard formally established in 1957. The HP Way focuses on employee satisfaction as the source of company success; some of the by-products of the HP Way includes flex time and open communication between managers and employees.

While battles rage at the executive and board levels over the proposed merger--which was first announced in early September--the company is working internally to bring thousands of employees around to support the merger by re-emphasizing corporate culture and goals. Yet this path has proven challenging, with the interpretation of a "new" HP Way debated at every level.

Some people believe the company has abandoned its roots by putting Wall Street concerns before employee well-being. Others counter this argument, saying the company is working to resurrect the true HP Way by clearing out "deadwood" through layoffs and returning to original goals of customer service and corporate citizenship.

"Today, the HP Way has been diminished to only one (objective): profit. Employees no longer feel valued, and (they) fear for their jobs," said an 18-year employee at a facility in Boise, Idaho. "I personally feel that HP is only catering to Wall Street these days so that the stock price will go up, stockholders will be happy, and they can cash in their options."

Management and even some employees see the situation differently. "The HP Way has always stood for respect for individuals. It is management by objectives. It is not about rewarding non-performance," said Jim McDonnell, vice president of worldwide marketing for HP's business customer organization. "In the current economic situation we have had to do things that we haven't had to do before."

Amid the politically charged climate, the HP Way has become a flashpoint in the larger debate over the future of a combined HP-Compaq--illustrating how deep-seated cultural beliefs, although less visible, often carry just as much weight in merger negotiations as other issues such as executive promotions and product integration.

"Culture is very important, and it's something that tends to get ignored" in mergers, said Pamela Haunschild, associate professor of organizational behavior at the Stanford Graduate School of Business. "In the integration process in general, the cultural issue is a major component that really drives a value in an acquisition."

Problems arise when one corporation tries to dominate, she said. "What seems to be a problem is when one firm just comes in and imposes their culture and feels their culture is the right one," Haunschild said.

HP's cultural questions have taken on new importance as members of the Hewlett and Packard families have come out against the merger.

"For some time, I have been skeptical about management's confidence that it can aggressively reinvent HP culture overnight," David Packard, son of the co-founder, said in a statement earlier this month.

Now, executives are waiting on a decision from the David and Lucile Packard Foundation, the single largest HP shareholder, with 10.4 percent of HP shares. On Friday, consulting firm Booz-Allen & Hamilton is scheduled to give the foundation board its opinion on the HP-Compaq merger.

The board includes three Packard sisters and is expected to make a decision by early January.

One community, different cultures
HP's desire to work toward a new HP Way aligns with Booz-Allen & Hamilton's merger view. In a general report on mergers and acquisitions released earlier this fall, the firm advises clients to strive to "create one company." In the report, companies are encouraged to avoid "worrying about culture comparisons between the two organizations" and "assuming a single prevailing culture in each organization."

To this end, HP's Anne Murray Allen and Compaq's Ryan Robinson have been named to lead a "cultural integration team." So far, the companies have held more than 130 focus groups and interviewed about three-quarters of senior managers on the subject of integration.

Management style is a sticking point between the two companies, Bowick said. Compaq has "sharply defined lines of accountability, while HP tends to have team accountability," she said. Bowick expects that the two approaches will have to be blended if and when the merger is completed.

Bowick, CEO Carly Fiorina and the combined companies' executive council expect some parts of the HP Way to remain unchanged. The executive committee's values "mapped closely to the historical values associated with the HP Way," including "trust and respect, achievement, integrity, teamwork, innovation and an inclusive work environment," according to another SEC filing.

In an earlier executive meeting, Fiorina described her cultural aspirations. "We want to be a company that is known for innovation, for contributing in a positive way to the community, a company that employees can be proud of, a company that believes in respect and integrity," she said.

Fiorina and company do have their work cut out for them. In a packed meeting with 200 rank-and-file employees on Nov. 28, Bowick likened culture to the underwater part of an iceberg. "Unless this piece is consciously managed and integrated into everything you do, it can be where the Titanic would run into it," she said.

Big resistance to big change
Tension among the HP ranks came earlier this year when the company decided to lay off thousands of employees amid the economic downturn. Before the cuts were made, however, employees were asked to assist in a cost-cutting campaign: either take mandatory vacation or accept a pay cut, among other choices.

True to the HP Way, yet surprising to many on Wall Street, many employees offered to have their salary cut. When the company later proceeded with layoffs, many felt betrayed. And thousands of more cuts are possible if the merger is approved.

Large-scale layoffs run contrary to HP's corporate tradition, a point that David Packard has raised in criticism of the merger. "For over 50 years, one of HP's fundamental corporate objectives has been to provide long-term employment for its people," he said.

Employees lower in the corporate ranks agree. Employment wasn't guaranteed for life, "but they'd do their best to not lay people off," said Stan Sieler, a former HP employee, now with Allegro Consulting. When he started at HP in 1979, he said, he spent a week in orientation learning about HP and the HP Way.

Another employee, laid off in August after 13 years at the company, said HP has struck the wrong balance. "The HP Way is not about a job for life by any means. The HP Way, however, is about making attempts to look out for your employees," he said.

Bowick defended the layoffs during her talk with employees. She emphasized that HP won't succeed unless it's able to make "the right business decisions using a tough head--but implementing them with a warm heart."

One employee said the HP Way has changed over the years. When she was hired in the early 1990s, she said, there was a sense that even if an employee faced the prospect of layoff, he or she would still be treated well by the company.

"You knew your job was going away, but it wasn't like the end of the world. It was an opportunity to do something different: move to different product lines, different parts of the company, different parts of the world," she said. "You felt like the company was behind you as a person."

Yet some believe that employees have misinterpreted the HP Way. "There's nothing about the HP Way that guaranteed no layoffs," said Scott McClellan, an 18-year employee who has just begun a new job in the company's telecommunications hardware division.

Although possible cuts following the completion of the Compaq acquisition may be a concern, an alternate could be worse, he said--for example, cutting the entire PC business.

"The point of the HP Way wasn't to instill complacency, but that's what happened. It was easy to coast, and there was very little incentive to do a good job," McClellan said. "HP needed a big kick in the butt, and Carly's the boot. Carly is trying to get people to be held accountable."

In a letter to shareholders in the company's 2000 annual report, Fiorina wrote, "In recent years, the intent of the HP Way became clouded, and it was used to justify behavior such as conflict avoidance, weak performance management and an excessive focus on consensus. Clearly, this was not what our founders Bill Hewlett and Dave Packard had in mind."

Others believe the HP Way is dead--and deservedly so. Sometimes it was seen as an excuse, a shield that employees used to protect themselves from change.

Growing up in Silicon Valley, "you always wanted to work for HP. All you ever heard was good things," one employee said. But in reality, the company had a lot of deadwood, or "people who had been at HP for a lot of years who didn't like change because it challenged their fiefdoms."

News.com's Dawn Kawamoto contributed to this report.