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. HPs 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 and 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 and D.

The product-development staff functions were so restructured as to allow a design engineer to

As HP grew larger, Human Resources managers adopted new structures. 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.

By the early 1970s, HP had grown from a highly centralized, rather narrowly focused company into one
with many widely dispersed divisions and activities. HP began to use decentralization,' wherein a
division was given the full responsibility for a product line (when it had grown large enough) at a
separate, but close, location.

In the mid-1990s, HP‘s human resources were facing major challenges worldwide in an increasingly
competitive and global market. In 1998, while HP's revenues grew by just 3%, competitor
Dell's rose by 38%. HP's share price had remained more or less stagnant, while competitor
IBM's share price had increased by 65% during 1998. Human Resources at HP were facing internal
challenges where they identified HP's culture, which emphasized teamwork and respect for co-
workers, had over the years translated into a consensus-style culture that was proving to be a sharp
disadvantage in the fast-growing Internet business era. Analysts felt that instead of Lewis Platt, HP
needed a new leader to cope with the rapidly changing industry trends.

Responding to these concerns, the HP board appointed Carleton S. Fiorina in July 1999 as the CEO of the
company. Revenues grew by 15% for the financial year ended October 2000, prompting industry
watchers to say that Fiorina seemed all set to put HP's troubles behind for good. However, for the
quarter ended January 31, 2001, the net profits were well below the stock market expectations. Soon
there was more bad news from the company.

In late January 2001, after forcing a five-day vacation on the employees and putting off wage hikes for
three months in December 2000, HP Human Resources laid off 1,700 marketing employees. By early
February 2001, HP's share price fell 18.9%, from $45 in July 1999 to $36.In April 2001, citing a
slowdown in consumer spending, Fiorina announced that HP's revenues would decrease by 2% to
4% for the quarter ending April 30, 2001. She also said that HP would in all likelihood show no growth
for the next two quarters. Many analysts and competitors were surprised at this announcement.
According to some analysts, the major reason for the shortfall in revenue was Fiorina's aggressive
management reorganization. They said that with the global slowdown in the technology sector, it was
the wrong time to reorganize.

Things worsened when HP Human resources laid off 6,000 more workers in July 2001. Before the lay-
offs, Human Resources offered 80,000 employees pay-cuts, after forcing a five-day vacation on the
employees and putting off wage cuts for three months. The HP human resources also sent memos
saying that layoffs would continue and just volunteering for pay-cuts would not guarantee continued
employment. According to company insiders, though these changes were necessary, they had affected
employee morale. Many employees had lost faith in Fiorina's ability to execute her reorganization
plans.

Questions

1-In 1990, HP human resources faced many challenges. Clearly identify the main environmental and
organizational challenges that the HR faced.

2-In the early development phase (from 1950 until 1970), HP organizational design went through two
types of structures: clearly identify them and explain the reason why HP adopted each.

3-Clearly identify the reason why Human Resources managers laid-off workers in January 2001?

4-Identify the alternatives to layoffs that that the HP human resources managers adopted in 2001, and
how did it affect employees?