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Background and Additional Research Summary
Two Stanford engineers in California founded HP Company, which deals in global computer, in 1938 as an electronic instruments company. Engineers and scientist quickly approved HP products by 1940 and its growth arose tremendously during the period due to purchases made by American government during the Second World War.
By 1970s, HP had grown from highly centralized to into one with many widely dispersed divisions and activities. HP began to use a concept called ‘local decentralization, in which a division was given full responsibility for a product line. The decentralization, that HP had until 1980s had had its own problems for the company.
HP began to be perceived by users as three or four companies, with little coordination between them. An elaborate network committee was found to be the source of slow decision-making in the organization. The then CEO John young therefore dismantled the committee as a part of reorganization. He further divided the computer business into two primary groups to ensure decentralization.
The revenue of HP increased from $13.2 billion in 1990 to $38.42 in 1996 courtesy of a large market share of PCs and printers. However, due growth and size of operation with 83-product division, bureaucracy had increased significantly.
In 1999, the board of HP Company appointed Carleton S. Fiorina (Fiorina) as the new CEO of the company. Revenue grew by 15% for the financial year 2000, due to reorganization strategies carried out by Fiorina.
The company realized a low net profit that was below the net profit of the industry towards the end of the financial year that ended in Dec 2001. Layoffs of 1700 marketing employees soon followed. Analysist suggested that the reason behind this was Fiorina’s aggressive management reorganization in the face of global slow down in technology sector.
Discussion of Issues
Management Issues: HP a major global computer company has increasingly faced challenges in areas of management, communication, and leadership. In order to bring back efficiency in the company, Miss Fiorina the CEO of the HP Company as at in July 1999 introduced aggressive management reorganization (Tuner 87).
Leadership Issues: Fiorina in an attempt to set things right, began demanding regular updates on key units. She enhanced discipline in the sales force by establishing and maintaining the required targets. By introducing incentives, she aimed at ensuring that the targets set are met. However, during Fiorina’s tenure despite the reorganization, she did little to improve the HP performance. The market gains made when she was a CEO started to dwindle. PC share had fallen from 7.8% to 6.9% for the 12 months ended January 31, 2001.
Financial Issues: Reorganization brought about by Fiorina had an impact on the financial well being of the company. For the quarter ended January 31, 2001, the net profits were well below the stock market expectations leading to employee layoffs.
Communications: The reorganization resulted to more problems in the communication aspect. The new structure did not clearly assign responsibility for profits and losses as the responsibility to growth was shared between front-and back-end managers, there was less financial control and more disorder.
Discussion of the Root Causes
Reorganization: According to analyst Fiorina mission was doomed to fail simply because she was trying a new approach that had never been tried before at a company so complex and large in scale like HP.
The aggressive restructuring of the organization was only successful during early year of Fiorina tenure but could not be sustained due to the complexity of the HP operations and slow down in global technology. For example customers were not happy with reorganization .The front-back reorganization had created confusion internally, and many customers said they had noticed little improvement.
Communication: The new structure did not clearly assign responsibility for profit and losses and this lead to less financial control and more disorder. The back-end program designers would not be able to stay close enough to the customers to deliver products as per their requirements. Neither would the executive responsible for selling thousands of HP be able to monitor each product they are selling. Getting personnel from different divisions over 120 countries to work together posed a communication challenge (Miles 68).
Leadership: During Fiorina tenure, things got bad to worse. She did little to consult the technocrats and wanted to solve HP problem all at once which mounted to more problems arising. Market share had started to reduce at the end of her tenure.
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Fiorina dismantled decentralized organizational structure to transform HP from a ‘strictly hardware company’ to a Web services powerhouse. Nevertheless, even this strategy did not shield the problems the company was facing. Despite the reorganization, she did little to improve the HP performance. The market gains made when she was a CEO started to dwindle. PC share had fallen from 7.8% to 6.9% for the 12 months ended January 31, 2001.
