Fiorina and Com CEO Michael Capellas met in New Yor ince what was ex scted to become undertaken in the omputer industry arch-rival, the Compaq Corpo: Fation, in a stock deal valued at $25 billion, While th dustry, and while Compags Board of Directors read: , the merger soon became hi HP board member Walter Hewiet other members of the Hewlett family, and the HP Foundation opposed the ges, and, as a result, an Lnusual fight erupted between the HP board and the nunding, family. Assisted by the majority of embers, Carly Fiorina embarked on an campaign to convince investors to vote yes on the deal. Subsequently HP shareholders had narrowly approved the merger and two months later, HE deal officially. Valued at about $19 billion ot of its closing, the mer ind Compaq closed the the two companies. is and Compaq(s Board of Directors, the deal with HP represented an attractive offer. With Compag losing market share low-end home personal computers (PCs) and hi end servers—and with both product groups undergo- nga steady decline in profits, Compaq was strug Subject to a price war launched by Dell Computer in the PC ne computers and PC servers), and: unable to compete sticcessfully with IBM on the sup- ply of info: (IT) services, Compaq’s 1 tivo product future existence was precarious, To survive, Compaq needed to either ex and the e home PC market endl computer business or to merge with adit other firms, Capella cult dilemma jould Compaq sell its dectinin and continue operating as a smaller company? Should it buy: other firms, or should it merge witha leading computer company to ere ogy Ieader equal! in’ size and complexity to IBM? Clearly the uncertain prospects of s businesses and continuing operating on a small scale, coupled with Compaq failure to execute successfull mergers with Tandem Computers and the Digital Equipment Corporat Board of Directors to sell n (DEC), persuaded company to HP.“ wanted to be the next IBM,’ Capellas recalled, not hat the alliance with HIP as “intuitively obvious? to all Compaq directors. Following the acquisition, Capellas became HP's president. To Fiorina and the HP board, the acquisition of Compag also xepresented an opportunity. To begin with, Compaeis products and services complemented HP's, HP built up a strong business in Unix-based C389€390 SECTION B Corporate Level Cases: Domestic and Global servers where the market was stagnant, but was weak in the production and sales of window servers where the growth prospects were promising, HP, in addition, built a healthy business in home PCs where compet: tion with Dell was fierce, but lagged far behind Dell in its ability to sell PCs directly to consumers. Compaq, by contrast, was highly competitive in the production of cheap, standard-designed window servers on the one hand, and in selling build-to-order PCs directly to consumers on the other. Compaq was also competitive in making data storage devices—another expanding ‘market where HP sought growth? Fiorina, furthermore, articulated a strategy that was expected to turn HP into an IT services company com- parable to IBM: Combining Compaqs $7 billion TT services revenues with HP's $7 billion was projected to vault HP from a distant competitor into the industry's ‘number four spot behind IBM, Flectronic Data System (EDS), and Fujitsu. Additionally, a consulting firm hired by Fiorina and the HP board estimated that by 2004 the merger was expected to save the consolidated ‘company at least $2.5 billion in operating costs, phas ing out duplicated products and services. Following the approval of the merger, Fiorina continued serving as HPS CEO. ‘Although HP's Board of Directors studied the im- plications of the merger thoroughly, Fiorina’s decision amounted to a strategie gamble. Critics of the merger contended that no large-scale merger in the computer! telecom/IT industries had ever resulted in a success that most of Compaq and HP's IT revenues took the form of low-level support and maintenance services, not high-level consulting and outsourcing, the typical services sought by large corporate customers and that the new HP was unlikely to compete successfully with Dell—the cost leader of the industry. They predicted, instead, that the merger would undermine HP's world- wide competitive position relative to IBM and Dell Computer its two main rivals, and result in failure to integrate the two companies together. ‘Were the critics right? ‘The present case looks at the menger two years later in an attempt 0 assess its overall impact on HP's performance. ‘The success of IBM’s PC gave rise to Compaq. IBM developed its first PC in 1980, brought it to market in 1981, and captured a 50 percent share in PC revenues three years later. As sales of IBM’s PCs exploded, three Texas Instruments engineers started their own company: Compaq was founded in 1982 to manufac: ture and sell IBM portable computers. Unlike other manufacturers of PCs, Compaq’s founders imitated IBM very closely, offering their customers a com: puter that ran all important IBM PC software pro- grams. Examining an IBM PC at a Houston trade show, the three founders drew a blueprint sketch of the IBM machine on a paper placemat in a local restaurant, and used the sketch later to design Com- pad’ first portable computer ‘Compaq's founders raised an initial venture capital investment of $1.5 million, and subsequently the company expanded at a remarkable pace. In 1983, its First full year, Compaq recorded $111 million in sales, an unprecedented growth figure for any start-up companys in 1986, its third fall year, Com- pag became the first company to achieve a Fortune 500 ranking in less than four years; and between 1986 and 1989, Compaq's revenues jumped fivefold t0 $3 billion.” ‘Compads rapid growth may be explained bya combination of several elements. First, focusing on excellence in engineering, Compaq had quickly become the industry’s most competent designer and producer of PCs. Second, Compaq managed to develop, manu facture, and market its products faster than any of its competitors; in 1986, for example, Compaq delivered ¢ new PC based on Intel’s 386 chip one year before IBM, In addition Compaq built a superior distribution sy, tem. While all other manufacturers used direct sales forces, Compaq relied exclusively on an extensive net= ‘work of dealerships. Never competing directly with is own dealers, and always granting dealers generous profit margins, Compaq provided its dealers with a strong incentive to increase sales Compad’s rapid growth was further sustained by global expansion: In 1984, Compaq was one of the earliest American companies to market PCs in Europe, and five years later, it had become the second largest, supplier of PCs to the European market. Compag expanded global sales outside Europe as well. By 1990—a record year of sales ($3.6 billion) and profi (5455 million) Compaq generated over half of its total revenues abroad, relying on a network of nearly four thousand authorized dealers stationed in 152 countries? Compag's first crisis unfolded shortly thereafter Partly-as a result of a worldwide economic recession, anda with: AST quar acted as CE com Com U agen help Jaun and int BM Con die Cor lets, ord int or tha net rev iv pad on ch paeRe Bakes F a (CASE23 Hewlett Packard: The Merger withthe Compag Corporation and also as a consequence of increased competition with start-up companies such as Dell Computer and. AST Research, Compaq experienced its first ever quarterly loss in 1991.1 The Board of Directors acted swifily. I fired Compaq cofounder Rod Canion 4&8 CEO and replaced him with Eckhard Pfeffer, the ‘company’s chief operation officer and former head of ‘Compag's European division. Under Pfeiffer’s leadership, Compaq’s top man- agement introduced three strategic initiatives that helped turn the company around. First, Compaq launched a ferocious price war against IBM, Dell, and