Speeches

CARLY FIORINA
CTEA CONVERGENCE 2000
DETROIT, MICHIGAN
OCTOBER 17, 2000
"THE TRANSFORMATION ACCELERATES"

© Copyright 2000 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.

Thank you and good morning.

Detroit is a great place to spend a couple of days thinking about the Internet transformation and delivering on technology's promise. This city and its founding industrialists transformed our economy and our lives.

Henry Ford, by use of the assembly line, and Alfred Sloan, with his management methods, invented modern industrial production and modern corporate structure. And Walter Chrysler showed that if you could build technological innovations, like four wheel brakes and six cylinder engines, for a mass market, you could walk off with a big chunk of that market.

And Detroit the city, after some glitches in the 1980s, is today the capital of the world auto industry - again.

But this city and this industry have also looked into the abyss. We all know what's it's like to be on the wrong side of a revolution. And I would guess there are people in this room, just as in boardrooms and newsrooms around the world, who were still skeptical about the Internet five years - even three years - ago. They were still skeptical about e-commerce. They were still skeptical that things were really being transformed.

I don't think there are any doubters left - at least, not among those of us who work for a living.

What I call the Digital Renaissance is the biggest event, the biggest transformation, the biggest challenge that any of us have ever encountered.

It's also the biggest opportunity, especially for industries like this one - an industry that's demonstrated that you really "get" the revolution that's underway.

For an industry with such deep roots in the industrial age and truly big iron, no industry has gone as far in wiring itself inside and out and harnessing the value of the Internet age as this industry. I salute you for that.

What you've already learned and done as you've worked to become e-businesses will be of great value in the next phase of the Internet transformation.

Beyond that, I believe that, in partnership with IT and electronics companies who really get this next phase, you can create a geometric expansion of value wrapped around automobiles.

This morning, I'd like to look a little more closely at how much you've already been transformed. If I tell you what you already know, forgive me. But it's a good starting place for us to jump to the next level of transformation.

Then I'd like to show how the real promise and power for business in the next Internet era lies in capitalizing on the convergence of e-services, information appliances and always-on Internet infrastructure.

And I'd like to show how all of us will need to capitalize on this convergence, or intersection, to transform the customer experience, to transform the value creation process, and to transform entire industries in order to stay competitive.

THE AUTO TRANSFORMATION...SO FAR

But first, where are you guys now?

Like those of us in the technology business and everywhere else, you're halfway into the new world. For example, you know a lot of the old rules don't apply any more. You know things like push marketing, trying to do everything under one roof, even the old distinctions between companies and industries, are going away.

Nowadays you stay awake pondering things like: Am I really a vehicle manufacturing company? Or the builder of motorized wireless bases? Or the creator of mobile consumer services platforms? Or a global brand owner and aggregator?

And like us technology folk when we go to a trade show, you're looking at all the other people in the room you used to consider your enemy. And you're thinking strange thoughts like: Are they still my enemies, or my partners? It depends on which time of day.

And you're thinking: Where does my organization stop and our suppliers start? And on the customer end, you're thinking: How far out into the dealer and service world do we go, since by tradition or by law, we've never sold directly to the customer?

The answers a lot of you are coming to is that while your direct ownership covers a smaller chunk of physical assets - the idea, the vision, the process of creating Chrysler or Toyota or BMW, or HP - creating and building any global brand reaches everywhere now. But the physical tools, the hard infrastructure, the number of people, even the amount of capital you need is going down.

Before we go any further, maybe we need to deconstruct the transformation we've already undergone - a little group therapy, in case there are still any doubters.

First, customers and markets rule. "Push" marketing is doomed. "Pull" marketing is the only game. End of discussion.

Second, in the Internet economy, knowledge assets also rule. Physical assets are of secondary value.

Third, brand ownership is central to everything else. In the always-on Internet economy, everything coalesces around brand.

Fourth, the stand-alone product era is over. The new game is products wrapped in services. In the new world, everything will be intelligent, everything will be connected and literally everything can be considered as a platform for the delivery of services.

And last, companies and markets no longer run only vertically, or in parallel, or fit in compartments, or operate like machines. Everything spills over into everything else, functioning more like a living organism in an ecosystem of other organisms.

