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William Hewlett & David Packard

Maverick Managers
October 10, 2008
URL: http://www.entrepreneur.com/article/197644



William Hewlett & David Packard
Co-founders of Hewlett-Packard Co.
Founded: 1939

"What I'm most proud of is the fact that we really create a way to work with employees, let them share in the profits, and still keep control of it."-William Hewlett

Over the years, the name Hewlett-Packard (HP) has become synonymous with high-tech innovation. From its early days in 1939 right up to the present, HP's growth has been fueled by one technological breakthrough after another. But what really sets HP apart isn't technology, but the visionary management style created by HP founders William Hewlett and David Packard. Their policy of showing sensitivity to their employees' needs and giving their workers the chance to be creative in solving technical and business problems has made HP one of the most successful and admired companies in the history of American industry.

Bill and Dave, as HP employees affectionately refer to them, first met in the early 1930s while studying radio engineering at Stanford University in Palo Alto, California. Both avid outdoorsmen with a rabid fascination for electronics, the two became fast friends, spending many weekends camping and fishing in the wilds of the Colorado mountains.

After getting their degrees, Hewlett went on to graduate study at both Stanford and MIT, while Packard took a job in vacuum-tube engineering at General Electric. In 1939, Hewlett returned to Palo Alto, and he and Packard quickly renewed their friendship. Encouraged by Stanford professor and mentor Fred Terman to start a business of their own, the two young engineers raised $538 in start-up capital, set up shop in the one-car garage behind Packard's Palo Alto house, and flipped a coin to decide the company's name. Hewlett won the toss, and Hewlett-Packard was born.

The duo's first venture was an automatic foul-line indicator for bowling alleys¬. Although it was ingenious, the product really had no market. Undaunted by this initial failure, the two began working on a design Hewlett had outlined in his master's thesis-they created an audio oscillator, which they dubbed the HP200A. (Packard would later reveal that the name was selected to give customers the impression that they weren't dealing with an upstart company offering its first product.) The HP200A was designed to test sound equipment-and also tuned harmonicas. The second feature didn't do much for sales, but Walt Disney, at work on "Fantasia," bought eight of the devices.

Inspired by the sale to Disney, Hewlett and Packard decided to try selling their new product via mail order, so they sent out letters, mostly to university laboratories. A few orders trickled in, so they sent out more letters. At the same time, they began work on a new product. "We figured that if people needed the HP200A as a source of sound, they would also need something to measure it," Hewlett explains in an interview in Electronic News. "So we brought out a voltmeter to measure what happened."

During World War II (in which Hewlett served as a chief signal officer), Hewlett-Packard expanded rapidly to meet the needs of various defense projects. What began as a trickle of orders turned into a stream, and then a flood, which boosted company sales to $1 million by 1943. During that time, the company began developing what would become known throughout Silicon Valley as "The HP Way." This paternalistic set of practices and policies offered HP workers generous benefits, including medical insurance to cover catastrophic health problems, something that was virtually unheard of in business at the time.

After World War II, orders dipped, but the emerging technology of electronics quickly filled the void. Inundated with orders, HP was propelled into going public in 1957. As HP's product line expanded, so did its number of employees. More responsibility had to be delegated. The partners further refined "The HP Way" by establishing a novel management philosophy in which managers at all levels were given a wide berth to develop plans, make decisions and follow them up.

As Hewlett explains in Electronic News, "Dave and I set up this philosophy of management by objective. We felt that fundamentally, people wanted to do a good job, but they needed guidelines. So we set up corporate objectives."

In addition to increased autonomy for managers, the partners also increased the number of benefits they offered their employees. HP became the first U.S. company to offer workers flexible hours. It also introduced profit-sharing and established such management innovations as open offices and employee "coffee talks." This maverick management philosophy broke down the barriers between management and employees, encouraged creativity and innovation, and fostered the respect and trust of the workers.

As the number of HP's employees grew from the hundreds into the thousands, to maintain a small-business atmosphere, Hewlett and Packard divided the company according to product types, with each division having its own marketing, production and research groups. Support functions such as sales and advertising were handled by outside contractors. As a result, HP continued on the fast track throughout the 1960s, with the company growing from a single entity in Palo Alto to more than a dozen manufacturing divisions organized into four product groups.

The objectives Hewlett and Packard established in 1957 remained relatively unchanged until the company entered the computer market. As long as the company was in the instrument business, what one division did really didn't affect another. But the move into computers required a more integrated plan. "If you're going to have a new processor, you've got to have terminals and disks that operate with it," Hewlett explains in Industry Week. "So you can't have the same degree of autonomy that the old instrument-based division did." Despite this, realizing that autonomy was one of the main reasons for the company's success, Hewlett and Packard struggled to give their workers as much autonomy as possible. For example, instead of telling the disk division exactly what type of disks to create, Hewlett and Packard would simply give the division a general description of what was needed and let them optimize the design.

While HP continued to grow and prosper throughout the 1970s, Hewlett and Packard, both now approaching their 60s, began a careful withdrawal from active management. In 1977, Packard stepped down as chairman of the board. The following year, Hewlett handed over the title of president and CEO to HP executive John Young, but stayed with the company as chairman of HP's executive committee. He then became vice chairman of the board in 1983, where he remained until his retirement in 1987.

In 1990, Hewlett and Packard briefly returned to active management duties to spearhead an overhaul that is widely credited with revitalizing the company and preventing the losses and layoffs that plagued IBM and Digital. Hewlett left shortly after he helped right the listing company. Packard remained on as chairman until three years before his death in 1996.

Today, William Hewlett and David Packard are hailed as two of the nation's most respected businessmen and philanthropists. From a tiny mail order business started in a Palo Alto garage, they built a company whose technical excellence, innovative management practices and consistent commercial success will remain an inspiration and model for generations of high-tech entrepreneurs to come.



Packard The Patriot
For David Packard, the pursuit of excellence has always been more important than the pursuit of wealth. Hewlett-Packard's (HP) employee-centric management philosophy is one example of this. Another is the invaluable service Packard provided to his country during the Vietnam War. When President Richard Nixon was elected, he needed a skilled administrator to serve as deputy secretary of defense-one who could refine and reform the Pentagon's costly and bureaucratic procurement and management practices, as well as help implement Nixon's strategy for turning over responsibility for conduct of the war in Vietnam to Vietnamese forces.

Packard eagerly agreed to accept the position, voluntarily decreasing his salary from nearly a million dollars a year to about $30,000. Even with the sacrifice, congressional critics cried foul, pointing out that HP did $100 million in defense-related business each year and Packard owned nearly one-third of the stock in the company. To avoid a conflict of interest, Packard agreed that on the day he quit the Pentagon his Hewlett-Packard stock would not be worth one cent more than it was the day he walked in. As a result, during the three years Packard spent in Washington, he gave up nearly $22 million worth of stock-related profits.

When Packard resigned from his Pentagon post to return to HP in 1971, Defense Secretary Melvin Laird called him "the best thing that has happened to the Department of Defense since it was established."

The Little Garage That Could
In 1988, the one-car garage behind 367 Addison Avenue in Palo Alto, California, where William Hewlett and David Packard built their first oscilloscope, was officially designated as a California State Historical Landmark. A plaque placed on the lawn proclaims the garage as "The Birthplace of the Silicon Valley."