COLLEGE OF HEALTHCARE INFORMATION MANAGEMENT EXECUTIVES (CHIME)
SPRING CIO FORUM
SAN DIEGO, CALIFORNIA
FEBRUARY 9, 2003
© Copyright 2003 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.
… I wanted to come here to say, among other things, how proud we are to be partners to this industry. One thing that we've always believed at HP is that great organizations are not simply defined by the company they are, but also by the company they keep.
For more than six decades, and from a heritage that includes work through HP, Digital, Tandem and Compaq, we have worked hard to earn your trust, to be a good partner, to build relationships that span across generations in technology. And I want you to know that at HP todayjust like in the pasteverything we are starts with our customers and our partners. We know that nothing happens unless you're willing to buy from us and trust us, and unless you're willing to do it again and again.
I come to you today from a company that has never thought conventionally about itself or its role in the world. Perhaps one of our founders, Dave Packard, put it best when he wrote: "Many assumewronglythat a company exists to make money. The real reason HP exists is to make contributionsto improve the welfare of humanity, to advance the frontiers of science. Profit is not the proper end of management. It is what makes all the other aims possible."
In our day, we describe this as doing well and doing good, and that wisdom is still the foundation of everything we do, and a good part of the reason why we have always felt a special connection to the healthcare industry.
I know that all of you are proud of the public service you perform every day, but it's sometimes hard to think about the soft-hearted virtues of your profession when you have to deal with the hard-edged realities of doing business in this industry in the information age. I think that CIOsall of you in this industrydeal with a double-whammy every day that executives in other industries simply don't have to deal with. On the one hand, all of you are dealing with the fundamental reality that all CIOs face in today's IT world; namely, the realization that the economicsthe value proposition for information technologyhas to change. To us, the customer agenda is the only agenda that really matters. Remember the days in IT when stability was the name of the game, when you never touched a running system unless it was broken? Those days are gone. No matter what industry you are in, the name of the game today is speed and agility.
Companies have to react quickly to change or they wither on the vine. Technology cannot be a boat anchor that holds a company or an organization back. Technology must be a business acceleratora competitive weapon that drives success. Now, our own CIO, Bob Napier, has a favorite phrase. He says that "every business decision triggers an IT event." Think about it: Every business decision triggers an IT event.
HP's IT department handles more than 500,000 business-driven IT events every week. How do you deal with that much change? And of course, I'm not talking about the kind of change that results from extraordinary business events like mergers or acquisitions; I'm talking about everyday business decisionschanges in pricing, changes in the supply chain, changes in capital markets, a new employee. These business decisions don't happen in a vacuum; they don't happen in discrete silos. Each decision triggers a change across the entire business infrastructure: HR systems, finance systems, supply chain systems, our employee portal. For IT managers, this means that the IT infrastructure needs to be able to manage change.
Change, as it ripples through IT systems, must be predictable and manageable. Infrastructure must be designed to give IT departments the ability to control the impact of change. Infrastructure must be able to flex with the business, whenever the business demands itwhich leads me to another favorite saying of our CIO: "If you get the infrastructure right, everything is possible." He ought to know. He had to manage one of the biggest infrastructure integration projects ever in our industry and frankly, ever in the history of industry.
The problem is, as I mentioned earlier, most current IT infrastructures were built to be stable, not to react quickly, which is why one survey found that the business environment is changing seven times as fast as the underlying IT applications. So IT managers, no matter what industry they're in, spend half of their time finding stopgap fixes to outmoded solutions that can't keep up with yesterday's demand, let alone today's. Or worse, you've invested millions in a system that doesn't necessarily talk to the old system, and yet, business cycles and budgets no longer support custom-built hardware and software to meet those needs. And so, all the while you are pressed to do more with less. And on top of it all, the rapid transformation to digital content across every industry means that over the next three years, IT managers will see more content createdcontent that of course also has to be manipulated, and managed, and mined, and distributed, and storedmore content created in the next three years than has been created in the entire history of mankind.
