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BuildingCorporateCultureatAgilentcasestudy-Copy.pdf
This case was written by Grace Yokoi (MBA 2001) and Professor Charles O’Reilly III at Stanford Graduate School of Business as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 2001 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at [email protected] or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Stanford Graduate School of Business.
Version (A) 12/06/01
BUILDING THE CULTURE AT AGILENT TECHNOLOGIES: BACK TO THE FUTURE
Agilent is an $8 billion start-up. Everything is on the table. We can go out and do anything we want. We can define the way we want to run the business.”
—Ned Barnholt, President and CEO, Agilent Technologies
We’re going to be a high growth company. But can we make good on the behavior changes in order to develop these businesses? Can we retain the good people that we have and attract the kind of people we want to keep growing?
—John Eaton, Vice President, Corporate Development, Agilent Technologies
The question is, will Agilent be a good company or a great company? Can we develop a culture of speed and focus with the “fire in the belly” to be the very best in the eyes of our customers, employees, and shareholders? I think that’s the big challenge moving forward.”
—Bill Sullivan, Senior Vice President, Semiconductor Products Group, Agilent Technologies
On Valentine’s Day in 1999, Ned Barnholt, vice president of Hewlett-Packard’s test and measurement businesses and thirty-four-year veteran with the company, called Jean Halloran, director of education, into his office and asked her to sign a nondisclosure agreement. He then told her that after sixty years, the Hewlett-Packard Company (HP) was going to split into two separate companies. HP would retain its computer businesses while the new company would consist of HP’s measurement businesses. Ned would be president and CEO of the new company, subsequently named Agilent Technologies, and was now asking Jean to be the head of human resources. Jean, a nineteen-year employee of HP, described the meeting:
For about forty-five minutes [Ned]’s talking about how important the launch of the new company is—Hewlett-Packard’s telecommunications and life sciences businesses on their own again, taking their sixty-year legacy into an independent firm.... It’s totally inspiring listening to him. He’s champing at the bit to tackle this challenge and he’s inviting me to join the team. So I’m being pulled in, and at minute forty-six he says, “And we will be leaving the Hewlett-Packard name with the consumer products, and the new company will eventually have an entirely new name.” My heart sank... My professional identity for almost twenty years was inseparable from my proud membership on “The HP Team”....
The measurement businesses had been particularly hard hit by the Asian crisis during 1998– 1999... There was this underlying sense that HP was getting rid of the slower, higher-cost
GRADUATE SCHOOL OF BUSINESS STANFORD UNIVERSITY
CASE NUMBER: HR-20 SEPTEMBER 2001
Distributed by The Case Centre North America Rest of the world www.thecasecentre.org t +1 781 239 5884 t +44 (0)1234 750903 All rights reserved e [email protected] e [email protected] centre
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 2
measurement businesses. And as Ned is talking, I’m thinking, “We’ll show them. I’ll take this job and I’ll recruit the best HR team that ever was. We will take the best of what HP had to offer and we will invent something fabulous. And it won’t just be a successful business for our customers, …it’s going to be one of the great institutions of the next century.1
For many years, HP’s revenue growth had regularly reached the 20 percent range. But in 1997 the company recorded only a 12 percent revenue growth rate, down from 22 percent in 1996. Concern about the company’s sustainable growth became a regular discussion point for HP management. It was attributed to the complexity and diversity of its businesses, which spanned personal computers, imaging products, communications, life sciences, and test and measurement.
Analysts noted that the test, measurement, medical equipment, and component divisions of HP’s business had less synergies with the computer platform side and claimed that this distracted management from trying to compete with more focused rivals such as SUN Microsystems, IBM, and Compaq.2 HP’s CEO Lew Platt recognized the management problems inherent in competing in diversified markets: “…There’s not another executive in the computer industry that spends a moment thinking about anything other than computers.”3
In August 1998, HP’s executive team began to examine strategic alternatives with McKinsey & Co., and in December went to HP’s board of directors with the recommendation to split. Ned explained the rationale for the split:
You had a PC business on one side that said it’s all about margins, indirect channels, and marketing, and then you had us at the other end saying, no, it’s all about R&D, value-added channels, and manufacturing. It is very difficult to manage across this spectrum. The conclusion we came to was that both companies could benefit from greater focus, a greater sense of purpose, and clearer line of sight and accountability for performance. And we thought that by focusing each company, that, in itself, would unleash more shareholder value. So we decided to split the company. HP would focus on computers and imaging products and [we would focus] on communications and life science products.
4
Splitting the company made business sense, but what kind of impact would it have on employees going to the new company? The HP culture, known all over the world as “The HP Way,” had created an extremely loyal workforce. In addition, the strength of the HP brand made employees proud to identify with it. The powerful culture could be both a great gift and a serious obstacle to building the new company. How would Ned and Jean create loyalty and enthusiasm for a new company whose roots lay in such an established institution? How could they create a new culture of more focus and accountability with the same people?
HISTORY OF HP/AGILENT
Agilent Technologies, Inc. is a global, diversified company focusing on the communications, electronics, life sciences, and healthcare industries. It operates in four businesses—test and measurement, semiconductor products, healthcare solutions, and chemical analysis (Exhibit 1). The company, with roughly 43,000 employees and an average age of forty, accounted for about
1 Interview with Jean Halloran. 2 Jonathon R Laing, “Oh Boy, Splitsville,” Barron’s, March 8, 1999. 3 Michael Tarsala, “HP Hopes Testing Divisions Get a Little More Respect,” Investor’s Business Daily, March 4,
1999. 4 Interview with Ned Barnholt.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 3
16 percent of HP’s total revenues when it was separated in 1999 as a result of a corporate realignment. The following is a brief history of both companies leading up to the split.
The HP Legacy
In 1938, Dave and Lucile Packard moved into a house at 367 Addison Avenue in Palo Alto, California. Dave’s friend from Stanford University, Bill Hewlett, rented the cottage behind the house, and the two electrical engineers began part-time work in the garage with $538 in working capital. Their first product, the resistance-capacity audio oscillator (HP200A), was an electronic instrument to test sound equipment.
The two formed the Hewlett-Packard Company in 1939 and by 1940 the business had outgrown the garage. Bill and Dave rented part of a small building on Page Mill Road, where they hired their first employees to help with the production of instruments. The audio oscillators were used by Walt Disney to test sound equipment for the production of the movie “Fantasia.” Around this time HP established the “open door policy” to foster mutual trust between managers and employees. Dave also introduced the concept of “management by walking around,” an informal practice that involved keeping up to date with individuals and activities through casual, unstructured communication. Open cubicles and executive offices without doors underlined such management styles as integral to the working environment.
In 1957, the company underwent its initial public offering. That same year, Bill and Dave delivered a set of corporate objectives to serve as a basis for HP’s management style. These, together with HP’s organizational values, eventually would come to be known far and wide as “The HP Way.” It was characterized by innovation in people practices, product development, and meeting customer needs; an egalitarian work culture; progressive attention to employees’ needs; and a commitment to the communities in which HP is located (Exhibit 2).
During the 1960s, HP began to establish a global presence while also branching out into fields related to test and measurement such as medical electronics and analytical instrumentation. The company entered the business computing market in the early 1970s, the printer business in 1984, and the growing home-computing market in 1994. By 1998 it had more than 124,000 employees worldwide and $47.1 billion in revenue. Products ranged from high-end computers to low-end inkjet printers to equipment for monitoring heart patients and analyzing chemical compounds.
Announcement of the Split
In response to the company’s perceived need for more focus, on March 2, 1999, HP announced a plan to create a separate company that comprised its test and measurement, semiconductor products, healthcare solutions, and chemical analysis businesses, related portions of HP Laboratories, and associated infrastructure. The news was received with mixed feelings within the organization. Tony Coleman, HR director for the Semiconductor Products Group—one of the groups to be spun off—remembered his impressions:
My understanding was, why not split off the slow-growing businesses and the businesses that are focused on components and test and healthcare and chemical analysis, relatively small, put those together, and let the computers and printers just take off. They’re different organizations, they’re different business models, they have different sales channels and why not just separate them… Employees thought that the message was, well let’s get rid of those guys, those turkeys in test and
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 4
measurement. Let’s get rid of the dinosaur so that… the new computer, printer juggernaut that’s eating everybody’s lunch can continue to grow.5
Employees around the world expressed their sadness and dismay at losing the HP name; the loss posed an extra challenge for employees in South Korea and India, where working at HP represented esteemed social standing.6 Analysts surmised that splitting the company would benefit employee morale in the measurement businesses, as many of HP’s measurement-group employees felt like second-class citizens when compared with workers from the company’s computer business.7
BUILDING A NEW COMPANY
The split of Agilent from HP can be classified in three phases: Transaction (getting the nuts and bolts in place), Transition (building a new identity and culture, and developing processes and structures to reinforce them), and Transformation (effecting and cementing organizational change). Momentum and excitement within the company was generated during the first stages of building the company through various events commemorating each milestone achieved.
