Doubly Blessed?

Integrating Hewlett-Packard and Compaq may have been the easy part. Can HP now beat Dell and IBM at their own game?

As Digital’s CFO in Paris at the time, Clarke lived through “that horribly messy integration,” says Larraine Segil, an expert in alliances who studied the HP-Compaq deal for her book Measuring the Value of Partnering, due out in January. For HP’s integration, “he managed to avoid the lack of coordination and communication” that bogged down Compaq-Digital, “and he didn’t leave the cultural element to serendipity.”

In fact, Clarke and his six-member integration steering committee didn’t leave much to serendipity at all. Meeting each Thursday to brief Fiorina and Wayman, as well as CIO Robert Napier and human-resources chief Susan Bowick, the committee named HP’s new top managers by year-end 2001, and had them ready to take their posts on the May 7 completion date. Before that, the members oversaw the actual integration planning, which was done by so-called clean teams — named for the 2,500 employees who had been freed from their normal jobs to prepare for the combination.

The teams’ marching orders were based on a philosophy called “adopt-and-go,” which was largely a product of HP’s own spin-out of Agilent in 1999. In essence, says Clarke, it recognizes that “fast, decisive actions that stick, and are driven by the top,” work better than more-deliberate decisions that, “at the end of the day, may be right on paper but can’t be implemented.”

To illustrate, Clarke uses a hypothetical combination of last year’s Super Bowl rivals — the offense-heavy Oakland Raiders and defense-minded Tampa Bay Buccaneers. Rather than take defensive and offensive players from each team and make them work together, he says, “we’d pick the entire offense of the Raiders and the entire defense of the Buccaneers,” recognizing each for its strength. “Since we had two sets of Unix servers, and Compaq was losing lots of money, we stuck with [only] the winning HP team.” In the main case of two brands being maintained, HP and Compaq PCs, the supply chain and procurement were combined, significantly trimming costs. Eventually, one PC brand probably will survive.

Cultural issues, a potential quagmire in any merger, were also addressed head-on, and early. All employees were required to participate in “fast-start workshops,” which focused on team-building and governance issues within the framework of blending the HP and Compaq cultures. And the success of managers in personnel transition matters was reflected in their compensation through the balanced scorecard. The attention to cultural affairs was especially helpful given that 17,900 employees, 11 percent of the premerger total of 154,900, were laid off during the first five quarters after the merger, and 1 in every 10 remaining employees in a product-related position was moved from one product to another in the adopt-and-go realignments.

The Magic “1 and 4″

The incentive for reshuffling the deck correctly was the creation of an HP that could compete profitably across a wide range of products. Wayman says any misgivings he had about the merger dissipated after he studied the impact of the combination on the two companies’ market share of major products, especially where one of the two ranked number 1 and the other languished in the pack. “We saw how we could improve our market position and our financial results,” he says. “And where there was overlap, it was in areas where there was complementary strength.” In industry-standard servers — those based on the Windows platform, for example — Compaq was number 1 and HP was number 4, while in Unix servers the 1 and 4 positions were reversed. “It was a great strategic fit,” Wayman says.

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