Problem Statement #2 The Problem

The problem with Hewlett-Packard’s (HP) vision of how to run a successful organization shifted dramatically in the 2000s, beginning with its plan in 2002 to outsource “PC manufacturing facilities worldwide, in keeping with its longstanding strategy to decrease operations costs and improve profitability” (Mourdoukoutas, 2014). By outsourcing its manufacturing, HP entered into a phase of self-destruction, inviting the collapse of its own supply chain through fragmentation inevitably caused by outsourcing. One of the big consequences of this, in turn, was its loss of market share, as the handicap that HP placed upon itself was welcome news for new competitors who now saw their opportunity for entry; HP’s product cycles were shortened, and its invested capital was strained—all as a result of outsourcing.

HP also made a number of unwise acquisitions in an effort to be relevant in the tech sector. However, the company was looking backwards instead of forwards. By purchasing Compaq, Palm and Autonomy in 2001, 2010 and 2011 respectively (at substantial cost to the company), HP thought it would be able to scale in the PC, mobile phone, and software markets. Instead of looking forward in terms of innovation to see how it could make the markets better for consumers through the development of new products, it was playing catch-up and the companies it purchased brought no real added value to the firm in the end; instead, they left HP with mounting debts (Mourdoukoutas, 2014). As Bandler and Burke (2012) point out, “the company didn’t boast a single hit consumer product even as 67% of its revenue stemmed from hardware.” Competitors like Apple, IBM and Oracle were forward-looking and innovation-focused, delivering products and services that consumers were clamoring for in the new Digital Age. HP was viewing the market as though it were still in the 1990s.

Finally, HP was suffering from a decline in the quality of its organizational culture, which stemmed from a lack of leadership. Under CEO Leo Apotheker, employees had become “disengaged” and the workplace felt “traumatized”—layoffs were just around the corner, creativity had been stymied, and workers were uninspired to perform. Indeed, workers were fatigued from more than a decade of lackadaisical leadership, from Carly Fiorina’s appointment to the top spot in 1999 to Mark Hurd’s tenure, Leo Apotheker’s aloofness, and Meg Whitman’s survivalist mode of cold, calculating cost-cutting.

Because of all this, profits were declining substantially. In the third quarter following its announcement that it would write off $8.8 billion because its acquisition of Autonomy was a essentially worthless, HP had already lost $6.9 billion (Kalb, 2012a). The company’s shares were sliding dramatically. Its leaders seemed clueless as to how to stop the hemorrhaging: From Fiorina to Hurd to Apotheker to Whitman, none of HP’s executives seemed to realize that the way to save the company was to get back to its innovative roots: this was the vision that had catapulted the firm to the top of the industry in the beginning. Now, innovation had stagnated, and the company’s culture was writhing. Executives were grasping for straws and trying a number of tricks to change the company’s image, cut costs, or focus on the bottom line. None of it mattered because HP was not addressing the most crucial issue: the matter of vision.

Manaement’s Dilemma. Management’s dilemma is that it has lost a sense of the vision needed to transform the company and pull it out of its downward spiral. Transformational leadership is about providing a vision and motivating workers to want to reach that vision. Management at HP was not implementing this style of leadership—namely because its vision had been lost and that was the fault of its CEOs, who set the tone and tenor of the company. Management did not want to continue to in the negative feedback loop the company was mired in, but it saw no way out because it was not paying attention to its core values—the principles that allowed the firm to thrive in the first place. As Mourdoukoutas (2014) put it: “Bad acquisitions drained resources that could have been used for R&D to foster internal innovation. And the lack of internal innovation fostered bad acquisitions and outsourcing as a way of catching up with competition.” Deciding how to break out of the cycle of bad acquisitions while playing catch-up with other competitors in the market was the matter management had to settle. If it did not return to its innovative roots, it would cease to have a compelling reason to exist at all. In order to get back to research and development, it would have to get its vision back. How to do that was the problem.

Research Outcomes

#3 Outcome statement

As a result of getting back to the company’s core founding principles and values, HP will be able to strengthen its organizational culture and become innovative and dominant in the industry once more as demonstrated by the method implemented by Apple in the 2000s when HP was looking backwards at past products instead of forwards at new possible product lines and services (like cloud computing).