Change Management: Reorganization in the HP Company was rapid and this left little room for employees at the company to adjust accordingly. Massive layoffs were carried out to keep the company afloat. The change brought confusion and less coordination in the Company. The reorganization was not managed well with all stakeholders involved.
Recommendation for Future Actions
For future mitigation of the structural and operational problems as experienced in the HP Company, the following recommendations are suggested:
There will be a need to provide policies that govern change in the organization for easy and smooth transition. This approach will ensure coordination and empowerment of employee in decision-making. Before any adaptation of a change in an organization, a feasibility study must be explored to know if the change is to be adopted is worthwhile. Change management will involve thoughtful approach to the organizational structure so that any change made should be sustainable and manageable.
Proper planning by all stakeholders should be done to ensure the success of the change in the organizational structure. Consultation with the experts should be done when creating policies that govern change in the organizational structure. Lastly, structural reorganization should gradual in implementation so that employees can adapt to any changes made. A drastic change in the organization brings about confusion and miscommunication in the organization.
Proper channels of communication in the organization are very essential in the running and even change in the organizational structure. Good communication encourages coordination of activities and minimizes wastage of time. In the case of HP company, communication approach was top –bottom or vertical in nature.
It is for this reason that the individuals around Fiorina were comfortable in terms of communication but those without felt left out. Communication empowers people in decision-making and thus enables decentralization of organization. In this case, information technology should be explored. Systems such as extra, intra, and internet should be adopted in the organization to reduced information traffic and decentralize organization.
Customer service systems will encourage communication between the customers and the organization. These communications will involve even changes in the organization so that the loyalty of the customers is not affected. Specialist in information technology should be consulted to develop a system that will connect all the stakeholders in the organization so that the organization becomes a horizontal one where anyone is accessible.
Training of members of the organization should be taken into consideration after any major change has taken place in the organization. Training not only prepares one for the anticipated change but also gives employee skills and knows how to deal with changes in the organization.
Experts should be contracted to handle the training aspect in the change management. Senior executive should also be trained to sharpen their leadership skills to handle the organization as a result of the new change. Employee’s roles and responsibilities should be stated well during the training session so that at any time everyone knows what he or she is to do. Training moreover motivates employees and boost up their morale in the work activities.
Fiorina should analyze with the help of experts the processes that are not adding value to the organization and those that do. This will enable her to concentrate efforts and resources to products and process that will add positive value to the organization. For example the front-back reorganization had created confusion internally should be done away with since it did not add value to the organization as a whole but instead attracted complains form customers for its in effectiveness.
Fiorina should also seek to know where the problem lies in the supply and distribution chain. She should seek to understand if over diversification has drained the resources of the organization to make more profits. If so then she should only concentrate on the most profitable products as opposed to going conglomerate.
Fiorina should also benchmark with her competitor organization. HP business performance should be compared to competitors such as DELL, COMPAQ and others so to rate the business in terms of performance. Best practices and innovations should be incorporated and even improved in the company. Comparative pricing should be done to set a good market price for the products. This strategy will ensure a competitive edge ahead of the competitor thus greater market share.
HP products should be unique and better than the products from other competitors to attract more customers. Proper marketing for these products should be maximized to reach all market segments. HP products should be designed in away that it fulfils customers need and expectation. Sales promotions and other marketing strategies should be explored for HP Company to have even greater market share. Market research should be carried out to find other markets where the competitor has not explored to maximize on sales.
The performance of employees can be evaluated with an effective performance management system. This method can be explored in the HP Company where supervisor and manager ensure performance by the employees’ .Issues of time wastage and non-performance will be eliminated. Performance contracting ensures maximum productivity by employees and carrier development as employees specialize effectively in their areas of activity.
Miles, Raymond. Organizational strategy, structure, and process. Stanford: Stanford University Press, 2003.Print.
Tuner, Rodney. The handbook of project-based management: leading strategic change. New York: Prentice Hall, 2009.Print