Transaction
June 30, 1999— Deadline to Assign Employees to Companies
While the split of the actual business divisions from HP was clear-cut, there were approximately sixteen thousand employees that worked in “infrastructure,” staff jobs such as IT, HR, finance, and legal that needed to be placed in either HP or Agilent. In order to assuage tensions and ambiguity within the organization of where a person would ultimately work, infrastructure employees were given a choice as to which company they wanted to go. By June 30, 1999, all sixteen thousand infrastructure employees were assigned to either company. To the extent that it was possible, employee preferences were honored. In addition, from June 30 until the following April 30, 2000, employees were allowed to move back and forth across the two companies using the internal job posting system. While employees could apply freely, a non-recruit clause was established subsequently. Employees of each firm were restricted from directly recruiting employees of the other firm for a period of two years.
Creating service-level agreements between the two companies posed a significant challenge as well. In three months the companies split six hundred real estate sites and eleven thousand patents in order to prepare for Agilent’s IPO filing. In order to operate as a separate subsidiary in 120 countries around the world, the company cloned approximately two thousand IT systems in eight months. The transition phase, which started from the announcement and continued to November 1, 1999 (Day One Operations), was characterized by “Clone and Go,” encompassing systems, processes, and employee benefits. Dotty Hayes, charged with leading the physical separation, explained the philosophy: “You cannot do any reengineering, you don’t have time. That’s [where] the ‘Clone and Go’ concept came from. You just have to copy it, and you have to deal with it later… There isn’t enough bandwidth [to deal with it now]. Because from an IT
5 Interview with Tony Coleman, HR director, Semiconductor Products Group. 6 Interview with Rohana Weiler, HR director, Asia-Pacific. 7 Michael Tarsala, “HP Hopes Testing Divisions Get a Little More Respect,” Investor’s Business Daily, March 4,
1999.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 5
perspective, it was bad enough. We were in the middle of Y2K at the same time.... Our go-live was November 1, 1999.”8
Such urgency created a different dynamic between the businesses and the infrastructure compared to the old HP:
[There was a] cultural dynamic that came out of all of this. If you look at the old HP environment, ...it was a culture where people in product lines were highly valued and people doing infrastructure functions were kind of considered second-class. The infrastructure always had to go get permission from the businesses to do anything and the businesses would always think of six ways to reject and veto. And the infrastructure would have to justify and re-justify and prostrate themselves…. What was intriguing about the split is that since it was the infrastructure that we really had to work on, on both the HP and Agilent sides, and the businesses were off doing business, which is what we told them to do…all of a sudden we realized, we’ve got this big mountain of work, we’ve just got to start checking these things off as fast as we can and … well there’s no time to go ask permission. So we’re just going to go do stuff. So the infrastructure folks kind of exited this [split process] really feeling like they were on a par with anything in the businesses and in some ways culturally, they were ahead in terms… of trying to create around speed, focus, and accountability.
9
July 28, 1999— Agilent Name Launch After collecting data on customer views, internally discussing the kind of company it wanted to create, and working with an external firm in considering over 1,500 names, the new company, which had been referring to itself as “NewCo,” announced its name, “Agilent
Technologies, Inc.,” on July 28, 1999. There was a large celebration at the San Jose Repertory Theater, and representatives from every Agilent business from around the world were present. Ned revealed the name, the Spark of Insight logo, and the tagline “innovating the HP Way.” He explained how the name had been chosen; that he wanted the name to forever remind employees about what they were trying to become. He spoke about the word “agile” and expressed his wish that the new company would not just be fast, but also nimble.
Transition
November 1, 1999— Happy Birthday Agilent: Becoming a Wholly-Owned Subsidiary
November 1 was the first day the company started operating as an independent firm, a wholly- owned subsidiary of HP. Employees around the world held parties to commemorate the event.
November 18, 1999— Agilent’s Initial Public Offering
November 18 marked the initial public offering of the company’s stock on the New York Stock Exchange. HP sold 72 million shares of Agilent or 16 percent of the total shares outstanding at $30 per share, and closed at $42.375, giving a market valuation of almost $19 billion.
June 2, 2000— Dividend Distribution to Shareholders
8 Interview with Dotty Hayes, vice president and controller. 9 Ibid.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 6
The separation became complete when HP distributed a stock dividend of all of its 380 million shares, approximately 84 percent of Agilent, to HP shareholders. On June 2, each shareholder of record as of May 2 received 0.3814 of an Agilent share as a dividend on each share of HP. Agilent gave a Founder’s Grant of one hundred shares to every employee on June 2, as a way to build excitement and teamwork for the company. At sites around the world, employees celebrated their “independence.” They watched a video message depicting Ned saying, “Let’s celebrate” as he sped around in a black Ferrari convertible. He also expressed his wish to continue the momentum around building the company: “This is your day. And I invite all of you to celebrate. I also want to remind you that along with our independence comes a renewed sense of urgency and responsibility. We need to continue to meet and exceed the expectations of our customers and our shareholders alike.”10
Creating the Agilent Culture
In advising the HP board about the split of the company, the consultants prepared strength and weakness charts for the firm. Jean explained their findings: HP was too process-focused and not sufficiently results-oriented, they didn’t have enough of a sense of urgency, they were not focused enough on competitors and customers, and they tried to do everything perfectly instead of “fast and good enough.” Their conclusion was, “You’ll never make it as a high-growth company if you keep acting this way.” The challenge was in thinking about how to retain the parts of the HP values and culture that were valuable and simultaneously deal with the problems identified. Ned reflected this in his thinking about the cultural transformation:
So when I first started going out and talking about Agilent, people would ask me immediately what’s different.… And I said three things: First is speed, second is focus, and third is accountability.… We wanted to take everything that we did in HP in the past and do it faster so we could be more responsive to customers and to be even more successful in the businesses that we're in. Second, we wanted to be more focused…. And then the third notion was this one of accountability because as an independent company I really wanted to send a clear message that we are accountable for meeting our commitments to our customers, to our shareholders, and to each other.… But it was interesting, as I started saying that, people would tell me, “That’s really good but that isn’t why we joined Agilent or HP. We joined HP because of the core values of the company.” So I changed my message a little bit, and I said, “We’re going to bring forward the very best from Hewlett-Packard.” The best values and the best of the HP culture.
In early 2000, Ned held a series of meetings with his executive staff about the vision and values of the new company. The discussion centered on the key elements in building a new culture, and how the staff could create and influence it. Kathy Hendrickson, who facilitated the discussions, reflected:
We had sort of these philosophical discussions … with a deeply held belief that what we were here to do was to carry on the legacy of Bill and Dave, but to do it in an updated, fresh, competitive, fast, focused, accountable way…. What everyone believed was that HP used to have those and had somehow in its size and complacency lost them. So even though we were talking about them as the new values, there was a firmly held belief that HP…knew how to do it and forgot… That was really how I saw it.
People still had the folklore…. We talked about things like accountability or the fact that we tolerate mediocre, poor performance too long and every time that discussion would come up, even
10 Distribution Day video.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 7
with this executive staff, someone would remember the time that … a business went three quarters not meeting its [targets], and Dave had no problem telling that general manager that it was time to find something else to do…. The whole performance management accountability piece was absolutely there in what they saw, particularly in Dave Packard.11
Ned and the executive staff combined the HP core values into three values: innovation and contribution; trust, respect for the individual and teamwork; and uncompromising integrity— which he called the heritage values. To these he added the new Agilent core values: speed, focus, and accountability (Exhibit 3). “I have a very strong belief in the values of HP,” Ned acknowledged. “The values around people and the values around innovation. I frankly couldn’t operate any differently because that’s what I grew up in for thirty-four years.”
Ned also recognized that the company would not change unless he was willing to change his own behavior. “I need to challenge the status quo because if I didn’t do it, nobody would do it.”12 In this spirit, he recruited Alain Couder as COO, formerly of HP but most recently CEO of Packard Bell NEC. He also recruited an active board that would be willing to fire him if he did not do his job (Exhibit 4). Thus the foundations were laid for the transformation phase.
Transformation: The BeAgilent Campaign
After we announced the company name, we started what’s called our "beAgilent" transformation program,.... We talked about, "Are you being Agilent?” We’ve created a new word to talk about the behaviors that we want which are the "be Agilent" behaviors around speed, focus, and accountability.
—Ned Barnholt, President and CEO, Agilent Technologies
In the fall of 1999, the company benchmarked with organizations that it considered high-growth, high-performance companies that it wanted to emulate (such as Cisco, Dell, and Intel). The common threads of these firms were obsession with customers, a bias for action, strong values around people, and innovation in products, processes, and business models. Though Ned had articulated the company’s overall objective of becoming a high-growth, high-performance company, these qualities became the roadmap of more specific goals. Thus the beAgilent campaign focused on three areas: strategy, operations, and people and leadership practices. The three initiatives were ongoing and not defined as having a definite end. Alain chose the names of the programs—Stratos, Excella, and Vantage—as images that were not real words so that they would not be lost in translation to different languages and cultures. BeAgilent was symbolized by the image of a juggler with three icons representing the three initiatives. The idea was to personify change, motion, and balance of the three strategies.
