Chapter 19 - Building a Great Business

Great CEOs in the computer sector share two overriding characteristics: the vision to discern potentially disruptive forces in technology, business model, and/or their own company’s organization structures; and the steadfastness to make the necessary changes even over the objections of their own executive cadre. Both Watsons, An Wang, Ken Olsen, and Lou Gerstner exhibited these characteristics, as we’ve seen. So did Paul Ely, who built Hewlett-Packard’s successful computer business.

HP was the most energetic and farsighted of the minicomputer companies, with strong management closely attuned to technology rhythms and noticeably less dependent on a single, dominant personality like Bill Gates, Larry Ellison, Steve Jobs, and the other star walkers.

In 1939, Bill Hewlett and Dave Packard formed their partnership in “the Garage,” later landmarked as the spawning pool of Silicon Valley. A coin toss determined the sequence of names atop a company led by lifelong alter egos. HP became known for superb quality, dogged innovation, and conservative economics. The philosophy built around “The HP Way” was legendary:

All these axioms worked marvelously for the instrumentation and measurement markets that dominated the first thirty years of the company’s existence. Pundits regularly named HP among America’s best- managed companies and cited its laudable growth and profitability.

In 1978, Bill and Dave, then in their sixties, retired from active management without the age-defying bravado of other founders, remaining as directors for another decade. Yet they stayed active within the company and occasionally disruptive.

HP entered the IT segment in the mid-1960s hawking an instrumentation computer and, two years later, the first programmable electronic calculator. Both were competently planned and well executed, as was its next offering, the HP 2000 mini. But in 1969, the near collapse of efforts to develop the HP 3000 initiated a period that insiders later recalled as “seven years in the wilderness.” The product was announced at the fall Joint Computer Conference in 1971, with first delivery promised for August 1972.

The early machines were full of problems, including the “twenty- four-day bomb,” which destructively reset the internal clock after twenty-four days of continuous operation. Ultimately, the HP 3000 was withdrawn from the market in the spring of 1973. Customers were actually urged to “decommit” their orders by a young marketer, Ed McCracken. That debacle drew widespread press burns in Computer World and elsewhere. Worse for Bill and Dave personally, remembered a survivor, was an “unflattering” case study by the Stanford Business School, the mind spring of the Silicon Valley phenomenon. The botched launch was so awful that it even drew special mention in the 1973 annual report: “Placed on the market in 1972, the 3000’s initial performance did not meet traditional Hewlett-Packard standards. The product has since been modified and its capabilities enhanced by improved software.”