other PC vendors, slashing its profit margins by more than half while increasing revenues threefold in three years, 1991-1994, In 1994, Compaq passed IBM as the world’s leading supplier of PCs. Next, Compaq introduced mass merchandizing as well as direct sales, thus abandoning its long-standing pol- icy of relying solely on authorized dealers. By 1992, Compaq sold its products in six hundred U.S. out- lets, and in 1994, Compaq began building PCs to order, following the Dell model.!! A third initiative introduced by Pfeiffer was corporate reorganization. Compaq sold its first server (a powerful computer that “served” data to corporate networks and inter- net sites) in 1989, but sales were disappointing. To revitalize Compag's languishing services unit and diversify further into servers, Pfeiffer revamped Comi- paq[s functional structure (manufacturing, sales, engineering) and reorganized: the company along three product groups that together made up Com: pas new divisional structure: servers, desktop and Portable computers, and network products. By 1996, Compaq had become the world’s leading seller of “PC servers?” A year later Compaq posted its largest profits to ate $1.9 billion on $25 billion in sales (Exhibit 1). Using, “Wintel” technology—a combination of Microsofts operating system and Intel's microprocessors— Compaq managed to keep its research expenses far below its competitors, spending on research just 3.5 percent of sales in 1997 (the corresponding figures for Sun Microsystems and HP were 9.6 percent and 7.2 percent). The largest customer of both Microsoft and Intel, Compaq, in addition, benefited from economies of scale, receiving the best prices, fastest deliveries, and earliest information on product development from its two primary suppliers. In 1997, consequently, Forbes magazine selected Compaq as its Company of the Year.!? EXHIBIT 1 Compaq: Sales, Net Income, and Stock Prices, 11991-2000 1991 33 01 176 1992 44 02 3.25 1998 72 05 492 1994 109 09 7.90 1998 4g 08 9.60 1996 181 13 14.88 1997 48 19 2825 1998, 312 (21) 42.00 1999 385 06 77.06 2000 424 06 1505 Source: “Compag," Hoover's Handbook of American Business, 2000p 288 ‘Compag's second and final crisis erupted in 1998. ‘The crisis stemmed first and foremost from Compaq’s acquisition of Digital Equipment for $8.4 billion Under Pfeiffer’s direction, Compaq bought Digital in 1998 in order to expand its customer base and offer corporate clients a full range of computer soft- ware programs, hardware products, and global IT services, But the merger backfired. In 1998, Compaq lost $2.7 billion (sce Exhibit 1) as a result of high restructuring costs related to the merger. Cutting seventeen thousand jobs, dismantling plants, and closing down office buildings, Compaqs losses mounted while revenue growth stalled (Exhibit 2). As it became apparent that integrating the two compa- nies together was getting harder and harder—some two hundred integration committees grappled with the process—Pfeiffer was forced to resign.!# Compag’s Board of Directors selected Michael Capellas, a newcomer who had joined the company in 1998, to replace Pfeiffer as president and CEO in 2000. Capellas moved quickly. Infusing Compaq with a true sense of urgency, Capellas introduced two strategic initiatives, the first aimed at focusing “Everything [on] the Internet” and the second sought to speed up Com- pads drive at global services. To facilitate the imple- mentation of both strategies, Capellas reorganized the company around three market-driven “profit centers,” c391e392 Market Share and Year/Year Growth of Worldwide Sales of Wintel Portable, Desktop, and Server Computers, Third Quarter, 1998 Compag 144% 6% Dell 92% 68% iBM 9.2% 25% HP 68% 26% ‘Source: Ec Nee, “Defending the Dose,” Forbes, evember 78198, 0.54 the most dynamic of which was “enterprise solutions and services.”"> Still, Compaq continued to drift. On the eve of the HE-Compaq merger announcement in the summer of 2001, Compaq reported its third successive quat- terly decline in sales and profits. In spring 2001, Dell passed Compaq as the world’s leading vendor of PCs, capturing 13 percent of the global PC market (compared with Compaqs 12 percent). And in July 2001, Compag's stock price dropped to $15 a share, ‘down from $35 a year earlier, while its market value sank to $26 billion, its lowest valuation in years.'® Selling the company had become now a viable option. Unlike Compag, HP was an old established company dating back to the Franklin D. Roosevelt era Founded in 1939 by William Hewlett and David Packard, two electrical engineers and recent Stanford University graduates, HP specialized in the produc- tion of test and measurement instruments. HP's first product was an electronic sound equipment test in Strument called an audio oscillator and its first large caistomer was the Disney movie studios. Assembled by the two partners in a Palo Alto, California, garage, the oscillator was used by Walt Disney Studios to de- velop a new sound track for the movie Fantasia! ‘As demand for electronic test instruments ex: ploded during World War Il, the two partners hired dozens of employees, broadened their product line, fand expanded their sales. HP's revenues jumped from $34,000 in 1940 to $2 million in 1950 and 30 million in 1958. In 1957, HP went public, and 2 few years later, HP diversified into the production SECTION B Corporate Level Cases: Domestic and Global and sales of medical and analytical instruments, acquiring the Sanborn Company, a manufacturer off ‘medical equipment, in 1961, and the F&M Scientifie Corporation in 1966."* Diversification went hand in hand with intertia: tional expansion: HP established its Buropean headquarters in Switzerland in 1959, opening a manufacturing plant in Germany and building an extensive marketing organization that served the European Community. In the 1960s, HP formed @ joint venture with a Japanese partner to facilitate the manufacture and sales of HP products in Japan, By 1975, foreign sales accounted for 51 percent of HP's revenues, and in 1995, HP generated 44 percent ofits sales at home, 36 percent in Europe, and 20 percent in Asia, Canada, and Latin America.'® HP’ entry into the computer industry radically changed the nature ofthe company, In 1965,87 percent of HP's revenues were derived from the sales of test and measuring instruments, 11 percent from the sales of medical and analytical equipment, and just 1 percent from computer-related products (“data products”). In 1977, computer-related products accounted for 42 percent of HP's revenues, and i 1995, 80 percent of HP's revenues were generated by computers, peripherals, and related products? HD's original interest in computing stemmed from its need to improve the performance of test and rmeasurement instruments. In the 1960s, as high-end {instruments required more and more computing) power, HP embarked on the manufacture of eletronie alculators—desktop computers that performed scientific functions. One of HP's most profitable and) bestselling products was a handheld scientific caloulas ton the HP 35. Introduced in 1972 and known as the “electronic side rule,” the pocket size calculator was so staccessful that it persuaded Hewlett and Packard tg enter, at long last, the computing business, a fil dominated at the time by two large companies, IBM land the Digital Equipment Corporation." "The founders selected John Young to lead HPS diversification into computers. Young was named CEO in 1978, following the retirement of Hewlett and Packard from active management. During Youngs first five years at HP's helm, sales tripled, reaching $43 billion in 1982. Young introduced several lines fof PCs and workstations in the early 1980s, and wag responsible for the development of HP's most sce cessful product, the laser jet printer (introduced ig 1984). In 1983, Young launched the Spectrum projetCASE 