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The HP Way: Dave Packard on How to Operate a Company

In 1960, David Packard gave an informal speech that wasn’t originally intended for publication. In fact the speech only surfaced again during the debate over the merger between Hewlett Packard and Compaq. At the time the leadership of HP portrayed themselves as doing exactly “what Dave Packard would have done.”

As a rebuttal to this dubious use of language, David Packard Jr. published a full-page ad in the Wall Street Journal (March 15, 2002) reprinting a wonderful speech his father gave in the ’60s to a group of HP managers. Nothing could be better evidence of the philosophy than the words, delivered on the job from his father.

The speech, which can be found in The HP Way: How Bill Hewlett and I Built Our Company, dealt with a number of subjects including why a company exists, the difference between management by objective and management by control, how to manage people, the importance of financial responsibility and more.

Packard opens his speech by saying “I think this is going to be crucial in determining whether we are able to continue to grow and keep an efficient organization and maintain the character of our company”.

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When discussing why a company exists in the first place, Packard writes:

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 and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so they are able to accomplish something collectively which they could not accomplish separately. They are able to do something worthwhile— they make a contribution to society (a phrase which sounds trite but is fundamental).

[…]

So with that in mind let us discuss why the Hewlett-Packard Company exists. I think it is obvious that we started this company because Bill and I, and some of those working with us in the early days, felt that we were able to design and make instruments which were not as yet available. I believe that our company has grown over the years for that very reason. Working together we have been able to provide for the technical people, our customers, things which are better than they were able to get anywhere else. The real reason for our existence is that we provide something which is unique. Our particular area of contribution is to design, develop, and manufacture electronic measuring instruments.

[T]he reason for our existence and the measure of our success is how well we are able to make our product.

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As for how the individual person fits into these efforts, Packard hits on the difference between management by objective and management by control:

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. This is a basic philosophy which we have discussed before— Management by Objective as compared to Management by Control.

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Continuing, Packard hits on the notion of what it means to supervise someone:

In other words when we discuss supervision and management we are not talking about a military type organization where the man at the top issues an order and it is passed on down the line until the man at the bottom does as he is told without question (or reason). That is precisely the type of organization we do not want. We feel our objectives can best be achieved by people who understand what they are trying to do and can utilize their own capabilities to do them. I have noticed when we promote people from a routine job to a supervisory position, there is a tremendous likelihood that these people will get carried away by the authority. They figure that all they have to do now is tell everyone else what to do and quite often this attitude causes trouble. 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. I don’t mean you are not to give orders. I mean that what you are trying to get is something else. One of the underlying requirements of this sort of approach is that we do understand a little more specifically what the objectives of the company are. These then have to be translated into the objectives of the departments and groups and so on down.

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While Steve Jobs famously said that focus is the ability to say no, Packard approached focus from another angle:

The other objective which is complementary to this and equally important is to try to make everything we do worthwhile. We want to do our best when we take on a job. … The logical result of this is that as we concentrate our efforts on these areas and are able to find better ways to do the job, we will logically, develop a better line of general purpose measuring instruments.

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Getting the product to the customer is only half the job.

In engineering, there are two basic criteria that are uppermost in the definition of what we hope to be able to do. As we develop these new instruments, we hope they will be creative in their design, and they will provide better ways of doing a job. There are many examples of this— the instruments our engineers have developed this last year give us some good examples. The clip-on milliammeter, the new wave analyzer, the sampling scope— all are really creative designs. They give people who buy them methods of making measurements they could not make before those instruments were available. However, creative design alone is not enough and never will be. In order to make these into useful devices, there must be meticulous attention to detail. The engineers understand this. They get an instrument to the place where it is about ready to go and the job is about half done. The same applies in the manufacturing end of the program. We need to produce efficiently in order to achieve our slogan of inexpensive quality. Cost is a very important part of the objective in manufacturing, but producing an instrument in the quickest manner is not satisfactory unless at the same time every detail is right. Attention to detail is as important in manufacturing as it is in engineering.

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It’s not about what you sell, it’s about the problems you solve.

We certainly are not anxious to sell a customer something he does not want, nor need. You may laugh, but this has happened— in other companies of course, not ours! Also, we want to be sure that when the instrument is delivered, it performs the function the customer wanted.

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Packard, ever the financial conservative, offers a timeless lesson on financial responsibility:

Financial responsibility is equally important, however different in nature. It is essentially a service function to see that we generate the resources which make it possible for us all to do our job.

These things translated mean that in addition to having the objective of trying to make a contribution to our customers, we must consider our responsibilities in a broader sense. If our main thought is to make money, we won’t care about these details. If we don’t care about the details, we won’t make as much money. They go hand in hand.

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On the company’s responsibility to employees:

We are not interested only in making a better product. We feel that in asking you people to work for us, we in turn have an obligation. This is an important point and one which we ask each of you to relay to all the employees. Our first obligation, which is self-evident from my previous remarks, is to let people know they are doing something worthwhile. We must provide a means of letting our employees know they have done a good job. You as supervisors must convey this to your groups. Don’t just give orders. Provide the opportunity for your people to do something important. Encourage them.

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On the contentious question of whether a manager needs to understand the realities of their people, Packard offers a clear rebuttal of the argument that management skills are sufficient.

Some say you can be a good manager without having the slightest idea of what you are trying to manage, that the techniques of management are all important. There are many organizations which work that way. 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.

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As to what traits management should exhibit

Tolerance is tremendously significant. Unless you are tolerant of the people under you, you really can’t do a good job of being a supervisor. You must have understanding— understanding of the little things that affect people. You must have a sense of fairness, and you must know what it is reasonable to expect of your people. You must have a good set of standards for your group but you must maintain these standards with fairness and understanding.

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Lest you think Packard was a socialist, he argues that profits are the only path towards achieving the management philosophy he laid out.

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.

 

If you liked this you’ll love:

11 Simple Rules For Getting Along With Others — More timeless advice from David Packard deepening our understanding of his philosophy on work and life.

The Four Types of Relationships and the Reputational Cue Ball — Thinking about the fundamental lesson of biology — the need to survive — offers a potent lens through which we can view our relationships.