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Executive Summary:

Executives around the world are always looking for the right management approaches to facilitate change and support innovation. This report aims to study the way organisations handle large scale change processes, in terms of implementing the change, dealing with the challenges, and the people management strategies used. The selected case study for this purpose is HP-Compaq merger, focusing on the role of Carly Fiorina, the CEO appointed in 1999, in changing the culture of HP, and her major project, the merger of HP-Compaq which is considered as one of the biggest mergers in IT history. Mergers cause a huge change to the participated organisations, which should be dealt with in a careful way in order to achieve the required results of the process. Mergers bring stress to the staff and they affect every aspect of the organisation, so they can give a good example of a major organisational change management process. The report will start with an introduction about the two companies (HP and Compaq), then an explanation about the

organisational change management process, followed by a discussion of the factors behind the change, the change and the challenges faced during the implementation of the change, and the strategies used to manage people, at the end some recommendations and conclusions will be presented.

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II. Introduction:
Hewlett-Packard was established by two Stanford University graduates (William Hewlett and David Packard), who started a garage business in 1939, but the HP brand was created in 1947. And since that date, the company has been a great success, with profits growing in an incredible way, from five million dollars in 1950, to almost three billion dollars in 1980, and to fourty billion dollars in 1996. During the early days, the company manufactured audio oscillators, Walt Disney Studio was one of HP's first customers. The first computer was produced in 1966. They introduced the concept of personal computing in 1972 which started by a calculator and advanced into a personal computer in 1980. HP also introduced a printing production line in 1985. HP dominated the PC and Printers market since then with 80 billion dollar revenues and 150000 employees in 162 countries in 2004 (HP Website 2011). Compaq Computer Corporation was founded in 1982 by three former Texas Instruments senior managers (Jim Harris, Rod Canion, and Bill Murto), the name Compaq came from Compatibility and Quality. And soon after that it became one of the biggest personal computers manufacturers competing with IBMs PCs through offering faster and affordable computers compared to IBMs products, Compaq made 111 million dollars in 1983, and the revenues kept growing to almost 20.01 billion in 1996, revenues increased through _____________________________________________________________________ 2

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_____________________________________________________________________ some strategic steps such as the acquisition of Digital Equipment. The new millennium witnessed a decrease in Compaqs market share, which was one of the reasons of the famous merger with HP. After the merger with HP, the Compaq logo and name were mostly used on budget notebooks (Compaq
Website 2011).

III. Organisational Change Management Process:

Organisational change management process can be simply described as a process to guide the organisational change. Organisational change is a challenging process, especially if it includes the entire organisation, where the usual ways of doing things within the organisation will change. It is a risky process as well, this can be proved by the low rate of successful large scale organisational change implementations, management

and organizational development consultant Dr. Harold Resnick, suggested some reasons for such low rates. First is that all humans show some kind of resistance to change, so it is important to manage this resistance. Second, changing the way organisations do business is like asking people to change the way they live, so it should be done with great commitment, determination, discipline, and a good planned implementation. Third, the uncertainty that can be created by change, because it is unpredictable (Resnick 2010). Dr. Resnick defines two factors to successfully manage and implement change, a clear process to steer the change, and a special leadership team to lead the change process. In most cases where the change is not on a large scale, this team doesnt need to be a _____________________________________________________________________ 3

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_____________________________________________________________________ dedicated, full-time team, but it must be given the authority, the responsibility, the resources, and the accountability for the complete implementation of the change process. If the change is organisation wide, this team should consist of senior management, which is the case in mergers (Resnick 2010). Dr. Resnick suggested ten steps for change management methodology, they are: Confirming the need to change. Identifying the limits of the change. Creating a clear vision about the state that the company is looking for. Developing the basic work processes. Defining roles and responsibilities. Changing the organisational structure, only if needed. Setting performance measures. Re-assessing system-wide tools, such as softwares. Providing training. Supporting the reward system (Resnick 2010).

