Wed, Mar 27, 2002 page19

• A clash of cultures at Hewlett-Packard and Compaq

  • BLOOMBERG
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  Webb McKinney, who is leading Hewlett-Packard Co's merger team, waited for hours for a voice-mail message from his Compaq Computer Corp counterpart, Jeff Clarke. The voice mail never came.

  Hours later, McKinney found that Clarke had responded -- by e-mail, the preferred method of communication among Compaq executives. At Hewlett-Packard, McKinney had always relied on voice mail for urgent messages. He said the experience inspired him to make a quick decision about merging the companies.

  "Let's not spend a lot of money integrating voice mail [right away]," McKinney said to his team. "I don't get any voice mails from Compaq."

  Hewlett-Packard, the world's second-largest computer maker, is pursuing its US$19.5 billion acquisition of Compaq, even as it awaits the official results of last week's shareholder vote.

  Investors and analysts say that differing work habits, attitudes and strategies at the two companies may hinder a smooth combination.

  Hewlett-Packard, which already claimed victory in the shareholder vote, has 87,000 employees and is known for careful, methodical decision-making, analysts said. Houston-based Compaq, the world's second-biggest maker of personal computers, with 63,700 employees, has a reputation for moving fast and correcting mistakes later, McKinney said.

  "H-P is engineering-oriented and Compaq is sales-oriented," said Andrew Neff, a Bear Stearns analyst who doesn't own shares of either company. "H-P is more the place where techies went to."

  Hewlett-Packard, inventor of the pocket calculator and creator of designs that made it the world's biggest maker of printers, received three times as many US patents last year as Compaq.

  Compaq, formed in 1982, became the world's biggest PC maker by the 1990s, overtaking International Business Machines Corp. Compaq lost the top ranking to Dell Computer Corp last year.

  If the acquisition is approved in the final vote count, employees who once were rivals will be working together and must learn new systems. They also must cope with the prospect of becoming one of 15,000 workers who will be fired from the combined company.

  According to polls taken by the acquisition's opponents at three Hewlett-Packard facilities, two-thirds of employees opposed buying Compaq.

  "The rank and file did not want this deal to happen," said Richard Doherty, research director of Envisioneering Group, a technology marketing research firm. "This is not a good sign for an easy harmonious future."

  Hewlett-Packard said its surveys indicated that 65 percent of employees approved of the acquisition. When Chief Executive Officer Carly Fiorina said the majority of workers support the deal at the March 19 shareholder meeting, she was booed.

  "Those who opposed it, now that it looks like it's going through, have accepted it and will make it work," Hewlett-Packard spokeswoman Rebeca Robboy said. "That's the H-P way."

  The company has hired consultants, done third-party surveys and set up one-on-one interviews with top executives to talk about company cultures and perceptions. "Cultural astronauts" from one company drop in on the other to analyze their way of doing business, according to Institutional Shareholder Services, the world's biggest proxy adviser.

  "It is hard to remain unimpressed in the face of such enthusiastic attention paid to the integration effort," ISS wrote when it came out in favor of the acquisition on March 5.

  During the proxy campaign, dissident director Walter Hewlett said technology mergers don't work. Compaq Chief Executive Officer Michael Capellas said executives have learned from its mistakes. Too many sales people were fired and employees didn't know who their bosses were, he has said.

  When H-P considered buying PricewaterhouseCoopers LLP's consulting division in 2000, investors said they worried that the cultures were too different and consultants wouldn't want to work for the computer maker.

  The brands that survive the Compaq acquisition will influence employee attitudes, Doherty said. Some Compaq employees may have to move to Palo Alto, California, where Hewlett-Packard is based and some Hewlett-Packard employees may go to Houston.

  Hewlett-Packard is known for the "H-P Way," a philosophy that emphasizes compassion and giving workers a say in decisions.

  The contrast with Compaq is evident in how the companies approached job cuts last year.

  In March, Compaq said it would fire 5,000 workers because of slumping sales. By July, it had increased the number to 8,500.

  Hewlett-Packard in June said it didn't want to fire anyone and asked employees to take a pay cuts or additional vacation days. Almost all the employees did so.

  A month later, the company stunned employees by announcing that it would fire 6,000. Fiorina said the cuts were necessary because demand for PCs and printers had fallen.

  "The management's real task is to create harmony or at least understanding and resolution among the middle rank and file," Doherty said.
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