Carly Fiorina (4)

Hewlett-Packard's chairman and CEO, Carly Fiorina, now has the opportunity to face that historical challenge. After a six-month proxy fight that at turns resembled theater, political campaign and personal vendetta, Fiorina emerged as the winner in her fight to consummate the $18 billion HP-Compaq Computer merger, the largest in IT history.

But the victory could yet prove hollow if Fiorina can't deliver on the promised benefits. "We are in a governing mode now," acknowledges Fiorina, 48. "And we are integrating these companies at or ahead of schedule. So we feel good about where we are, but we have to keep executing and we have to keep executing with our partners in an environment that is less and less forgiving over time."

Ironically, forgiveness is the commodity most needed if the new HP is to prosper, say current and former HP employees. "She is charismatic and an excellent sales and marketing person, and I also witnessed what a great leader she was when she first brought the [HP] general managers together," says Michael Cox, HP's former senior vice president and general manager of enterprise sales for North America, now executive vice president of sales and delivery at Bloomington Hills, Mich.-based U.S. Logical, HP's largest North American solution provider. "I know she can lead, but she can't lead if she's lost the respect of the masses. And that's the one thing I worry about."

Indeed, winning the trust of the former Compaq employees and regaining the respect of legacy HP employees may well be Fiorina's greatest challenge. Former director Walter Hewlett struck a chord with HP employees during the bitter proxy fight that caught Fiorina off-guard, HP insiders say. Hewlett succeeded in making the proxy vote a referendum between the old HP co-founded by his father, William Hewlett, and the new HP of Fiorina. Hewlett portrayed the HP of his father as a company that disdained layoffs and held employees in the highest regard, while Fiorina's merger plan called for workforce reductions at both HP and Compaq of 15,000. In HP's 401k plan,the only place where employees were guaranteed anonymity in their proxy votes,the numbers were 2 to 1 against the merger.

"When she first got here, she was out among the troops like crazy," says one former HP executive, who asked not to be identified. "But when employees became aggressive, angry and opinionated during the proxy fight, she tended to shy away."

Fiorina took the helm at HP in 1999 after a long stint at Lucent Technologies and immediately began to reshape the staid, engineering-focused HP into a more customer-driven marketing machine. Already reeling from the culture shock wrought by the changes, many HP employees were jolted by the proposed merger with Compaq, announced on Sept. 4, 2001. Fiorina, a history and medieval philosophy major at Stanford University with business degrees from the University of Maryland and the Massachusetts Institute of Technology, staked her's and HP's future on the merger. Fiorina code-named the deal after the French medieval philosopher Abelard. She has repeatedly said the timing of the deal was fortuitous in that it came during the worst slowdown in IT history, buying some valuable time for HP to consolidate its forces and prepare to do battle. What's more, Fiorina said HP and Compaq combined created a company that was No. 1 in enterprise storage, No. 1 in Windows servers, No. 1 in Unix servers, No. 1 in PCs, No. 1 in management software, No. 1 in imaging and printing and No. 3 in IT services.

But her oft-repeated refrain, "This deal is not about PCs," has shades of meaning that could yet sabotage her efforts, solution providers say. Walter Hewlett warned that the Compaq acquisition would plunge HP too deep into the low-margin PC business. But that point is moot to many solution providers, who fear Fiorina will succumb to the high-volume, supply-chain-oriented PC business model and transfer that mentality to the higher-margin, solution-oriented enterprise space. "Initially, I was upbeat on her toughness and businesslike approach," says Todd Barrett, networking sales manager at CPU Sales & Service, Waltham, Mass. "But we're a little concerned that she doesn't get it that [solution providers] actually create demand and that we can steer people away from products based on [which vendor] is going to work best with us."

Fiorina is quite frank in her message that HP will do more direct business in the future. "The honest answer is we have to do more business direct everywhere because more competitors are doing it and customers are demanding it," she says. "That is not to say that channels won't continue to be a very important part of our strategy. %85 But the direct distribution model is more cost-effective for certain customers who do not need or want the additional value that a channel or solution provider gives them. That's just the way it is."

HP employees and solution providers want her to be equally forthright in stating the advantages the channel gives HP against direct vendors such as Dell Computer. "The channel creates demand, and I'm concerned Carly is not of the same strong opinion on the demand side of the equation," Logical's Cox says. "But I've got to believe she's smart enough to realize that the channel is critical to HP's success."

Some insiders have attributed Fiorina's direct stance to a heavy influence from former Compaq executives, among them current HP President Michael Capellas.

But even former Compaq executives holding senior positions in the new HP long for a tougher channel stance from their leader. "Our long and strong channel relationships are what differentiate us from Dell and will allow us to win the fight going forward," says one senior HP executive, who asked not to be identified.

Fiorina needs to act quickly to enlist the channel and HP employees behind HP's market leadership positions and translate them into shareholder value. In HP's fiscal third quarter ended July 31, the first quarter for the combined company, it reported revenue of $16.5 billion, down 11 percent from the $18.6 billion for the year-earlier period on a combined company basis. Moreover, it lost $2.5 billion for the period vs. a loss of $116 million for the combined companies' year-earlier quarter.

So when will the economy turn around? Fiorina laughs. "That's the million-dollar question," she says. "For sure not this year. We continue to hope for 2003."

If the post-merger turnaround at HP doesn't come soon, Abelard's most important book, "Story Of My Calamities," may end up being Fiorina's story as well.

Mills, in his third year as chief of IBM's $13 billion software business, oversaw its decision to stay out of applications and focus on core competencies in middleware, including its Lotus, Tivoli and DB2 lines.

For the effort, CRN readers voted Mills, along with several other IBMers, to be among the year's most influential executives.

"Steve Mills has been an excellent shepherd of the IBM Software portfolio. He's done a nice job of both preserving the existing base as well as growing into new markets," says Constantine Photopoulos, president of Eden Communications, Saratoga Springs, N.Y., an IBM and Lotus business partner.