When the proposed merger between HP and Compaq was initially announced in September 2001, it touched off a firestorm. The proposed move was met with negativity from various detractors, including Walter Hewlett, heir of one of HP’s founders, Bill Hewlett. Today, the HP-Compaq merger is hailed the largest and finest IT merger ever. What experiences and insights were gained by the HR team in Singapore? Shirley Lee reports.
Stephen Chong, Human Resources director of Hewlett Packard, Southeast Asia, is an old hand when it comes to mergers. In his experience as HR practitioner, stretching two decades and counting, Chong has held key roles in four merger exercises while at pre-merger Compaq, which he affectionately terms “the old Compaq world” and his present role in HP.
Indeed there were valuable lessons to be learnt from Compaq’s past mergers, particularly its botched integration with Digital Equipment Corporation (DEC) in 1988. Compaq, one of the largest manufacturers of PCs back then, tried to get into the server and services markets when it acquired DEC for US$9.6 billion, but it never fully integrated that business. Jeff Clarke, the CFO of Compaq at that time, admitted to not having a clear picture of the key integration issues, such as financial accountability related to financial plans after the acquisition and direction of product lines, and was therefore not consistent in communicating road map information to employees. A stronger perspective to these key integration issues was added only after Michael Capellas joined Compaq as CIO about a year after the DEC acquisition.
While every merger is unique, Stephen recalls being “blown away” by the speed at which the HP-Compaq merger moved.
“I thought it was cool that the HP employee portal was integrated from day one of the merger. The key senior managers had already been appointed, the product roadmaps across the range of hardware and software offerings had been put in place and HP had even established a new set of core values.” Needless to say, that was only made possible by the immense amount of preparation work, which Carly Fiorina, CEO of HP, said in one of their press releases to have amounted to “millions of hours”.
When HP announced they had a two-year deadline to complete the integration, Chong remembered feeling pretty confident that HP could complete the project on time. “Realistically speaking, two years is a long time. In our minds as HR practitioners, the faster we integrate, the better.”
Imagine the sales representatives of pre-merger HP and pre-merger Compaq on the same team but working under different compensation plans. According to Chong, there was a real urgency to develop a consistent and integrated sales compensation plan at the outset for one simple reason: “a company’s sales team is highly motivated by sales dollars”. Therefore, that was one of the top priorities for HP and they had planned to integrate the sales compensation plans in time for financial year 2003. Indeed, the HP integrated sales team received its first quarter FY 2003 incentive payments on schedule.
“In the IT industry, speed is of the essence,” says Chong. HR practitioners sometimes overanalyse every programme or change that is being contemplated and in the process stall the company and the post merger workforce from moving forward and re-engaging in meaningful work. “It’s a case of analysis-paralysis,” he quips.
Not that you can always tell from someone’s appearance but Chong’s enthusiasm, even preoccupation, with speed seems to contradict his genteel and composed demeanour. One would have thought he is more inclined towards a contemplative and introspective approach. But Chong reveals he is not one to overanalyse things.
This aspect of Chong’s work ethos is strikingly similar to that of his CEO, Fiorina, whose bold and uncompromising management style has earned her a reputation as a steadfast but unrelenting driver. Her management style was reported to have contributed significantly to the sterling success of the HP-Compaq merger. On the first anniversary of the merger, HP announced savings of U$3.5 billion on general expenditure, resulting from areas such as more streamlined business units and global IT savings (24 percent). The amount of savings exceeded their forecast of US$2.5 billion. The HP-Compaq merger also brought together a workforce of over 140,000 employees in 170 countries.
When Chong reiterated the achievement, his face lit up with immense pride. The achievement was no mean feat. According to an article entitled “Don’t Mess with Carly” published by a US magazine on human capital issues, Workforce Management, the initial reaction to the proposed merger announcement in September 2001 was not well received. The report said that HP’s stock price plummeted 19 percent overnight and shareholders, heirs of the company’s founders as well as employees resisted the plan. The odds against HP intensified when the already depressed technology sector was further dampened by the dot com bust and terrorist attacks of 9/11.
