Strategic Control and Organizational Structure

414 CHAPTER 12 STRATEGY DEVELOPMENT PROCESSES

ILLUSTRATION 12.4

Boardroom battles at Hewlett Packard

Political processes in organisations can influence the development of strategy.

By 2012 Hewlett Packard’s (HP’s) turnover exceeded $120 billion but profits were declining and it was losing share in its markets. For over a decade the difficulties in arriving at a coherent strategy were exacerbated by the infighting within the board.

In 2002 the then CEO, Carly Fiorina, publicly criticised Walter Hewlett, board member and son of the founder, for his opposition to the Compaq acquisition. According to Fortune, the HP board then was leaking confidential information to the press, accusing each other of lying and even refusing to be in the same room with one another.

Then under Mark Hurd’s five years as CEO the emphasis was on cost cutting. Though the share price increased significantly, this disguised a demoral- ised workforce and a lack of innovation, not helped by Hurd’s autocratic leadership style. In 2010 Mark Hurd departed. The exit was fractious with a fellow director, Hurd supporter Joel Hyatt, openly criticising the investigation headed by two other directors that led to it.

The next CEO was an outsider, Leo Apotheker, who had been sacked as CEO of SAP in 2010 – a surprise appointment not least because SAP was much smaller than HP. Initially, however, he improved employee morale, undoing Hurd’s salary cuts and making known his wish to return to innovative ways.

The decision was taken to reshuffle the board. Board members lobbied, both for themselves but also against other board members, not least Hyatt. Chairman Ray Lane asked that Hyatt and another of Hurd’s supporters stand down, but ‘as a matter of balance’ asked the two who had led the Hurd invest- igation to stand down too.

In May 2011 Apotheker issued a profits warning internally, with a plea to ‘watch every penny’. The email was leaked and, made public, contradicted the positive messages given to investors. It became apparent that ‘Apotheker seemed not to trust (some) longstanding HP executives . . . they returned the sentiment’.

Apotheker believed that HP should focus on business-to-business sales for PCs and printers, move into higher-margin areas, spin off its PC division and invest significantly in its software business. There was also the launch of a tablet computer in 2011 but it was ‘ungainly, slow . . . with a subpar battery’ and flopped.

Apotheker also wanted to acquire the British data company, Autonomy. CFO Cathie Lesjak and Apotheker discussed the matter privately, but she then argued to the board that it was overpriced and ‘not in the best interests of the company . . . Lesjak was considered a voice of sobriety and here she was on the verge of insubordination, directly resisting a key element of her boss’s strategy’.

In August the Autonomy deal, the possible spin- off and the decision to end the tablet initiative were announced to investors. Shares plunged, many PC customers ceased dealing with HP and investors objected to a major acquisition.

In mid-September Apotheker learnt of his dis- missal in the press before he was told personally by Lane that he had lost board support. Lane then argued that the failures were Apotheker’s not the current board’s, since it had not selected him.

Meg Whitman was then appointed CEO. Her strategy seemed to be ‘better . . . execution of what (HP) were doing to give time to sort out a long term strategy’. The share price dropped still further.

Source : Based on quotes from Fortune Global Forum, 8 May 2012 James Bandler, Doris Burke; http://tech.fortune.cnn.com/2012÷05/ 08/500-hp-apotheker/ .

Questions 1 Identify other examples of political activity

at the top of organisations that affected strategy.

2 What bases of political influence might executives draw on in disagreements between themselves?

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