Research Question. Why do the core founding principles and vision of a business serve as the most suitable foundation of stable growth and development in a firm and what causes organizational leaders to lose sight of that?

Research Hypothesis. It was hypothesized that core founding principles and vision of a business...

Vision and principles are interdependent, as the both complement one another: vision gives the incentive for principles to be applied, and principles support the discipline needed to obtain the vision (Hardy, 2014). While it is irrelevant which comes first, the vision or the principles (essentially a chicken or egg issue), the fact is that businesses must have both core founding principles and vision if they want to be competitive year over year. The vision helps to inspire, and the principles help to achieve.
#5 Benefits

The benefits to management are that it receives a better understanding of why relying on core founding principles and values to determine the foundation of the company’s strategy is essential to strong growth and development. By always having a sense of the core founding principles and vision of the firm, the organization can inspire the workplace culture with a mission that is supported by these principles (a mission that is not supported by the principles should be rejected).

Background

#6 Background of the Company

Hewlett-Packard began business in Palo Alto in 1939 and went public in 1957. Innovation was always at the heart of the company’s vision, and its first successful product to hit the marketplace was the precision audio oscillator known as the Model HP200A, which used a small pilot light to stabilize the device’s output. The product beat competitors’ products in terms of pricing by more than half and brought the company to the attention of major corporations like Walt Disney, which used HP’s oscillators in its theaters. Over the next several decades, HP’s dedication to innovation made it into a leader in the tech industry—though it missed out on engaging one of the more compelling innovative minds in Steve Wozniak, who was an HP employee with ideas that the firm rejected again and again—which prompted him to team up with Steve Jobs and form Apple (Ong, 2010). This shows that even in the early days of PC development, HP was taking its eye off its original founding principles and vision.

In 2015, the company was split into HP, Inc. and Hewlett Packard Enterprise, with both divisions trading under their own ticker symbols—HPQ and HPE, respectively. Dion Weisler is the current CEO of HPQ and Antonio Neri is the current CEO of HPE. HP, Inc. focuses on producing printers and PCs while HPE focuses on servers, networking, and storage. Hewlett Packard Labs serves as the research and development wing of HP, Inc. The headquarters of HP is still Palo Alto after all these years. Revenue for HP, Inc. was $52 billion in 2017 with net income of approximately $2.5 billion. Revenue for HPE was $29 billion in 2017 with net income of $344 million. Altogether, HP employs more than 100,000 workers between the two divisions.

#7 Background of the Problem. The essence of the problem with HP is that it has lost a sense of its core founding principles and vision and needs to return to its innovative roots. As the organization manifested a loss of this sense in the 2000s (or well before if one chooses to mark this departure from innovative spirit to the year in which Wozniak left HP to team up with Jobs), it turned to more reckless and detrimental “solutions” to the problems it was encountering in the industry: it lacked competitive, innovative products, and instead of hunkering down and focusing on research and development, it turned to quick-fix solutions that its managers thought would do the trick. These “solutions” turned out to be more costly than effective—as the ill-advised acquisition of Autonomy proved, for instance (Kalb, 2012a). Another ill-advised “solution” was HP’s attempt to use “intermediaries to bribe foreign government officials in order to obtain profitable technology contracts” (Lawrence, Solomon & Bosworth, 2014). As a result, in 2014, HP “agreed to pay more than $108 million to settle enforcement actions by the DOJ and the SEC”—a small sum compared to the much larger write-off loss associated with its acquisition of Autonomy, but nonetheless indicative of the wayward direction that the company was heading in as a result of its loss by management of a sense of the firm’s core founding principles and vision.

This problem is part of a much larger problem that many companies are facing in the light of a globalized economy and fiercer competition from all corners of the globe. Rather than focusing on vision and principles, organizations are attempting to find shortcuts or easy solutions to the age-old problem of how to stay relevant. Some focus on strategic acquisitions and mergers: HP is not alone in this; Wal-Mart, a giant retailer around the world, has also used this strategy to get to the top of the discount retail market (Mitchell, 2015; Mourdoukoutas, 2016; Felstead, 2017). Others try to cut corners by skirting regulations and trying to…