Box 3, Folder 39 – General Speeches
March 25, 1982 – “The Human Side of Management,” University of Notre Dame, IN
3/25/82, Copy of typewritten text of speech (See also speech May, 1992, Random thoughts on The HP Way)
In talking about this subject Hewlett says he would like to draw upon “almost 43 years of direct shared-management responsibility in a company that Dave Packard and I founded in 1939 – a period that saw the company grow from just two people to one that now employs about 65,000 people. I particularly want to talk about the importance we placed on the individual from the very beginning. In no way do I want to suggest that we have ‘all the answers’, or that this is the only way to do it. But sometimes it helps to go from the abstract to the concrete, and so with this in mind let me tell you a little bit about the development of Hewlett-Packard Company.”
He reminds his audience that both he and Packard were products of the great depression, which influenced their decisions on how a company should be run. They did not want to run a ‘hire and fire’ operation, sought achieve a loyal and dedicated work force. And they thought this work force should, to some extent, share in the progress of the company. “Secondly,” Hewlett says, “we wished to operate, as much as possible, on a pay-as-you-go basis, that our growth be financed by our earnings and not by debt.”
When they first started out Hewlett and Packard did almost every job in the place from sweeping the floors to keeping the books, to inventing the products. They were so small they had to hire whomever they could and train them, hoping they would work out. Implementing their belief that employees should share in the progress of the company they initiated a production bonus plan. The idea was to pay 30 percent of sales to employees through pay and bonus. The same percentage was paid to everyone from janitor to top manager.
Hewlett tells of the production manager they had who was not working out in spite of all their efforts to improve his management skills. They had to release him, but Hewlett says the decision “is still with us, and in subsequent years has led us to make every effort to find an appropriate niche for a loyal employee.”
In another early situation in the 1940s Hewlett tells of the employee who came down with Tuberculosis and had to take a two year leave of absence. They were able to provide some financial help for the employee and his family, but they concluded this was a problem they had to solve on a permanent basis. They established a plan for catastrophic medical insurance to protect employees in situations like this.
In the early years they had to work with the people on hand. They had to sort out employees according to their abilities, their education or training background. Hewlett says many of those employees are still with the company, a number in key management positions despite the fact they never went to college. On the other hand some were “forced to recognize that there were limits to their future progress in the company. Hewlett says they “…worked hard to deal with this problem and, almost without exception, were able to find appropriate jobs for them within the organization.” In this way they were able to preserve their workforce.
Hewlett says for a considerable time they did not have a Personnel Department. “We had strong convictions that one of a manager’s most important jobs was to deal directly with his employees. We did not want to impose any artificial barriers to hinder direct communication.”
Hewlett describes another technique they employed. “The informal structure of the company led to what was eventually known as the ‘open door’ policy. In a sense this said that any employee could come in and talk with Dave or me or any other senior executive about his problems. Although such a technique could easily be abused, it never was, and it served as an excellent safety valve for the frustrations that occur in any organization.”
Hewlett says 1957 was a turning point for the company. “Up to that time,” he says, “HP was directed by the owner-founders operating in a single plant in Palo Alto, California. Most of the basic policies that directed the company were firmly in place, and we had a good team of people running the operation.
“But there were signs of strain appearing. I think the principal concern Dave and I had was that, as it increased in size, the company might lose the intimacy we felt was so important to the organization. Therefore, in January 1957, Dave and I took the top ten or twelve people of the company on a weekend retreat to discuss the future of the company, and to decide what action might be taken to insure its continued success.”
As a result of the conclusions reached by this group they decided to divisionalize the company along product lines. “We felt,” Hewlett says, “that by reducing the size of the operating units and decreasing the span of control, we would provide an opportunity to recapture the personal touch that everyone felt was so important. The managers of these divisions would assume direct responsibility for the health and welfare of their charge, but they would need some guidance. Second it seemed that this guidance could best be achieved with a simple set of policy statements. In fact, these statements consisted of no more than a codification of past company policies.”
Hewlett summarizes these statements. The first relates to profit and sets a specific target, and says that “all the other things we wish to achieve rested on the success of this first objective.”
The second deals with and defines our product line; “…we should concentrate on the things we know and do best.
The third objective relates to customers and stressed “inexpensive quality.”