Stratos
Stratos represented an enterprise strategy to accelerate growth and maximize shareholder value. It centered on growth initiatives within and across multiple business groups, investment approaches such as proactive acquisition identification, and portfolio management. Historically, HP had taken a bottom-up approach to strategic planning, but Stratos, spearheaded by Ned, endeavored to examine top-down which businesses were contributing and non-contributing, and
11 Interview with Kathy Hendrickson, senior director, global learning and leadership development. 12 Interview with Ned Barnholt.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 8
to consider other opportunities that might not be funded within a business. The company started a new venture fund, participating as a co-investor with venture capital companies in a number of start-ups in business areas that were of interest to them. Another result of the Stratos initiative was that metrics were established to monitor time to market and market share more tightly.
Excella
Excella represented the initiative to achieve operational excellence and support growth. It centered on supply chain issues such as inventory reduction, on-time delivery, geographic simplification, procurement, and sales and services. In the operations area the company performed benchmarking to study the best-in-class processes and practices for spending in HR, finance, IT, and procurement.
Headed by Alain Couder, the new COO, Excella strove to deliver such functions in the most cost-efficient manner while delivering best-in-class services. Agilent’s businesses were originally supported by their own IT operations, applications, infrastructure, and staff. Under the IT Excella initiative, over sixty projects were initiated to reduce the cost of operating the existing systems environment. Other IT projects were launched in partnership with business functions to create replacement systems that were aligned with the needs of Agilent as a whole. Excella initiatives also changed the HR systems, traditionally supported by help desks, to deliver via the Web. Such changes resulted in reducing HR costs by $66 million. The new system would allow the workforce to handle its own personnel-related matters such as address changes and direct deposit information, as well as enable both employees and managers to view organization-related reports. Excella initiatives also consolidated many financial transaction service centers in order to achieve scale efficiencies.
Vantage
Vantage, led by Jean, represented people practices and the instilling of behaviors that characterized a high-growth, high-performance company. The three components to Vantage were leadership development, communications focusing on multi-directional tools, and rewards to differentiate based on results. Jean’s vision was an Agilent with empowered line managers, not a centralized bureaucracy. In an off-site meeting of all of the company’s general managers in May 2000, Jean laid out her vision for Vantage and HR’s role in launching Agilent’s new culture: “This is going to be the HR function that says yes and gets out of your way, and we’re going to make your lives miserable because we’re going to give you tools that are going to force you to start acting like you say you want to act. We’re calling your bluff.”13
VANTAGE AND THE HR TRANSFORMATION
Developing an organizational culture that supported business performance was one of the key goals of the beAgilent campaign and the foremost HR task. Jean recognized that the culture would not change if HR did not change. She began with an initiative she called “75x75,” projects that would transform the Agilent HR organization and culture, and named Eric Senesi HR transformation manager. The two called a meeting of Jean’s direct reports, and each chose
13 Interview with Jean Halloran.
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three or four people she considered top change agents, early adopters who also had influence in the organization. In this way they identified seventy-five thought leaders (not limited to HR professionals), and gave them seventy-five days to deliberate the top initiatives and projects that would transform the Agilent culture. These seventy-five leaders gathered the ideas and opinions of their colleagues around the world, in every organization, to consider what HR needed to change in the cultural transformation. After delivering a proposal, ad hoc functional working groups were formed from the list of seventy-five in the areas of compensation and benefits, administration, HRIT, staffing, and education and development. These groups delivered executable plans and metrics to be implemented.
The HR transformation marked a change from an egalitarian, safe culture to a performance culture characterized by a strong meritocracy underlined by a results-based rewards program.
Rewards and Performance Management
If Agilent were to be truly fast, focused, and accountable, senior management believed that the old HP rewards system would have to change. Pay would have to be more closely tied to performance. Although the old HP used a ranking system, poor performance was rarely documented and if people were classified as needing improvement, in general nothing much happened. “There was no penalty for poor performance,” commented one senior business manager. Too often, it was easier to simply hire another person and shift the poor performer to the side. In the new company, if a person fell below the minimal threshold, they would either be required to improve quickly or leave the company.
Recognizing the need for radical change, Jean advised the compensation team that Agilent would not change sufficiently if the team were simply to modify the “wrong” elements in the HP compensation system. She encouraged the team to start with a blank sheet of paper, to think about what would be needed to implement a new performance and compensation system specific to Agilent’s goal of becoming a high-growth, high-performance company. Neal Wagner, director of compensation, reflects back on the changes to the rewards system:
At HP we had a very prescribed pay system. Increase tables specified the narrow band of increase for an employee based on their rank and pay position. Basically, it was quite formulaic and designed to manage costs. At Agilent, I knew that we wanted a rewards program that was about managing performance while giving flexibility and accountability to managers to exercise judgment. They could balance cost constraints with performance management rather than a centrally prescribed answer.… “One size fits one” was a phrase we used a lot, so the idea was to find out what rewards the individual, and find a way to do it.
14
Rewards Philosophy
The new rewards system was designed to create more differentiation between the top and bottom performers. Underlying the system was the pay philosophy that an employee’s rewards should be a reflection of his or her relative contribution to the company. Assessment of an employee’s contribution would be designated by performance rank based on four criteria:
14 Interview with Neal Wagner, director of compensation.
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1. Track record of results over time. To avoid being penalized if an employee moved from one project to another, results from a prior Agilent job could be considered. Managers would be measured on retention of critical talent and recruitment of new talent.
2. Degree to which the employee exhibits Agilent values. -speed and agility -focus -accountability -innovation and contribution -trust, respect, and teamwork -uncompromising integrity
3. Potential. The ability to rise or move laterally within the organization and assume greater responsibility. This could be demonstrated by the ability to move successfully into other roles, demonstration of transferable skills, and leadership ability. However, those who stayed in their current positions to fulfill a business need were not to be penalized; the idea was to acknowledge future potential.
4. Criticality of skills. Was measured by the criticality for attainment of Agilent’s business goals as well as difficulty to replace the skills.
Ranking System
Under the new system, all employees were ranked yearly. Ranking was done during the annual planning cycle that took place worldwide from November through January (first quarter of the fiscal year). The process was a hybrid of absolute and relative ranking.
In November to December of each year, each team of managers would run a calibration session, whereby they would decide specific behavioral expectations for the four rank criteria. Ned and his staff would set the tone for the calibration at a high level, defining business goals for the one- year, three-year, and five-year terms. The process would be cascaded down to the businesses through the layers of managers. Business goals and rank criteria would be defined at greater levels of granularity as they were cascaded downward. Skills necessary to attain that business’s goals would be identified, and businesses could choose to weigh the criteria based on their relative importance to achieving the goals.
After the calibration session, a manager would rank his or her employees by January of the following year based on business needs and expectations. The “absolute” ranking was the process of ranking employees against the criteria. Once an employee’s absolute performance was evaluated, the “relative” rank would be determined. This entailed confirming that there was no disparity in the Rank Ones, Rank Twos, and Rank Threes, respectively, if they were doing the same or similar jobs and were evaluated using the same criteria. If ranking sessions were held, they were not to be used for forcing distributions. They were to be used to ensure that expectations set in the calibration sessions were being implemented. Rank changes would be effective February 1.
Unlike the old HP system that used five categories and an eleven-page performance appraisal form, Agilent used a one-page form with three ranks:
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1. Rank One: Top performers who consistently outperformed their peers on all four rank criteria. All of their actions modeled the Agilent values.
2. Rank Two: Consistently exceeded expectations. 3. Rank Three: Produced results and were making a solid contribution to Agilent.
All employees started out as a Rank 3 at the beginning of the assessment process. Those employees who were not meeting expectations, producing results, or working in ways consistent with the Agilent values were put in a separate category, Performance Improvement Required (PIR). The category would be used all year long, not just during the ranking process, and these employees were expected to be actively coached and engaged in problem-solving with the manager. The expectation was that either the problem would get solved within a given number of days (sixty days in the United States) or the employee would be moved out of that job or even out of the company altogether. Employees could be moved to the PIR category at any time during the year.
Base Pay
Base pay ranges were determined through external benchmarking with thirty global, high-tech, high-performance companies considered labor market competitors. The structures were set annually in order to maintain market pay competitiveness. The list of thirty companies would also be reviewed annually according to a number of financial metrics to assess whether they continued to be high-performance companies. Four key data points were specified on each pay
range:
1. Minimum base pay. 2. Rank 2/Rank 3 Reference Point: Approximated
the 50th percentile of comparator companies’ pay for a position on the range.
3. Rank 1 Reference Point: 20 percent higher than the Rank 2/Rank 3 reference point and approximated the 90th percentile of the comparator companies’ pay.
4. Rank 2/Rank 3 Maximum: Maximum pay for an employee in Rank 2 or 3, but should not limit pay for Rank 1 employees.
Managers and general managers would then review and approve rank and base pay, and these would be finalized to take effect February 1, after the company wage plans were approved by Ned and the executive staff. Across-the-board increases were not granted as they ran counter to the pay-for-results policy.
