These are my notes on The HP Way: How Bill Hewlett and I Built Our Company by David Packard.

Not about adopting the HP way, but an example of the power of building a company based on a framework of principles.

Key Insights

• 5 fundamental concepts:
  1. HP exists to make a technical contribution:
     • Only pursue opportunities consistent with this purpose.
  2. HP demands of itself and its people superior performance.
  3. Best results come when you get the right people, trust them, give them freedom to find the best path to achieve objectives, and share in the rewards their work makes possible.
  4. Responsibility to contribute directly to the well-being of the communities in which it operates.
  5. Integrity.
• The principle that underpins every truly great company: preserve the core (what we stand for) and stimulate progress (how we do things):
  • Duality of continuity and change.
• Companies exist so a group of people are able to accomplish something collectively which they could not accomplish separately.
• Profit is the measure of how well we work together.
• Personal communication was often necessary to back up written instructions.
• To this day, HP has a profit-sharing program that encourages teamwork and maintains that important link between employee effort and corporate success.
• Our success depends in large part on giving the responsibility to the level where it can be exercised effectively, usually on the lowest possible level of the organization, the level nearest to the customer.
• If managers were to be guided by written objectives, they should have a part in developing them.
• Growth: as a measure of strength and a requirement for survival.
• No matter what the pay, the employee thinks they need about 10 percent more.
• One of the most important management tasks: Right balance between short-term profit and investment for growth.
  • R&D between 8 to 10% of sales.
• There is no shortage of ideas. The problem is to select those likely to fill a read need in the marketplace.
• Products should at least deliver profit six times the cost of developing them:
  • The products that beat the six-to-one ratio by the widest margin were the most innovative.
• Bill Hewlett “hat-wearing process” to keep inventors motivated on the face their ideas being turned down:
  1. Enthusiasm hat:
     • Listen.
     • Express excitement and appreciation.
     • Ask few gentle questions.
  2. Inquisition hat:
     • Few days later.
     • Lots of very pointed questions.
     • Thorough probing of the idea.
  3. Decision hat:
     • Shortly thereafter.
     • With logic and sensitively, deliver judgement.
• People want to do a good job.
• Individual freedom and initiative while emphasizing commonness of purpose and teamwork.
• Acquisitions main difficulty: Blending two cultures, operating philosophies, and a management styles.
• No operating policy has contributed more to HP success than the policy of “management by objectives”:
  • Employees must take sufficient interest in their work to want to plan it, to propose new solutions to old problems, and to jmp in when they have something to contribute.
• The best job can be done when the manager has a genuine and thorough understanding of the work:
  • What standards to observe.
  • What performance to require.
  • How to measure results.
• In no way charts dictate the communication channels.
• Most successful companies have a practice of promoting from within.
• A career in business would ill prepare me for the frustrations of government bureaucracy.

TOC

• Foreword
• Speech by Dave Packard to HP managers, 1960
• Chapter 2 - Friendship with Hewlett
• Chapter 4 - Gaining More Space
• Chapter 5 - From Partnership to Corporation
• Chapter 6 - Growth from Profit
• Chapter 7 - Commitment to Innovation
• Chapter 8 - Listening to Customers
• Chapter 9 - Trust in People
• Chapter 10 - Growing the Organization
• Chapter 11 - Managing the Organization
• Chapter 12 - Responsibility to Society

Foreword

• Not about adopting the HP way, but an example of the power of building a company based on a framework of principles.
• 5 fundamental concepts:
  1. HP exists to make a technical contribution:
     • Only pursue opportunities consistent with this purpose.
  2. HP demands of itself and its people superior performance.
  3. Best results come when you get the right people, trust them, give them freedom to find the best path to achieve objectives, and share in the rewards their work makes possible.
  4. Responsibility to contribute directly to the well-being of the communities in which it operates.
  5. Integrity.
• Cornerstone concept: contribution.
  • Not “How can we succeed?” but “What can we contribute?”
• The principle that underpins every truly great company: preserve the core (what we stand for) and stimulate progress (how we do things):
  • Duality of continuity and change.

