OSD Case write up Reorganizing

HP


Presented by
Infernals
COMPANYS REORGANIZATION EFFORTS IN
THE PRE-FIORINA ERA

1960s
An effort to avoid bureaucracy and to maintain the
culture of intimacy, caring for people and good
communication, even when HP grew larger.
4 product development groups, each for a family of
related products.
A design engineer working only on one division of
product and working closely with the field sales force.
Setting up of its own sales organization




1968
Too many operating divisions thus a group structure (each
group comprising of divisions with related product lines).
Each group responsible for its over all operations and
financial performance
Decentralization of top management functions. Each group
taking its own decisions.
HPs field marketing activities improved each sales
engineer selling and supporting only his groups products.
Early 1970s
From highly centralized to local decentralization.
One division fully responsible for a product line at a separate
location.
General guidelines, with no corporate direction.

1980s
Lack of co-ordination between the groups.
HP perceived as 3 or 4 companies rather than one.
Products created by each division were not fully compatible
with each other.
1990s
Slowing down of decision making process, specially
pertaining to product development.
Then CEO John Young cut a layer of management from the
hierarchy.
He decentralized decision making. Computer business was
divided into 2 primary groups, each with its own sales and
marketing team.
One group sold PCs, printers etc. through dealers while the
other sold workstations and minicomputers to large
customers.



End Result

Problems came up with growth in size.
Significant rise in bureaucracy.
83 different product divisions working towards their
independent goals rather than the organizational goals.
Best Buy, while buying some computer products, had to face
50 HP employees, each trying to push their own units
products.
Innovation was getting hindered.
Focus was on increasing the numerical increase in
production and sales, rather than a breakthrough (such as
the inkjet printer 1984).
Platt focused on promoting diversity and maintaining a
humane balance of personal and work life of the employees
which did little to help HP.


Revenues increased from $13.2 billion to $38.42 billion.

Fiorinas Restructuring Plan
Demanded regular updates on key units.
Bonus period was changed to every six months from once a
year.
Focused on breakthrough projects rather than
incremental projects (incentive for each patent filing).
Strictly hardware company to Web services powerhouse.
Reorganized the 83 independent product divisions into 6
centralized divisions: 3 product development groups
(printers, computers, tech services and consulting) and 3
sales and marketing groups (consumers, corporate markets
and consulting services).
Products forwarded from back end to front end units.
Expectation of a strengthened collaboration between sales
& marketing executives and product development
engineers.


Advantages of the restructuring
Increased coordination among divisions
Customers could deal with only deal with one person rather
than too many sales people
Help the product designers to focus on their own product
and gave authority to the marketers to make the most
profitable deals eg servers sold at lower margins to
customers opting for long term consulting services.
The patent filings were doubled in 2001 due to the new R&D
strategy
Disadvantages of restructuring
Job being divided the product chief now had a very
limited role
Had no authority to set sales forecast and were unable
to allocate R&D funds accordingly
Similarly front end units had trouble meeting forecasts if
the back end came up with wrong products
In response to the biggest reorganization expenses rose
out of control
Contd
The new structure did not let the product designers be in
close contact to the customers
Again the selling and marketing team was unable to give
sufficient attention to each of the products
Profitability had increased only for low margin products
Responsibility for profits and losses for not defined
Less financial control and more disorder
Customers not happy