Feedback to Employees
1
Minimum
Rank 1 Reference Point
3
2 Rank 2/3 Reference Point
Rank 2/3 Max
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After approval each year, all managers were expected to give written and verbal feedback to employees. The Rank Feedback Form was the official tool used for providing the feedback and was comprised of the following components:
1. Track record of results 2. Strengths related to the defined expectations for each criteria 3. Areas for development related to the defined expectations for each criteria 4. Summary of performance explaining the selected rank 5. Rank
No wage increases were possible without first completing a rank feedback form; the system would not accept it. In describing the philosophy behind the feedback process, Jean noted that feedback was a critical part of the ranking and evaluation process, and that “you do people a great disservice if you don’t tell them what it is that they are doing right or could do differently, better.”
Variable Pay
There were several parts to variable pay. Most important was the Pay for Results Program and the Agilent Results Bonus. Variable pay also included the use of cash or stock programs on a short-term basis to focus employees on achieving critical business priorities. Examples of such priorities could be accelerating a product release schedule or responding to a competitor who targeted recruiting activity at an Agilent business or site. In general, payouts for achieving stretch objectives would be up to 10 percent of the employee’s eligible earnings. The variable pay plan was designed to reinforce the idea that managers had more rewards programs available to them to deliver recognition than just base pay. The framework for designing targeted incentive plans and recognition programs was fairly unstructured to allow businesses to significantly customize programs to meet their needs.
The Agilent Pay for Results Program
All senior managers would be eligible for this program but awards as a percentage of base pay differed according to management level and market levels of variable pay. Performance metrics were a combination of the following: business contribution margin, net revenue, and quota (for field positions). The company would need to achieve an operating profit of at least 5 percent before any manager could receive the bonus.
The Agilent Results Bonus
All employees would be eligible for the Agilent Results Bonus, consisting of two parts:
1. Agilent Results. These were based on total company revenue growth and operating margin.
2. Business Results. Each business group would be weighed depending on its respective contribution to the Agilent Results.
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The size of the bonus payout would be determined by the Agilent Results weighted by the Business Results. As with the Pay for Results Bonus, operating profit would need to be at least 5 percent of net revenue in order for bonuses to be paid.
Equity
Annual stock option grants were to be used for retention purposes and awarded to key contributors at the discretion of the manager. Minimum guidelines were provided annually, and grants would typically vest over a four-year period at a rate of 25 percent per year. Special grants could be awarded monthly to employees who made outstanding contributions and whose loss would be detrimental to the manager’s business. These were characterized as more “urgent” than the annual stock option grants and could be used for recruiting purposes as well.
Spark Awards
Option grants from fifty to one thousand options, vesting over a two-year period at 50 percent per year, could be given to employees on a quarterly basis in recognition and appreciation of high performance or significant one-time contributions. Spark awards were not to be granted for retention purposes, and the company urged managers to consider contributions to diversity efforts, education, training, or citizenship.
Recognition
Agilent emphasized everyday recognition and non-monetary rewards. These could range from a simple thank-you note, verbal recognition, team celebrations, as well as simple gifts (for example, a gift certificate for dinner at a local restaurant). In using non-monetary rewards, managers were advised to consider childcare and family needs. Managers were also advised to choose team celebrations and rewards that would be inclusive of all members.
Jean recognized that this new system was a big change from the old HP model: “Some of our managers have a hard time looking at a group of employees and literally saying, ‘so and so is more valuable than so and so.’” To ensure that the new system was implemented, all six thousand Agilent managers were required to go through the Agilent Vantage workshops (further described below). Part of the workshop featured instruction on how to use the new performance management system, including what was meant by speed, focus, and accountability. While managers initially found the ranking process uncomfortable, Jean noted that in the first annual ranking, 15 percent of Agilent employees were indeed ranked in the top category and the other 85 percent in the remaining two categories. She also wondered if three categories were actually needed. “I even think to this day that there might be some wisdom in not having the distinguishing of ranks two and three.” She acknowledged, however, that the PIR band was still underutilized.
Communications
Recognizing the importance of communications, Ned acknowledged, “Part of it was frankly to raise the tension level so people knew that this is what we’re going to do and to reset expectations.” Ron Fuchs, senior director of communications, elaborated:
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We try to get the word out as actively and quickly as possible.... We want people to hear the commitment and passion and energy that Ned...communicates in his voice, and then we want people to maybe go to the water cooler and communicate it, share it, and react to it.... We just put a poll out on our Web site asking people what they thought about the best way to hear our message. About 50 percent of the people say they like to hear Ned’s voice. But everybody else says, “Send me an e-mail or put it on-line, and I’ll hear it that way.” But the absolute commitment is that we want to tell our employees about it first before they hear about it from outside the company. Make no mistake about that. Agilent’s senior leadership is committed to internal communications.
15
Internal communications emphasized a “multi-directional” approach. Structures were established for not only top-down, but bottom-up communication, whereby employees had the vehicles to communicate their thoughts and ideas with senior management. Among the “push and pull” tools used were:
• Infospark, an e-mail newsletter that employees received at least twice a week, was a fairly top-level global newsletter informing employees of company news, product announcements, and program announcements.
• beAgilent Magazine was a bimonthly global publication that included articles translated in various languages. It presented perspectives from top management as well as the current state of the businesses, little-known facts, and folk heroes—examples of employees around the world who had demonstrated Agilent values.
• beAgilent.com, the company’s intranet, encompassed all this information in detail— press releases, HR related stories, success stories, community philanthropy stories, and international news—as well as country- and business-specific sites.
• The Pulse Program, started out of Vantage, was a vehicle for employees to anonymously submit online questions, comments, and thoughts to the leadership team. Inputs ranged from seventy to four hundred per week. Every submission would be compiled in a weekly report that would be sent to Ned and the executive staff. Some comments would be posted for others to view. The internal communications team would also ask a member of the executive staff to answer questions that appealed to the global audience and would post the question and answers on the intranet.
Leadership Development
A key element to Vantage, leadership development started with clarifying the transformation challenge, teaching new people management practices, and jumpstarting the new culture for Agilent’s six thousand managers around the world. Following these Agilent Vantage workshops, Ned and his executive staff held “pit sessions” called Business Leadership Forums, for the top two hundred managers.
June-November 2000—Agilent Vantage Workshops
The Agilent Vantage workshops were a series of fourteen large-scale, two- to three-day sessions held around the world for all managers as a catalyst to cultural change. Ned commented on the importance of the workshops in driving down change further into the organization:
15 Interview with Ron Fuchs, senior director, communications.
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[We communicated] what we expected people to do in their role as leaders in Agilent. It was all about resetting expectations. It was about raising the bar. A lot of what was acceptable before was no longer acceptable… We had to convince people to challenge the status quo and make change within their own areas. All these changes aren’t going to be from me. It’s going to be from people within the organization.
16
The workshops were designed by a worldwide team in a matter of three weeks. The plan was reviewed with a set of managers representing all functions, businesses, and levels. This ‘microcosm’ team of business managers acted as the board of advisors for the program. The proposal was then pitched to Ned. Ned felt so strongly about the unbudgeted program that he secured funds for the $8 million effort.17
Each workshop was attended by 250 to 500 managers, and executive leaders including Jean, Alain, and Bob Walker, Agilent’s CFO, were present. Each session was hosted by a top-ranked general manager or vice president, and supported by a local management team. The local team would meet beforehand to provide feedback so that the program could be designed to local preferences. At the end of the day they would meet again to review the evaluations submitted by participants. In some Asian countries pre-workshops were delivered because the change in culture would be so great. In such countries, seniority was very important and played a large role in rewards and promotion; the new performance management system as well as the definition of “speed,” “focus,” and “accountability” needed to be explained thoroughly.
The sessions were designed to answer the “why-what-how” of change. They began with the “why” by building a compelling case for change. Agilent invited customers, securities analysts, and industry experts to discuss how each perceived the company and what each thought the company needed to change in order to become a high-performance company. Other modules defined the “what,” that communicated the behaviors that characterized the company (Exhibit 5), the manager’s role in building and sustaining a performance-driven culture, and equipped managers with information and tools to implement the new rewards and retention practices. These were breakout sessions exercising the concept of “leaders teaching leaders”— they would be co-facilitated by line managers and content experts; for example, an R&D manager and a compensation expert would teach the participants about the new compensation structure.
The transformation was further solidified by the “how”—case study presentations of success stories that exemplified the Agilent values and required behaviors. These “beAgilent speakers” spoke of their innovative recruiting and retention practices and other ways in which they “broke the rules.” For instance, one manager talked about how he had been able to retain an optics engineer who had been given an offer from a competitor. The manager modeled the new Agilent behavior by asking the engineer, “What will it take for you to stay with us? There’s no question that we can match your offer, but what else will it take?” The manager subsequently arranged to have the college loans of the engineer and his wife paid, and was able to successfully retain him.