I also know that, to varying degrees, you are already walking this talk. You've been preparing - and in many cases, using - the Internet to reinvent yourselves from top to bottom.

You've been using the Internet to better serve and commune with the customer. DaimlerChrysler's consumer Web sites allow shoppers to configure vehicles online and search dealer inventories for vehicles. GM is preparing to tap the Web to harness its 70 million U.S. car owners, while GMAC looks at selling home mortgages. Ford's new Volvo S60 is being launched totally online, with no TV ads and no national print campaign. Toyota's Gazoo site is not only referring customers to dealers, it's also selling them CDs and books and linking to other vendors.

You are well into using the Internet to transform the value creation process. You are already practicing what I just preached about products as platforms for services. Vehicles are or will be the platforms for new electronic services, many of them Web-based, like navigation, autopilot, night vision, voice control, ordering ahead from restaurants, instant stock quotes, entertainment on demand.

You've been using the Internet to speed up and streamline your processes and slim down your costs. Supply chain and inventory management, spreading best practices, simplifying back office stuff - you've done it all. You're helping dealers, too, on things like service - even linking dealer mechanics with engineers at the factory to handle really tough questions.

You've been using it to empower and energize your employees. Ford recently offered its 400,000-plus employees PCs for home use at $5 per month. I think we had something to do with that deal. And in other industries, Intel, The New York Times, Delta and American Airlines are all doing the same thing.

You've been using the Internet to create new products and to find new markets and to build greater share value. Your designers and engineers all over the world are connecting online to fix, to brainstorm, to invent.

You've even been using the Internet to explore how you can be better corporate citizens and better stewards of the land, oceans and air.

That's where you are, in a nutshell. But where are you going? Where are we all headed, in this next, very exciting wave of the Internet revolution?

THE NEXT WAVE

The next wave of Internet transformation is probably going to go faster and deeper than what we've just lived through. Take a deep breath, and fasten your seat belts.

The very structure of all our companies is going to change. What exact form they will take is yet to be determined. A number of ideas are floating around. If you want one interesting road map, John Hagel III and Marc Singer of McKinsey argue that traditional corporations will have to go through a trial by fire to survive and succeed. They call this process "unbundling the corporation."

First, they say, traditional corporations will have to decide if they are a customer relationship company, a product innovation company or an infrastructure/administrative company.

Then, once they decide what they are, they will have to focus on that one core function and get rid of the other two. Spin them off. Outsource them.

I don't think it's quite that simple. At HP, while I'm always looking for efficiencies on the admin side, to the point of renting and outsourcing to get there, I don't know that I want to choose between pleasing customers or inventing great technology.

The reason I bring this up is to show the trend. The trend is that the structures we all grew up with (if we're over 40), the structures that Alfred Sloan and Peter Drucker formalized, are in question again. Unbundling is a good word, if only to show that the old, rigid relationships will all be in question.

So on one level, on the formal level, we will be unbundling the little micro-universes that once defined a corporation. The Internet is speeding this along. But this unbundling doesn't mean disintegration.

It just means the redefinition of relationships necessary to invent products and please customers.

After the pain and unbundling caused by the end of the Industrial Age, the next wave of the Internet transformation means a reconnection of a much larger system of players - customers, partners, brand-owners, engineers, marketers, manufacturers, financiers - in shifting, highly efficient, highly flexible networks, or rather, ecosystems.

That's what the next wave looks like at the structural level. But let's go down to the product and service level. What is this next wave all about?

At HP, we describe it as the coming era of e-services.

THE NEXT AGE OF E-SERVICES

We at HP started the discussion about Internet-based services - e-services - more than a year ago.

To refresh your memory, e-services are any process, any application, any asset that can be digitized and delivered over the Web. Believe me, if it can be digitized, it will be. This means services interacting with other services - dynamically, on-the-fly. Whole chains of transactions will be electronically brokered, behind-the-scenes, while you do better things with your time.

To make this happen, we'll need an always-on infrastructure reliable enough to support this relentless flood of transactions - an Internet-based infrastructure as available and reliable as water, as pervasive as the air we breathe.

