The HP Phenomenon

Innovation and Business Transformation

Charles H. House, Raymond L. Price

• Publisher: Stanford Business Books
• Year: 2009
• ISBN:
  9780804772617
• Edition: 1
• Topic: Business
• Subtopic: Storia aziendale
• Index: Business

The HP Phenomenon tells the story of how Hewlett-Packard innovated and transformed itself six times while most of its competitors were unable to make even one significant transformation. It describes those transformations, how they started, how they prevailed, and how the challenges along the way were overcome—reinforcing David Packard's observation that "change and conflict are the only real constants." The book also details the philosophies, practices, and organizational principles that enabled this unprecedented sequence of innovations and transformations. In so doing, the authors capture the elusive "spirit of innovation" required to fuel growth and transformation in all companies: innovation that is customer-centered, contribution-driven, and growth-focused.

The corporate ethos described in this book—with its emphasis on bottom-up innovation and sufficient flexibility to see results brought to the marketplace and brought alive inside the company—is radically different from current management "best practice." Thus, while primarily a history of Hewlett-Packard, The HP Phenomenon also holds profound lessons for engineers, managers, and organizational leaders hoping to transform their own organizations.

"At last! The 'HP Way, that most famous of all corporate philosophies, has taken on an almost mythical status. But how did it really work? How did it make Hewlett-Packard the fastest growing, most admired, large company of the last half-century? Now, two important figures in HP's history, Chuck House and Raymond Price, have finally given us the whole story. The HP Phenomenon is the book we've been waiting for: the definitive treatise on how Bill and Dave ran their legendary company, day to day and year to year. It should be a core text for generations of young entrepreneurs and managers, a roadmap to building a great enterprise."—Michael S. Malone, author of Bill & Dave: How Hewlett and Packard Built the World's Greatest Company

CHAPTER 1

Creating the HP Way

It was so hard to really comprehend the greatness of HP because one of the great features was that they wouldn’t talk about their virtues. They weren’t going to sell you on their virtues. You had to see for yourself.

DON HAMMOND¹

The Forbes issue reached local mailboxes on March 1, 2007, with a stunning cover story: “HP: Tech’s New King.”² How satisfying the coronation was for Hewlett-Packard employees and leadership alike. Weeks before, a BusinessWeek story led with the words “Hewlett-Packard has taken a big step toward laying official claim to the title of world’s biggest tech company.... ‘This has been a defining year for HP,’ a buoyant Chief Executive Mark Hurd told reporters during a conference call. And no, he wasn’t referring to the pretexting scandal that dominated headlines earlier this fall.”³ The story was hardly new—HP had passed IBM in equipment revenues four years earlier, in 2002, before the Compaq merger. But this modest company never made the claim, even with flamboyant Carly Fiorina at its helm. One has to wonder—why did people fail to notice this company for so long?

The HP saga began with a clever but simple idea: to insert a small lightbulb into one side of a circuit as the resistance element, rather than a standard resistor. Whether Bill Hewlett understood the probable effect ahead of time is unimportant—he instantly recognized the result when he turned it on. He had constructed an automatically controlled amplitude limiter for a resistance-capacitance signal generator. His innovation was adequate for a fifteen-page engineer’s thesis from Stanford University in 1939; it was also good enough for U.S. patent number 2,268,872.⁴ And it led to the Model 200A Oscillator, a brand-new product from a brand-new company named Hewlett-Packard after Hewlett won the coin toss for the right to put his name first. The first big order—$517.50 for nine units—was garnered from Walt Disney Studios in 1939, intended for use in creating and balancing stereo soundtrack music for the cartoon “Fantasia.” The movie was a pioneering effort, with six individual soundtracks, two mixing tracks, and a metronome track to capture Leopold Stokowski’s orchestra in very high-fidelity sound. One oscillator per track was required; HP’s new machine, offered at $54.50 versus the General Radio machines at $400 each, was an exciting find for Disney’s chief engineer Johnny (Bud) Hawkins. But as it turned out, the HP 200A didn’t have quite the frequency range desired. So Hewlett changed the capacitor and charged $3.00 more per unit, and Disney actually bought the company’s second product, the 200B. Over time, at least twenty-four variations of the lamp-stabilized oscillator would be offered for sale.⁵

From that auspicious beginning, the company quietly set about doing business in a most unorthodox manner. Contribution, more than profit or growth, was the watchword. Years later, Packard told a biographer, “I never really thought about how much money we might make. The question was, ‘What contribution can we make?’” The company began in the single-car garage behind the house that Dave and his bride, Lucile, rented at 367 Addison Avenue in Palo Alto, California, now graced with a granite monument plaque denoting it as the origin of fabled Silicon Valley.