Not all discussion was large scale; there was “tablework” of eight managers per table discussing issues, reporting back thoughts, and asking questions.
16 Interview with Ned Barnholt. 17 Interview with Maureen Simons, management and employee development manager.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 16
A defining moment came at the first workshop that was held in Santa Clara for five hundred managers. After the first day, there was strong feedback from the audience that while the speakers were interesting, the program was ‘preaching to the converted.’ The project team made the decision to immediately redesign the program and cut approximately one-third of the content. Maureen Simons, the project leader, contacted Alain and asked him to realign his schedule on Day Three to speak for one hour on some specifically targeted topics instead of the ten-minute wrap-up that had been planned.
I tried to thank him and apologize for screwing up his schedule, and he said, “No, don’t. Don’t apologize. This is exactly what we’re talking about. You and your team took real risks pulling this together so quickly. Adjustments were bound to be necessary. But you didn’t even wait until the end of the program to review it, you’re already fixing it midstream…. This is exactly what we’re talking about, …and I’m going to use you as an example.” It was one of these moments of truth in my career where I realized that I was working for a very special company.
18
Alain proceeded in front of the audience to praise the education function for exemplifying the Agilent values by course-correcting mid-session. The organizers had shortened the program by half a day on the spot, exhibiting their speed in delivery and accountability to furnish an effective and satisfactory program to their audience.
Jean commented on Vantage workshops’ success:
The kinds of testimonials that people would write in their evaluation statements were unbelievable. They would come out saying things like, “Gee, I really thought I was caught in this web of bureaucracy, and [now] I realize that I was the problem, …my own expectation that I wouldn’t be given permission to do something. Therefore, I didn’t even bother to ask. Now I realize I shouldn’t even be asking for permission, I should just go do and beg for forgiveness. This program has really inspired me.”
19
But not all participants welcomed the change. Neal Wagner remembered some managers expressing resistance: “There were still a number of managers asking when they would be given more detailed guidelines. In the new program we were holding managers accountable for the decision of who gets a raise and how big. Because of that, when it came time to communicate to the employee, they had to own the decision and be able to describe the rationale.”20
Each manager was given a Vantage Communication Kit consisting of several videotapes of Ned, the key speakers, and customers as well as a leader’s guide for communicating the essential messages of the workshop to the manager’s team. This included highlights of the Vantage workshop presentation and a beAgilent behaviors exercise that facilitated examination of team alignment with the Agilent values and identification of effective and ineffective behaviors that the team exhibited. With this toolkit managers were expected to go back to their organizations and recreate a microcosm of the workshop for their subordinates.
18 Ibid. 19 Interview with Jean Halloran. 20 Interview with Neal Wagner.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 17
July-October 2000—Business Leadership Forums
The business leader forums were “pit sessions” for the top two hundred senior leaders. These were three-day sessions of face-to-face discussion and brainstorming with Alain and Ned. Ned would speak about his vision for the company and engage in open and direct dialogue. The new expectations on roles for senior directors and vice presidents were clarified and action plans for change were discussed.
AGILENT TODAY
By the end of fiscal year 2000, Agilent had 47,000 employees and revenues of $10.7 billion (Exhibit 6). The company had facilities in more than forty countries. In November 2000, the company announced the sale of its medical products business, which had been dragging down Agilent’s earnings, to Royal Philips Electronics. In the Fortune ranking of “Best Companies to Work For” in 2000, Agilent ranked forty-sixth while HP was sixty-two on the list. In a study of 355 companies conducted by Hewitt Associates, Dow Jones publications, The Asian Wall Street Journal, and Far Eastern Economic Review, Agilent Technologies Singapore and Malaysia were named to the inaugural list of “Best Employers in Asia”—ranking first in Singapore and fourth in Malaysia in the Top 10 Country List. The company enjoyed tremendous successes in its first year.
However, from the last quarter of 1999 to the last quarter of 2000, annual U.S. gross domestic product growth declined from 8.3 percent to 1.1 percent—the most rapid decline since the second world war. In April 2001, in response to a dramatic fall in orders as a result of the economic slowdown, Ned and his staff implemented a temporary pay cut of 10 percent for all employees across the board, one of several cost-cutting measures including the elimination of external hiring. The pay cut decision, as opposed to layoffs, reflected Ned’s confidence in the future of the company and was based on his perception that the downturn was due to a business cycle rather than a structural change. Following this assumption and a belief that the labor market would remain tight, Ned deemed it unreasonable to lay off thousands of employees only to have to hire them back one year later. Employee survey scores increased, especially from the younger staff. Commenting on his decision not to lay off people, Ned said:
I still don’t know what the depth of this is going to be, but I just felt it would send a very important message to our employees if in these kinds of times we do a 10 percent wage cut not only to reduce expenses but also as a signal that people really are valued.... Assuming we come out of this and we don’t have to resort to any other more drastic measures, I think it’ll send a very important message, almost a defining message to our people that we’re going to walk the talk… We’re going to actually practice what we say as far as the value of our people.
21
On the Vantage front and as a follow-up to the Vantage workshops, Jean and her team embarked on a beAccountable program to reinforce that all managers were accountable for managing performance. The program would examine the company’s top 10 percent and bottom 10 percent performers, and ensure that managers were keeping the top challenged while having frank
21 Interview with Ned Barnholt.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 18
discussions with the bottom. She recognized that at HP, the egalitarian culture had created a comfortable environment at the expense of the morale of top performers.
Beginning in March 2001, the company began to phase out the use of the tagline, “Innovating the HP Way.” The line was taken out of the logo on new and updated materials. Efforts made to build Agilent as a strong corporate brand had paid off, as research indicated that worldwide brand awareness had reached 60 percent among Agilent customers and potential customers. Ned and his staff were confident that the HP heritage values would continue to be a part of the beAgilent culture, and regarded the phase out as the final symbolic gesture toward true independence from HP. Ned said with confidence: “So long as we continue to attract and retain top people, as long as we create an environment where people feel valued and can contribute, and as long as we can have this environment where people like to come to work everyday and feel the culture is something they really enjoy, I think the company will do well.”22
THE CURRENT CHALLENGE
In reviewing the results of the past eighteen months, there were both big successes and worrisome trends. On a positive note, Agilent’s turnover rate was about half that of its competitors and the attrition rate among top performers had declined. Exhibit 7 shows the results from the beAgilent survey, distributed quarterly to a random sample of approximately 15 percent of all employees, representative of each business group and used by managers to assess the progress of the transformation. Responses were analyzed by an external vendor and posted to the employee intranet. Results showed that Agilent’s scores were statistically better than the benchmark of other high performing companies. Even after the mandatory salary cut, Jean observed that the employee survey scores for new employees were highest in the company.
But some feedback was less positive. Some employees voiced their sense of loss of identity with the HP Way and concern that Agilent’s loyalty and commitment to employees was being compromised as Agilent stressed its goal of becoming a high-performance, best-in-class company. Others interpreted the expense controls and restrictions on travel as a message that the company was cutting back on employee training and development and was reneging on its commitment to its people. One veteran employee expressed concern about the emphasis on performance management and compensation:
Pay is a very poor motivator in our culture. Our culture is...based on contribution, not pay. If people understand a customer...they will do anything for them, but they will not do it based on pay... Pay motivates the worst behaviors in our company, the parochial staff. We’re a culture based on noble goals, for the better or worse... People don’t want to know what their rank is. They want to know what their contribution is.
Others seemed less convinced of the extent to which the cultural transformation had manifested itself within the firm. A senior manager remarked:
Accountability, I don’t see it. I think that we’ve got some work to do in a number of areas… I think we still have a disdain for confrontation. We’re very high integrity, very collegial, but we don’t want to hurt anybody’s feelings. So the guy’s not doing his job. He’s got a family, he’s got a couple of kids. He does good in the community. We’ll give him a little coaching and he’ll be
22 Ibid.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 19
okay. It’s that kind of stuff. That makes it hard. That doesn’t make us bad people, it’s just, it argues against us being who we say we want to be.
Another manager also commented on the culture and observed that, in his view, progress had been made in the areas of speed and focus, but less so in regard to accountability:
Even though we have a PIR category, you’d expect anywhere from 5 percent to 10 percent of your population here at any one time. Well for Agilent as a whole, I think we’re under 1 percent of the population... So we’re really not holding ourselves accountable for the kind of high-performance company we say we want to be.
When asked about her challenges, Jean expressed a concern about not letting an entitlement culture creep back and the need to keep people hungry to not only tolerate accountability but to champion it. Her second issue was to give employees more of a line of sight into how their actions affected customers. Defining the success of the Vantage program was clear in Jean’s mind:
Vantage will have been successful if every employee can say in three sentences: ‘I work for a company that creates great value in the world. I know that my work plays a role in creating that value. And I work with colleagues and leaders who motivate and inspire me.’ I believe that the majority of people who come to work at a place like Agilent really aren’t here just to do a job… I think people who choose to work at a place like Agilent do it because their sense of who they are in the world in this life is somehow attached to an expression of themselves that has to do with creating value for end users where they’re helping to invent things that solve problems that have never been solved before.
