When Carly Fiorina replaced Lew Platt as CEO and president of Hewlett-Packard in 1999, this company had mushroomed into a gigantic bureaucracy with business units doing their own thing. What's more, profits had fallen along with employee productivity and customer satisfaction. HP had become a technology laggard. Fiorina, the first female CEO of a Dow Jones-listed company, set out to transform HP from an engineering company to a leading technology solutions company - one that focused on the marketplace.  Fiorina immediately went to work to drive billions of dollars of operational cost out of the business, and to put a new strategic direction in place.

Her tenure as CEO was rife with controversy.  Fiorina's 2001 decision to merge HP with Compaq caused a firestorm among major stockholders. Thousands of Compaq employees got laid off because of the merger. In 2005, several HP board members disagreed with her about a company-wide reorganization. A board member had allegedly leaked information to The Wall Street Journal about the reorganization. I few days later Fiorina was ousted as CEO.

Fiorina's best selling book, Tough Choices - A Memoir, is her own account of what it took to become "The Most Powerful Woman in Business," according to Fortune magazine. Her book also gives you an inside look at the tough challenges and tough choices Fiorina faced as CEO of a 60-year old Silicon Valley venerable institution.

Fiorina recently sat down with enterpriseleadership.org to discuss the rationale behind changes she made at HP and to give her perspective on leadership.  Here's what she had to say.

EL. Why did you write this book?

CF: People ask me that in a variety of ways. I had to find closure and heal before I could write it.  I didn't want to write it hot. If the book was going to be interesting to people, it had to be about more than me. It had to be about why it could be relevant or familiar to them. To achieve this goal, I wanted to be cool by the time I wrote it.  I kind of had to be in the moment but also outside of it.

EL: Your role as CEO at HP was undoubtedly that of a change agent or transformation agent. Can you talk how you went about some of the other operational improvements and strategic decisions you made?

CF: Transformation agent is the correct term. First we had to really make some clear strategic decisions. HP was a collection of businesses that had grown up over time, but HP didn't have a strategic coherence. And the strategic decisions that we had to make were really three or four big ones.

First, we're going to be a leader. And that sounds so trite, but it's everything. We had a collection of businesses, some of which were good and some which weren't so good. Many of them were mediocre. And success was described as achieving according to the internally developed plan. We had to say we're going to be a leader in the businesses we chose to lead in. That means we are have to be number one or number two. It means that our customers and our competitors have to acknowledge this. This was a big strategic decision.

The second big strategic decision was we're going to, in the context of that leadership, be in both printing and imaging, and computers. Of course, we were already, but we had never thought through strategically why is being in both of these businesses a competitive advantage? How do we leverage the fact that HP is different from anyone else we compete against. And make it an actual decision as opposed to a by-product of history.

The third important decision we made was we're going to be a leading consumer company, as well as a leading business-to-business company. What does that mean?

The fourth really big decision was that we can't just deliver products.  This is 1999. Customers wanted solutions. We were now in the Internet connectivity network age. Standalone products weren't enough any more.

Those four strategic decisions were incredibly important, and they were decisions taken consciously with the leadership team. From those decisions flowed the operational choice to consolidate 87 business units in 17 managed by two technology groups. We said. 'If we're going to lead, we're going to have to leverage the capabilities that we have. We can't re-engineer the same stuff over and over again. For example, we had two technical groups and two market facing groups. We consolidated all of our technology production so that we could be more effective, as well as more efficient. And we consolidated our face to the market so that we could be more responsive to customers and to provide solutions, not just 87 different products through 87 different sales forces.

EL: How did you measure  success when you got to HP and how did you change it?

CF: We changed how we measured success. When I arrived at HP, success was measured according to whether or not you achieved your plan. People would generate a plan and if they achieved it that was success. The problem is that those plans weren't set against external benchmarks. They weren't set in the context of competitive performance, they weren't set in the context of customers' expectations. They weren't set in the context of shareholders' expectations.  This happens in a lot bureaucracies. The measures of success were all internally generated which delivers mediocre performance over time. That was one aspect.

The other aspect was bonuses were based on absolute levels of profitability. If absolute profits went up, people got paid more. If didn't matter whether the level of profit improvement was competitive or not. While we were missing nine quarters in a row, employees were getting record bonuses. We changed that internally driven absolute level of success model to something that we called the company performance bonus. And we set our plans relative to competitive benchmarks, and we set our bonuses relevant to whether or not we achieved those plans, developed in an external context. If we did better, people got more. If we missed the targets, then people got less. It was the first time that the measure of success had been changed in 60 years.

EL: Since the book has come out, you've added an afterward to the paperback which talks about values-based leadership, such as transparency and collaboration. Why did you feel that it was important to include that chapter and do see those values starting to come around in corporate America?

They were the values that drove the re-invention of HP in fact. Whether they are still driving HP, I don't know. I felt it was important to say it because it is what successful organizations have to focus on now. And that's true whether it is business, or government.  It doesn't matter. The Jack Welch 20th century command and control hierarchy doesn't work any more. It didn't work for HP because the transformation, whatever term you want to use, was so controversial. We were not only running up against very deeply held emotions about a company, and we were operating in a very difficult market.  Doing a merger contemporaneously with all of these corporate scandals was tough. It, however, was also controversial because these notions of horizontal collaboration and diversity were newer then in 2002, and 2003. We were at the cusps of that change. It was absolutely required.

EL: You were forthright in all of your dealings with  the board. Were they really reciprocating the same way you  were?

CF: Given all that happened, I'd have to say the answer is clearly no. On the other hand, I also believe that the dynamics in the board room changed very fundamentally because of the behavior of some people based on a very particular disagreement. When I described the fact we disagreed about how to reorganize the company and who to put in which job, it was the first time that we ever had a substantive disagreement. The board wasn't aligned at all in what it wanted to have happen. Two particular people were very strongly advocating a particular reorganization. I strenuously disagreed and it was the first time these three people, myself included, ever disagreed substantively. It changed the dynamics very dramatically. These people took matters into their own hands by going to the press.  I was transparent in my response to say this wasn't  acceptable; we can't operate this way. Ten days later I was gone.

It was a very tough situation of lessons learned. The board room debacle continued long after I left. I think it's an example of how a couple of very strong personalities can, in this case, take a group off course. In other words, people need to remember that in a board room, which still is a fairly closed environment, things need to be more open. However, it's still a fairly closed environment. Human dynamics can be really important and really impact what happens.  Business is not a machine. Business is people.

Like many successful people, one of the key board members was used to having his own way and operating independently without impunity Unfortunately, when you're talking about a big company, these two instincts are very destructive. When you sit on the board of a large company, you have a lot of latitude that others don't have.

As a leader your character is part of you. I believe that character is everything. In the end if you sell your soul, that's it. You've sold it all.

Author: Elizabeth M. Ferrarini - She is a technology writer  from Boston, Massachusetts. Reach her at elizabethferrarini@yahoo.com.