Reorganizing HP

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Background Note

Stanford engineers Bill Hewlett and David Packard founded HP in California in 1938 as an electronic instruments company. Its first product was a resistance-capacity audio oscillator, an electronic instrument used to test sound equipment. During the 1940s, HP's products rapidly gained acceptance among engineers and scientists. HP's growth was aided by heavy purchases made by the US government during the Second World War. Till the 1950s, HP had a well-defined line of related products, designed and manufactured at one location and sold through an established network of sales representative firms. The company had a highly centralized organizational structure with vice-presidents for marketing, manufacturing, R&D, and finance. HP had 90 engineers in product development. To have a clear demarcation of goals and responsibilities, and to promote individual responsibility and achievement, HP began to organize these engineers into smaller, more efficient groups by forming four product development groups. Each group concentrated on a family of related products and had a senior executive reporting to the vice-president of R&D.

The product-development staff functions were so restructured as to allow a design engineer to concentrate only on the division's products and to work closely with the field salespeople.

As HP grew larger, it moved towards a divisional structure. By the 1960s, HP had many operating divisions, each an integrated, self-contained organization responsible for developing, manufacturing and marketing its own products. This structure, it was thought, would give each division considerable autonomy, and create an environment that would encourage individual motivation, initiative, and creativity in working towards common goals and objectives. In the words of Packard, "We wanted to avoid bureaucracy and to be sure that problem-solving decisions be made as close as possible to the level where the problem occurred. We also wanted each division to retain and nurture the kind of intimacy, the caring for people, and the ease of communication that were characteristic of the company when it was smaller."

In the 1960s, HP made organizational changes for the sales representative firms. These firms represented and sold the products of other non-competing electronics manufacturers along with those of HP. This arrangement was creating problems³ in the 1960s due to HP's rapid growth. To get around these difficulties, HP set up its own sales organization, taking care not to break ties with the existing representatives who were encouraged to join the sales divisions of the company.

In 1968, HP adopted a group structure in response to the increasing number of operating divisions and product lines. Divisions with related product lines and markets were combined into a group headed by a group manager. Each group was made responsible for the coordination of divisional activities and the overall operations and financial performance of its members. The new structure had two objectives - to enable compatible units to work together more effectively on a day-to-day basis, and to decentralize some top management functions so that the new groups would be responsible for some of the planning activities and other functions previously assigned to corporate vice-presidents.

The group structure improved HP's field marketing activities by enabling sales engineers to understand and sell the entire line of HP products. Under this structure, the sales engineer became the representative of a specific group, selling and supporting only that group's products. Packard said, "As the company moved to a group structure, I stressed to our people that this change did not represent any deviation from our traditional philosophy of management. From the beginning we had a strong belief that groups of people should be given full responsibility for specific areas of activity with wide latitude to develop their own plans and make their own decisions. Our new organization did not alter this basic concept, but strengthened it."

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3] HP's growing product portfolio demanded more attention by the sales firms.