And we'll be using millions of new information appliances. Basically anything with a chip will become a platform for the delivery of services - and an opportunity to serve customers, to drive revenue streams, to fuel growth. Not just smart phones and PDAs - smart eyeglasses, smart refrigerators, smart medicines.

This world is clearly emerging.

Take mobility. Digital mobility is a key component of my industry's future. It's the bedrock of your industry's future. Just as you revolutionized physical mobility almost a century ago, before my industry even existed, together we're going to bring physical and digital freedom together, for everybody's benefit.

And look at the market opportunity:

U.S. commuters spend an average of 1.5 hours per day in the car (San Jose Mercury News) - talk about a captive market.

Consumers will spend $24 billion for car-based mobile services by 2005 (UBS Warburg).

As a taste of what's ahead, just look at the market for mobile services delivered over cell phones now taking shape in Europe and Asia.

In the work we've been doing through our HP mobile e-services bazaars in Finland and Singapore, we've played a role in inventing the first generation of mobile services. Things like:

• Transactional services - such as banking and travel reservations
• Information services - particularly sports scores and real-time news
• Search services - think of yellow pages and translation services
• Entertainment services - like custom ringers and games
• Personal services - for calendaring or your address book
• Communications services - like SMS and mail

And the mobile market is just one of the more interesting Internet landscapes. There's the B2B Internet. The B2C Internet. The broadband Internet. And the nascent embedded Internet, where millions of everyday objects become wired and smart, doing everyday things for us while we do more important things.

At the consumer, individual level, we see a world where digital services - the pervasive information utility HP envisioned 20 years ago - is real. It's no longer mechanical and forced and overcomplicated: no more keyboards, no more incompatibilities, no more language barriers, no more high priests of IT holding the secret keys.

Put another way, we see a world where the three emerging forces of e-services, information appliances and always-on infrastructure are deeply woven into the fabric of our daily lives.

And we also see a marvelous opportunity to leverage the intersection of those three forces to transform business. Let me talk a moment about that opportunity, and what it means for all of us.

LEVERAGING THE INTERSECTION

Through leveraging the intersection of information appliances, always-on infrastructure and e-services, I believe that we truly have the power to transform business -- not just automate it.

E-commerce was about front-end automation, and e-business was about back-end automation. But now, leveraging the intersection of the three emerging forces is about having technology fundamentally change the way you CAN do business. It opens up a whole new universe of methods and strategies.

We see this business transformation power falling into three general areas:

• transforming the customer experience
• transforming the value-creation process
• transforming entire industries

TRANSFORMING THE CUSTOMER EXPERIENCE

What if you could reach your customers in totally new ways, wherever they were?

What if you could respond to their needs instantly?

What if you could change the customer experience, making it more convenient, more valuable, more integrated with the way customers do things?

What if you could extend the customer experience beyond the traditional boundaries of interaction?

The Internet is the greatest customer relations tool to come along since the invention of the telephone.

Think about it in the context of buying a car. Everybody in this audience is in a race to turn cars into mobile portals. Customized news and email services delivered to your car. Satellite navigation systems that provide warnings about upcoming road hazards, changing weather conditions or nearby gas stations. MP3-based entertainment systems.

And voice control, stability control, even autopilots. It's all for sale or in the works.

Wingcast and OnStar are Ford and GM's efforts to develop and deliver a slew of new technologies and services aimed at transforming the experience of driving a car and in so doing, creating a whole new set of revenue streams for both companies. In fact, the telematics market we're describing here is expected to be about $42 billion by 2010.

Now, let's bring this a little closer to where I work.

At HP, we're turning printers into smart Internet appliances.

Thanks to stamps.com, your printer is now your local post office. No more standing in line to buy postage.

Thanks to encryptix.com, your printer is now a ticket office for movies, for sporting events, for the theater. No more standing in line to buy tickets, because you can print them at home.

Through our partnerships with AT&T and Excite@home, you'll soon be able to print coupons to buy detergent while you're watching TV.

You'll be able to walk up to an HP printer with your cell phone and print your email messages or your customer presentation.