Legendary even in their lifetimes, each founder of the Hewlett-Packard Company—William Hewlett and David Packard—had a giant intellect with uncommon integrity and character. Their business approach from the earliest days became known as the HP Way. Each could have stood alone, and did, on occasion, but the most remarkable fact was that they stood together for a lifetime, building a resolute partnership founded on core values of honesty in dealings, faith in people, and excellence in performance.

David Packard was an imposing figure. He stood six-foot-five-inches tall, with a hawkish nose and deep-set eyes that seemed to not miss a thing. Once, while touring Russia in the glasnost aftermath of the Reagan years, he mused to companions about the tire marks on the tarmac, “Look how close together they are; their pilots must get far better training than ours,” an observation missed by everyone else.⁶

Another time, Packard took the floor at the end of an HP general managers meeting and announced that the Berlin Wall would be falling soon. He exhorted the group to ponder the significance for each of their divisional product lines.⁷ At coffee break, chief operating officer Dean Morton could scarcely contain his dismay: “The damn Berlin Wall? We’ve got problems with Spectrum, we’ve got problems in computing, we’ve got problems with managing this place—he wants us to worry about the market in East Berlin?” ⁸ The wall fell less than ten months later. One attendee at the meeting opined to an external group that Packard had predicted this when the entire U.S. State Department missed it—the dismissive reply was that his role as Deputy Secretary of Defense must have given him special insight that was lacking at State.⁹ When Packard was asked, the stunningly simple answer was that “I was in our Vienna office, and I was reading the telephone log book. I noticed that the number of calls in 1988 from the East Bloc had gone up by nearly a factor of ten from the year before, and I figured something must be changing for so many phone calls to be coming our way.”¹⁰ Again sensitive to the nuances of what he was seeing—intuitive, clear, and insightful, with decisiveness about what to do with the data thus collected. Such a combination has seldom come together in one person.

Al Bagley, a key early inventor and HP’s first division manager, noted that Packard was an engineer at heart, as well as a business guy: “He had a great big heart and sense of integrity. He really had a belief in people, that if you give them an opportunity, they can surprise you with how well they can perform.”¹¹ Self-deprecating, he jocularly answered questions about his height by saying he was five-foot-seventeen. He was a regular at the Friday night beer busts, singing and telling jokes with guys from the machine shop and production lines—the same folks he often invited fishing or hunting.

Carl Cottrell, a thirty-nine-year Hewlett-Packard employee, bluntly said, “There’s not been anything that really expresses what a giant he was in so many ways. He was a born leader and an unusual leader, and he had tremendous business sense. He looked at things in a very logical way, but he also had a keen intuition about business decisions, and he believed in making decisions. There was nothing wishy-washy about Dave.”¹² CEO Lew Platt expressed the mood of many at Packard’s public memorial: “Our closest personal experience to greatness.”¹³

Michael Malone, Silicon Valley’s chronicler, was rhapsodic in “The Packard Way” chapter of his book The Valley of Heart’s Delight: “David Packard is the greatest figure of the electronics age, its most admired entrepreneur, and, history may well record, the most important businessman of the twentieth century.... Most of all, David Packard exhibited a trait once synonymous with Americans: an absolute, rock-hard integrity.”¹⁴

If Packard was a giant, the five-foot-seven-inch Hewlett by contrast was an elfin figure—with an otherworldly demeanor and a fine sense of good-natured mischievousness. Curiosity defined Bill quite as much as his taste for a simple approach. Lew Platt succinctly summed it up: “He was one of the most inquisitive people I ever met.... When I look out the window, I’d see a tree. But he’d want to know what kind of tree it was, how it worked, what was its genesis—and he was that way whether it was art or music or botany or electronics. That was the seed that was planted inside HP. Hewlett was the guy who gave the invention DNA to HP.”¹⁵

Hewlett was a consummate engineer—practical, ingenious, with an easy air. Diffident about how much he knew, at times he seemed not to understand why the things he saw clearly were so obscure to others. He used such insight to coax the best from others. As David Pierpont Gardner, ex-chancellor of the University of California and a past president of the Hewlett Foundation, wrote for the American Philosophical Society:

Bill was not fond of looking backward. Instead, he looked steadily forward, beyond most people’s more limited perspectives or the natural limits of their imaginations, searching for the nuances and subtleties of the problems encountered, discovering how, by redefining a problem, the solution was made clearer or even self-evident, challenging when complacency became confused with contentedness, and asking, always asking, if there was not a better way or a more fundamental question to ask. Bill’s character, honesty, generosity, and quiet, self-effacing ways, to his great credit, have come to be as much respected as his company. These personal traits were the markers of one whose life should be a source of inspiration to the young and a cause of admiration and respect for the rest of us.¹⁶