23 Hewlett Packard: The Merger with the Compag Corporation 4 $500 million drive to build a new family of desktop mainframe computers based in Reduced Instruction Sct Computing (RISC) architecture which allowed Programs to run faster by eliminating routine instrue- tions. To ensure the success of the project, Young restructured HP's computer business, building cen- ttalized R&D. and marketing organizations that cut across divisional boundaries. Under Young's direction, furthermore, HP purchased Apollo Computers in 1989, a pioneer designer and manufacturer of engi- heeting workstations, in a $500 million deal”? By the late 1980s, however, HP was losing ground Revenue growth shrank, and HP's stock declined by 50 percent in thee years (1987-1990). The Spectrum computer was introduced in 1987, yet initial sales ‘vere disappointing as the $60,000 machine failed to compete favorably with a comparable $50,000 work- Sation offered by Sun Microsystems. HP's merger With Apollo, moreov 0 million Toss in new business, as the integration of the two sompanies proved more difficult than expected. The founders were alarmed. Serving as board members— they owned together one-third of the company Xock—William Hewlett and David Packard were convinced that Young's recent restructuring was responsible for HP's underperformance, at least in Part, They urged Young to reverse course and dec: ttaize. Young, in turn, disbanded dozens of commit fees, nd empowered executives, once again, to exercise control over their divisions. But he did miot keep his job. In 1992, HP's Board of Directors announced the retirement of John Young and his replacement by Lewis Platt2* Initially, HP prospered under Platt’s leadership. During Plat’ first three years as CEO, 1992 to 1995, HP's revenues doubled from $16 billion to $32 billion, and its rate of return on sales climbed from 3.3 percent to 7.7 percent. Running HP as a collection of autonomous businesses, Plat streamlined the decision: taking process, shortened the design cycle of new Products, and introduced thousands of new products. By 1996, HP made more than twenty-four thousand Products, including PCs, workstations, printers, Unix and NT Window servers, network products, software, and testing and analyzing instruments. HP's growth was fueled by a phenomenal rise in sales of desktop printers and PCs, In 1996, HP generated about one. third of its revenues from the printer business, and the company had clearly become the dominant firm in the industry—HP’s global market share ranged ; resulted in a 393 from 76 percent of all laser printer sales to 61 percent of all ink-jet printer sales2° Under Platt’ leadership, furthermore, HP had become a major player in the PC market, deriving over 19 percent of its revenues from PC sales in 1998, up from less than 6 percent in 1992.2 Other segments of the HP computer business—most notably, Unix workstations and servers—contributed to the growth in revenues and profits as well. In 1993, HP had surpassed Digital as the second largest. computer maker in the United States behind IBM.” Still, HP's computer business experienced a slowdown during Platt’s last three years in office (19961999). One reason for the slowdown was Plat’s failure to embrace the Internet. Ina stark contrast to IBM, Sun Microsystems, and Microsoft, HIP was slow to respond to opportunities offered by the Internet, and had remained a second-tier Web player through out Platt’s tenure, Another source of HP's difficulties ‘was the rise of Dell Computer. Overtime, HP had be come increasingly dependent on the sales of PCs and printers, but such commodity-like products were sub ject to fierce competition that drove prices and profits down, Because HP's cost of manufacturing PCs was sharply higher than Dell's, HP's rate of return on PC sales was lower, amounting to 3 percent in 1998 against Dell’s 11 percent—hence the decline in HP's market value. In 1998, both Dell and Sun passed HP in stock market valuation, yet each of these two compa- nies generated less than half of HP's revenues Platt responded to the crisis with a bold decision that was intended to create a “single identity” for the company and thereby sharpen its competitive focus. He split HP into two: an $8 billion company selling test, measurement, and medical products and services and a $40 billion company selling computers, print: ers, and IT services.* In May 1999, HP announced the spilt and renamed the spun-off segment Agilent ‘Technologies. Key board members, in the meantime, pressured Platt to step down and retire,” and sought to replace him with a new chief executive who would embrace the Internet and bring change. For the first time in HP's sixty-year history, the board would con: sider CEO candidates who had never worked for HP. Carleton Fiorina was the HP board!’ first choice. The Board of Director's search committee looked at three hundred candidates, four of whom were selected as394 finalists The search committee members were looking for candidates with excellent management and com munication skills, the ability to conceptualize complex ‘hratepes, the capacity to deliver financial results, and the power to inject a sense of urgency throughout the compan. Each ofthe top four candidates possessed all these qualities. Three ofthe four were “insiders” work= ing for major Silicon Valley firms, namely, Oracle, Sun Microsystems, and Intel Fiorina was the outsider. gifted salesperson with a college degree in medieval history and philosophy, Fiorina rose to become pres ident of Lucent Technologies, an AT&T spun-off telephone equipment company located in New Jersey. tn the end, only Fiorina won the unanimous support of HP's board members.” Unlike Platt, Fiorina was a decisive and deliberate Jeader whose management style combined command and persuasion rather than conserists—the hallmark Of HP's decision-making process known as “The HP Way?” Not bringing with her a single executive from Lucent, Fiorina relied entirely on her ability to win ‘over HP's employees. Seeking high visibility from the outset, Fiorina traveled from one HIP facility to an ther all around the world, meeting employees in “coffee talks” —an HP practice first introduced by the founders decades earlier—and publicizing the con- tent of these talks in an in-house sheet called “Travels wwith Carly” Making sure her speeches were posted regularly on HP's website, Fiorina told Forbes maga- vine in 1999, “Leadership is a performance”? ‘Unlike Platt, Fiorina hired managers from rival firms, Throughout Platts six-year tenure, managers were almost always promoted from the firm's own Workforce, and employee turnover rate remained tinder 8 percent. During Fiorina’s early tenure, by Contrast, the employee turnover rate more than dow bled to 10 percent, and many of HP's top executives were recruited from other technology firms, most notably Motorola, Xerox, and Netscape ‘To motivate HP employees, Fiorina restructured HP's compensation system early on. First, across all divisions Eiorina modified the financial incentives paid to HP employees, replacing the company’s profit Sharing plan with a more rigorous scheme of merit pay that tied compensation directly to company Per- formance. Second, Fiorina revamped HP's sales com- mission system. In the past, HP paid commissions ‘once a year, and such commissions were often tied to Crders rather than sales. To drive HP's sales force harder, Fiorina cut the period over which commis- SECTION B Corporate Level Cases: Domestic and Global sions were paid from one year to six months, and tied all commissions to actual sales. “You can feel the ‘tress her changes are causing,” one executive doing pusiness with HP commented in 1999. “These guys know they have to perform? Third, Fiorina altered the financial incentive paid to researchers. In the 1990s, merit pay received by HP engineers was tied to the number of inventions they introduced, not the number of patents they filed. Consequently, engi- eers had little incentive to work on projects that Were likely to result in new products; instead, they Grove to produce incremental improvements to existing products. Fiorina, in response, restructured the R&D pay scheme to award engineers a generous ‘bonus for each patent they filed, Asa result, the num- ber of patents filed by HP doubled from 1,500 in 2000 to 3,000 in 2001."