Workforce also reported that Fiorina was hired by HP’s board of directors in 1999 to turn around a company that was “desperately in need of change” because HP had become “sluggish” at that time. Back then, HP had reportedly failed to capitalise on the PC and Internet revolution, and missed nine quarters in a row during the biggest technology upturn. HP’s results today speak for itself and according to the article, Fiorina’s advice was recently sought by Homeland Security in the US on merging 22 disparate government agencies into one forward-thinking organisation.
Perhaps one of the greatest changes brought about by Fiorina was the loss of pre-merger HP consensus-based culture, where decision-making was deemed too slow, especially for a company that was growing. Compaq on the other hand, was more conscious of speed. So, in a way, it was like a marriage between fast, brash Compaq and quiet, laid back HP. Today, HP has gone from a culture where “decisions were made by consensus, or not at all” during its pre-merger days to one that is hard-driving and decisive.
Unresolved cultural differences are often said to be the main reason many mergers fail to work. HP was conscious of that. One key point Fiorina often stresses is that it is not just what gets done but how it gets done. So, while HP is focused on their goals and directions, they wanted to ensure that the company continued to be an employer of choice – a place where cultural diversity and inclusion is recognised and encouraged. Therefore, even before the merger took place, HP spent numerous hours trying to shape a unified culture for the new company. Speed and customer needs were a significant part of the new culture.
“Any HR practitioner knows that cultural integration takes time. While we achieved most of our business targets in the first year of integration, it’s impossible to assimilate two diversified cultures of that scale within a year”, remarks Chong.
The key to achieving smooth assimilation, including smooth cultural integration, he adds, is communication. He advises that in any re-organisation, companies should adopt an honest, clear and consistent communication strategy. “Never negate the insecurities of employees, you have to face up to the issues and address them. If there is bad news to communicate, do so. People appreciate that.”
A reported 15,000 (approximately 10 percent) HP employees worldwide have received bad news concerning layoffs and early retirement as a result of the merger. One can imagine the company’s monolithic task of maintaining staff morale and continuing to promote HP as ‘one of the best places to work’.
“During a re-organisation, HR departments play a very important role as change agents. HR practitioners have play leading roles in integration teams as HR practitioners are the ones responsible for driving and charting organisation structure and recruitment processes,” says Chong.
HP’s HR team was very involved in the company’s integration programme, known as Fast Start, which was aimed at assimilating employees into the new environment and culture. The different modules of the Fast Start programme included interviews with focus groups to find out about employee perceptions, expectations and fears surrounding the merger. The information gathered then acted as data points and feedback for the executive council and committees. One very important component of Fast Start is team-building exercises, says Chong. “When people play together, their defences are broken down and they hang loose together,” Chong adds that up to 17,000 Fast Start sessions were held worldwide to facilitate the integration.
To a certain extent, cultural integration practices that were proven successful during the HP-Compaq merger were also adopted during their landmark US$3 billion global outsourcing deal with Procter & Gamble (P&G) between May and August 2003. As part of the 10-year managed services contract, HP transitioned 2,000 P&G employees from 48 countries.
According to IT management magazine, MIS, the biggest challenge associated with the deal was allaying employees’ fears surrounding the change. The reactions of P&G employees affected ranged from excitement to apprehension, fence-sitting to non-stop questioning. The employees wanted answers to their job security, compensation and benefits policies and career development plans. P&G and HP worked together to hold peer group discussions to find out and address employees’ prejudices regarding HP’s culture and to provide counselling to employees on the benefits of change. MIS magazine also reported that 97 per cent of the P&G employees offered HP contracts during the deal agreed to move over after the communication sessions and counselling.
Besides the integration of cultures and IT systems, the HP-Compaq merger also involved integration of day-to-day business operations and business processes. In order for these to be successful, it is imperative for the different key stakeholders such as HR, senior and line management to work hand in hand. As any HR practitioner would attest, working with line managers is a perennial challenge. Often the problem stems from the disregard line managers typically have for the importance of HR because HR practitioners are often seen as mere custodians of company policy and removed from the real business world.
