Chapter 135 - The HP Way: How Bill Hewlett and I Built Our Company
Today’s Chapter is based on the book “The HP Way: How Bill Hewlett and I Built Our Company” by David Packard.
David Packard was an American electrical engineer and entrepreneur who co-founded Hewlett-Packard (HP) in 1939 with Bill Hewlett. He served as HP’s president, CEO, and chairman, playing a key role in its growth into a leading technology company. Packard also served as U.S. Deputy Secretary of Defense under President Nixon from 1969 to 1971.
Here’s what I learned:
Contribution
“ It is the function of business to produce for consumption and not for money or speculation.”
— Henry Ford
David Packard, the co-founder of HP believed that a company’s existence should be anchored in a purpose greater than mere financial gain. In fact, he saw contribution, not just to customers but to employees and communities, as the cornerstone of a meaningful business. This philosophy, which became the HP Way, challenged the conventional view that profit is the sole objective of a company. Instead, he argued that a business should strive to make technical contributions to improve lives and strengthen communities, with profit serving as the result of these efforts.
In a speech to HP managers on March 8, 1960, Packard articulated this vision clearly: “I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper to find the real reasons for our being.”
This perspective set HP apart, fostering a culture where innovation was driven by a desire to solve real problems. In fact, Packard’s focus on contribution led to innovations that had far-reaching impacts, from calculators to automotive technology. His insistence on pursuing ideas that offered unique value, even when immediate applications were unclear, underscores the importance of long-term vision over short-term gains.
One example of this is HP’s work on light-emitting diodes (LEDs): “One of our most important contributions related to light emitting diodes. More than six years of research and development on light emitting materials was involved. Our work in other areas, such as solid state technology and integrated circuit technology, also contributed. We had LED work to the point where it could have been used in the early 1960s, but none of our divisions chose to use it. Despite that fact, Bill Hewlett and I decided we should keep this work going. It made the pocket-sized calculator possible in 1972 and it has become the display in many applications since.”
“The reason for our existence and the measure of our success is how well we are able to make our product.”
— David Packard
Similarly, Packard believed that employees working at HP must not be doing it for the sole purpose of making money. As a matter of fact, he believed it was HP’s responsibility to ensure that their employees feel like they are accomplishing something with their work. Packard mentions that “The individual works, partly to make money, of course, but we should also realize that the individual who is doing a worthwhile job is working because he feels he is accomplishing something worthwhile. This is important in your association with these individuals. You know that those people you work with that are working only for money are not making any real contribution. I want to emphasize then that people work to make a contribution and they do this best when they have a real objective when they know what they are trying to achieve and are able to use their own capabilities to the greatest extent.”
In conclusion, business, to Packard, was about leaving things better than one found them, through responsible technical innovation. The idea that profit was a result of this contribution, not the goal in itself, set HP apart. Profit mattered, but only as a justification for the company’s continued existence and a reflection of its value to the world.
“Last of all, I want to say that I have mentioned our primary objectives, but none of these can be accomplished unless the company makes a profit. Profit is the measure of our contribution to our customers—it is a measure of what our customers are willing to pay us over and above the actual cost of an instrument. Only to the extent that we can do something worthwhile, can provide more for the customer, will he year in and year out pay us enough so we have something left over. So profit is the measure of how well we work together. It is really the final measure because, if we cannot do these things so the customer will pay us, our work is futile.”
— David Packard
This reminds me of the concept of “Service over Profit” coined by Henry Ford, who similarly, understood that it is wrong to assume that businesses only exist for profit. In his opinion, business exists to provide services. In fact, after working in business for so many years, he came to these three conclusions:
(1) That finance is given a place ahead of work and therefore tends to kill the work and destroy the fundamental of service.
(2) That thinking first of money instead of work brings on fear of failure and this fear blocks every avenue of business—it makes a man afraid of competition, of changing his methods, or of doing anything which might change his condition.
(3) That the way is clear for any one who thinks first of service—of doing the work in the best possible way.
As such, Ford reminds us to not be too greedy for money when running a business, as that is the surest way to not get any. He believes that when one focuses on providing great services, then money will abundantly takes care of itself. As he once said, “For the only foundation of real business is service.”