° To revamp HP's decentralized structure, Fiorina launched a sweeping corporate reorganization in 2000, William Hevlett and David Packard had origi- nally organized HP as a confederation of independent businesses, each responsible for the engineering manufacturing, matketing, and sales of its own line Of products. A highly decentralized structure the founders believed, would promote flexibility, encour age entrepreneurship and innovation, and speed up the decision-making process. Notwithstanding John Young's move to centralize control over HP computer ‘business in the 1980s, the founders, as noted, man aged to restore HP's highly decentralized structure in the early 1990s. By the time Fiorina took charge of the ‘company in 1999, HP had evolved into a collection of tighty-three vertically integrated, semi-independent, and loosely coordinated divisions. Because HP's structure was highly decentralized and divisions were vertically integrated, the company cxperienced difficulties in coordinating product de Sign, pricing, and marketing strategies. Fiorina, for pner HP customer at Lucent, experienced the frustration ‘bf dealing with HP personally. At the time Lucent was Seeking integrated solutions, HP offered the company stand-alone products and services only. Other corpo: rate customers—the Ford Motor Company, Boeing, and the Best Buy Company—also encountered similar difficulties in dealing with HP, In case after case reported by representatives of these companis, ovens of HP salespersons would converge on a single facility and compete against one another over the supply of narrowly designed product ines rather than address the company’s overall needs.””we (CASE 23 Hewlett Packard: The Merger with the Compaq Corporation 395 Fiorina, consequently, consolidated the company’s cighty-three divisions into four large groups or “quadrants” made up of two types of units: a “front end” unit responsible for marketing and sales and a “back end” unit responsible for manufacturing and Services, The front end unit was divided, in tur, into two large groups, one dealing with corporate cus- tomers, the other with consumers. The back end unit too was made up of two large groups, the first supplied customers with printing and imaging equipment and services, and the second provided clients with a whole range of computer products and services.>® Implemented in 2000, Fiorina’s reorganization initiative produced mixed results. On the one hand, the new marketing strategy enhanced customer satis faction. Corporate customers were no longer dealing With competing sales teams but with a single person, Front end marketers were authorized to sign agree- ments that took into account the total value of the customer's projected needs, granting sales represen- tatives the flexibility to sell some products at lower prices than others and thus maximizing HP’s profits ‘over the life of the contract. The new structure like: wise, empowered marketers to authorize discounts to clients who signed long-term consulting contracts.®° On the other hand, the new structure undermined accountability, diffused responsibility, and weakened financial controls. Under the new structure, profit and loss responsibilities were shared by both front and back end groups, and as a result, assigning financial responsibilities to individual managers had become nearly impossible. Under the new system, similarly, allocating costs between front and back end organiza- tions had become exceedingly difficult, and conse- quently, some of the sales authorized by front end sales representatives turned out later to be unprofitable? Following a two-year experience with the front/ back end system, Fiorina eventually acknowledged that her original plan was flawed. Subsequently, in late 2001, she granted executives greater profit and loss responsibilities over their product lines, and replaced the new quadrant structure with a hybrid version that combined product divisions with front/ back end groups. Ever since Fiorina had taken charge of the Hewlett Packard Company, the Board of Directors debated the strategy of undertaking a major acquisition. In discussing HP's options with the new CEO, members of the board concluded that IBM was the only com- pany that competed with HP in all markets, and that IBMs most profitable and fastest growing business was the supply of IT services to large corporate clients, An acquisition of a large IT services company by HP, Fiorina and the board members agreed, was therefore likely to improve HP's worldwide competi tive position versus IBM, In early September 2000, accordingly, Fiorina and her team began discussing the purchase of PricewaterhouseCoopers (PwC) consulting division— a unit employing thirty-one thousand consultants who offered a wide range of computer services to large corporate customers—with PwC top execu- tives. Soon thereafter, the Sunday Times of London disclosed the merger talks, reporting that PwC set the asking price at $16 billion. Commenting on the merges, industry analysts considered the price too high and wondered whether key PwC consultants would stay with HIP throughout the merger or leave to work for other consulting firms, taking with them their lucrative businesses. In the meantime, opposi tion to the merger was growing among PwC execu: tives. In November 2000, finally, Fiorina backed away from the deal telling investors: “In hindsight I let the PwC opportunity linger far too long." ‘The Compaq opportunity unfolded next. Since 1999, Fiorina and Capellas had been discussing, off and on, the possibility of an HP-Compaq merger, and following the PwC setback, Fiorina informed HP directors that Compaq was interested in combining forces with HP. The acquisition of Compag, Fiorina pointed out, was likely to strengthen HP across the board and thereby contribute to its competitive ad- vantage relative to both IBM and Dell. On July 19, 2001, consequently, Fiorina brought the issue before the Board of Directors for discussion and vote. All eight directors present in the meeting supported the deal and instructed Fiorina to proceed with the merger talks. Absent from the meeting was Walter Hewlett, son of the cofounder, and an HP directo. He opposed the merger. HP and Compaq went ahead and announced the merger on September 4, 2001, Following the merger announcement, HP shares fell 22 percent from $23 to $18.!4 Neither Fiorina nor any other HP directors ex- pected Walter Hewlett to oppose the deal publicly, yet within a few weeks he launched a public relations campaign. against the merger, declaring, “This isn’t396 what my father would have wanted done with the company." He thought that the merger was likely to hurt HP's profitable printing business and weaken HD's healthy PC business. He scored a major victory on December 7 when the Packard Foundation—HP’s largest shateholder—voted unanimously to oppose the merger. Owning 10.2 percent of all shares out- standing, the David and Lucille Packard Foundation unified the heirs in opposition to the deal.