All of this requires new technology - HP intellectual property - in both the printers and the underlying infrastructure. Of course, our goal in all of this is to differentiate our printer franchise and create brand new revenue streams by transforming the experience we offer customers.

By the way, when you transform the role of printers in this way, by focusing on the relationship between e-services and appliances and infrastructure, the potential addressable market opportunity expands from $40 billion to $100 billion.

But we're playing in the automotive space, too. Our vision of embedded computing is backed by a strong solution suite, and some done deals. For example, we've signed a seven-year, multimillion dollar agreement with Delphi to embed our HP Chai virtual machine for Java applications and Chai graphics display software in a Delphi mobile multimedia product now in development. Delphi picked Chai because of its speed, small footprint and strong support environment.

As for making e-services real, true services-based computing requires capabilities and technologies beyond today's Internet server-based computing model, like security approaches that enable truly safe interactions between anonymous devices and systems, or the ability for Internet resources and services to advertise and locate one another to complete a task or a transaction, or the ability to manage multiple interactions between services simultaneously.

HP's e-speak technology is already doing a lot to address all this.

E-speak - today - enables the automated discovery AND interaction between Web services. It actually delivers capabilities significantly beyond those that generated so much hype in the recent Universal Description, Discovery and Integration (UDDI) standard announced by Microsoft, IBM and Ariba.

And e-speak is already proving its value. Hitel, a subsidiary of Korea Telecom and the country's leading ISP, is using the e-speak platform to establish an e-gaming portal that dynamically links game houses and players in real time.

SpinCircuit is a new Internet gateway that bridges the gap between electronics designers and the supply chain network. E-speak actively links all the steps in the chain, allowing design engineers to communicate and collaborate directly with component suppliers and other key supply chain participants during the design process.

Bodhtree Consulting in India is building a portal called wetheFuture.com that links students and industry. Using e-speak, the portal will link a student who wants to take a PC repair course from somebody with 10 years experience and a course in English Lit from a Harvard professor at specific times, only on certain days, and will automatically discover the right matches, negotiate on his behalf, compose the courses, deliver them to the student and bill him.

TRANSFORMING THE VALUE-CREATION PROCESS

Now let's move to transforming value-creation.

Though still more promise than proof, collaborative trading communities and exchanges have the potential to wring all of the efficiencies out of manufacturing and supply chain management processes by creating perfect markets. Markets where everything happens in real time and response times are zero. Where information flows freely so that all participants have access to the information they need. Where ALL goods and services are traded, creating a spot market for everything.

At HP, we've participated in online auctions to sell off excess inventory and buy parts in short supply. In this process, we've been able to trim our inventory costs by 30%, which translates into better margins and higher profits. We free up working capital that can then be poured back into R&D and product development, which improves the value creation process.

So we know from experience that participating in and mastering this new supply chain management model will transform the way companies create and deliver value.

Just last week, Jupiter predicted that the online B2B market would grow to $6.3 trillion by 2004 - that 80% of business-to-business transactions will be conducted online in 6-8 years.

Covisint - your auto material trading exchange - will be the biggest online trading exchange in the world, at least initially. Congratulations on the FTC approval.

For our part, we've partnered with 15 of the world's leading IT companies in creating what we hope will eventually become the globe's largest e-trading exchange for electronics - Ehitex.

This effort is still in its first phase, but its potential is huge. Analysts estimate that the computer and telecommunications equipment business already accounts for more $90 billion in online trade, and is expected to grow to more than a trillion dollars by 2005.

And the neat thing about trading exchanges is they don't serve only business. They can serve nonprofits - and so serve greater humanity.

ResourceLink is a trading exchange that brings millions of pounds of excess food together with needy people. Everybody benefits. Foodmakers benefit from a charitable deduction. The hungry benefit from a meal. And the environment benefits, because there's less waste headed for landfills.

Aidmatrix is another that aims to link business and charities together in order to improve access to things like food, clothing and building supplies. We're partnering with the i2 Foundation to make this happen.

TRANSFORMING ENTIRE INDUSTRIES

The point of all this is that all you need is one company in an industry to catch on to the power and potential of "inventing at the intersection" and they become the tipping point for their entire industry.

