During the late 1990s, HP, the second largest computer manufacturer in the world, faced major challenges in an increasingly competitive market. In 1998, while HP's revenues grew by just 3%, competitor Dell's rose by 38%. HP's share price remained more or less stagnant, while competitor IBM's share price increased by 65% during 1998. Analysts said HP's culture, which emphasized teamwork and respect for co-workers, had over the years translated into a consensus-style culture that was proving to be a sharp disadvantage in the fast-growing Internet business era. Analysts felt that instead of Lewis Platt, HP needed a new leader to cope with rapidly changing industry trends Responding to these concerns, in July 1999, the HP board appointed Carleton S. Fiorina (Fiorina) as the company's CEO. Fiorina implemented several cost-cutting measures to streamline the company's operations. Some of the measures included forced five-day vacation for the workers and the postponement of wage hikes for three months in December 2000. In January 2001, HP laid off 1,700 marketing employees.

In April 2001, Fiorina announced that HP's revenues would decrease by 2% to 4% for the quarter ending April 30, 2001 due to the decrease in consumer spending. In yet another move to cut costs, in June 2001, employees were forcibly asked to take pay-cuts. More than 80,000 employees volunteered saving the company $130 million.
Things became worse when the HP management announced that it would lay off another 6,000 workers in July 2001, the biggest reduction in the company's 64-year history. The management also sent memos saying that the layoffs would continue and that the volunteering for pay-cuts would not guarantee continued employment.

In September 2001, HP and Compaq Computer Corporation announced their merger. According to company insiders, once the merger was implemented, Fiorina was likely to lay off another 15,000 to 30,000 employees as a part of a major cost saving drive. The merger was expected to yield cost savings upto $2.5 billion primarily because of layoffs.
The steps taken by Fiorina surprised analysts. They said that these steps were a major departure from HP's organizational culture - 'The HP Way' of promising lifelong employment and employee satisfaction.

According to the company insiders, though change was necessary, employees' morale had suffered badly. Many employees had lost faith in Fiorina's ability to execute her plans. They also felt that her changes were destroying much of the company's cherished culture. HP Vice-President for Human Resources Susan Bowick admitted, "Morale statistics are lower than we've ever seen them." They also explicitly communicated their beliefs and values to the employees