Speech by Dave Packard to HP managers, 1960

• Companies exist so a group of people are able to accomplish something collectively which they could not accomplish separately.
• Individuals work for money and to accomplish something worthwhile.
• People work best when they have a real objective and are able to use their own capabilities to the greatest extent:
  • Management by Objectives instead of Management by Control.
• Supervision is the job of providing the opportunity for people to use their capabilities efficiently and effectively.
• They get an instrument to the place where it is about ready to go and the job is about half done.
• As a supervisor, tolerance is tremendously significant.
• Profit is the measure of how well we work together.

Chapter 2 - Friendship with Hewlett

• Terman: business opportunities were even greater for someone with a sound theoretical background.
• Personal communication was often necessary to back up written instructions:
  • Genesis of “management by walking around”.

Chapter 4 - Gaining More Space

• More businesses die from indigestion than starvation.
• It was better to have two companies (competitors) introducing a new product, especially if it incorporated new tech, because that made it all the more credible to the customer.
• To this day, HP has a profit-sharing program that encourages teamwork and maintains that important link between employee effort and corporate success.
• Build a group of complementary products, rather than becoming involved in a lot of unrelated things.

Chapter 5 - From Partnership to Corporation

• Hire top engineering graduates:
  • An important factor in the success of the company.
  • Honors Cooperative Program: qualified HP engineers to pursue advance degrees at Standford, while at full salary, with HP paying part of full tuition.
• To get cattle through the gate:
  • Best was to apply steady gentle pressure from the rear.
  • Too much pressure == panic and scattering.
  • Too little == cattle just head back to their old grazing spots.
  • This insight was useful throughout my management career.
• Our success depends in large part on giving the responsibility to the level where it can be exercised effectively, usually on the lowest possible level of the organization, the level nearest to the customer.
• 90 eng in product dev: restructure into 4 smaller, more efficient groups.
  • In also allowed a design engineer to concentrate on one customer.
• If managers were to be guided by written objectives, they should have a part in developing them.
• Objectives were meant to be evaluated from time to time and to be modified if necessary.
• 1966 objectives:
  1. Profit: best single measurement of contribution to society and ultimate source of corporate strength.
  2. Customers: continual improvement in quality, usefulness and value we offer our customers.
  3. Field of interest. Focus.
  4. Growth: as a measure of strength and a requirement for survival.
  5. Employees:
     • Share HP success.
     • Job security based on performance.
     • Personal satisfaction from a sense of accomplishment.
  6. Organization: that fosters individual motivation, initiate and creativity, and wide latitude of freedom in working towards objectives.
  7. Citizenship: contribute to the community which generate the env in which we operate.
• Any org develops a philosophy, a set of values, a series of traditions and customs: there are unique to the org.

Chapter 6 - Growth from Profit

• Financing growth primarily out of earnings rather than borrowing.
• Employee stock purchase plans provided significant amounts of cash:
  • Mistake: allow people to immediately sell stock.
• No matter what the pay, the employee thinks they need about 10 percent more.
• Self-financing requires constant vigilance and self-discipline.
• It is often more practical to acquire a company by an exchange of stock than by outright purchase.
• Good new products are the lifeblood of tech companies.
• One of the most important management tasks:
  • Right balance between short-term profit and investment for growth.
• R&D between 8 to 10% of sales.
• Introducing a product at a price too low to make an adequate short-term profit, with the thinking that costs will go down in the future and enable good profit, rarely works.
• Capturing market share by undercutting competitor’s price results in little or no profit.