And yet, after a long hard day at work, most IT managers go home and turn on the television set, perhaps to see commercials of big, blue-colored boxes aimed directly at the line of business guys, which say: "Your IT managers promised you the world, they promised you pixie dust and time machines and magic binoculars and they failed. It's time to hire us."
Now, you'll have to forgive me if we at HP take a little bit of offense to that approach. HP has always been first and foremost a company of inventors and engineers. While IBM's fluency may bethey claimin the language of business, we think we speak the language of CIOs. IT managers are our people. We don't think IT managers should be rejected. We think they should be empowered and that's the space we aim to fill.
If you listen to IT managers today, these are the questions they are asking: How do I reduce complexity? How do I manage change? How do I get a better return on my IT investment? How do I lower the cost of acquiring and operating IT so that I can apply those savings toward projects that drive real competitive advantage?
You can only make progress if you truly rationalize and leverage the investments you have already made and make sure the investments you've made in technology flex and adapt with your business requirements.
And just as important, we think, are some even more practical questions: Do I, as a customer, have freedom? Can I choose the pieces I want? How do I, as a CIO, stay in control of what is core to my business and my success, because the last thing I want to do is hand the keys of the kingdom over to somebody else?
There has been a great deal written in recent months, and indeed in the last couple of years, that this change in your requirements and your questions that I've been talking about for the last couple of minutes is a cyclical change driven by an economic slowdown. And of course, that's part of it. When times are tough, we all spend more time thinking about value.
But I think we would make a big mistake if we thought that only cyclical economics were at work here. The truth is that this change is not cyclical; it is fundamental, it is structural, and it is permanent. The value customers place on lower IT acquisition costs, the value they place on lower IT operating costs, the value they place on vendors' scope and scale and sustainabilitythese are here to stay. And these changes will therefore be with us long after the economy comes back. I believe customers will never again accept technology for technology's sake.
But now for that double whammy I was talking about. We know well that while healthcare information technology executives have to deal with all of those changes and all of these new realities, there is a whole separate list of challenges that are unique to this industry. You constantly have to weigh a difficult balance between technological innovation and human fragility.
For starters, as you all know painfully well, for most CIOs in other industries, if they don't do their jobs well, productivity can suffer and profits can be lost. If all of you don't do your jobs well, lives can be lost. And that gives a whole new meaning to the words "mission critical."
On every issue facing hospitals and healthcare systems today, whether it's reducing administrative costs, improving the care delivery process, enhancing access to information, securing the medical records of patients, streamlining clinical workflow, or improving the quality of care, IT solutions are a big part of the answer, as they are in every other part of our lives.
But the biggest hills to climb are not technological, they're human. As I mentioned earlier, medical mistakes in hospitals take more lives each year than car accidents, breast cancer and AIDS. More than one million serious medication errors occur every yearoften with tragic consequences, and the reasons are some of the most human reasons possible: illegible handwriting by physicians, serious drug overdosing from simple decimal point errors and overlooked drug interactions and allergies. As many have demonstrated, a computer physician order entry system has been proven to reduce the rate of error by more than 50 percent in some hospitals.
But of course, as is always true with technologies, the technology solutions to human challenges beget more human challenge: How do I get people to help me implement this the right way? How do I get doctors who have been walking their rounds with clipboards for decades to use a simple tablet PC? How do I find time to get clinicians to learn about this stuff the right way? How do I implement across our enterprise with the workforce that includes part-time, and full-time, and temporary workersany one of which could represent a breakdown in the system?
And then there's cost. There is tremendous pressure on all of you to buy new solutions, but you can't afford to throw out the stuff you've invested millions of dollars in already. And it's not like people are lining up to give you money to spend; in most of the industries that we deal withand by the way, we have today one billion customers around the world, so we deal with a lot of customers in a lot of industriesthe average IT spend across all those customers is somewhere between four and eight percent. And we know that in healthcare, you're lucky if it's two percent. It is not hard to understand why.
With an aging demographic impacting payment formulas, spiraling drug costs, increased competition for clinicians, the intense need to improve patient outcomes, a new focus on clinical systems for decision support, e-health, consumer access to information, a shift towards industry standard solutions, the impending reality of HIPAA, and health costs rising at more than 12 percent over the past two years alone, you face the added pressure of not only keeping IT costs steady, but of course, you're being asked to do much more with increasingly less.