IV. Forces Behind the Change:


At the time Carly Fiorina accepted the CEO position at HP, the challenge was to help the company deal with the internet age, as well as maintaining HPs culture and market share. She did a good job during the first year, regardless of the slowdown of the industry as a whole, through starting new projects, such as the wireless services,

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_____________________________________________________________________ and creating new sales teams, but when HP faced recession in 2001, which lead to layoffs and pay cuts, with a declining stock price, Fiorina proposed her merger plan (Hoopes 2001). The stated goal was Merging two global giants into one market leader (HP Website 2011). Despite of the critics who said that the merger would only create a bigger company with bigger troubles, she explained that this merger will eliminate one of the major competitors in the crowded PC market, as well as improving HPs share in the hardware and services market. Fiorina believed that this will enable HP to compete with industry giants such as DELL and IBM, and it will create a firm that is capable of providing many IT services (selling PCs, Laptops, Servers, Storage units, printers, and building networks). So the acquisition took place in 2001, where HP acquired Compaq in a 25 billion dollar stock transaction (Hoopes 2001).

V. Challenges faced in the implementation of the change:

The first challenge came from the inside, as families of the founders opposed the merger, because they didnt want to change the HP culture The HP Way, Fiorina explained, The HP Way has always been about change. Its always been about innovation, its always been about bold moves (Williams 2001). While she acknowledged

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_____________________________________________________________________ that the HP Way had become something of a gentle bureaucracy of entitlement and consensus (Williams 2001) she said that the important values of HPs culture (i.e., innovation, creativity, and change) were what justified the merger. Fiorina also said that Standing still is the path of greatest risk, because our customers and the technologies we market will not stand still with us. Standing still means losing ground. Standing still means choosing the path of retreat, not leadership (HP Website 2011). Investors and stakeholders also thought it will be hard to get the loyalty of Compaq customers for products with HP logo on, while one of the major competitors CEO Michael Dell, described the merger as the dumbest deal of the decade (LaPlante 2007), but Fiorina thought that the merger will remove a major player from the crowded PC market, and that the companys share in the market would increase as a result, she believed that the merger would create a full service technology firm, she also suggested a double brand marketing strategy to get the loyalty of Compaq customers (Hoopes 2001). It might have appeared that both companies were similar, as both of them basically manufacture personal computers, servers, and laptops, but there were differences in the way each part manufactured, marketed, and serviced products, so the merger had to blend the two business units and try to avoid redundancies, at the same time making sure that high quality services and products were delivered to customers, this was one of the biggest challenges that the integration team had to deal with during the merger.

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_____________________________________________________________________ Other challenges included technical issues, such as integrating the information systems in both companies, and the messaging systems, which had around 228000 mailboxes dealing with 4 millions emails a day (HP Website 2011). One of the major challenges dealt with was the employees and the impact of the cultural change, this HR aspect will be discussed later.

VI. The Change:


A huge team was formed to implement the merger, the team consisted of 1500 people, with members from senior management in both companies, technical members, as well as members from business units across the companies, who worked full time to achieve short term goals and long term goals, such as putting strategic plans and setting the rules of how business will be done in the new company, and issues such as decision making processes (Cummings & Worley
2009 p 182). Fiorina and Michael Capellas (CEO of Compaq) named

Webb McKinny (19 year senior manager with HP) and Jeff Clarke (CFO of Compaq) to lead the transition process which included redeploying around 150000 employees in almost 165 countries, with about 15000 layoffs, and 165 product lines, in order to reduce costs by 2.5 billion dollars (Cummings & Worley 2009 p183). They were selected due to their good reputation within the companies and due to their strong relations with employees, which is so important in _____________________________________________________________________ 7