23
But the company would face increasing financial challenges that would test the beAgilent culture. Orders for its communications and semiconductor products would continue to weaken, leading third-quarter revenues for fiscal year 2001 to fall to $1.8 billion, a 23 percent decrease year over year and a 24 percent decline from the previous quarter. As a result, the company reported a quarterly loss of $111 million, or 24 cents per share. This was the first time that the businesses comprising Agilent had had a losing quarter since the mid-1980s. Furthermore, the company predicted that at the anticipated order levels for 2002, it would potentially be losing money for as many as six quarters.
Ned and his staff determined that Agilent could not continue to be sized for its peak order level of $2.8 billion, achieved in the third quarter 2000. They came to the difficult conclusion that the workforce would need to be reduced by 9 percent, or approximately four thousand people, by the middle of 2002. However, they decided to restore full pay beginning in the first quarter of fiscal year 2002. Jean explained, “Extending the pay cut was looking like it could become a twelve- to eighteen-month reduction—hardly ‘temporary.’ It was unrealistic to ask employees to deal with this sort of hardship any longer than the end of [the fourth quarter 2001].”24
In a speech to employees broadcast over the public announcement system and delivered on the intranet, Ned explained that the workforce reduction would focus on two broad areas: first, areas of excess capacity given the dramatic drop in incoming orders; and second, the restructuring of work to make Agilent more competitive and customer-focused. The reductions, he explained, would impact most businesses and geographies across Agilent, but would not be across the
23 Interview with Jean Halloran. 24 beAgilent.com employee intranet Web site.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 20
board. The intent was to scale the workforce to anticipated business levels while maintaining investments in new product development and customer-facing activities.
This is the toughest decision of my career. But we’ve run out of alternatives and we need to keep Agilent strong and ready for the future. I want to emphasize, however, that this is not a departure from our fundamental values and beliefs about people and their importance to Agilent. I believe we can balance the need to make tough decisions for the viability of the company with the deep belief in the value of our employees in making this a great company.
25
But would employees continue to embrace the beAgilent culture despite the layoffs and expense controls, increased emphasis on accountability, and elimination of the heritage line? In reflecting on this, one manager noted that “cultures come from defining moments...and I think we’re in a defining moment as we speak.” Ned, Jean, and the executive staff were acutely aware of the challenges facing them. What could they do to ensure Agilent’s own identity without alienating employees’ spiritual bonds with HP? Should they be worried about this? Were they in fact sending mixed messages? How could they continue building the beAgilent culture— especially in the face of layoffs and restructuring?
25 Speech made to employees by Ned Barnholt, August 20, 2001.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 21
Exhibit 1 Agilent’s Businesses
Test and Measurement Agilent’s test and measurement business addressed the needs of companies in the semiconductor, electronics, communications, and related industries. It addressed three major customer groups including the communications network equipment manufacturers and service providers, electronic component and equipment manufacturers, and semiconductor manufacturers and purchasers of semiconductors. The company’s test and measurement products were used to improve time-to-market, lower manufacturing costs, and improve product quality. The company was a leader in its space and estimated that its test and measurement products possessed over 20 percent of the market (estimated to be $20 billion in 2000 and $25 billion in 2002).26
Communications drove 50 percent of test and measurement and 25 percent of total revenues at Agilent. Test and measurement products at Agilent ranged from single-unit electronic measurement devices priced under $1,000 to large-scale integrated test products priced at $1 million and higher. Product applications included test products for fiber optic, broadband wire- based, radio frequency, and microwave communications networks and products, network test equipment for service providers to install and maintain connections to the Internet, and test products to manufacturers of cellular handsets and wireless telephone infrastructure.
Worldwide Test and Measurement Market, 1998
(1) Does not include service.
Chemical Analysis The company’s chemical analysis business was the leading provider of analytical instrument systems that enabled customers to identify, quantify, analyze, and test the atomic, molecular, physical, and biological properties of substances and products. Scientists, engineers, and technicians working in R&D, quality assurance, quality control, and manufacturing used the
26 John B. Jones, “Agilent Technologies, Inc.,” SalomonSmithBarney Equity Research, December 27, 1999, p. 23.
Named Other 25%
R&S 2%
Agilent 23%
Teradyne 7%
Advantest 6%
Tektronix 4%
Anritsu 3% Fluke 3%
Schlumberger 3%
W&G 2%
Unnamed Other 16%
Nat.Instru 1%
LTX 1%
TTC 1%
Network Gen 2%
Named Other 25%
R&S 2%
Agilent 23%
Teradyne 7%
Advantest 6%
Tektronix 4%
Anritsu 3% Fluke 3%
Schlumberger 3%
W&G 2%
Unnamed Other 16%
Nat.Instru 1%
LTX 1%
TTC 1%
Network Gen 2%
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 22
company’s products. Analysts estimated that the analytical instrument market size was $18 billion in 2000 with growth rates at approximately 8 percent annually.27
Semiconductor Products Agilent’s semiconductor products business supplied semiconductor components, modules, and assemblies for wired and wireless communications, information processing, imaging, optical positioning, and solid-state lighting. Agilent’s semiconductor products fell into two primary markets—communications and computing. Increasing chip complexity (higher speeds, higher pin count, and greater number of transistors) drove the demand for Agilent’s products. As semiconductors increased in complexity, chipmakers needed to upgrade obsolete testers to confirm that new, more advanced chips functioned properly. After the spin off from HP, Agilent’s semiconductor group began to carve out a position as a chipmaker in communications, competing with players such as Intel, Motorola, and Texas Instruments in the emerging wireless and Internet space. A number of main initiatives drove Agilent’s chip business. First, the company employed new chip technologies to shrink the size of radios, enabling such products as Samsung Electronics’ “Dick Tracy” Internet phone. Second, Agilent leveraged printer technology from HP days to assert itself in imaging, pushing the concept of “embedded cameras everywhere” to transmit data wirelessly at high frequency into a network.
Healthcare Solutions Business Agilent’s health care solutions provided medical professionals with electro-medical clinical measurement and diagnostic products. The company’s products helped medical professionals gather and analyze information in hospital intensive care units and emergency rooms, outpatient clinics, doctors’ offices, patients’ homes, and other settings. Products and services included patient monitoring systems, imaging systems, external defibrillators, cardiology products, and related professional services and support.
Agilent completed the sale of its Healthcare Solutions Group to Royal Philips Electronics in August 2001.
Source: Agilent
27 Ibid., p. 44.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 23
Exhibit 2 HP’s Corporate Objectives
Profit To achieve sufficient profit to finance our company growth and to provide the resources we need to achieve our other corporate objectives.
Customers To provide products and services of the highest quality and the greatest possible value to our customers, thereby gaining and holding their respect and loyalty.
Fields of Interest To participate in those fields of interest that build upon our technology and customer base, that offer opportunities for continuing growth, and that enable us to make a needed and profitable contribution.
Growth To let our growth be limited only by our profits and our ability to develop and produce innovative products that satisfy real customer needs.
Our People To help HP people share in the company’s success, which they make possible; to provide employment security based on their performance; to ensure them a safe and pleasant work environment; to recognize their individual achievements; and to help them gain a sense of satisfaction and accomplishment from their work.
Management To foster initiative and creativity by allowing the individual great freedom of action in attaining well-defined objectives.
Citizenship To honor our obligations to society by being an economic, intellectual, and social asset to each nation and each community in which we operate.
Source: http://www.hp.com/hpinfo/abouthp/corpobj.htm
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 24
Exhibit 2 (continued) HP’s Organizational Values
We have trust and respect for individuals. We approach each situation with the belief that people want to do a good job and will do so, given the proper tools and support. We attract highly capable, diverse, innovative people and recognize their efforts and contributions to the company. HP people contribute enthusiastically and share in the success that they make possible.
We focus on a high level of achievement and contribution. Our customers expect HP products and services to be of the highest quality and to provide lasting value. To achieve this, all HP people, especially managers, must be leaders who generate enthusiasm and respond with extra effort to meet customer needs. Techniques and management practices that are effective today may be outdated in the future. For us to remain at the forefront in all our activities, people should always be looking for new and better ways to do their work.
We conduct our business with uncompromising integrity. We expect HP people to be open and honest in their dealings to earn the trust and loyalty of others. People at every level are expected to adhere to the highest standards of business ethics and must understand that anything less is unacceptable. As a practical matter, ethical conduct cannot be assured by written HP policies and codes; it must be an integral part of the organization, a deeply ingrained tradition that is passed from one generation of employees to another.
We achieve our common objectives through teamwork. We recognize that it is only through effective cooperation within and among organizations that we can achieve our goals. Our commitment is to work as a worldwide team to fulfill the expectations of our customers, shareholders and others who depend upon us. The benefits and obligations of doing business are shared among all HP people.
