Best Practices at Hewlett-Packard

Although not the consumer electronics company with the highest returns, we examine Hewlett-Packard's practices because they became the foundation for the entrepreneurial fountain of American innovation now known as Silicon Valley.

A heroic story of entrepreneurship, HP began in 1938 in a small one-car garage in Palo Alto with a group of buddies who shared an interest in electrical engineering developed at Stanford University. While searching for an initial product to manufacture, they found a "demand" for a lower priced audio oscillator design that they developed while at Stanford. A line of audio-frequency measuring devices soon followed. Encouragement and coaching from a member of the Stanford faculty helped identify suppliers and customers.

Helped by the war effort and defense spending (tremendous market growth), HP was able to internally finance 100 percent per year growth during the war despite an attempt by the government Contract Renegotiation Board to limit profits to a 12 percent return on equity. During the war effort, it developed expertise in microwave technology, which was a product line with little or no competition. HP continued to expand its product line supplying the needs of the growing U.S. electronics industry.