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_____________________________________________________________________ implementing huge changes such as the merger. The two started by creating a team called the clean team which consisted of 500 member from both companies equally, the number of members continued to grow into a big body of outstanding managers, who were assured that their jobs are safe, even if the merger didnt succeed, which kept them motivated to work. The team reached 2500 on launching day (Cummings & Worley 2009 p183). Mckinny and Clarke studied many acquisitions to gain more experience on how to deal with the integration, which lead them to believe that slow decision making and unclear decision making strategies could kill the transition process, so they came up with the adopt and go strategy, which meant that managers from the two companies will meet daily to decide the best choice or action regarding any particular issue, in order to fast the pace. Mckinny and Clarke were involved if any issue wasnt solved by the teams, if they couldnt solve it, it was passed to committee headed by Fiorina. In weekly meetings, they discussed issues such as which products to keep and which to drop (Cummings & Worley 2009 p184). The adopt and go process also helped in selecting the top three tiers of executives, which was an important step towards the launching of the new company. Special teams were formed to deal with melding the organisations cultures, with the help of HR consultants, these teams held cultural workshops to identify each culture and the subcultures within them, and to try to integrate the cultures into a new culture in a way that can be accepted by both companies employees. For

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_____________________________________________________________________ example, sales people from both companies discussed the way they used to sell their products, in a try to integrate the sales process
(Cummings & Worley 2009 p184). These teams worked on the global level,

but on the local level, CEOs were involved after selecting the executives of the highest three tiers and after creating the global strategic plan of the merger, HP South Pacifics CEO Paul Branding, says that on the launching day the products maps were finalized, the new website was up, personnel email accounts under the HP domain were ready, and key customers accounts were analysed, he also said that all local CEOs were sent to the states a week before the launching day, they were given detailed briefings, and the required tools to manage the merger in the local operations. The merger took about 75% of Brandings time. He says there was an enormous amount of preparation and planning (CEO Forum
2004). This can also be noticed by what Robert Burgelman (the Edmund

W. Littlefield Professor of Management) said about the merger The integration planning process was so successful that on the day the merger was approved, the new company was ready to go (LaPlante 2007). Because of this rigorous pre-clearance integration planning, many issues and problems that typically hinder the effectiveness of large acquisitions were resolved much more easily than most skeptics had expected says Burgelman (LaPlante 2007).

VII. The Challenge for HR:

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_____________________________________________________________________ The main challenge from HR perspective was to develop a strategy that would maintain and exceed the standards both companies had before the merger, while performing a huge cultural change. The change management process consisted of five stages, awareness, coping, internalize and align, execute, and reinforce and arrive (Baque 2003). HPs people strategy is aligned to the companys goals and values, and it was designed to keep employees commitment especially in times of change, so this strategy enabled HR to run a smooth and fast process, as well as setting up a culture of high performance right from the start. The process was done through clear and regular communication. The management and employees were involved in the change during the early stages, which gave a good effect on employees, more cooperation was guaranteed from employees through properly communicating road map information of the change to employees (Baque 2003). There are many challenges for the HR with regard to mergers, Stephen Chong Human Resources director of Hewlett Packard, Southeast Asia gives an example of such HR challenges in the case of salespeople from HP and Compaq (pre-merger) working together in a team (HP Compaq) with different commission plans, Chang says it was really important to develop an integrated commission system to motivate the salespeople in the new company (Lee 2004). Unsolved cultural differences are considered as the main reason for mergers failures, so HP spent a lot of time before the merger trying to create a unified culture. Chang believes that the key to accomplish a smooth cultural integration is communication, he

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_____________________________________________________________________ encourages using a clear and honest communication strategy, Never negate the insecurities of employees, you have to face up to the issues and address them. If there is bad news to communicate, do so. People appreciate that (Lee 2004). One of the main insecurities for employees was the 10% layoff plan during the merger, HR department acted as change agents, many teams were created which used many methods such as focus groups interviews to get feedback from employees regarding their fears and expectations about the merger, this information was used by executives and steering committee (Lee 2004). MIS, the IT management magazine, demonstrated that the hugest challenge in the merger was to allay employees concern about the change (Lee 2004), CEO Fiorina, was aware of employees concern regarding the mergers announced goal of reducing costs by 2.5 billion dollars, as they thought that this cost reduction will come mainly from layoffs, so she addressed that in a speech to employees "We can create substantial shareholder value through significant cost structure improvements" (Piven 2001), in a try to allay their concerns. HP successfully completed the merger, through the vision, where the focus was not on what gets done, but on the way it gets done (HP website 2011). And the successful people management strategies that were seen in the early involvement of employees, the special integration teams, the efforts to understand and allay the employees concerns and insecurities, the importance of feedback received from focus groups with employees, and the clear communication methods used all the way through the merger process.