If one car manufacturer masters the model for turning cars into mobile portals, all other automakers have to follow.

The first broadcast company to link printing to television content in a meaningful way will transform this medium, creating value for viewers, for advertisers and for broadcasters.

That's just a quick view of what I see as the transformational power and opportunity of the next Internet era. What we need to keep in mind is that in this new world, transforming customer experience, transforming the value creation process and transforming industries are all inter-related. One triggers the other. They are all part of a larger transformation.

REINVENTING THE EMPLOYEE RELATIONSHIP

In this age of ever more esoteric technologies and devices and business models, it's too easy to be distracted from our most important asset - our people. All of us will be powerfully impacted by the next wave of the transformation.

The central lesson of the next wave is that every business needs the best people, with the best ideas.

The Internet transformation gives us the tools to get there.

People animate a business, even in the automated, always-on e-services world. They give it a creative and ethical intelligence that can't be duplicated. They give it heart and soul. And because the ultimate goal of all technology-driven business must be to serve people and customers - not just business plans and balance sheets -our people give business the human touch and perspective.

Just as importantly, the central lesson of the Internet transformation is that it's populist. It's grassroots, it's anti-hierarchy, it's anti-silo. It truly transfers power to the people.

As for knowledge, spooning out information on a "need-to-know" basis has been replaced by "Everybody needs to know." Every product, every solution, every company, every industry is now based on ideas. And ideas can and must flow from everywhere, not just from the top floor.

Internet solutions like E-learning are the company trainer's dream, letting employees learn on their own time and at their own speed, saving time, saving money, saving materials. The percentage of companies using e-learning is expected to grow from 21 percent this year to 51 percent over the next two years, according to The Forum Corp. And they won't only use it to train employees; they'll use it to train customers, too. According to Gartner, 42% of all e-learning will be directed at customers by 2003, compared to only 7% today.

Because it's populist, the digital transformation gives you the tools to communicate better with your employees - especially if they number in the thousands and are in dozens of countries. It gives you the tools to keep the whole organization's eye on the ball, aligned with the goals of satisfying customers. It also gives you the best tool to date for listening to their ideas and concerns. Jac Nasser says he gets 100 emails a week, and they all get read and answered.

CONCLUSION

Before I close, I want to bring us down from the higher reaches of business and technology transformation. Instead, I want to briefly look at grassroots transformation, at the molecular, man-on-the-street level. And not only on the street, also in the barrio, in the countryside, even in the jungle. Because I think these changes on the ground show more of the potential of what we're dealing with than the huge changes in companies and markets.

I think this grassroots-level transformation shows the defining character of this revolution, which is truly populist. And the inventive and empowering natures of the revolution lead me to call it the digital Renaissance.

There's no better evidence of the digital Renaissance than what's going on in India.

NIIT is a large computer training and software service firm in New Delhi. But their corporate headquarters adjoins a colony of squatters and day laborers. The scientists at NIIT literally tunneled a hole through the wall, and placed a PC there, facing the people outside, to see what would happen. And without any training, the kids there, from ages 8 to 11, have over time taught themselves how to use this PC - surfing the Web, downloading Hindi music, playing games and even landing 747s on a flight simulator.

In poor neighborhoods of the Philippines, where the traditional economy isn't doing so well, ad hoc cells of young programmers are joining together online to write code, do a project, start a business - all on homemade PCs banged together out of used parts.

And in the Amazon jungles of Peru, a tribe that says it has gotten nothing from 80 years of modernization other than poverty and disease is now saying that the Internet is the first piece of technology that really helps them. They've already boosted their incomes 10 percent by exporting organic fruit online.Their kids who have never left the village are chatting with other kids in Canada and Europe, and suddenly horizons that were once close and dark are now on the other side of the planet.

Keep all this in mind - from grassroots social change to planetary business change - as you explore and discuss new technologies over the next few days at this conference.

Because this revolution, this digital Renaissance, at its most basic says that for the first time, individuals without physical or material assets, with nothing more than an idea, or curiosity, or maybe nothing more than hunger, can create and invent. They can play in the global economy. And that's really transformational stuff.

Thank you. Enjoy the rest of Convergence.

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