The case discusses the problems faced by HP during the mid-1990s because of its highly decentralized organizational structure. The case is designed to facilitate a critical analysis of the changes that occurred in the organizational structure over the years, as the company increased its size of operations, product portfolio and geographical reach. The case also analyzes the aggressive management reorganization plan implemented by CEO Carly Fiorina and its effect on the company.
In
the mid-1990s, global computer major HP1 was
facing major challenges in an increasingly competitive
market. In 1998, while HP's revenues grew by just 3%,
competitor Dell's rose by 38%. HP's share price had
remained more or less stagnant, while competitor IBM's
share price had increased by 65% during 1998. Analysts
said HP's culture, which emphasized teamwork and respect
for co-workers, had over the years translated into a
consensus-style culture that was proving to be a sharp
disadvantage in the fast growing Internet business era.
Analysts felt that instead of Lewis Platt, HP needed a
new leader to cope with the rapidly changing industry
trends.
Responding
to these concerns, the HP board appointed Carleton S
Fiorina2 in July 1999 as the CEO of the
company. Revenues grew by 15% for the financial year
ended October 2000 (Refer Exhibit I), prompting industry
watchers to say that Fiorina seemed all set to put HP's
troubles behind for good. However, for the quarter ended
January 31, 2001, net profits were well below the stock
market expectations. There was more bad news from the
company. In late January 2001, after forcing a five-day
vacation on the employees and putting off wage hikes for
three months in December 2000, HP laid off 1,700
marketing employees. By early February 2001, HP's share
price fell 18.9% from $45 in July 1999 to $36.
In
April 2001, citing a slowdown in consumer spending,
Fiorina announced that HP's revenues would decrease by
2% to 4% for the quarter ending April 30, 2001. She also
said that HP would in all likelihood show no growth for
the next two quarters. Many analysts and competitors
were surprised at this announcement.
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