® Notwithstanding the Foundation’s vote, HP direc- tors continued supporting the merger enthusiastically, empowering Fiorina to proceed with the merger’s preapproval preparations. Walter Hewlett fought back, spending $36 million during a proxy battle that raged over three months. Outspending W. Hewlett by more than two to one, the Hewlett Packard Company scored an important victory when the Institutional Share- holder Services (ISS)—a major consulting firm advising institutional investors on proxy votes recommended a sharcholder approval of the deal. ‘The proxy vote was cast on March 19, 2002, and was close: 51.2 percent ofthe shares were voted in favor of the merger, and 48.6 percent against it7 Walter Hewlett was not ready to concede defeat however, but sued HP, charging the company with “fraud and misinformation.” HP directors decided, in response, to remove Walter Hewlett from the board. The trial was brief, attracted a great deal of media attention, and ended in another victory on behalf of Fiorina and the company directors. A day after the judge issued his ruling, Walter Hewlett’ lawyers, speaking for their client, announced. that they would no longer challenge the proxy vote."* “The fight over the merger and the plan to integrate the two companies together were interrelated. Just as the Jong contest with Walter Hewlett gave HP ample time to implement the integration plan effectively, so did the company’s integration plan help HP win the proxy vote, Consider the following statement. Inits decision to recommend an approval of the merger, the ISS, the nation’ leading proxy advisory firm, concluded: [HP and Compaq ... appear to have done pioneer- ing work in thinking about and planning culeural integration of the two companies. It appears that management has done everything it can to maxi- the chance that integration will be a success. SECTION B Corporate Level Cases: Domestic and Global It is hard to remain unimpressed in the face of such enthusiastic atention paid to the integration cfforts. Half a million man-hours of work have thus far been devoted to integration planning, which surely makes the HP-Compag one of the ‘most exhaustively planned combinations ever: Long before the approval of the merger, HP board members were involved in devising plans to ensure the success of the deal. Two board members, Boeing CEO Philip Condit and Vodafone former Chairman Sam Ginn, had managed mega mergers themselves and did so effectively—Condit directed the 1998 Boeing acquisition of McDonnell Douglas, and Ginn executed the 1999 combination of Voda fone and Air Touch Communication, Drawing upon their experiences, Condit and Ginn helped develop the blueprints of the HP-Compaq integration plan, Working together with other board members, they set cost reduction goals for each of the combined businesses of the two companies.” ‘While HP board members were preoccupied with the broad outline of the integration plan, HP and Compaq executives were busy drafting the plan’s de. tails, In August 2001, a few weeks before the merger ‘was even announced, Fiorina and Capellas each se lected a senior executive to oversee the integration plan. Representing HP, on the one side, and Compag, ‘on the other, the two selected officers recruited a thirty-person integration team and ditected its mem, bers to study and analyze data from hundreds of mergers in dozens of industries. Team members exe amined relevant articles published by the Harvard Business Review and pertinent documents supplied by McKinsey & Co., a consulting firm contracted by Fiorina to help HP execute the merger properly. Team members, furthermore, interviewed a large number of executives who worked for companies that under. ‘went recent mergers. Lessons were drawn from mis- taken deals as well as successful mergers, from failing acquisitions as well as effective combinations. Among the deals studied by the HP-Compaq in- tegration team were two oil industry mergers that produced distinctly different outcomes. A 1984 ‘merger between the Chevron Corp. and the Gulf Gi ‘Company resulted in long integration delays that led to demoralization among the employees of the com: bined company and to confusion among customers new managerial jobs in the combined company re mained unfilled for months. Chevron’ 2001 merger with Texaco, by contrast, resulted in effective integrationCASE 23 efforts that were facilitated by preplanning and speed: ey managerial positions in the new Chevron were filed in days. The 2001 merger of Time Warmer and America On Line (AOL), to mention another case studied by the team, failed to produce the expected results, nd brought about a steep decline in the com- bined company’s stock market valuation. Cultural differences between the two companies created deep divisions among the employees of the combined company, the HP-Compagq team concluded, and added that each company—Time Warner and AOL— was not sufficiently familiar with the business of the other.”? Next, the integration team moved on to examine past mergers undertaken by Compaq and HP. During ¢ 1998 Compag-Digital integration process, the team found out, many employees as well as managers continued occupying overlapping jobs for months, and some products, designed to be phased out, were never discontinued. More important, the combined (Compag-Digital) company lost many of its cus- tomers owing to serious communication problems stemming from the failure of top management to prepare customers for the transition to a new prod- uuct roadmap. The team, then, turned to HP's 1989 takeover of Apollo Computers, and discovered that Apollo's integration planning did not begin until after the acquisition was approved, a delay that led to both customer defection and a substantial loss in new business. Last, the team examined HP's 1999 spin off of Agilent Technologies, concluding that the move was successful for two reasons: Lewis Platt pre- planned the diversification scheme carefully, and he executed the spin off quickly and deliberately. Taken together, these deals, and many others studied by the integration team, offered an additional lesson ‘To retain key executives throughout the transition Period, top management needed to grant these exec utives generous retention bonuses. Initially, before the merger was announced, the compensation committees of both boards—HP and Compaq—set aside $55 million for the purpose of paying executives rich retention bonuses and thereby persuading them to stay with the combined company throughout the merger. The bonus plan was later ex- panded to cover about six thousand HP and Compaq employees, each receiving a bonus of approximately $50,000." Additionally, in summer 2001 the two CEOs Fiorina and Capellas—commissioned a large-scale Hewlett Packard: The Merger with the Compaq Corporation 397 study of HP and Compaq corporate cultures. Based on interviews conducted with 127 executives and 135 focus groups (made up of 1,500 managers and employees) in 22 countries around the world, the study sought to compare and contrast cultural perceptions held by HP and Compaq employees. Subsequently, the two CEOs authorized the creation of a team for the specific goal of uncovering cultural differenc among employees of the two companies. The team found, for example, that HP employees used voice mail while their Compaq counterparts used e-mail to communicate, and that HP employees viewed their ‘Compaq counterparts as “cowboys” whereas Com- pag employees viewed their HP counterparts as “bureaucrats” To bridge such differences and forge a unified culture, top management created a task force of 650 part-time “cultural consultants” who contin- ued working in their regular jobs in the combined company while tracking the progress of the HP- ‘Compaq integration plan across all business units ‘To ensure a smooth and easy integration process, top management filled managerial positions quickly. Before the merger closed, HP appointed its top three levels of executives as well as 150 senior managers. Once the deal closed in May 2002, HP named! its highest ranking sales managers—account leaders serving the company’s top 200 customers—in addi tion to 800 other managers. During the summer and fall of 2002, HP continued announcing wave after wave of new appointments, a practice that expedited the integration process and brought it into comple- tion ahead ‘of schedule.