And then of course, there's uptime and downtime. If the system goes down in a factory, productivity may be lost. But there is no such thing as downtime in a hospital. You can't shut down the oncology unit for a few years. You can't power down the ICU, like you would a department in a plant. Because of course, the slightest downtime can make the biggest difference. As we all know too well, applications need to be available and reliable 24x7x365.
We have seen if a system is down even one percent of the timein other words if it's just 99 percent accurateit means a hospital would lose its most critical clinical applications for more than 87 hours each yearthat equals 14 minutes a day. This is probably the only industry where guaranteeing that your product will work 96 percent of the time isn't just considered substandard, it's sometimes fatal.
Again, it's technology innovation and human fragility, and we know the cost is not insignificant. A 14-minute bedside interruption each day could cost an average 500-bed hospital more than $1 million over a year. And a 1400-bed IDN, $10 million a year in additional operating costswhich isn't far from the cost of a new MRI. Now, why do I mention all of this? You certainly don't need me to articulate the challenges you face every day.
I mention it because it not only places different kinds of responsibilities on you; it places a different kind of responsibility on your IT partners, as well. Like CIOs in every industry, finding the best return on information technology means finding a partner with the depth, breadth and product line to offer end-to-end solutions. As healthcare clinicians continue to depend on new IT solutions, it will drive the need for more secure, dependable and scalable end-to-end solutions, and partners with the expertise to make all the components you already have work better together.
And when dealing with the issues of life and death, there is little margin for error; you know well that you need partners that not only have those capabilities, but who also understand your industry and your unique challenges as wellpartners who have labored in this vineyard for a long time, who bring years of experience and relationships with partners across the IT landscape, and whose technology is already engineered into the industry's leading software solutions.
Now from where we sit, there are two IT companies today that fit that profile; IBM is one of them, but we believe that in the healthcare industry, HP is the other. The reason we acquired Compaq last year is because we saw these trends transforming the IT landscape, and as a result, we believe we come to this conference today as a better, more complete partner for this industry.
So, where are we focused today? Where is it that HP stakes its claim? Fundamentally, our strategy, our investments, our commitmentare focused around four primary principals: First, we intend to be the company that delivers the best return on information technologythe company that works to redefine the economics of IT infrastructure. And by that I mean, lower acquisition costs, lower operating costs, better manageability, better utilization of IT assets, better interoperability, reduced complexity, improved reliability and security.
We deliver on that commitment through our products, our services, our people, and importantly, our partners. We think we come to the table with a portfolio that differentiates us from our competitors and uniquely positions us to meet those goals.
Let me address that point in the context of where the technology landscape is headedparticularly in response to the changing customer requirements that I've described. We think a new kind of computing infrastructure is emerging that will address these issues. The good news is that the hyper-efficient data center of the future does not require that we rip out and replace everything that exists today. We can help customers build it right now, integrating everything that already exists one step at a time. We are talking about change at a self-determined pace, not on a clock speed that's determined by IT vendors. We are not talking about the next big thing. We are not talking about the fundamental U-turn. We are talking about one step at a time.
When it comes to lowering acquisition costs, we believe the use of standards-based components in the infrastructure is important. It's why we're committed to supporting Itanium, for example, at the processor level, Linux and Windows and UNIX at the OS level, and both Microsoft's .NET and BEA's WebLogic at the Web services level.
By embracing standards-based components, we give our customers flexibility and choice at lower cost. Importantly, this strategy acknowledges that heterogeneity or diversity in the data center is not only realistic it's a good thingjust as it is in every other aspect of business.
When it comes to lower operating costs, you will see us invest and differentiate in modular infrastructure components and automated management capabilities. When I talk about modular infrastructure components, I'm talking about new server technology like blades, which dramatically lower operating costs with their specialized operations and smaller footprint300 blades in a rackas well as modular storage offerings like HP VersaStor technology, that lets companies connect diverse clients to a pool of shared storage systems.
