HP Churn: Boot 1, Hire 1

December 21, 2006

HP CHURN: BOOT 1, HIRE 1
HOW IS IT THAT HP HAS LAID OFF 45,000 EMPLOYEES SINCE ’02, BUT ITS TOTAL HEAD COUNT IS ABOUT THE SAME AT 150,000? CALL IT ‘CHURN,’ OR CREATING NEW JOBS WHILE CUTTING OLD ONES.

By Nicole C. Wong
San Jose Mercury News

What’s 150,000 minus 45,000? In Hewlett-Packard’s world, the answer is still roughly 150,000.

Since 2002, HP has laid off 30 percent of its employees worldwide to cut costs and improve operations. But sending all those employees away with pink slips or early retirement packages hasn’t caused a plunge in HP’s global head count – because the company continuously hired new workers while it escorted others out the door.

Hiring people while laying off others is called churn. And HP isn’t the only aging Silicon Valley vanguard that’s using churn to survive the onslaught from technological innovation and global competition. But the legendary computer company’s use of churn to help fuel its financial turnaround illustrates how the strategy has shattered the implicit employment contract that once bound America’s companies with their workers.

The technology industry titan that was started by two Stanford University graduates in a Palo Alto garage in 1939 had averted layoffs for nearly 60 years. When times were lean, HP coped by spreading the financial hardships among all employees and by training workers so they would possess the new skills that the evolving market demanded.

HP’s decision to embrace workforce churn puts it on the same path that many global companies have walked in recent years. On Wall Street, HP’s strategy is seen as a smart way to adapt to the changing market demands.

“It’s a natural thing to do,” said Brent Bracelin, a financial research analyst at Pacific Crest Securities.

Steven Cochrane, a senior economist who follows Silicon Valley’s labor market for Economy.com, said, “This is what you would expect in a dynamic industry or a dynamic economy. Understanding the churn is important to understand whether the industry is truly shrinking or whether it’s trying to change shape so it’s more competitive in the future.”

Churn is used commonly to mean all kinds of departures from companies, including voluntary resignations and those fired as well as those laid off. Looking at the intentional churn created solely by layoffs gives insight into how much companies are controlling how their workforce changes.

‘Disposable workers’
To some management experts, HP’s intentional churn represents a dramatic cultural change for one of Silicon Valley’s signature companies, whose workplace practices were once regarded as a model worldwide.

“HP was one of the holdouts of an older-style commitment firm,” said Diane Burton, an associate professor at MIT Sloan School of Management who has taught a popular Harvard Business School case study on HP’s pre-churn workforce practices. “Now they’re treating their people as disposable workers.”

Chief Executive Mark Hurd has explained the latest layoff plan as an ambitious agenda to cut back on jobs that have been putting HP at a competitive disadvantage. The company has been loaded down with too many workers in information technology, human resources and finance positions –  and not enough in revenue-generating jobs, such as sales.

“We are trying to get our cost structure right,” Hurd told HP business partners in September 2005. “And the places that the cost is coming out of are not the places where we’re adding cost.”

That’s true not only for the types of jobs, but also for where they’re located.

The global layoffs recently helped HP chisel away at an expensive workforce in the United States and Western Europe, and funnel work to lower-paid employees in Asia, Eastern Europe and Latin America, according to several HP executives in Europe.

“Some jobs are disappearing on-shore because the skills and the quality exist elsewhere at a much cheaper cost,” said Eric Grall, HP Services’ vice president of global delivery for Europe, the Middle East and Africa.

Read the rest of this article for free on the San Jose Mercury News’ website here.

One Response to HP Churn: Boot 1, Hire 1

  1. My former colleague, San Jose Mercury News columnist Chris O’Brien, updates the this story with HP’s hiring and downsizing stats thru 2009: http://www.mercurynews.com/chris-obrien/ci_14385203

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