Rebuilding HP’s Morale

Erin JoyceReporter’s Notebook: It’s the spy scandal that keeps going, while morale among the rank and file at HP keeps flagging.

It’s as though you can hear the question in the wind among the 150,000 or so HP employees scattered across the globe: Will we go through another upheaval in the CEO ranks….again?

So far, CEO Mark Hurd appears to be weathering the withering scandal over spying tactics on board members and journalists that senior executives approved.

Now Patricia Dunn, the former HP chairwoman at the center of the company’s boardroom spying scandal, and other executives caught up in the scandal are facing felony indictments including identity theft charges after a spy probe to root out boardroom leakers.

It’s clear how dysfunctional the board of directors was leading up to this mess. I have to wonder if they’ve given any thought to the morale of the HP rank and file?

Since the scandal erupted last month, Dunn has been forced to resign after the beans were spilled on a boardroom media leak probe she helped launch, which eventually led her and other HP executives into an ethical and legal thicket.

Now, barely one week after she faced a hostile house sub-committee looking into the practice of pre-texting – a fancy word for lying to get another person’s phone records, Dunn and others are facing criminal indictments.

(She’s also reportedly facing new bouts with cancer, according to the Associated Press. One can only wonder what the stress factor had to do with that.)

HP-ers have to be wondering: Was all this worth it to finger the blabbermouth? Turns out the main leaker culprit was George Keyworth, the former science advisor in the Reagan Administration. He has also resigned from the board.

But it turns out the stuff he gave CNET was fairly routine information, and most of it was public anyway.

For his part, Keyworth said he was only trying to help the company by talking to a reporter.

But it was the last straw after two, more insidery accounts in the Wall Street Journal and BusinessWeek of boardroom deliberations about ousting then-CEO Carly Fiorina.

Dunn is turning out to be a helpful deflection for CEO Mark Hurd, who was in the midst of a reorganization across major business lines at HP when he inherited the boardroom leak probe.

Hurd has also admitted he didn’t review key reports sent to him about the illegal nature of the spying tactics used against board members, journalists and their families.

But he’s not entirely in the clear yet. This week, some 700-pages of HP documents released to Congress have been made available to the press, some of which show Hurd may have known more than his faulty memory before Congress let on.

He may get darling status on Wall Street for his cost-cutting and management style, but he’s got morale problems among the HP rank and file that need some attention. They needed it long before anyone blew the lid off the spying scandal.

Hurd told Fortune magazine the day after last week’s congressional hearings about pretexting that HP has to do for the board what his team has done for the company. “We have to re-build its very core.”

After a year of relentless cost-cutting since he took over, some inside HP are questioning whether those cuts have hit the bone of some major divisions.

In addition to the 14,500 pink slips Hurd announced soon after taking over in early 2005, HP announced even more cuts in 2006, bringing the total headcount reduction planned to about 15,500, about 10 percent of its workforce.

The first round was expected to result in $1.6 billion in labor costs and $300 million in benefit savings. At the time, Hurd said it was part of a plan to help HP begin delivering its full potential.

This meant consolidating operating units in order to create a simpler operating model with clearer accountability (a rich word these days around HP), and getting the support functions and businesses as efficient as possible without affecting key areas.

But is this unfolding the way they planned?

HP has already gone through the turmoil of its merger with Compaq and the battle to get rid of Fiorina. There were plenty in the company who celebrated the departure of her flashy tenure. Or maybe they just didn’t like seeing her picture installed next to the founders in the corporate headquarters.

Hurd, by contrast, kept his picture off the wall and his nose to the bean-counter, while pushing down cost-cuts and accountability to major business lines.

Since the cost-cutting began in mid-2005, HP has dissolved its Customer Solutions Group (CSG), a standalone organization responsible for sales to enterprise, small- and medium-size businesses and public-sector customers.

In June of this year, it began to liquidate its global operations group.

This time, the reorg brought supply chain, procurement, logistics, order fulfillment, customer relationship management and other related functions under three main HP buckets: HP’s Technology Solutions Group (TSG), Personal Systems Group (PSG) and Imaging and Printing Group (IMG).

The idea: give each group greater accountability over the full range of their operational activities. It paid dividends in the most recent quarterly results.

Personal systems group sales were up 10 percent to $7 billion. Imaging and printing revenues were up by 5 percent to $6.7 billion.

Enterprise storage and server sales inched up by 2 percent to $4.3 billion. Although services sales fell by 2 percent to $3.9 billion, software revenues jumped by 20 percent to $330 million.

HP is on pace to become the biggest tech company in terms of sales this year, especially since IBM sold off its PC business to Lenovo. Analysts say they expect $91 billion in 2006 sales for HP, just ahead of $90.6 billion for IBM.

This is helping the stock, which is good for the morale of employees and shareholders alike. But current and former HP-ers I’ve heard from have questioned whether he’s gone too far with those cuts.

By the way, guess who’s hiring people back in key areas now?

On one hand, they may feel Hurd is cutting way too deep into key lines of business, especially its vaunted imaging and printing business. But on the other, some are worried about whether the still-unfolding spying scandal could lead to yet another potential upheaval in their CEO-ship.

It’s a tough time to tell them: “Show’s over folks, get back to work.” But it’s a good time for senior management to work on building morale of the thousands of employees who make HP what it is.

Erin Joyce is executive editor of’s news channel.

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