However, when asked, Chong shrugs off the challenge of working with line management as no more than “an excuse” given by some HR practitioners when things do not work out. To a certain extent, he continues, line managers sometimes give their HR departments the standard “I don’t have to the time to implement this” or “you don’t understand our business responses. However, he says it is up to HR practitioners to demonstrate to their companies and line managers why they propose a particular policy or programme. He says it is very important for HR departments to be seen as playing an active role in the business. In order to do that, HR has to establish credibility within the company by painting a clear picture of the values, both tangible and intangible, that they can bring. “If you don’t help people see the value of a particular move, it’s natural they won’t want to spend time and effort on it,” says Chong.
For someone who says he does not possess substantial line experience outside of HR, it is surprising that Chong is spared the usual grouses line managers throw at HR departments or vice versa. The HR director explains that it is the relationship he has with employees and the active involvement he maintains with business issues that earns him that credibility.
“I’ve been asked to go into line but my passion has always been in human resources. As an HR practitioner, I make it a point to not just concentrate on the top (senior management). If your ears and your heart are not on the ground, you won’t know what the issues are, and if you don’t know what the issues are, you won’t be able to champion employee needs.”
“HR practitioners have to quell the urge to act like show-stoppers in the name of policy. We can’t keep closing doors in people’s faces. In the long run, this sends a message to the company that their HR department is bureaucratic and people don’t like that. The HR department exists because the business needs it,” says Chong. “If we are often seen as a big boulder of hindrance, then very soon, people won’t consult us, then what’s our value add?” he questions.
He adds that HR practitioners should learn to think out of the box and offer alternatives. If an HR practitioner is faced with an issue that pertains to a business need, he or she should do their utmost to address that need, even if it involves going straight to the top to petition the issue. “I haven’t seen battles lost in such instances, I find it very strange that any business leader would not support a justified business cause leading to business result.”
Although Chong has a very busy schedule, partly due to his regional role, he devotes time for casual interaction with HP employees. The good staff rapport is evident from the causal chats he has with his colleagues he meets in common office areas. One can imagine how easy it is for HP staff members to approach their HR director to discuss any concerns they may have.
In order to appreciate and understand the company’s business better, Chong is involved in HP’s business development meetings. Although he feels strongly that HR should be an active part of strategic business planning, he notes that some HR practitioners choose not to become strategic partners to the business. He cautions that old school HR practitioners will lose their value in the company over time if they continue viewing themselves as mere “administrative experts”.
HP’s HR team is no backroom officer. The HR team is often called upon by HP’s sales force to conduct presentations on HP’s HR policy and processes to HP customers. Chong explains that by doing so, the team gets to showcase their capability in HR processes and best practice as well as demonstrate their support for the business.
It is interesting that Chong thought the hardest part of his job during the integration process was his own work life integration and not working with line managers to integrate business processes or melding the two distinct cultures of HP and Compaq. He said he struggled to “stay alive” under all that workload and to get home early to be with his wife and two daughters.
“Balancing the demands of work and family was tough. During the initial integration period, I had to juggle between my daily work, new work streams pouring in from the integration and balance that with family life. How did I do it? I consciously pulled myself away from work on my family day, which is Saturday,” says Chong. “If I had to check my e-mails at home, I made it a point to do so only after my girls have gone to bed.”
Since the merger between HP and Compaq, Chong has recently been drawn into another re-alignment exercise which involves the integration its sales units. The re-alignment project was completed on 1 May 2004.
“Before the sales team was integrated, it was not uncommon for a HP customer to be contacted by more than one sales representative from the different sales units. That is one of the problems we are trying to eliminate in order to present ourselves as one face to our customers,” says Chong.
When asked about HP’s plan for the near future, Chong replied that the company hopes to double in size in three years. Does it seem overly ambitious? Maybe. But maybe not for a company helmed by a CEO whose famous mantra is “demand more”.