Recommendations:
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_____________________________________________________________________ As seen in the HP-Compaq merger, in organisations life cycle, change can be the only way to keep the business alive, and it can vary from small scale change to large scale change, as in the case of the merger. Successful management should always monitor the organisations performance and consider all the possible options to maintain profitability of the business, even if these options include making a large scale change that will alter the long lived organisational culture, but such large changes should be dealt with in a very careful way, as their affect is large and the failure rate is high, so managers should do their homework in a perfect way before trying to make such changes in the organisation, they should also assign the proper resources to manage and perform the change, and they should use the right people management strategies in implementing the change, to ensure a full cooperation from everyone in the organisation, and to guarantee a successful process, that will prosper the organisation.

Conclusions:
Successful executives should always monitor and study the available options to keep the business running in a profitable way, in most cases these options will cause a change to the organisation as a whole, they should be firm and ready to take responsibilities and risks when proposing such changes. Fiorina showed this during the merger, where she did her homework before suggesting the merger plan, she faced all the challenges from stakeholders in a professional way that guaranteed the success of the merger, through selecting the right people to create the suitable strategies to successfully implement such a huge change. The

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_____________________________________________________________________ result was a merger that achieved the goals and hopes of both participated companies.

References:
Books:
Clegg, S, Kornberger, M, and Pitsis, T 2009, Managing & Organisations: An Introduction to Theory & Practice, second edition, SAGE Publications. Cumming, T and Worley, C 2009, Organization development and change, 9th edition, Cengage Learning.

Journal Articles:
Williams, M 2001, HPs Deal for Compaq Has Doubters as Value of Plan Falls to $20.52 Billion The Wall Street Journal, September 5, 2001, p. A3.

Online Articles:
Baque, H 2003 Managing a successful integration, lessons learned from the HP/Compaq merger, accessed on 24/2/2011 http://www.scribd.com/doc/38946947/HP-Compaq-Merger-1 Federico, G 2003 Carly Fiorina: Is she Helping or Hurting HP, accessed on 23/2/2011 www.keeeeez.com/pages/Rick-Garcia-Projects/CarlyFiorina.doc Fiorina, C 2002 The Case for the Merger, accessed on 26/2/2011 http://www.hp.com/hpinfo/execteam/speeches/fiorina/goldman_02.html Hoopes, L 2001 A case study on business communication, accessed on 25/2/2011 http://www.awpagesociety.com/images/uploads/APCase2004.pdf LaPlante, A 2007, Compaq and HP: Urge to Merge Was Right Stanford Business Magazine, accessed on 25/2/2011http://www.gsb.stanford.edu/news/bmag/sbsm0711/kn-merge.html Lee, X 2004, The Secrets of our happy union accessed on 26/2/2011 http://www.humanresourcesonline.net/news/4699 Piven, J 2001 HP-Compaq: A technology giant born of industry weakness, accessed on 24/2/2011 http://www.allbusiness.com/technology/1069782-1.html Resnick, S 2010 Organisational Change Management Process, accessed on 24/2/2010 http://www.worksystems.com/services/organizational_change.html

Websites:
CEO Forum, 2004, accessed on 26/2/2011 http://www.ceoforum.com.au/articledetail.cfm? cid=6167&t=/Paul-Brandling-HP-South-Pacific/The-HPCompaq-Merger--a-local-perspective

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Compaq Website, accessed on 22/2/2011 http://h20426.www2.hp.com/campaign/compaq/au/en/index.asp

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Computer History Museum, accessed on 25/2/2011 http://www.computerhistory.org/timeline/? category=cmpny HP Website, accessed on 22/2/2011 http://www.hp.com/hpinfo/abouthp/histnfacts/ Human Resources Online, accessed on 27/2/2011 http://www.humanresourcesonline.net/news/4699

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