A grandchild’s parting thoughts:

In the end, his greatest gift to future generations was not the compass he could build with his hands, but his moral compass. Its cardinal points were knowledge, modesty, justice and hard work. His life was guided by what seem to me innate principles of rectitude. He never wavered at home or at work. He was true to himself and an example to us all.¹⁷

Beginnings

Frederick Hewlett, Bill’s paternal grandfather, was born in London in 1846. Arriving in California as an adult, he met and married Cleora Melissa Whitney in Marin County. The couple had six children; the oldest was Albion Walter, born in August 1874, named for his maternal grandfather. Tragedy dogged the family—four of the children would not survive past three years of age, which compelled Albion to become a doctor. While in residency at Ann Arbor, he met his future wife, Louise Redington. William Redington was born May 20, 1913, four years after sister Louise. Dr. Hewlett, appointed in 1916 to the Stanford Medical School based in San Francisco, became prominent in West Coast medical circles. The family traveled frequently, especially to Stanford’s Sierra Nevada mountain retreat at Fallen Leaf Lake. Bill developed a love for wilderness; he met his future wife Flora during these summer excursions. Tragically, Dr. Hewlett, fifty, suffered an untimely death from a brain tumor in 1925, after which Louise, the senior, took her mother and two children to Paris for fifteen months. For Bill, aged twelve, the trip abroad was very formative.¹⁸

Dyslexia and lack of interest combined to cause difficulties in some school subjects, but Bill’s interest in math and science was easily piqued. Bill took to scaling buildings for sport and eventually became a pretty fair mountaineer. A grand tinkerer in high school, he graduated just before his seventeenth birthday and headed off to Stanford, thanks to intervention by a relative who spoke to his poor grades from dyslexia and connected the boy with his famous father. At Stanford, he earned recognition for his quirky sense of humor, usually at professor expense.

David Packard was a true westerner, born September 7, 1912, in Pueblo, Colorado—a western frontier city, even a border town, as he would describe it later. He grew up outdoors, learning to ride horses as a boy and becoming accustomed to catching the daily limit of fifty trout in the Gunnison River. He also became a proficient radio operator, involved both in the high school club and at the state convention. Pueblo, with forty thousand people, a steel mill, and several foundries smelting ore from high mountain towns in Colorado, was a locus of bustling activity—tough and violent in Packard’s view. Colorado in 1912 was remote—not far from Pueblo, Colorado Springs was an upscale resort community of thirty thousand, where Packard’s parents met at Colorado College. Denver was sizable, with two hundred thousand people, but aside from it, there was only one town as large as Pueblo within six hundred miles, and only ten more within a thousand miles. A century later, Pueblo isn’t as isolated, or prominent—there are sixteen larger cities within six hundred miles, and another forty-eight within a thousand miles. In 1912, six hundred miles was a long distance.

San Francisco, on the other hand, was twice Denver’s size, with nearby Stanford University already billing itself as the “Harvard of the West.” In summer 1929, Dave traveled by car to California with his mother, Ella, and sister, Ann Louise. Louise Neff, Ella’s best friend from Colorado College, lived near Stanford in Palo Alto; her daughter Alice had just completed her freshman year there. Alice took Dave, about to become a high school senior, around campus. Dave’s book, The HP Way, opened by noting that certain events, seemingly unimportant at the time, have a “profound effect in shaping our business or professional careers”—visiting Stanford that summer was one of only two events he cited for his own life. It changed his mind from attending the University of Colorado at Boulder to applying to Stanford. In the throes of the Depression, September 1930, he enrolled.

The new president of the United States, Herbert Hoover, was a Stanford alumnus, conferring a certain cachet on the school. The current university president, Ray Lyman Wilbur, was well-known in both business and academic circles. David Starr Jordan, the founding president (1891—1913), was still an active chancellor, with both national and international fame. And Lewis Madison Terman, a faculty psychologist, was gaining notice for popularizing the Stanford-Binet IQ Test under their tutelage.

Packard met Bill Hewlett the week he enrolled; over four years, especially in their senior year, they became fast friends. Dave would be busy at Stanford—he lettered in three sports freshman year, and he worked as well. He later dropped track and basketball, but played football for four years, including on the 1934 Rose Bowl team. Packard also worked every summer—even though his father was fully employed during the Depression as a bankruptcy judge in Pueblo, every spare dollar mattered.

Packard’s second serendipitous career-altering event in his life occurred through his love of the ham radio club. He met Dr. Frederick Terman, Lewis’s son, who was well launched on a teaching career in radio engineering at Stanford University. Although it is widely acknowledged that Terman became the inspiration and stimulus for Packard and Hewlett to...