Case study application:

TRANSITION MANAGEMENT IN THE HPCOMPAQ ACQUISITION

In the Fall of 2001, Carly Fiorina announced HPs intent to acquire Compaq Corporation. Over the next nine months, a proxy fight ensued as many shareholders and employ- ees challenged the wisdom of the proposed change. Wall Street analysts and organization researchers too debated whether or not the acquisition made sense, especially given the size of the change and the rather dismal history of performance in acquisition cases. Scott McNealy, chief executive of rival Sun Micro- systems Inc., predicted a slow-motion collision of two garbage trucks.

Within days of the initial announcement, however, Fiorina and Michael Capellas, then CEO of Compaq, met with Webb McKinney, a 19-year HP veteran, and Jeff Clarke, Compaqs CFO and survivor of Compaqs acquisition of Digital Equipment Corporation. These two men were named to lead the transition pro- cess, one that would involve redeploying a combined 145,000 workers in 160 countries including more than 15,000 layoffs, untangling 163 overlapping product lines, and producing $2.5 billion dollars in promised cost reductions.

It was no accident that McKinney and Clarke were asked to lead the integration team. Both were senior managers with substantial follow- ings and excellent reputations. Days after their initial meeting, they began recruiting managers in equal numbers; Clarke rounded up Compaq talent and McKinney lined up their HP matches. Within weeks of the mergers announcement, the integration group, called the clean team, had 500 members; by March 2002, more than 900. Even after the merger closed in May 2002, it kept growing, peaking at more than 1,000 full- time employees. By establishing such a huge body of outstanding managers and reassuring them that their jobs would be safe even if the merger failed, Clarke and McKinney were able to coax them to share in confidence everything they knew. It also kept most of them motivated to stayanother critical benchmark.

In addition to getting the right people on board, McKinney and Clarke set up an assembly ine for decision making. Their research on suc- cessful and unsuccessful acquisitions and Clarkes experience with the Digital acquisition convinced them that slow decision making and the lack of a clear decision-making process was like a cancer in the transition process. In response, they created the adopt and go strategy: Get cross-company pairs of managers to meet daily to determine the best choice or best course of action on any particular issue. Weekly meetings kept the pace fast. If any issues couldnt be resolved by the teams, McKinney and Clarke would jump in. If those two couldnt resolve the impasse, theyd pass it to a committee chaired by Fiorina.

In addition to getting the right people on board and setting up a decision process built for speed, the transition team created activity plans for the key issues facing the integration, including people, products, culture, Day-one activities, and day-to-day operations. Excerpts and examples from some of those plans are reviewed below.

The adopt and go process was used to decide which products to keep and which to discontinue. At weekly presentations with McKinney and Clarke, managers had to offer up one for elimination. In contrast to Compaqs merger with Digital, HP execu- tives made quick product decisions and every week pored over progress charts with red, green, and yellow markers to review how each product exit was proceed- ing. Red and yellow markers indicated a task was troubled; green signaled a task going well. In four months, a road map for product lines emerged and helped to close redundant warehouses and factories, ulti- mately saving $500 million in procurement costs. In the end, while many Compaq pro- ducts beat out HPs, such as Compaqs iPac over HPs Jornada, the HP brand survived.

The adopt and go process also helped HP make the hard decisions about person- nel appointments. HP appointed its top three tiers of executives before the acquisition was finalized and made new levels of appoint- ments every few weeks. While not perfect rumors that Compaq people were favored in the sales organizationClarke contends that all decisions were made by the book.

HP created a team to deal specifically with melding the corporate cultures and hired consul- tants to document the differences. To address perceptions that Compaq employees were shoot from the hip cowboys and that HP staff members were bureaucrats, the team created a series of cultural workshops. They were designed to identify the various cultures and subcultures, and then integrate them. For example, key sales managers and about two dozen salespeople from both HP and Compaq held a workshop designed to address sales inte- gration and transition issues. Many attendees first looked at each other suspiciously. Following some ice-breaker exercises, however, an HP representative talked about how HP had been working with key customer SBC, the telecom- munications company. That was followed by a Compaq rep discussing how it sold to SBC. Then the big group drew up a 100-day work plan for selling to SBC in the future, including a weekly conference call for the team every Friday. The progress from these sessions was tracked by a team of 650 part-time internal cul- tural consultants, who also continued in their normal jobs at the company.

The cultural workshops delivered in the first quarter after the deal was signed set the stage for further cultural integration. The work- shops welcomed everyone to the new team, described the HP business, HPs values and operating models, the roles and objectives of different groups, and how people were expected to work together. All of this material was pushed out into the HP market before the launch, inviting a few thousand of the top HP managers to an orientation and education session on what to do, how to communicate, and the details of the new HP and their roles in it.

The clean team also made extensive Day-one plans. Day-one readiness included plans to address customers, issues of leadership and structure, and internal administrative issues. The new HP was launched with everyone on the same email, not a paycheck missed, and every sign changed the morning of launch day. Customers participated heavily in the transition process. Customer councils, interviews, research, information sessions, education, and other data were included in the knowledge trans- fer to groups that faced the customer. The go- to-market plans were detailed, with playbooks given to each group manager who touched the customers, so that on launch day they knew what to do, what to say to a customer, where to get information. Each customer was given an HP buddy from the same level so that he or she could contact that person and get whatever infor- mation the customer needed. There was an enormous amount of detail, down to the script of what to say, what answers to give to specific questions, where to get further information, and how to transition an inquiry to the right person.

By most measures, this transition work paid off: HP met the integration goals that Chairman and Chief Executive Carleton S. Fiorina set for the merged company. The biggest of these was cost savings, which surpassed expectations. By mid- 2003, HP said it saved $734 million14% more than projectedfrom payroll cuts and better terms with its suppliers.

Study the case deeply and answer the question below:

1. Is the transition exercise successful ? Justify your answer (10 marks)

2. Discuss the key factors that lead to the situation the case study (20 marks)