We encourage flexibility and innovation. We create an inclusive work environment that supports the diversity of our people and stimulates innovation. We strive for overall objectives that are clearly stated and agreed upon, and allow people flexibility in working toward goals in ways that they help determine are best for the organization. HP people should personally accept responsibility and be encouraged to upgrade their skills and capabilities through ongoing training and development. This is especially important in a technical business where the rate of progress is rapid and where people are expected to adapt to change.
Source: http://www.latinsynergy.org/hpway.htm#organizational P
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 25
Exhibit 3 Agilent Values
Innovation and Contribution Inventing and discovering awesome technology, creating new fields of interest, markets, and businesses; seeking and rewarding great ideas that are shared, adopted, and applied to solutions everywhere.
Trust, Respect, and Teamwork Believing in the power of our diverse, global teams; knowing people want to and will do a good job given the proper tools and support; working in a boundaryless way to fulfill expectations.
Uncompromising Integrity Adhering to the highest standards of business ethics; dealing openly and honestly to earn the trust and loyalty of others.
Focus Prioritizing and simplifying; saying “no” to what is not really important; aligning the organization to anticipate and satisfy customer needs with a passion; concentrating our investments on maximum growth opportunities.
Speed and Agility Capitalizing on discontinuous change with an intense sense of urgency; being agile; acting decisively, stamping out bureaucracy.
Accountability Doing what we say; setting ambitious performance objectives; rewarding those who meet them; prizing those who exceed them.
Source: Agilent
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 26
Exhibit 4 Agilent’s Key Management Team Members
Ned Barnholt, president and chief executive officer. Prior to this role, Barnholt served as a HP executive vice president and the general manager of the Measurement Organization—the organization containing all of Agilent’s business groups. Under his direction, the Measurement Organization attained fiscal 1998 revenues of nearly $8 billion. Barnholt joined HP in 1966 in the company’s former Microwave Division, applying engineering and business expertise to positions that successively included research-and-development engineer, marketing engineer and product manager. In 1973, he became product marketing manager for the Stanford Park Division, and then marketing manager for the Santa Clara Division in 1976. In 1980, he was promoted to general manager of the Spokane (Wash.) Division for the Microwave and Communications Group, and then to general manager of the Electronic Instruments Group in 1984. Barnholt was elected a vice president in 1988, and in 1990 was appointed general manager of the Test and Measurement Organization. His appointments to senior vice president and then executive vice president followed in 1993 and 1996. He assumed his current position as president and chief executive officer of Agilent Technologies in March 1999. Barnholt received both a bachelor’s degree and a master’s degree in electrical engineering from Stanford University. He is a director of KLA-Tencor Corporation. Barnholt also serves on the New York Stock Exchange Listed Company Advisory Committee (LCAC).
Alain Couder, executive vice president and chief operating officer. Couder shares the responsibilities of the president’s office with Ned Barnholt. He came to Agilent from Packard Bell NEC, where as chairman, president, and chief executive officer he was credited with dramatically improving operating performance and spearheading a drive for innovation. Couder improved the operational efficiency at Packard Bell NEC by $500 million in eighteen months. He also put in place a global management process to take advantage of the company’s scale, making NEC the fifth leading PC supplier worldwide. At Groupe Bull from 1991 through 1998, Couder helped create the French computer company’s vision and business strategy. He also played an instrumental role in taking the company public. Couder was general manager of the open system and software division before being named Groupe Bull’s COO in 1997. Couder was also a Hewlett-Packard veteran, having served as a general manager in the computer business in the United States and his native France from 1984 through 1991. Before joining HP, he spent fourteen years with IBM, conducting applied research in new computer architecture, PBX architecture, signal processing, and voice recognition. Couder received a master’s degree in electrical engineering from Ecole Superieure d’Electricite, Paris.
Jean Halloran, senior vice president of Human Resources. Halloran’s responsibilities include directing Agilent’s global policies and programs for leadership and talent development, compensation, benefits, staffing and workforce planning, human resources systems, education, and organization development. Halloran joined HP’s Medical Products Group in 1980. Within that group, she held a number of positions in Human Resources, Manufacturing, and Strategic Planning before becoming group personnel manager. In 1993, Halloran was promoted to Human Resources manager for the Measurement Systems Organization and recently was appointed to director of Corporate Education and Development for HP. She has served as Agilent’s senior vice president, Human Resources since August 1999. Halloran received her bachelor’s degree in art history from Princeton University and MBA from Harvard University.
Robert Walker, executive vice president and chief financial officer. Walker applied the experience of his twenty- four-year tenure at Hewlett-Packard Company to his current position, overseeing the management of Agilent’s financial functions, including business development. Before his current appointment at Agilent, Walker was the vice president and general manager of Hewlett-Packard’s Professional Services Business Unit. His career with the HP began in 1975, when he joined HP’s Loveland Colorado Instrument Division as an accountant. In the years following, Walker was promoted to accounting management positions of successively greater responsibility. In 1979, he was appointed controller for the San Diego Division, and was then named to the same position for the Electronics Measurement Group in 1982 and the Manufacturing Systems in 1984. Later that same year, he became the business manager of U.S. Field Operations. Walker’s experience also includes five years as a controller in both the Computer Business and Computer Systems Organizations. He spent four years leading HP’s Information Technology function and was elected HP vice president in 1995. He was appointed to his current position as Agilent’s chief financial officer, in March 1999 and executive vice president in May 1999. Walker received his bachelor’s degree in electrical engineering and MBA in finance from Cornell University.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 27
William Hahn, senior vice president of Communications. Prior to this role, Hahn was the controller for HP’s Measurement Organization. Hahn joined HP in 1975 as the general accounting manager in the Palo Alto Manufacturing Division. He moved to Corporate Consolidations in 1976 and to HP’s European headquarters in Geneva in 1978 as a finance manager. Hahn was named controller for the Finance and Remarketing Division in 1982 and for the Information Networks Division in 1984. In 1986, Hahn was appointed marketing manager for the Network Marketing Center, and in 1988 for the Personal Software Division. He was named group controller for the Workstation Group in 1989 and for the Networked Systems Group in 1990. In 1992, Hahn became the manager of the Computer Systems Americas Marketing Center. Hahn left HP in 1993 to become the vice president of finance, manufacturing, and chief financial officer at Aspect Telecommunications, and returned to HP in 1995 as operations manager for the Interactive Broadband program. He was named sector controller for the Measurement Organization in 1997 and assumed his current post as senior vice president of Communications for Agilent in 1999. Hahn received a bachelor’s degree in accounting and computer science from Iowa State University and a master’s in business administration from Santa Clara University.
D. Craig Nordlund, senior vice president, general counsel, and secretary. Nordlund’s experience in corporate law began with his first job as an attorney with the Palo Alto law firm of Ware & Friedenrich in 1974. He served as in- house counsel with HP in 1977. From 1987 to 1999, Nordlund managed HP’s U.S. general legal operations and served as corporate secretary where he had responsibility for the company’s annual shareholders’ meetings, board of directors formalities, corporate governance issues, and shareholder relations. He was named Agilent’s senior vice president, general counsel, and secretary in May 1999. Nordlund received a bachelor’s degree in political science and journalism from Stanford University and a law degree from Vanderbilt University.
Larry C. Holmberg, senior vice president, sales, marketing, and customer support. In the newly created position, Holmberg has a wide range of responsibilities that support Agilent’s focus on customers and customer satisfaction. He joined HP in 1969 as a service design engineer. His HP positions included region general manager for the company’s Test and Measurement Organization in Latin America responsible for sales, marketing, and operations, and region manager for Asia based in Hong Kong. Most recently, Holmberg was vice president of sales, marketing, and field operations for Agilent’s Communications Solutions Group. Prior to rejoining HP, Holmberg held various computer sales and general management positions with Digital Equipment Corporation. He earned a bachelor’s degree in electrical engineering from Colorado State University.
Thomas Saponas, senior vice president and chief technology officer. Saponas’ responsibilities include developing the company’s long-term technology strategy and overseeing the alignment of the company’s objectives with its centralized research-and-development activities. Saponas had over twenty-seven years of experience in engineering and management, refined over the course of his career with HP that he began in 1972 as a design engineer in the company’s Automatic Measurement Division. During the following twelve years, Saponas contributed in increasing levels of responsibility in research-and-development management positions at HP. In 1986, he was selected to serve as a White House Fellow in Washington, D.C. Saponas returned a year later to HP, where he managed R&D for the Electronic Instruments Group (EIG), then a division of HP’s Test and Measurement Organization. He continued to apply his expertise in strategic management as he became a division marketing manager and general manager within the group. In 1998, he was promoted to vice president and general manager of EIG. In August 1999, Saponas was elected to his post as senior vice president and chief technology officer for Agilent. Saponas received a bachelor’s degree in electrical engineering/computer science and a master’s degree in electrical engineering from the University of Colorado.