The fourth objective in part reads, “To provide employment opportunities for HP people that include the opportunity to share in the company’s success which they make possible, further, to provide for their job security based on their performance, and to provide the opportunity for personal satisfaction that comes from a sense of accomplishment in their work.”
On the matter of job security Hewlett says “The objective of job security is shown in a number of ways. Hewlett-Packard has attempted to avoid large ups and downs in its production program because these large ups and downs would require that we hire people for a short period of time and lay them off when we do not need them. It is evidenced by the fact that we have attempted to be lenient with some of our older employees who, as we have grown, have not measured up to the standards we might have reason to expect. But in the interest of those employees who are carrying their full load and who are growing with the company, we have not felt committed to accept anything like an absolute tenure status. Nor do we feel that this policy implies that we must recognize seniority except in cases where other factors are reasonably favorable.”
“The fifth objective dealt with meeting the obligations of good citizenship, while the sixth spelled out our policy on growth.
“These objectives are somewhat similar to the U.S. Constitution – a document expressing basic ideals subject to current interpretation and to amendment. If you look at our objectives, as they exist today, you would see how little they have changed despite a hundred-fold increase in sales and a 50-fold growth in employment. And instead of a single plant operation, [we are] a company operating with over 50 management units in about 32 countries around the world.”
The recommendations of the 1957 meeting were quickly implemented by divisionalization and by wide distribution of the objectives. “But,” Hewlett says, “these were not the only changes that took place at Hewlett-Packard that year. For one, the company changed from a privately held corporation to one that was publicly traded. With our stock now on the market, we were able to reward many of our employees with stock bonuses. These bonuses went to a wide variety of officers and employees who had played important roles in the company’s past performance.
“We concluded that the time had come to have a corporate personnel department with a clearly stated role: to support the management team. In no way was it to supplant the direct manager/employee relationship which we considered so important.
“In the next three years, basic changes continued to occur. 1958 saw expansion into the European market with sales headquarters in Geneva, Switzerland. To expand our product line we made the first of several acquisitions. A stock option plan was instituted not just for the top few managers, but with the thought that a broad distribution of relatively small options (100 shares) could have real value as a formal indication of a job well done.”
Going on describing changes, Hewlett says a second manufacturing plant was established in 1959, not in the U.S. but in Germany. A second acquisition was made in 1959 and an employee stock purchase plan was implemented. An employee stock purchase plan with a 25% subsidy plan was established for employees.
1960 saw the establishment of a manufacturing plant in Loveland, Colorado, and a cash profit sharing plan was established to replace the former production bonus plan. A key question was whether the bonus be based on individual plant performance, or should the benefits be spread uniformly through the corporation? The decision was that it be determined on the basis of corporate performance, so as not to sow the seeds of discord among divisions.
Looking at HP four years after the establishment of divisions and the concept of management by objectives, Hewlett sees considerable progress. “From an operation in a single plant and a unified management structure with sales of about 20 million dollars, and about 1200 employees, it had grown to a complex organization, with 10 divisions operating in four locations inside the U.S.- and with employees and sales each increased by approximately 2 1/2 to 1.”
Hewlett says he feels the new management structure had been tested and it worked. “The recipe was simple: 1) have objectives; 2) explain and teach them; 3) gain agreement with modification if necessary; 4) have everyone share in the success of achievement; and 5) be egalitarian to assure that communications are open.”
He notes that the system worked even in a place like Germany, a place with very different traditions and background. He says they had greater problems with some of the U.S. acquisitions, particularly where they had operated under a more autocratic rule.
Hewlett says he will not “burden” his audience with a year by year description of developments over the following years. “Suffice it to say we greatly reduced our expansion via the acquisition route and turned more to internally generated concepts. By far, the most important of our expansions was in the computational area, first in the scientific and technical area, more recently in general applications.
During the following years Hewlett says they continued to give the development and welfare of their people a high priority. “We have not been afraid to experiment with new ideas,” he says. An example would be doing away with the concept of time clocks and implementing flex-time. Under this plan there is a window for starting work of about two hours, say 6:30 to 8:30 AM. Employees put in their eight hours and then may leave.
An idea involving a four-day week of ten hours each did not work out well and they dropped it. But another plan combining vacation and sick leave into a single package “greatly simplified the complex problem of sick leave accrual and should do much to solve this difficult problem.”
