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Hewlett-Packard drafts a veteran to manage merger

Webb McKinney heads a 1,000-member team that must figure out how to integrate large work forces, select products and save money. McKinney explaining a point of the Compaq/Hewlett-Packard merger in his Silicon Valley office yesterday. PHOTO: NY TIMES

Webb McKinney, a senior Hewlett-Packard executive, first learned of his company's plans to buy Compaq Computer three days before the deal was announced early in September.

Carly Fiorina, the chief executive of Hewlett-Packard, summoned him to her office in Palo Alto, California, and told McKinney of the proposed merger. Then she asked him to lead the team that would plan how the two companies would fit together, with what products and how the combined company would achieve cost-savings and revenue targets that she would present to Wall Street in three days as the financial rationale for the deal.

McKinney recalled it as a "short and direct conversation," and a total surprise. "It was one of those meetings," he said, "where you walk out of it and say to yourself, `Oh, my Lord.'"

McKinney considered the move for two days, a process that included long talks with consultants about what makes mergers succeed or fail. Then he called Fiorina, who was on a company jet headed to New York to announce the deal. "Yeah, I'm a go," he told her. And, he said last Friday, "I never looked back."

McKinney, a 32-year veteran of Hewlett-Packard, has proved to be a shrewd choice so far, both in and outside the company. An engineer-turned-manager, McKinney has worked throughout Hewlett-Packard, from the research laboratories to heading the worldwide corporate sales force. He is widely admired within the company, a good person to represent a merger that will inevitably meet some resistance within the ranks.

Fiorina said she chose McKinney for the daunting task because of his breadth of executive experience, his skills and his temperament. And, she added, "he commands respect."

McKinney, who is co-chairman of the merger integration team with Jeff Clarke, Compaq's chief financial officer, also played an important role in selling the deal to Wall Street analysts and institutional investors. McKinney and Clarke traveled to Institutional Shareholder Services, an influential advisory firm in Rockville, Maryland, where they made "a meticulous and exhaustively detailed presentation," according to the firm's report recommending that shareholders approve the merger.

Others were apparently impressed as well. Hewlett-Packard declared last Tuesday that it had won shareholder support for the deal by a "slim but sufficient" margin. Walter B. Hewlett, an heir who led the opposition to the acquisition of Compaq Computer, said the vote was too close to call. The official tally by a firm of vote inspectors will not be finished for weeks.

But unless the company's claim of victory is surprisingly overturned, McKinney and the rest of the integration team will soon see their plans put into action.

A recipe for trouble

Industry analysts are skeptical. Big mergers are always tricky, but in the computer industry, putting two large companies together has been a recipe for trouble. Typically, as the combined company grapples with internal turmoil created by the merger, the fast-moving technology markets move on and customers defect to competitors.

Making Hewlett-Packard an exception to that pattern of failure is the challenge facing McKinney and his team. Since the merger was announced, the size of the integration team has grown to more than 1,000 employees from the two companies. They have worked an estimated 1.3 million hours on the integration planning, and, among other things, have studied and talked to the veterans of a dozen successful large mergers -- mostly in other industries like oil and banking.

Yet for all the detail work, one thing is clear: the need for speed. "We make quick decisions and get on with it," McKinney said.

Successful mergers, analysts say, are ones in which the combined company moves swiftly to make the decisions needed on products and personnel. The result, they say, is a hybrid enterprise, adopting complementary strengths from each company.

"Conceptually, this is a lot like planning a new company," said McKinney, who has started a handful of new businesses at Hewlett-Packard, including the home personal computer business in 1994, which remains a leader in the consumer segment of the PC market.

Before the vote, the proxy contest was compared to a presidential campaign, as both sides fought to win shareholder votes. Similarly, the job of McKinney and his colleagues can be thought of as much like that of the transition team for a new administration, in that moving quickly in the proverbial "first hundred days" will be crucial in setting the tone and establishing credibility for the new company.

"Out of the blocks, we have to move as fast as we can," said Barbara Braun, a senior manager for the Hewlett-Packard integration team.

To do that, McKinney said, the team has taken as one of its operating principles the need to make tough decisions instead of "trying to make everyone happy."

The companies are legally prevented from disclosing what those decisions are until the official shareholder vote count has been made. But according to members of the transition team, the decisions that have been made include what products will be promoted and supported most aggressively. A day or so after the merger is approved, the top 100 corporate customers of the combined company will be visited by Hewlett-Packard representatives with bound "play books" detailing the company's product plans and who the customer's account team will be.

The product lines no longer marked for continued investment, McKinney emphasized, will not be jettisoned immediately. For example, he said that Hewlett-Packard's standard service contracts routinely call for the company to continue supplying technical support for five years after a line is obsolete.

Still, a crucial element in the merger's success will be how convincing corporate customers find the Hewlett-Packard "migration path" from discontinued product lines to other offerings the company will feature. If customers do not go along and defect to competitors, the revenue loss for Hewlett-Packard could be far more than the 5 percent overall it expects.

The plan calls for savings of US$2.5 billion by the end of 2003 by trimming the payroll and closing distribution centers and factories.

The merger with Compaq is certain to be a force for further, often unsettling, change in the Hewlett-Packard corporate culture. Under Fiorina, the company has been centralized so markedly that internally this was called "the reinvention," with 83 product lines being consolidated to 17 and four separate sales organizations folded into one.

Now, Hewlett-Packard -- with its engineering culture that has emphasized deliberative, thorough decision-making -- is to combine with Compaq -- whose culture from the personal computer industry has emphasized fast decision-making and marketing.
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