Agilent’s Business Group Leaders
John Scruggs, senior vice president and general manager for the Automated Test Group, supervises the testing of semiconductor components and electronic assemblies while also directing the service and support of all automated testing equipment. Scruggs’ career began as an engineer in the Integrated Circuit Department HP and since then, he has held numerous managerial positions in the Instrument and Manufacturing Test Divisions. In 1992, Scruggs was promoted to general manager of the Automated Test Business Unit, which was elevated to group status in 1995. A year later, he was appointed vice president of this group, and assumed his current position as senior vice president and general manager of Agilent Technologies’ Automated Test Group in August 1999. Scruggs received a bachelor’s degree in electrical engineering from New Mexico State University and a master’s degree in electrical engineering from Arizona State University.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 28
William Sullivan, senior vice president and general manager, Semiconductor Products Group. He joined Hewlett- Packard Company in 1976. In 1995, he was promoted to general manager of the Optical Communication Division. Two years later, Sullivan was appointed a general manager of the Communication Semiconductor Solutions Division, which was formed by combining the semiconductor portion of the former Communication Components Division with the Optical Communication Division. He became general manager and vice president of the Components Group, now called the Semiconductor Products Group, in 1998. Sullivan assumed his current role as senior vice president and general manager, Semiconductor Products in August 1999. Sullivan received a bachelor’s degree in environmental science from the University of California at Davis.
Chris van Ingen, senior vice president and general manager, Chemical Analysis Group. Van Ingen joined HP in 1977 as a mass-spectrometer sales engineer in the Netherlands. In 1979, he was promoted to CAG district sales manager in the Netherlands. He was named the Netherlands country manager for CAG in 1981. He moved to HP’s Avondale division in Pennsylvania in 1984 as business development manager and in 1986 became the division’s product marketing manager. In 1989 he became the Americas Marketing Center manager, and in March 1999 was named vice president, sales, support, and marketing for CAG. He was appointed to his current position in May 2001. Van Ingen has a bachelor’s degree in analytical chemistry.
Thomas White, senior vice president and general manager, Communications Solutions Group. White’s experience in electrical engineering began in HP’s London offices, where he started as a staff engineer in the Test and Measurement sales office in 1979. Since then, White has held numerous managerial positions in the Telecommunications Division throughout the United Kingdom. In 1994, he was promoted to general manager of the Queensferry Telecommunications Division in Scotland and then general manager of the Computer Peripherals Bristol Division in 1996. White was appointed vice president and general manager of the Communications Solutions Group in 1997. White has served as Agilent’s senior vice president and general manager, Communications Solutions since August 1999. White received a bachelor’s degree in electrical engineering from Liverpool University.
Byron Anderson, senior vice president and general manager, Electronic Products and Solutions Group. Anderson started his HP career thirty years ago. His experience was in microwave-technology development and product- division management. In 1991, Anderson was promoted to general manager of the Communications Test Business Unit, currently known as the Communications Solutions Group. He was appointed a vice president of that group in 1995. He assumed his current position as senior vice president and general manager of Electronic Products and Solutions Group in August 1999. Anderson received a bachelor’s degree in electrical engineering from South Dakota State University and MBA from Harvard University.
Agilent’s Board of Directors
Source: Agilent. As of October 2001.
Edward W. (Ned) Barnholt President and Chief Executive Officer Agilent Technologies
James Cullen Retired President and Chief Operating Officer Bell Atlantic Corporation
Thomas E. Everhart President Emeritus California Institute of Technology
Gerald Grinstein Chairman of the Board
Robert J. Herbold Executive Vice President Microsoft Corporation
Walter B. Hewlett Independent Researcher and Director Center for Computer Assisted Research in the Humanities
Heidi Kunz Executive Vice President and Chief Financial Officer Gap Inc.
David M. Lawrence, M.D. Chairman of the Board and Chief Executive Officer Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals
A. Barry Rand Senior Advisor Cendant Corporation
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 29
Exhibit 5 What behaviors will define Agilent’s culture?
• Relentless focus on customers and competitors
• Drive for breakthroughs in growth and value creation
• Bias for action, speed
• Employee-ownership mentality
• Intense results-oriented focus
• Find best talent, anywhere
• Aggressive performance rewards and consequences
• Simple, de-layered structures
Source: Agilent
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 30
Exhibit 6 Agilent’s Financial Summary
2001E %Yr/Yr 2000 %Yr/Yr 1999 %Yr/Yr 1998 %Yr/Yr 1997 %Yr/Yr 1996 %Yr/Yr
Revenue 9,428 (12.5) 10,773 29.3 8,331 4.8 7,952 2.1 7,785 5.5 7,379 11.9 Cost of Products &
Services 5,330 (3.5) 5,522 25.8 4,388 (2.7) 4,512 9.4 4,126 5.8 3,901 17.0
% Revenue 56.5 51.3 52.7 56.7 53.0 52.9 Gross Profit 4,098 (22.0) 5,251 33.2 3,943 14.6 3,440 (6.0) 3,659 5.2 3,478 6.7 % Revenue 43.5 48.7 47.3 43.3 47.0 47.1
R&D 1,450 15.3 1,258 26.2 997 5.2 948 7.7 880 9.3 805 5.2 % Revenue 15.4 11.7 12.0 11.9 11.3 10.9 SG&A 2,339 (17.3) 2,828 28.3 2,205 7.6 2,050 7.4 1,909 6.2 1,798 8.7 % Revenue 24.8 26.3 26.5 25.8 24.5 24.4 Operating Earnings 309 (73.5) 1,165 57.2 741 67.6 442 (49.2) 870 (0.6) 875 4.0 % Revenue 3.3 10.8 8.9 5.6 11.2 11.9
Other Inc (exp) (35) 83 46 (46) (47) (21) Pretax Earnings 274 (78.0) 1,248 58.6 787 98.7 396 (51.9) 823 (3.6) 854 9.6 % Revenue 2.9 11.6 9.4 5.0 10.6 11.6 Taxes 93 410 275 139 280 312 % Rate 34.0 32.9 34.9 35.1 34.0 36.5 Net Earnings 181 (78.4) 838 63.7 512 99.2 257 (52.7) 543 0.2 542 8.6 % Revenue 1.9 7.8 6.1 3.2 7.0 7.3 EPS $0.39 (78.2) $1.81 62.3 $1.11 64.6 $0.68 Diluted Shares 459 (1.0) 464 0.9 460 21.1 380
Working Capital 2,500 (13.7) 2,897 56.0 1,857 25.8 1,476 4.8 1,408 (2.8) 1,449 4.4 Sales/Avg WC 3.5 4.5 5.0 5.5 5.4 5.2 Total Assets 6,500 (22.8) 8,425 54.8 5,444 9.2 4,987 (0.4) 5,006 6.1 4,720 6.0 Sales/Avg Assets 1.3 1.6 1.6 1.6 1.6 1.6 Shareholder’s
Investment 5,446 3.4 5,265 55.7 3,382 11.9 3,022 (2.8) 3,110 3.7 2,998 6.0
ROE 3.4 19.4 16.0 8.4 17.8 18.6
D&A 530 7.1 495 4.2 475 (0.4) 477 16.6 409 2.0 401 0.0 Cash Flow 711 (46.7) 1,333 35.1 987 34.5 734 (22.9) 952 1.0 943 0.0
per share $1.55 (46.1) $2.87 33.9 $2.15 11.1 $1.93 0.0 $0.00 0.0 $0.00 0.0 EBITDA 839 (49.5) 1,660 36.5 1,216 32.3 919 (28.1) 1,279 0.2 1,276 0.0
per share $1.83 (48.9) $3.58 35.3 $2.64 9.3 $2.42 0.0 $0.00 0.0 $0.00 0.0 % Revenue 8.9 15.4 14.6 11.6 16.4 17.3
Capital Expenditures 646 (21.6) 824 89.9 434 5.9 410 (29.6) 582 4.1 559 0.0 % Revenue 6.9 7.6 5.2 5.2 7.5 7.6
Source: Company Reports and Merrill Lynch Estimates.
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Building the Culture at Agilent Technologies: Back to the Future, HR-20 p. 31
Exhibit 7 beAgilent Employee Survey Results (excerpt)
The beAgilent Employee survey for Q2 2001 focused on six categories as defined below:
Category Content Focus Communication How aware are Employees of Vantage, Excella, and Stratos?
How effective are communications? Commitment How committed are employees to Agilent as a place to work? Management Do employees think Operating Group management makes
decisions promptly, establishes priorities, and provides leadership?
Business and Customer Focus Do employees have flexibility to serve customers well? Is Agilent easy to do business with?
Competitive Position How do employees think Agilent compares to its competitors on product and service quality, responding to market changes, developing products that meet customer needs, time to market, and delighting customers?
Great Work Do employees feel a sense of accomplishment, believe their work is worthwhile? Do they feel they have opportunities for development and that their supervisors develop their abilities?
Overall category results were as follows. Percentages represent the average percentage of employees responding favorable to questions in the category:
Category Percent Favorable Response
Communication 64%
Commitment 77%
Management 53%
Business and Customer Focus 79%
Competitive Position 48%
Great Work 80%
Source: Agilent
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