He explains that “The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seemed to me to be reversing the natural process which is that the money should come as the result of work and not before the work. The second feature was the general indifference to better methods of manufacture as long as whatever was done got by and took the money.”
In Ford’s opinion, a business’s responsibilities to his customers do not stop once a sale is completed. As a matter of fact, that is only the start of it. For example, “In the case of an automobile the sale of the machine is only something in the nature of an introduction. If the machine does not give service, then it is better for the manufacturer if he never had the introduction, for he will have the worst of all advertisements—a dissatisfied customer.”
As such, when being a businessman, we must make sure to identify great products by the great services it provides to customers rather than by how much money we can earn by selling it.
Management by Objective
“What makes us so different from anyone else in our industry is that we take the inverted management structure so seriously.”
— Bernie Marcus
David Packard possessed a revolutionary belief for his time: that people, when trusted and given the freedom to excel, naturally want to contribute and do great work. He rejected the command-and-control hierarchies that was common in other companies, viewing them as stifling to creativity and individual potential. Instead, the HP Way was built on deep respect for the individual, fostering an environment where trust was the operating system.
As such, Packard believed that management’s role was not to micromanage but to empower. As he once said, “We must realize that supervision is not a job of giving orders; it is a job of providing the opportunity for people to use their capabilities efficiently and effectively.”
This philosophy manifested in concrete policies and practices. Hewlett-Packard was a pioneer in Management by Objectives (MBO), where managers and employees collaboratively set clear goals, and individuals were then given significant latitude in how they achieved them. This required deep trust.
“We feel our objectives can best be achieved by people who understand and support them and who are allowed flexibility in working toward common goals in ways that they help determine are best for their operation and their organization.”
— David Packard
This trust towards their employees led HP to implement a radical concept at the time: flexible working hours to employees. Packard explains, “To my mind, flextime is the essence of respect for and trust in people. It says that we both appreciate that our people have busy personal lives and that we trust them to devise, with their supervisor and work group, a schedule that is personally convenient yet fair to others.”
Furthermore, Packard insisted that managers truly understand the work of their teams, not to control it, but to support it effectively and set meaningful standards. In fact, he believed in what he called MBWA, “Management By Walking Around”, a term that was coined by one of his managers back when he worked at General Electric.
He explains, “I don’t argue that the job can’t be done that way but I do argue strongly that the best job can be done when the manager or supervisor has a real and genuine understanding of his group’s work. I don’t see how a person can even understand what proper standards are and what performance is required unless he does understand in some detail the very specific nature of the work he is trying to supervise.“
Finally, Packard also believed in a decentralized management and arranged HP’s organizational structure to prioritize autonomy at the divisional level.
“By the mid-1960s we had more than a dozen operating divisions, each an integrated, self-sustaining organization responsible for developing, manufacturing, and marketing its own products. A primary goal in setting up these divisions was to give each one considerable autonomy, creating an environment that fostered individual motivation, initiative, and creativity, and that gave a wide latitude of freedom in working toward common goals and objectives. We wanted to avoid bureaucracy and to be sure that problem-solving decisions be made as close as possible to the level where the problem occurred. We also wanted each division to retain and nurture the kind of intimacy, the caring for people, and the ease of communication that were characteristic of the company when it was smaller.”
— David Packard
This reminds me of the story of Alain Bouchard at Couche-Tard. When he first started in the convenience store industry, Bouchard was considered a small fish in the pond. What distinguished himself from the others was his understanding that money was made in the stores and not at the administration level. As such, he created a business philosophy that reflected this reality. As Bouchard once said, “At Couche-Tard, we are egoless.”
This idea of having no headquarters is definitely not unique to Couche-Tard. In fact, Bouchard was inspired by Jack Welch, the ex-CEO of General Electric, who was nicknamed Neutron Jack for his practice of cutting thousand of jobs in administrative positions which he often referred to as “bureaucracy”. Couche-Tard believed that when a company becomes too bureaucratic and hierarchical, the company becomes a factory for producing reports and analyses, but forgets about the concrete aspects — like the customer who comes into the store, and who needs good service so that he’ll return. Having no headquarters but a “service centre” solves this issue.