“One of the most dramatic examples of working with our employees,” Hewlett says, “occurred during a recession in early 1970. It became evident that we had about 10% more employees than we needed for the production schedule. Rather than lay off or furlough 10% of the work force, we simply decided that everyone in the company would take every other Friday off without pay. It worked very well. Employee after employee commented how much they appreciated the opportunity for continued employment, albeit at a reduced pay rate, when on all sides they saw people who were out of a job.” After about six months of this they were able to return to their regular schedule.
Hewlett says there are many ways they try to take their employees’ wishes into consideration. “One is to pay heed to the area of the country in which an employee would like to work. This cannot always be achieved but, by and large, much can be done.
“Many companies have a policy saying that once an employee leaves you, he will not be eligible for re-employment. We have had a number of people leave us because opportunities seemed greater elsewhere. We take the view that as long as they have not worked for a direct competitor, and if they have a good record they are welcome back. They know the company, need no retraining, and usually are much happier for having had an additional work experience.”
Hewlett sees HP’s policy of providing an “open door” for employees who feel they have not been treated fairly the right to talk to higher levels of management about the problem as a way management can get direct feedback on how employees feel. Hewlett says they also want more general feedback from employees. “One way we have tried, and which has been fairly successful, is a technique we call ‘communication luncheons.’ A senior executive will visit a division and ask to have lunch with a group of employees, 15 or so at the most; no supervisors are invited.”
“The format is very simple. After light conversation to break down the barriers, usually an employee will ask a question about something in the company that he does not understand or with which he is unhappy. This provides an opportunity to discuss company policy or company problems. Sometimes these items are trivial, sometimes the ‘word’ has not gotten down; sometimes the problems are strictly personal and must be treated with great care so as not to interfere with the supervisory process.”
Hewlett describes another approach which they tried to obtain “feed back on how our U.S. people felt about the company.” They employed the services of a company to survey employees with several objectives in mind:
- “Give employees a chance to express their opinions about the work place
2. Provide an opportunity for the company to listen to employees’ concern and to
3. Compare HP with other large companies with regard to the attitudes of employees, and
4. Set a standard, or benchmark, for future surveys, possibly in other parts of the HP world.”
Hewlett says “the responses to this survey were very positive. It was clear that the people liked the survey itself as a way of communicating their views. But it was not a one-way program: the survey results were made known to the employees and, where there appeared to be deficiencies, positive remedial actions were taken, and these were reported. The recommendations for flexible time off came from this source.”
In summing up the matter of employee feedback, Hewlett says “What I have been endeavoring to demonstrate is that there are many creative ways by which an organization can learn the needs of employees and thereby work with them to help them develop a better life style – a happier work place, a more meaningful existence – all at practically no added cost to the organization.”
“The United States is rapidly discovering that it must be competitive in world markets, and that both cost and quality are factors. Productivity is the name of the game, and gains in productivity will come only when better understanding and better relationships exist between management and the work force.
“We must find better solutions to the adversary relationships that have so long dominated the American labor scene. Management is in a position to take the lead in such a new relationship. Managers have traditionally developed the skills in finance, planning, marketing and production techniques. Too often the relations with their people have been assigned a secondary role. This is too important a subject not to receive first-line attention. In this regard we could learn much from the Japanese. We must reinvest in the human side of management.”
Box 3, Folder 40 – General Speeches
May 17, 1982 – Dedication of HP Plant at Evry, France
Text of speech handwritten by Hewlett
“I am very sorry,” Hewlett says, “that I cannot address you in French. It is my loss.
“Yesterday I was taken to Claude Monte’s garden in Givereny and enjoyed it greatly. I couldn’t help but think of what the wonderful impressionist artists such as Monte, Renoir, Monet gave to the world through their art. I also remember the great contributions to science by such people as Pasteur, in the biological sciences, and the Curies in the physical science.”
“”It was no coincidence that just about 7 years ago we completed our first plant in Grenoble and how successful the organization has been. Indeed we have just completed a second plant on the same site, roughly doubling our present space.”
“We are finding a great synergy between such technologies developed in our own laboratories in the U.S. and the highly trained and educated work force in France. It is exciting to see such technologies transplanted to French soil and now flower.
“We see now an efficient force in Europe with our French operation. France is the 4th largest exporter in the world and we are doing our share with 80% of the product made in France being exported. There are at the present time no Americans in management positions in France.
“It is no accident that we have taken an option on a parcel of land of about 60 hectares near Lyon to provide space for further expansion.”