®* Integrating the product lines of the two compa: nies was another challenge faced by management. During the premerger planning phase, members of the HP-Compaq’s integration team inspected the product lines of the two companies, pitting compar ble products against each other and choosing the superior product in nearly every product group. Once the selection process was over, integration team members met with each business unit to devise an exit strategy for products designed to be phased out. Executives monitored the exit progress of each prod: uct weekly, using color-coded charts. For example, in the handheld PC business, HP selected the Compaq iPAQ PC over the HP Jornada handheld PC. Renam- ing the Compaq product HP iPAQ, Hewlett Packard phased out its Jornada product line within a year. In the low-end server business, to take another example, the integration team decided to retire HP Netserverc398 and adopt Compag's ProLiant product instead, The ‘Compaq product performed better than the HP one, benefited from worldivide brand recognition, and held the largest market share in the industry standard server market for about a decade (1992-2001 HP phased out the Netserver swilily. It stopped ac cepting new orders for the Netserver in September 2002. It laid off 50 percent of Netserver’s personnel in May 2002, serving the remaining three hundred em- ployees with future dismissal or relocation notices. And it launched a promotion program whereby HP execu tives traveled around the world offering Netserver cus tomers the better performing Compaq machine.°® HP phased out related products as well. The com- bined company reduced its offering from 33 to 27 business computer product lines during the first year of the merger, and was expected to discontinue 6 more business computer product lines by the end of 2004." Discontinuing redundant products contributed handsomely to cost saving. During the first year of the merger (May 2002 to May 2003), HP reduced its costs by over $3 billion, well above its expected merger related cost savings of $2.5 billion. During the same period, HP’s closed plants, office buildings and other facilities, cutting nearly seventeen thou- sand jobs related to the merger. Last, the successful integration of the two compa- nies was facilitated by the protracted high-tech reces- sion and by HP's effective use of the Internet, First the long recession of 2000-2003 provided the com bined company with sufficient time to complete the merger integration before the economy turned around and before customers were ready to increase their investments in IT products and services. Sec ‘ond, the key to successful planning and communica tion was the use of the Internet. The Internet fur nished the combined company with the means to plan the merger integration extensively, as well as communicate the details of the integration plan, step by step, to employees as well as customers.*" Upon the completion of the merger, Fiorina took firm command of the combined company. Assuming the title of president, Michael Capellas had become increasingly invisible as Piorina exercised day-to-day control over HP's operational divisions, instructing department heads to report directly to her. Six SECTION B Corporate Level Cases: Domestic and Global months after the merger closed, in November 2002; Capellas left HP to become the CEO of World Com, His departure precipitated a decline of more than 10 percent in HP stock.®? Following Capella’ resig- nation, Fiorina decided not to replace him with another executive but run the company herself with- ‘out a second in command. Under Fiorina’s leadership, HP’s financial. per. formance during the first two years of the merger had improved. In 2002—the year in which the merger closed—HP lost nearly $1 billion asa result of restruc- turing charges related to the merger, on the one hand, and slow sales stemming from the deepening reces- sion, on the other. A year later, in 2003, the combined company generated $2.5 billion in net income. Simi larly, the combined company recorded a loss of 31 cents per share during 2002 as opposed to a gain of 83 cents per share during 2003, the first full yea ofthe merger. Between 2002 and 2003, furthermore, the new HP experienced a modest increase in sales (Exhibit), Evaluating the results of the merger, i is useful to examine each product group separately. Of HP's four postmerger product groups, Imaging and Printing had remained the company’s fastest growing and most profitable one. In 2003, HP's Printing and Imaging generated $22.6 billion in sales and nearly $3.6 billion in operating income, as shown in Exhibit Seeking to expand its printer business, HP diversified into copiers, introducing in 2003 a multifunction printer—a printer that operated as both a printer Highlights of HP's Financial Data Before the ‘Merger with Compaq (1993-2001) and After the Merger (2002-2003) Sales {bil.) a 4945 R 8 Net Income. 35 37) (04 (0.9) 25 (toss (bi) Income as 82% 4% of Sales Eemings por 1.68 180 021 (031) ogg Share (L088) 18% 09% 34% Source: For 299-2001, Hoovers Handbook of American Busines, 2005, 9.71%; for 202-2008, HP Annvel Report, 2008pHighlights of HP's Financial Data, 2003—The Combined Company's First Full Year, Broken Down by Product Groups Sales mil) $22623 $21,228 $15397 $12,305 Operating 3570 19 (4) 1372 Income (mit) Source: HP Annus! Repor, 2008, p.-7. and a copier. To build up a strong distribution net- work for the new product, HP formed an alliance with IKON Office Solution, an office equipment sup- plier. To persuade corporate customers to purchase the new machine, HP guaranteed clients substantial savings in printing costs. | Hewlett Packard’s second most profitable prod- uct was HP Services (see Exhibit 4). The merger with Compaq vaulted HP to the industry number four position, and, as such, turned the combined company into a real contender over lucrative IT services con- tracts. In 2002, HP signed a $1.3 billion outsourcing, deal with the Canadian Imperial Bank of Commerce, and a year later, Hewlett Packard signed large-scale IT consulting deals with the Bank of Ireland, the Ericsson Corporation, and the U.S. Department of Agriculture, Competing successfully against both IBM and EDS, HP was awarded a landmark $3 billion ten-year IT services contract by the Procter & Gamble Corporation in 2003. While HP Services Group posted a respectable tate of return on sales, the combined company’s servers unit (“Enterprise Systems Group”) recorded a Joss of $54 million in 2003 (see Exhibit 4). To help | the struggling unit improve its financial perform- ance, HP announced in December 2003 a reorganiza- tion move that was intended to combine its services organization with its servers unit and thereby create a new Technology Solution Group. Because corporate customers were looking for solutions, and because HP's hardware sales had increasingly been driven by its consulting services (an HP executive explained), | combining the two together in one unit was likely to sharpen the company's customer focus.