Success of HPQ hinges on vision

You just never know. That’s the big problem with mergers. With the final approval of HP’s merger with Compaq, the industry settles in for a period of watching and waiting as HPQ (the ticker symbol for the new company) slowly emerges from the chrysalis of merger and restructuring.

While a great deal has been – and will be written – about what will change in the merged company and which products will come and go, the real key to the success of this bold move lies in looking at why it was undertaken in the first place.

To answer that question, you need look no further than the words of CEO Carly Fiorina. Speaking at the Accenture Global Convergence Forum on Monte Carlo in April, only weeks prior to final approval of the merger, she spoke passionately about her reasons for pursuing this deal.

And that’s a good thing, because it will take a great deal of passion and commitment to actually make this work. For Fiorina, the “why” of the HP/Compaq merger seems to be summed up in two words: the customers. She says that customers – and not the technology industry – are now setting the direction for the future and that she needs to have the kinds of solutions that will provide what they are demanding.

“People want to get more out of their IT investments and they are being told to do more with them,” she said to an audience composed mainly of Fortune 500 senior executives. “For the first time, we are not driving the tech agenda – you and your customers are driving it. There is a shift in vision and point of view: it is now your vision and not ours. In this industry, you are the centre. It is a tectonic shift and a vital shift.”

Fiorina said this shift will be every bit as important as the shifts from mainframe to minicomputer to personal computer, and that it suggests a gloomy future for companies that only have point products aimed at providing technology-centric solutions.

In explaining why she has pursued this merger so aggressively, she also talked about the questions she had to ask within HP. “What does the future hold for tech companies tuned to 40 to 60 per cent growth rates? Where will growth come from as companies come to grips with this? What type of tech company do we want to be?,” she said.

From a historical perspective, it was fascinating to hear her posing these questions. I recalled having a similar discussion with Compaq co-founder Rod Canion back in the late 1980s about how he shaped the beginnings of the company. When he received the first US$1 million investment from investor (and later Compaq chairman) Ben Rosen back in 1982, he started creating a structure for the company based on the size he expected it to be – not on the size that it was. At that time, he expected Compaq to grow into a $200 million company and he created an infrastructure that could grow to that size without breaking.

Ironically, Rosen eventually unseated Canion in 1991 (and replaced him with Eckhard Pfeiffer) because he couldn’t navigate the growth of the company from $3 billion annually to something far beyond that. And in 1999, having gotten Compaq to a size of $30 billion and more, Eckhard Pfeiffer couldn’t sustain the size and growth after a number of major acquisitions (including Tandem and DEC) and was also shown the door.

The key to both departures was that the CEOs involved could not live up to expectations. But was that their fault – or a problem with the expectations? It seems that Fiorina wants to avoid their fate by keeping the expectations for the merged company clearly rooted in realism. She also seems mindful of the circumstances that brought Compaq to the point of having to be acquired by HP. And the mishandling of the Digital merger played a big role in creating those circumstances.

So when Fiorina talks about the need for the merger, she talks of survival and navigating change – rather than making huge and grandiose promises for a rosy future. “This is a world that will be driven by the democratization of technology and lower total cost of ownership – and that is why bold moves are necessary,” she said. “People will seek out the companies that deliver what they need and companies will narrow their focus and specialize. We knew we could lead that trend or be swallowed up by it.”

Fiorina also seems tempered by the battle to win the merger fight – tempered like steel. “The adversity we faced has brought the two organizations closer together,” she says. “A kite rises against the wind and not with it – we look forward to proving ourselves against tough odds and building a great company with it.”

In framing expectations in this way, Fiorina has set up conditions that should make it a lot easier for her efforts to be judged successful than those of many other high-profile merger-makers – each of whom talked about how they would “dominate” or “take over the space” or some such other macho phraseology.

Fiorina is only pledging a chance for survival. And hopefully that is not over-promising.

Wheelwright is a freelance journalist, author, sometime media broadcaster and interactive media industry executive. He most recently served as editorial director of StockHouse Media Corp.