Daring to Be Different From the Old Hewlett-Packard

PALO ALTO — When a struggling St. Louis technology start-up recently needed new computers on credit, one of its backers told the company not to bother asking Hewlett-Packard Co. for help. HP doesn’t take risks, he said.

But Hewlett-Packard financing manager Joanna Wampler, a 15-year company veteran, flew out to take a look. She spent eight hours at the firm, which supplies networking gear to big companies.

“Even though these people looked bad on paper, based on how I was used to looking at companies, I knew deep in my heart that they were going to be successful,” Wampler said. So she OKd a $10-million line of credit. “That was a big epiphany for me.”

Wampler and 83,000 other employees of Hewlett-Packard are struggling to change how they work and how outsiders see them. They are marching to the orders of Carly Fiorina, 45, who took over as chief executive of the world’s second-largest computer company seven months ago.

The first woman to head one of the 30 companies in the Dow Jones industrial average, Fiorina reorganized the 61-year-old HP into four units: two that focus on computers and printers and two that focus on sales--one to consumers and one to businesses.

It’s part of her drive to eliminate an ossified bureaucracy at the $43-billion company. The old consensus-driven system turned out good products, and it always put HP near the top of lists of great companies to work for. But it also helped HP miss the explosion of the World Wide Web.

The problem was exacerbated by fierce competition. Although Hewlett-Packard’s share price has tripled in four years, stock in Sun Microsystems, whose computer servers and philosophy appeared more attuned to the revolution, has multiplied 12 times.

“We decided to transform this company,” Fiorina said. “Everybody has been engaged.”

She was convinced the company had been too modest about its innovations, especially in software, an area in which customers remain more likely to think of cross-town rival Sun or IBM.

She launched an expensive ad campaign featuring the garage where founders Bill Hewlett and David Packard first worked. The ads, with the tag line “Invent,” are aimed almost as much at company employees as the outside world, Fiorina admitted. So inside the company, “garage” posters sprang up with the new rules of the game: “Radical ideas are not bad ideas.” “No politics, no bureaucracy.” “Believe you can change the world.”

In recent interviews, rank-and-file engineers said they like the way things are going. Fiorina is “causing executives within HP to work together better and be more accountable,” said Wade Clowes, a 22-year veteran who managed a small HP service business before leaving for a start-up last month.

Fiorina’s quest is all the more urgent because in Silicon Valley, surrounded by “dot-com” riches, HP’s managers and engineers find it harder and harder to fend off calls from recruiters to jump to an Internet company. Wampler was also tempted to leave.

Outside “was an environment where you could make decisions,” she said. But Wampler felt the ground shifting at HP. “When Carly came on board, that just sealed it for me,” she said.

The St. Louis company Wampler backed has since moved to Silicon Valley and renamed itself Intira. It’s prospered, last month raising $125 million in a new round of financing.

And Wampler set out to overhaul the way her staff judges credit risks, bringing in consultants with new methods for assessing potential and showing videotapes of venture capitalists debating possible investments.

Before, the company and its competitors all offered pretty much the same loan packages. “There wasn’t much I could say to customers besides, ‘We really value your business,’ ” Wampler said.

Wampler now has the authority to lend a total of $100 million to poor credit risks, up from next to nothing. Just before Christmas, Wampler OKd $15 million in financing for a promising computer systems integration company that was short on cash.

“I told them, ‘Every time you sign up a new customer, you’re going to send me $2 per month,’ ” up to 250,000 customers, Wampler said, declining to name the company.

Wampler can also base repayments on her customers’ revenue for as much as $500 million of her financing budget. It’s a model that HP didn’t use before and that some of its competitors still don’t use.

Of course, plenty of internal skeptics also remember previous false starts at HP, and they say new ideas will always be group-thought to death. “There are still people who are terrified of what we’re doing,” said Bob Pearse, a venture equity specialist.

Pearse is another one on the front line of Fiorina’s campaign, torn between the traditional HP caution and the new aggressiveness. Within the same hour one day recently, Pearse fielded calls from two superiors.

First, the top financial officer of HP’s business customer division urged Pearse to move faster on an investment in a start-up that’s buying HP computers.

Then the head of finance for all HP stock purchases called to argue against the same deal. “He basically said, ‘What part of “no” don’t you understand?’ ” Pearse said, sighing.

But Pearse has never been happier. He’s working on 70 potential deals and expects to complete 30 this year. Two years ago, he did just three or four every 12 months.

Even without the internal skeptics, Fiorina would have her work cut out for her.

In the two quarters since she has taken over, HP’s profit has fallen, in part because Fiorina decimated what she said was an under-performing sales force. She has overhauled the compensation structure, tying pay closer to performance.

Yet this year, Fiorina is predicting 12% to 15% profit growth. To get there, she has to do more than shake up the culture. She also has to transform the business strategy.

That’s because even more than its rivals, HP has been dependent on sales of its hardware, especially printers: About $2.3 billion of its operating profit comes from printers, $856 million from computers and only $636 million from services.

And with intense price competition in computer hardware, that balance has got to change, Fiorina believes. “The money is going to be driven by services,” she said. “The computer is [only] a platform for delivering services.”

So Fiorina is pushing “e-services” in the commercial customer group headed by Ann Livermore, who was a rival for her CEO job. Under Livermore, Nick Earle is in charge of developing new services and setting up partnerships with outside companies that do everything from consulting on ergonomics over the Web to renting out data storage space.

Earle embarked on a hiring spree that should give him about 100 people in a couple more months, including many who were tired of doing things the old “HP Way” and were on the brink of leaving.

He’s supposed to sell Web servers and other HP equipment to start-ups, Internet companies and service providers. But he can also invest as much as $150 million in the stock of such companies.

Earle’s venture equity specialist is Pearse, who says he can shepherd a decent equity deal through HP in two weeks, compared with six months in the old days.

Two years ago, Pearse said, “We were extremely risk-averse, and that killed most ideas.”

A painful example: In 1994, HP sat for more than a year on a request to buy 10% of EMC Corp. for less than $100 million. EMC, based in Hopkinton, Mass., took off on its own and became the largest maker of data storage hardware. One-tenth of the company is now worth more than $12 billion.

In one of its best bets of the new campaign, HP invested $32 million in December for 3% of Xcelera.com, which speeds Internet traffic. Xcelera’s Mirror Image unit agreed to use HP hardware, but HP’s investment has already paid off with a $200-million windfall in just two months.

HP may never catch Sun in Web server sales, analysts said. And it isn’t going to become a major venture capitalist like Intel or Cisco.

But the changes have brought a renewed vigor and sense of opportunity to the company. As Wampler said, “It’s fun to work at HP again.”