®° | HP's fourth product group was responsible for the manufacture of PCs. In 2003, corporate customers 399 x The Merger with the Compaq Corporation accounted for 60 percent of HP's PC sales and con- sumers for 40 percent. The second largest product group in terms of revenues, HP's PC unit (Personal Systems Group) had improved its financial perform- ance in 2003, recording a small profit of $19 million (see Exhibit 4) that followed an operating loss in 2002, In 2002, HP held the worldwide leading posi- tion in PC sales, delivering 22 million PC units or 1 million units more than the number delivered by its ‘main rival, Dell Computer. Inthe five quarters ending August 2003, the PC markets top spot switched back and forth four times between HP and DelL* HP’s two arch rivals were IBM and Dell. HP com- peted with IBM over the worldwide supply of servers and services, and with Dell over the global sales of PCs and servers. In 2002, Dell announced plans to enter the IT services industry, on the one side, and the printer business on the other, hence challenging HP's dominance in each of the combined firm's four postmerger product groups.” Two years later, in 2004, most industry analysts concluded that the new HP had lost its direction and was being squeezed by its two main rivals, IBM and Dell; HP was unable to compete successfully with either. HP's difficulties were reflected in the company’s stock prices. In August 2004, the value of HP shares was lower than their value on the day the merger closed, as well as the day before the merger was announced.®* {In 2002, HP trailed IBM in the worldwide sales of servers, and a year later, the gap between the market shares of the two companies widened (Exhibit 5). Worldwide Server Market Share by Revenues, 2002-2003 IBM 30% 32% HP. 2% m% SUN 18% 12% DELL T% 9% Source: Robert Guth and Don Giark, “Behind Secret Setlement Talks: New Power of Tech Customer,” Wall Steet Journal Api’, 208C400 A 2002 Merrill Lynch survey of chief information of ficers employed by large corporations found that HP's technical support for open standard-based servers lagged far behind IBM’s. In 2002, for exam- ple, Home Depot selected IBM over HP as its long- term supplier of servers,® and in 2003, NetCreation Inc., a New York e-mail marketing firm, decided to replace its HP servers with [BM equivalents. Not only did the IBM machine cost $100,000 less than the HP one, but IBM offered its new customer superior product support. “HP did try to coax us to stay with them,” a NetCreation executive explained, “but we never got to speak with any decision makers beyond a certain sales level””® HP trailed IBM in the global supply of IT services too, generating just $12 billion in revenues in 2002 compared with IBM’s $36 billion and EDS's $22 billion Unlike IBM, moreover, most HP consulting services offered customers low-end technical support such as the maintenance and repair of the customer's IT sys tem, not high-end outsourcing—that is, the plan- ning, designing, implementing, and running of the client's entire IT system. Only about one-eighth of HP's services revenues came from outsourcing in 2002, yet according to a 2003 estimate, outsourcing expected to grow at a rate of 8 percent annually whereas the demand for low-end support services was projected to increase at a3 percent rate. IBM had one other advantage over HP. In an attempt to expand and diversify its global services division, IBM acquired in 2002 the Pricewaterhouse- Coopers consulting firm, paying $3.5 billion or less than a fifth of PwC's asking price two years earlier, at the time Fiorina considered purchasing the firm. IBM's takeover of PwC helped Big Blue add some 30,000 new services professionals to its global serv- ices work force of 150,000 consultants, bringing the total up to about 180,000. Hewlett Packard, by con- trast, employed 65,000 IT consultants, most of whom were not nearly as experienced as the consultants working for IBM/Pw While IBM waged war on HP Services, Dell bat: tled HP for shares in the low-end server and desktop PC markets. For one thing, during the two-year pe- riod 2002-2003, Dell’s share in the worldwide server market grew from 7 percent to 9 percent while HP's share stagnated (see Exhibit 5). For another, in 2003, Dell's PC sales produced a healthy rate of return of about 8.5 percent, whereas HP's PC unit generated a profit rate of less than 1 percent (see Exhibit 4).” SECTION B Corporate Level Cases: Domestic and Global Spending on Research and Development as a Percentage of Sales, 2002 Rao 5.9% 54% 13% Sales (bil) 15 $723 $354 “including Compa, Sources: Fr IBM and Del John Markt, Packard Tris to Evade the Ax," New fo H, HP For 10 fr 200.2, ovation at Hewat Times, May, 2% Dell’ higher rate of return may be explained by its lower costs. In the second quarter of 2003, Dell spent 10 cents on overhead for every dollar the company generated in PC sales; the comparable figure for HP was 21 cents per revenue dollar. One reason why Dells costs were lower than HP's was Dell's smaller R&D budget. In 2002, Dell spent less than $0.5 billion or 1.3 percent of its revenues on R&D compared with HP's $3.9 billion or 5.4 percent of revenues (Exhibit 6). Another was Dell's over- whelming reliance on direct sales to customers and HP's heavy reliance on dealers and retailers for its PC sales: while Dell sold directly to customers nearly every machine it shipped in 2003, HP sold directly just 13 to 27 percent of the PC units it delivered.” The Future Attacked by both IBM and Dell, the new HP was fighting back, seeking to compete simultaneously with both IBM and Dell. Fiorina portrayed Dell as a ‘low tech, low cost” company, IBM as a “high tech, high cost” company, and HP as a “high tech, low cost” company, asserting that the new HP repre- sented a combination of the best qualities ofits two arch rivals.’ By contrast to IBM as well as Dell, Fiorina pointed out HP was at one and the same time a leading producer of desktop PCs, a leading provider of IT services, and the dominant vendor of printers, and the three were interrelated: Selling desktop PCs to corporate clients was expected to encourage such clients to purchase HP services and printers, and vice versa, and providing corporate cus- tomers with IT services was likely to encourage such customers to buy HP printers and PCs too. “We think. the PC business is strategic,” Fiorina said in May 2004,CASE 23 noting that the company was willing to sell PCs at a very modest profit rate, or sometimes at a loss, in order to gain large corporate customers for its more rofitable printers and IT services.”° ‘Would Fiorina’s strategy work? Despite HP's 2004 difficulties, Fiorina had not re- versed course but remained steadfast. It was still too carly to tell whether her long-term strategy would eventually work. ENDNOTES 1. Quoted in George Anders, Perfect Brough: Carly Fiorina and the Reinvenion of Hewlett Packard (New York: Portfolio, 2003), 117, but se also pp. 126, 133, and Andrew Park, "Can Compaq Sarvive aa Solo Act” Business Week, December 24, 2001.71, 2. Peter Burvows, "Car's Last Stand” Busines Wok, December 2001, pts Anders, Perf Enough pp. 96 126 Benjamin Pimentel, “Pumped by Big Ble; Stengthened by the Merger with Compag, HP Prepates to Batl IBM So Frc jl August 2 2002, Online. exis Neti. Academic Universe Hewlett Packard,” Hoovers Handbook of American Busines, 2003 Austin, TX: Hoover Business Press, 2003). 713 Business Wek, December 242001, p. 64,71. David Ye and Mary Kwak, “Manager's Journal HP and Comp, Should Retin to Thee Roots” Wal Stet Jona December 17, 01, Online ABI database Wendy Zeliner and Mike France, “HP's Beach in High-Tech Services Business Week Apri 28, 203, p40, 6 Charles Ferguson and Charles Morris; Computer Wars: How the st Can Win i a ost IBM World (New Yorks Random House, 1983), pp. 51-82 Ibid, pp. $2-3; “Hewlett Packard Company” iternstional Directory of Company Histories, Vo. 50 (New York: St James Pres, 2003p. 225. 8 Lois Therrien, *Compag: How It Made ts Impressive Move Outof he Dolrums” Busnes Wek, November 1992p. 147; ule Pt, entity Crisis” Forbes, May 25, 1992, p. 2 Simon Caulkin, ‘Compagls Compact" Management Today May 1985, . Hewlett Pickard” International Directory of Company Histories, 7p.225-226 "Compaq Hoovers HandBok of Amevcan Busines, 2102, p. 398, but se also Robert Helle, "The Compaq Come ac” Management Today (Devember 1994): 6, 3 November 2,199, p 147 1 Thid, pp, 146, 150; “Compaq” Hoover's Handbook of American Busines 2000.38, 12. Erie Nee “Compaq Computer Corp.” Forbes, january 12,1998, pp. 2-3; Dvid Kirkpatrick, "Fast Times at Compaq” Fortune April, 1996, pp. 91-92. 