“Typically, says Bouchard, the stronger a company becomes, the more it tends to impose its procedures on all of its components. Couche-Tard’s strength lies in taking almost the opposite tack. “Our DNA is the local business model,” Bouchard says. “It’s the most important element. It’s what allowed us to build everything we’ve built.””
— Guy Gendron
Customers Needs
“There is only one boss: the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
— Sam Walton
David Packard’s commitment to customers was unwavering, viewing their satisfaction as the foundation of the company’s success. He believed that products should not only meet technical standards but also address genuine customer needs effectively and economically. This customer-centric approach guided HP’s product development and ensured that innovation was both practical and impactful.
Packard emphasized the importance of aligning products with customer needs. He mentions that “The fundamental basis for success in the operation of Hewlett-Packard is the job we do in satisfying the needs of our customers. We encourage every person in our organization to think continually about how his or her activities relate to the central purpose of serving our customers.”
This directive meant that customer needs were not just the concern of the sales department but a guiding principle for everyone in the company. Salespeople were expected to work closely with customers to recommend the most appropriate and effective solutions, ensuring that products fulfilled the customer’s overall, long-term needs.
“At HP we offer many different products to many different customers, and it’s imperative that the products recommended to a specific customer are those that will best fulfill the customer’s overall, long-term needs. This requires that our field salespeople-operating individually, in teams, or with other companies that add value to HP products and services-work closely with customers to determine the most appropriate, effective solutions to their problems.”
— David Packard
Packard understood that customer loyalty and repeat business were earned through consistent delivery of high-value products and services. This dedication to understanding and serving the customer, coupled with a focus on innovation and quality, created a virtuous cycle. Products that truly met customer needs generated profit, which in turn could be reinvested into further research and development, leading to even better products and continued customer satisfaction. This deep understanding of the customer relationship, viewing it as a partnership built on trust and value, was a critical factor in HP’s sustained growth and leadership in its chosen fields.
“The essence of customer satisfaction at Hewlett-Packard is our commitment to quality, a commitment that begins in our laboratories and extends into every phase of our operations.”
— David Packard
This reminds me of what we have learned from Sam Walton who had an unwavering commitment to providing exceptional customer service. Walton’s journey in the retail business began in small towns, hence why he developed a keen awareness of the unique characteristics of each community as well as its inhabitants. As such, he was able to succeed by meeting his customers’ needs and preferences. As he once said, “Every town has its own personality, and we needed to embrace that.”, and “If you don’t understand the customers in their environment, you might as well pack up and go home.”
As such, at the heart of Wal-Mart’s success lies in Sam Walton’s obsession with providing value to his customers. He mentions, “I learned this early on in our business: the secret of successful retailing is to give your customers what they want. And really, if you think about it from the point of view of the customer, you want everything: a wide assortment of quality merchandise; the lowest possible prices; guaranteed satisfaction; friendly, knowledgeable service; convenient hours; free parking; a pleasant shopping experience.”
This customer-first mentality wasn’t just a slogan, it was deeply embedded in how he approached every aspect of his business. He believed that if you served customers better than anyone else, success would naturally follow. This philosophy led him to implement a practice that was revolutionary at the time: discounting.
Sam Walton’s understanding of the power of discounting wasn’t a stroke of genius; it was a lesson learned early on, a simple principle with profound implications. He discovered that by lowering prices, even slightly, he could dramatically increase sales volume, resulting in greater overall profit. This wasn’t about sacrificing margins; it was about understanding customer behavior and recognizing the allure of a good deal.
Here’s how he explains it, “Say I bought an item for 80 cents. I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater.”
This focus on low prices was a core element of Walmart’s customer-centric philosophy. Walton believed that providing value to the customer was paramount, and that meant offering quality goods at the lowest possible price. He instilled this belief in his employees, emphasizing the importance of passing savings on to the customer whenever possible. This dedication to low prices and customer satisfaction became the driving force behind Walmart’s growth. It resonated with customers, who flocked to the stores for the unbeatable deals and the guarantee of satisfaction. Walton mentions that “The idea was simple: when customers thought of Wal-Mart, they should think of low prices and satisfaction guaranteed.”
“We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money.”
— Sam Walton
Beyond the Book
Listen to "#29 The HP Way: How Bill Hewlett and I Built Our Company" by Founders Podcast
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