Agilent Reworking the HP Way In the Face of a Frightened Market

Swaying from side to side, Maya Angelou glorified the power of elbow grease.

Back in small-town Arkansas, her maternal grandmother, "Mama," fried up meat pies outside the local lumberyard. "The aroma would sing in the air," and the workmen would stream out to buy them for a nickel. If there were leftovers, she'd run miles to the next factory and sell the extras at a discount. The next day she'd start at the factory, and run over to the lumberyard with any excess. Finally, she set up shop on the road between them, so the hungry men could do the running to get her pies.

Go ahead. Scratch your head and ask what this had to do with anything.

It has to do with Agilent (A Quote - Cramer on A - Stock Picks), the newest defender and extender of the HP way made famous by Hewlett-Packard's (HWP Quote - Cramer on HWP - Stock Picks) founders. Agilent is a company striving for the character to fend off a frightened market that wants assurances from its tech leaders.

Agilent beat first-quarter earnings estimates, but had little to offer when it came to second-quarter predictions. Nonetheless, Agilent refuses to give in to Wall Street's panic. Motorola(MOT Quote - Cramer on MOT - Stock Picks), Corning(GLW Quote - Cramer on GLW - Stock Picks), WorldCom(WCOM Quote - Cramer on WCOM - Stock Picks), and even Fortune's "America's Most Admired" list top-10 finisher Dell(DELL Quote - Cramer on DELL - Stock Picks) responded to economic pressure by laying off employees. Early in its life as a standalone company, Agilent's posture is that it stands to gain more by not laying off employees. The company held its two-day Agilent Women's Conference for workers at the end of February, modeled from a similar conference held every few years at Hewlett-Packard, and featured Angelou as its kick-off speaker.

More than 1,500 Agilent employees traveled to the Santa Clara (Calif.) Convention Center from 18 different countries and across the U.S. for a lineup of motivational speakers on day one and a second day dedicated to grass-roots organizing inside Agilent's different business segments.

It took a little of the courage Angelou peddled to do it at all.

Three days earlier, Agilent took a pink eraser to its previous blueprints for fiscal 2001 in its first-quarter conference call. CFO Bob Walker instead sketched in the testing and measurement spinoff's financial expectations for the year, drawing a third-and fourth-quarter finish that could be OK ($1.70 cents a share earnings for the year), or could be ghastly ($1.30 cents a share for '01).

CEO Ned Barnholt admitted in an interview after Angelou's speech that three weeks before the event, when earnings visibility dropped below three months, Agilent management thought about calling the conference off. Bye-bye "Chicken Soup for the Soul" author Jack Canfield. No more "The Confident Woman."

Undaunted, Agilent decided to lift up its chin and move ahead. "The staff and I decided this is an investment in our people. This payoff is longer term than next quarter's earnings. We're going to have business cycles, ups and downs in the economy, but I'm trying to position the company as strong as possible. When we come out of the cycle, we'll be ready to roll."

Since the 1999 spinout announcement, Barnholt and his team have pushed to take HP's employee satisfaction and mix it with a businesswise kick in the butt. Agilent brought together 200 top managers for a six-session, two-day interview to figure out what kind of company they wanted Agilent to be. As a result, the company not only got to get a new name and logo, it got to cook up its own culture and values.

Relying partly on the HP way and partly on goals for innovation and growth, employees have a new system for personal financial incentives. When it comes to their base pay, employees get ranked on their contribution, strengths and potential. Similarly, 800 top managers are on a "pay for results" plan that takes into account the Agilent values espoused in their groups --diversity being one of the heavily stressed categories at the conference -- "based on how they live the values," Barnholt says.

On top of base pay, Agilent ripped out the traditional HP profit-sharing model for its Agilent Rewards Bonus. This variable bonus system rewards employees when their divisions and the company are doing well, but slims down when results don't meet expectations. Walker and Barnholt referred to the plan in that first-quarter earnings call, saying that when times are tough, the entire company's pay shrinks.

Barnholt speaks with more than his usual thoughtfulness when discussing the potential for layoffs at Agilent. "I've never been a fan of layoffs in tough times," he says. "If we exit a business, or decide to outsource manufacturing, that's a business decision. But to hire when business is good and then reduce the workforce when it isn't, just doesn't seem like good business."

And so Agilent went forth with a day with little direct, traceable effect on the bottom line. Given the blanket of economic fog covering the technology industry, it made little near-term sense. It's up to the long-term performance of a well-encouraged workforce to prove Agilent's leaders right.