13, Forbes, January 12,1998, p. 93-96 14, Wall Steer Journal, December 17, 20015 David. Kirkpatrick ckhansGone bt the PC Racks On Fortine May 24,1999. 5 15. Michael Gelfand, “Can a C10 Turned CEO Save Connpage” Chie secutive (Febrosry 2000) 58, 40 16, Bil Alper, "Beating the PC Bs” Barron’ Jy 16,2001, pp. 20-21 WV. Deone Ze, Changing by Design: Organizational Innovation a Hele Packard (Ithaca, N¥: Cornell University Pres, 1987), p35, 18 “Hewiet Packard” Hoovers Handbook of American Basin, 2003 p. 712; "Hevltt Pack” Internation Histories p. 222-22: 1s, Sera Beckman and David Mowery, “Corporate Change and Competitiveness: The Hewlett Packard Company” Working Paper 95/12, Hass School of Business, Univesity of California, Berkeley ppt, 7: Anders, Perfct Enough p 17 ry of Company Hewlett Packatd: The Merger with the Compaq Corporation 21 Beckman and Maer Corporate Change and Competitiveness Anders, Peet Enough p20; Peter Burrows, Backfire, Carly jovine's High Stakes Basle forthe Soul of Hewlett Packard (New York: John Wiley, 2003), pp. 72-73: "Hevelett Packard Intemational Dtetory of Cnspay Hisariesp. 223, Anders, Parfet Enough, pp 20-21; Barrows, Backfire p. 74s David chard, The HP Woy (New York Harper, 1995), ch 8 ul Pita, i Had to Be Done and We Did It Forbes, April 26, 1993, pp. 151-152 "Hewlett Backard (Compan Histories p. 223, Forbes Apri 26,1993, p. 152 Anders, Pret Enough pp. 22-24 “Hewett Pick” Hoovers Handbook of American Busi 2003, p. 712: Robert Hof, "Suddenly Hewiet Packard [s Doing Bveryting Right” Busines Week March 23, 1992, p88. elect Packal” Hoover Handbook of American Busines 003,713 Fic Sivt, "Howlett Packard's Money Machine” Baron’ August 28, 1996, Online, ABI database. Start page 25; Joba Sheridan ‘Low Plt: Creating a Culture for Innovation” Industry Week, December 18, 1994, pp. 26, 28 Alan Deutschman, “How HP [Continues to Grow and Gro” rune May 2,194, p. 90-92, 96, Internationa Directory of Company History p.27. Forte, May 2,194, pp 90-92 Robert Hof, “Hewlett Packard Made a Tough Decision, but the Right One: Businese Week, March 15, 199, p. 32; Eric Nee, “Defending the Desktop” Forbes December 28,1998, pp. 33-54 Anders, Pefct Enough pp. 39-40. Eric Nee, “Lew Plat: Why I Dismember HP? Fortuna, May 23, 1998, p. 167; Buatness Week, March 15, 1999, p. 32s David Hamilton and Scot Thur, "HP ta Spin Of Its Measurement (Operations? Wil Set journal March 3,199, Online. ABI database Anders, efit Enough pp. 2-43. Peter Burtows, “The Bost: Carly Florin’ Challenge Will Beto Propel Stid Hevlett Pickard Into the Internet Age? Business Week, August 2 1998, p. 75,78: Anders, Perfect Enough, ch. 3, Adam Lashinshy, "Now for the Hard Part Carly Porina Sold Tavestors on the HP Merge” Fortune November 18, 2002.10 Quentia Hardy, “AI Carly All the Time,” Forbes, December 13, 1998, p. 135, ut sce also pp, M-14, Anders, Pet Enough, Peter Burrows, “The Radial: Carly Fiorin’s Bold Management Experiment at HP" Business Wek, February 13, 201, p78, but sce also Decerber 24, 2001, 66, Business Week, February 18, 2001, p. 78 December 24, 2001, pp.si-69 Zal, Changing by Design, pp. 35-36 Ander, Perfet Enough, p75; Busines What ebwuacy 19,2001 78: August 2 1999, . Anders, Pret Enough, p75. Busnes Week, Fbruaty 19, 2001p. 78 Anders, Perfect Enough, pp. 75-76: Business Weck, Fsbraary 12 Anders Perfect Enough p76 Tbid, pp. 93-94; Burrows, Backfi p. 168-169 Bursts, Backfire ch. 9; Anders, Perfect Enough, p95 and ch. 7. Busines Wook, December 24, 2001.6 (Quoted in Anders, Pret Enough, p. 14, Burrows, Backfin ch 10; Busine Week December 24,2001. 67 Anders, Perfct Enough, cs. 9,10; Burtows, Backirech. 1 Burcows, Bacifire chy 13; Anders, Perfect Enough ch ISS Recommends HP Shareholders Vote for Mergen” Pres Release, Palo Alto, Calfornis, March 5, 2002. Hom. Carly Forins, "The Case for Merges a spech delivered at the Goldman Sachs Technology Conference, Pulm Springs, Califor, bruary 4, 2002, HPcom: Business Wa P, ek December 24, 2001C402 SECTION B Corporate Level Cases: Domestic and Global Pai-Wing Tam, "Merger by Numbers: An Elaborate Plan Forces HHP Union to Stay on Target.” Will Set Journal, April 28, 2003; Carly Fiorina, “Remarks” a spooch delivered inthe Information Processing Interagency Conference, Orlando, Horida, March 3, 2003, HPcom: Busines Wook, December 24, 2001 . 66. ‘all Steet Journal, April 2, 2003, Business Wee, December 24, 2001, p66, Fiorina, “Remarks” December 24, 2001; Will Steet Journa Barrows, Backfire p. 228; Busnes Week December 24 2001.66 Florina, *Remarla” December 24, 2001 April 28, 2003 HP Announces Latest Merger Integration Milestone With ‘Naming 150 Senior Managers Pres Release, Palo Alo, Califorsia, April 3, 2002; Fiorina, "Remarks? December 24,2001; Wall treet Jura, pei 28,2008, "HD White Paper: Hewlet: Packard Product Roadmaps” press release undated; Wall iret Journal, Apel 28,203, Wal Sve ourna, pil 28, 2003 Mathew Fords, "Het Packard o Ct More Worker Chicago Sion Times May 2, 2003, Online, ABI database; Wo Sree ora Apr 28,203, Florina, “The Case for Merger” February 4, 2002; Rorina "Rematke” December 24, 2001; “Merger Mystery: HP and Compa,” The Economist, November 16,2002, p lif Edwards, “Why Capells Flew the Coop,” Business Week, December 23,2002, 52-5; Anders Perfet Brough pp. 215-216 Steve Lohr, “Hewlett Now Wants to Be Your Copier Compan Toa” Now York Times, November 18, 2003 Business Week April 28, 2003, p. 40; Bob Keefe, “HP-Compag Merger So Far a Success” Palm Beach Post, May 11, 2003, Online. ABI ditabes; Bll reen,“The Big cove” Fast Company, Seprember 1, 2008, David Bank and Gary McWilliams, “HP to Reorganize Operating Units” Wal Sree Journal, December 9, 2003, Teri Yue Jone, "Commitment to PC Market Hurts HP's Bottom Line? Las Angles Ties, August 25,2003, Online, Lexis Nexis, Wall Steet Journal Delts impending entry into bath the IT services matket andthe Printer busines posed a potential threat to HP future earings On the one hand, De panned to supply smnall- nd mediums castomers with low-end IT services fra price a low a $200, On the other, Dll decided to form an aliance with Lexmark, the former IBM printer company, in onde to compete with HP over the supply of smal size printers in the short run, and ink end laser printer cartridges in the long run Cliff Edward, “The New HP: How's It Doing?” Busines Wek, December 23,200, p, Anders, Peet Enough p. 217 “Lsing the HP Way: Hewett Packard" The Econom, August 2, 208, 9.58. (Giff Edwards, "The New HP: Hows lt Doing?” Busine Wee December 23, 2002p. 4 itd in Pi Wing Tam, “HP Launches a New Tech Strategy” Wall Stree Jounal, May 6, 2003. Busnes Werk, April 28,2003, p. 40 Andes, Perfect Enough, p. 217; Benjamin Pimental, “Pumped for Big Bloe: Strengthened by its Merger with Compag, HP Prepues to Date IBM for IT Customers” San Francisco Chronic Aug, 2002, Online. Lexis Ness Academic Univers os Angeles Times, August 25,2003, A masive reliance on direct sales allowed, in turn, for greater pricing flexibility By contrast to HE, Dll could adjust peices daily nd theeeby launch price wars against is competitors In Agus, 2003, for instance, Dell announced price reductions tit ranged fam 6 percent om desk PCs to 22 percent om network sere HHP was able to adjust prices quickly onthe proportion of PCs thatitsold directo curtomers butt wae unable odo soon the Gs it sold indiectiy because it needed to set pices upto si weeks in edvance in rder to provide dealers and retirs with sufficient time to both advertise and replenish thee inventories Gary MeWillams and Put Wing Tam, “Dell Price Cuts Pata Squeeze on Rival HP,” Wall Steet Journal, August 21, 2003 Scott Morrison, “Dell Delivers a Salutary Slap inthe Fee ig 1” Fiscal Tes, August 2, 2003. Online. ABI database. The Economist 21,2004 David Bankand Gary McWilliams, “Picking «Big Fight with Del, HP Cute Pofits Razor Thin,” Wal Sree Journal May 12,2004