A brief study on HP-Compaq merger

1. HP COMPAQ MEREGER
Issues faced and Strategies adopted
JULY 30, 2014
TIRTHANKAR SUTRADHAR
142142, M

2. The Merger: A brief introduction
A very simple question that arose in early 21st century was that, if HP was progressing at such a
tremendous pace, what was the reason that the company had to merge with Compaq? Carly
Fiorina, who became the CEO of HP in the year 1999, had a key role to play in the merger that
took place in 2001. She was the first woman to have taken over as CEO of such a big company
and the first outsider too. She worked very efficiently as she travelled more than 250,000 miles
in the first year as a CEO. Her basic aim was to modernize the culture of operation of HP. She
laid great emphasis on the profitable sides of the business. This shows that she was very
extravagant in her approach as a CEO. In spite of the growth in the market value of HP's share
from 54.43 to 74.48 dollars, the company was still inefficient. This was because it could not meet
the targets due to a failure of both company and industry. HP was forced to cut down on jobs and
also be eluded from the privilege of having Price Water House Cooper's to take care of its audit.
So, even the job of Fiorina was under threat. This meant that improvement in the internal
strategies of the company was not going to be sufficient for the company's success. Ultimately,
the company had to certainly plan out something different. So, it was decided that the company
would be acquiring Compaq in a stock transaction whose net worth was 25 billion dollars.. It
took two months for further studies and by September, 2001, the boards of the two companies
approved of the merger. In spite of the decision coming from the CEO of HP, the merger was
strongly opposed in the company. The two CEOs believed that the only way to fight the growing
competition in terms of prices was to have a merger. But the investors and the other stakeholders
thought that the company would never be able to have the loyalty of the Compaq customers, if
products are sold with an HP logo on it. Other than this, there were questions on the
synchronization of the organization's members with each other. This was because of the change
in the organization culture as well. Even though these were supposed to serious problems with
respect to the merger, the CEO of HP, Fiorina justified the same with the fact that the merger
would remove one serious competitor in the over-supplied PC market of those days. She said that
the market share of the company is bound to increase with the merger and also the working unit
would double. But there were a lot of problems faced by HP due to the merger.
Advantages of the Merger
Even though it seemed to be advantageous to very few people in the beginning, it was the strong
determination of Fiorina that she was able to stand by her decision. Wall Street and all her
investors had gone against the company lampooning her ideas with the saying that she has made
1+1=1.5 by her extravagant ways of expansion. Compatibility problems: Every company runs on
different platforms and ideas. Compatibility problems often occur because of synchronization
issues. In IT companies such as HP and Compaq, many problems can take place because both the
companies have worked on different strategies in the past. Now, it might not seem necessary for
the HP management to make changes as per as those from Compaq. Thus such problems have
become of greatest concern these days.
Tirthankar Sutradhar, 1421427, M

3. Issues faced
Fiscal catastrophes: Both the companies after signing an agreement hope to have some return on
the money they have put in to make this merger happen and also desire profitability and
turnovers. If due to any reason, they are not able to attain that position, then they develop a
abhorrence sense towards each other and also start charging each other for the failure.
Human Resource Differences: Problems as a result of cultural dissimilarities, hospitality and
hostility issues, and also other behavior related issues can take apart the origin of the merger.
Lack of Determination: When organizations involve, they have plans in their minds, they have a
vision set; but because of a variety of problems as mentioned above, development of the
combined company to accomplish its mission is delayed. Merged companies set the goal and
when the goal is not accomplished due to some faults of any of the two; then both of them
develop a certain degree of hatred for each other. Also clashes can occur because of bias
reactions.
Risk management failure: Companies that are involved in mergers and acquisitions, become
over confident that they are going to make a profit out of this decision. This can be seen as with
Fiorina. In fact she can fight the whole world for that. When their self-confidence turns out into
over-confidence then they fail. Adequate risk management methods should be adopted which
would take care of the effects if the decision takes a downturn
Strategy adopted by HP to counter the differences
Team Agreement Development
– Review team purpose of both the companies.
– Co-create team processes between HP and Compaq employees.
– Build a team agreement document.
– Clarify Team Operating Principles (Values).
Organization Design and Selection
– Share the corporate selection approach with Compaq employees.
– Share and align team members design and selection processes.
– Review and finalize own team’s process and timeline.
– Structuring choices.
Management Resources
– High level review of key HR practices and resources in New HP (Compaq).
– Understand group’s needs and potential resources to address them.
Review of Integration Implementation Plans
– Inform team of work done in the clean room and translate into implications
– Build understanding of corporate Integration Plan of Record (I-POR).
– Develop team plan of record.
– Prepare deliverables for management, integration team.
Tirthankar Sutradhar, 1421427, M