Ten years on: The HP-Compaq merger


On May 3, 2002 HP announced that it had completed the acquisition of Compaq. The new HPQ stock began trading on May 6 as the new company launched into action around the world.

For those of us involved in the merger, it certainly was an exciting time. Based on an assumption that stockholders would approve the merger agreement, the senior leadership from both companies assembled in San Francisco for the week immediately before the merger closed to consider topics such as “Building the 100 day plan” and “Organization Design and Structure” (ODS) and “Adopt and Go”. I ended up in the Hyatt Hotel beside San Francisco Airport and joined my Compaq colleagues in meeting our HP counterparts for the first time and form the teams that would the various parts of the new company. The first introductions were slightly strained but the desire to get on to achieve swift progress soon kicked in to help us move forward.

Having gone through two major mergers (Compaq-Digital and HP-Compaq), I think that people selection is the hardest part of the process. ODS was a very structured process that forced managers to first define their goals for the new organization and then lay out what positions needed to be filled to achieve those goals. And then the real horse-trading began as the very natural tendency for ex-Compaq managers to advance cases for ex-Compaq people and vice versa on the HP side swung into full motion. There were many sidebar discussions to describe the strengths of various candidates. At times it was like speed dating. And the worst thing was that everyone knew that eventually they’d have to fill slots with people that they didn’t really know – and that some of the people that had done a great job for you in previous organizations would lose out to a candidate from the other company and would probably be made redundant.

There were safeguards in place to ensure that managers didn’t end up with a team selected exclusively from one company. My recollection is that whilst everyone acknowledged that a 50-50 selection to get to a balanced HP/CPQ team would be almost impossible to achieve, we all knew that 60-40 was attainable and that became the benchmark. In some cases, making the final decision about a slot to get to the desired balance was incredibly difficult.

One of the highlights of the pre-merger week was a session with Carly Florina. I know that there are many who think that Carly was a bad CEO for HP and lament her lack of regard for the “HP Way“, the almost mythical set of values operated by Bill Hewett and Dave Packard, HP’s founders. In 2007-2008, I occupied an office in Palo Alto beside Bill and Dave’s old offices, which were preserved in the same state as when they had left HP. Almost every day visitors would arrive to look over the offices and examine the awards and trophies that HP’s founders had accumulated. One interesting fact is that reasonably soon after the merger – maybe six months or so – there were more new people working for HP than those who had been there before the merger. The erosion in “true-blue” HP people allied to the upheaval around the merger and the subsequent market pressure on HP to perform to justify the merger are factors that I think undermined the HP Way and weakened the connection that many employees felt to the company.

I don’t share a negative view of Carly because all of my dealings with her were positive, including the times when she would attend CTO meetings to convince the technology leadership of the company to be more inventive. I can also say that her performance in front of many doubting managers at the Hyatt Regency at the Embarcadero in downtown San Francisco was compelling. She was in jeans, clearly tired after flying in front the east coast where she’d been arguing the case for the merger with bankers and investors, yet she did an incredible job of firing everyone up for the period that lay ahead, including a dynamic and unscripted Q&A session where she gave the impression of being a CEO that had both a vision and the drive to accomplish that vision.

Ten years later on I think that lots more good resulted from the merger than bad. There’s no doubt in my mind that the PC-centric culture of Compaq would have eventually led it to¬†bankruptcy. Perhaps it was my Digital background, but I thought that Compaq’s energy was badly focused and misdirected. On the other side, HP had some great things going on (mostly in the realm of a¬†terrifically profitable¬†printing business) but was woeful at PCs and industry-standard servers. I also think that HP’s services business was in a bid of a mess, especially on the consulting side. As it happened, the two sides came together reasonably well and soon jelled to become more productive and profitable. And although there have been some hiccups since 2002 (CEO woes continuing, the strange case of WebOS, and probably a failure to seize more of the high ground in the Linux space), HP has proven to be a company that leads in many places.

Challenges lie ahead for HP. Enterprise Services is still not as strong as it should be. The printing business seems to be in a slow decline. The PC market is under huge cost pressures as well as the morphing nature of the devices that people really want to use (Windows 8 tablets will be very important to HP). And HP’s cloud initiative is possibly a year or so behind where it could have been had some decisions to invest been taken earlier. But overall, I think the work done ten years ago to bring Compaq and HP together has proven to be very successful, even if the stock price isn’t where it should be (fair disclosure, I own no HPQ stock) and Meg Whitman’s new team has some heavy lifting still to do.

Upwards and onwards to the next ten years.

- Tony (CTO of Compaq Global Services before the merger, and thankfully selected to be CTO of HP Consulting afterwards)

PS. Fortune Magazine has a great article about the recent trauma @HP. It’s a good read.

Follow Tony @12Knocksinna

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About Tony Redmond

Exchange MVP, author, and rugby referee
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One Response to Ten years on: The HP-Compaq merger

  1. Pingback: Ten years on: The HP-Compaq merger - The Microsoft Enterprise Blog

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