"More businesses die from indigestion than starvation"

The quote above comes from a new book by David Packard, The H¥Way (Harper Business, New York, 1995), which is essential reading for those of you who have been following our Business Engineering series by Milton Chang of New Focus. By the way, that series has provoked the largest response we`ve ever had from our readers in terms of phone calls, letters, and e-mail. So we know many of you hanker after starting your own business.

"More businesses die from indigestion than starvation"

Jeffrey Bairstow

Editorial Director

The quote above comes from a new book by David Packard, The H¥Way (Harper Business, New York, 1995), which is essential reading for those of you who have been following our Business Engineering series by Milton Chang of New Focus. By the way, that series has provoked the largest response we`ve ever had from our readers in terms of phone calls, letters, and e-mail. So we know many of you hanker after starting your own business.

As is well known, that`s just what Dave Packard and Bill Hewlett did a few years after they both graduated from Stanford University. The book is a somewhat dry but nonetheless interesting account of how Hewlett-Packard went from a garage-sho¥operation that had first-year sales of $5369 (1939), to a multinational company that had $25 billion in sales in 1994 and employs close to 100,000 people. Packard quietly notes, "We made $1563 in profits [that first year]. We would show a profit every year thereafter." That`s an enviable performance for any company.

One factor that runs through The H¥Way is that Packard often sought out advice and listened carefully to what others had to offer. The comment about more businesses dying from indigestion than starvation came from a retired engineer who had been asked to advise Wells Fargo Bank on the risk involved in lending money to the fledgling Hewlett-Packard Company. Packard says, "I have observed the truth of that advice many times since then." Now David Packard is giving us the benefit of lessons he and his partner learned that have become the H¥way of doing business.

A key tenet of the H¥philosophy that the two founders held to most strongly was a commitment to innovation. Packard says, "To this day, H¥continually strives to develo¥products that represent true advancements." One such product was HP`s first, an audio oscillator that was a runaway success. Another innovative product was a laser interferometer introduced in 1970. The interferometer could measure distances of u¥to two hundred feet with an accuracy of a millionth of an inch. "H¥has been number one in the market [for laser interferometers] ever since," notes Packard. A similar and even larger success was the LaserJet printer introduced in 1984. HP`s laser printers have become the standard by which others are judged.

But even more important, in my view, is Hewlett-Packard`s treatment of its employees. In an era where ruthless cost-cutting has critically eroded loyalty of both employer and employee, it`s refreshing to read that David Packard believes that H¥must put its trust in people. The underlying principle of HP`s personnel policies is the concept of sharing--sharing the defining and meeting of goals, sharing in ownershi¥(through stock purchases), sharing in profits, sharing personal and professional development, and even sharing the burden of downturns.

Packard tells the story of sharing a downturn in the early 1970s. Rather than lay off some 10% of its employees, the company went to a schedule of working nine days out of every two weeks--effectively a 10% cutback. In six months, business recovered and the company went back to a full schedule. H¥kept its people and kept the trust of those people.

It`s also truly remarkable that Hewlett and Packard continued to play leadershi¥roles in the company as it grew from zero to a million dollars to a billion dollars and beyond. Many entrepreneurs never learn the skills to manage a large organization successfully and have to hand over the reins to "professional" managers and executives who may not have the founders` philosophies at heart.

Two factors contributed to this extra ordinary longevity, in my view. The first was the establishment of "management by objectives" (MBO). The MBO technique requires that a team participate in goal setting and determine how best to achieve those goals. Packard wryly points out that MBO is hardly new-- the Athenians demonstrated its principles more than twenty centuries ago when they defeated the rigidly directed Spartans.

The second key principle is that of "management by walking around" (MBWA), a technique Packard learned from his earliest days at General Electric. It`s a simple technique that doesn`t require an MBA or decades of experience. A manager can learn much more by walking around and listening than by asking questions from behind a desk or by chairing a meeting. It`s a sure-fire way of making sure that your team isn`t beginning to suffer from indigestion.

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