Chapter 7 - Commitment to Innovation

• There is no shortage of ideas. The problem is to select those likely to fill a read need in the marketplace:
  • Ideas must be practical and useful.
  • Useful == fill a need + economical + efficient.
• Products should at least deliver profit six times the cost of developing them:
  • The products that beat the six-to-one ratio by the widest margin were the most innovative.
• Bill Hewlett “hat-wearing process” to keep inventors motivated on the face their ideas being turned down:
  1. Enthusiasm hat:
     • Listen.
     • Express excitement and appreciation.
     • Ask few gentle questions.
  2. Inquisition hat:
     • Few days later.
     • Lots of very pointed questions.
     • Thorough probing of the idea.
  3. Decision hat:
     • Shortly thereafter.
     • With logic and sensitively, deliver judgement.
• HP strives to add something new and different:
  • This was a hindrance in entering the PC field.
  • We have to learn that the contribution HP can make is in ease of use, speed, reliability and affordability.
• Sometimes management turn down of a new idea doesn’t effectively kill it:
  • How to distinguish between insubordination and entrepreneurship?
    • The difference lay in the intent: the engineer just wanted a success for HP.

Chapter 8 - Listening to Customers

• Vice President of Marketing wanted our sales engineers to make the customer’s side in any dispute with the company.
• We are not selling hardware; we’re selling solutions to customers problems.
• Salespeople to never speak disparagingly of the competition.
• Gains in quality come from meticulous attention to detail and every step in the manufacturing process must be done as carefully as possible, not as quickly as possible.

Chapter 9 - Trust in People

• People want to do a good job.
• High management positions must not only be enthusiastic themselves, they must be able to engender enthusiasm among their associates.
• Each person is important and every job is important:
  • Little details often make the difference between a quality product and one that isn’t as good.
• Individual freedom and initiative while emphasizing commonness of purpose and teamwork.
• As the company grew, we could no longer take teamwork for granted:
  • Why profit sharing are provided not to selected individuals but to all eligible employees.
• My wife started the practice of buying a wedding gift for every employee who married and a baby blanket for every family having a baby:
  • Helped create a sense of belonging.
• Picnics were an important part of the HP Way.
• The underlying principle of HP’s personnel policies became the concept of sharing:
  • Responsibility for defining and meeting goals.
  • Company ownership through stock purchase plans.
  • Profits.
  • Opportunities for personal and professional development.
  • Burden by downturns in business.
• Keep storerooms and part bins open:
  • Builds trust.
  • Allow those who wanted to work out new ideas at home or on weekends.

Chapter 10 - Growing the Organization

• Decentralized in order to retain emphasis on individual responsibility and achievement.
• Each division aimed to be autonomous.
• Company growth allows ample opportunity for personal growth and progress.
• Acquisitions useful for expanding a company’s technology and gain quick entry into new markets.
• Acquisitions main difficulty:
  • Blending two cultures, operating philosophies, and a management styles.
• Split divisions when they are about 1500 people.
• By 1990, 65 divisions organized into 13 product groups.
• Widely decentralized companies should be alert to signs of cumbersome centralization.

Chapter 11 - Managing the Organization

• No operating policy has contributed more to HP success than the policy of “management by objectives”:
  • Employees must take sufficient interest in their work to want to plan it, to propose new solutions to old problems, and to jmp in when they have something to contribute.
• Peter Drucker:
  • In emerging org, the skeleton or internal structure is a combination of mutual understanding and responsibility.
• The best job can be done when the manager has a genuine and thorough understanding of the work:
  • What standards to observe.
  • What performance to require.
  • How to measure results.
• Managing by walking around:
  • If done reluctantly or infrequently, it just won’t work.
  • It needs to be frequent, friendly, unfocused and unscheduled.
  • It requires good listening.
• Open door policy:
  • Benefits outweigh interruptions.
• In no way charts dictate the communication channels:
  • An individual is expected to seek information from the most likely source.
• Nothing beats personal, two-way communication for fostering cooperation and teamwork and for building an attitude of trust and understanding.
• Managing succession is especially critical at the upper levels:
  • Responsibility of managers for selecting and training their potential successors.
• Yearly review of division operations by top-management:
  • One whole day + dinner.
  • Key people asked to make a presentation as a way to assess their manager training and development responsibilities.
• Most successful companies have a practice of promoting from within.

Chapter 12 - Responsibility to Society

• A career in business would ill prepare me for the frustrations of government bureaucracy.
• The betterment of our society is not a job to be left to a few; it is responsibility to be shared by all.