Meanwhile, automated management of all the components of infrastructure including: hardware, software, application services, and eventually, even end-to-end business processes are where you can achieve the real breakthroughs in driving better resource utilization, incorporating legacy systems with brand new technologies, and lowering operating costs.
And this is where our OpenView network systems and service management capability becomes enormously strategic going forward. OpenView is the most advanced framework in the discovery and automation of hardware, software, and IT application services. Forrester ranks us in their "Visionary" category for Next Generation Management of Infrastructure, and we are the only large vendor in that category. And this automated, self-healing management approach isn't slideware; it is the real thing. It is our Utility Data Center offeringa fully virtualized data center that can automatically provision devices like servers, storage, and network switches. It is our ultimate vision of the future of computing, and it's up and running today.
In fact, we run our HP Labs research work on a Utility Data Center today. We run our IT on a Utility Data Center today. And it is informing our approaches to near term projects, like server consolidation, data center virtualization, and management. It is a vehicle for understanding and working out the architectural issues.
Now, using some of the real-life examples I just shared with youthe development environment in HP Labs today, for examplelet me give you some real numbers: Deployment costs using UDC have been reduced anywhere from 30 to 80 percent; capacity planning costs reduced from 5 to 40 percent; operational costs associated with system repair and security configurationreduced anywhere from 80 to 100 percent and 20 to 30 percent, respectively. Costs associated with upgrading and migrating systems are reduced from 20 to 40 percentthese are real, substantial savings that come from the application of this kind of capability.
Manageability, we think, is not limited simply to servers and storage; we're also making significant investments in the manageability of everything from PCs to printers. And when it comes to actually designing, operating, and tuning adaptive infrastructuresby adaptive infrastructures, we mean infrastructures that can flex with business requirements and manage changeHP's services, practice and methodologies represent the industry's best IT infrastructure competency.
Our capabilities in our services business span everything from assessment metrics that help analyze the agility of IT infrastructure, to the disciplined deployment and integration of new technologies, to the ongoing execution and management of complex heterogeneous IT environments. They include everything from adaptive network and application architecture design, to implementing on-demand computing infrastructure that enables customers to match their IT investments and costs with their actual use of technology. It is about servers, and storage, and management software and servicesall designed to deal with dynamic business environments, the economic realities of acquiring and operating IT, and the need to incorporate the latest technologiesthe ones that drive competitive advantage.
It is a strategy that assumes IT infrastructure must become more adaptive as systems are consolidated, services are provisioned, and management is automated to a greater and greater degree. It is a powerful portfolio that runs today from desktop to print shop; from Palmtop to NonStop computing systems; from printers that sell for $49.99 to multimillion dollar commercial printing systems. It is a portfolio that includes industry-leading components. For example: HP is number one in Windows servers, UNIX servers, and Linux servers; we're number one in network storage, number one in super computing, number one in network services, and systems management capabilities through OpenView. We're number one in imaging and printing, number one in notebooks, and market leader in PCs, and among the leaders in IT services.
I'm particularly proud of a survey taken by Information Week a few months ago where they surveyed 700 IT professionals. Those 700 IT professionals rated HP number one in outsourcing on the basis of value, trust, capability and cost. IBM was rated number sevenall of which suggests that even our most formidable competitors are not invincible, particularly when faced with what we think is the considerable power of this company and the power of our partnerships around the world.
Now forgive me for telling you all these things about our company, but one of the things I find is that most people actually don't know all that much about our company. Perhaps it is because we have been through so much change ourselves. As a company, for example, we do 60 percent of our business outside the U.S., and we think it's an advantage for our partners and our customers that we do business in 171 countries, 25 currencies, and 10 languages around the world. And of course, we speak the languages of the countries we are in. When I say 10 languages, I mean our web-based capabilities are in 10 languages around the world.
Like the healthcare industry, we have been relied upon by other industries to provide solutions that require privacy and security and safety. HP powers more than 100 stock and commodity exchanges, including 14 of the world's largest, NYSE, as an example. We support 95 percent of the world's securities transactions. We help process two out of every three credit card transactions, worldwide. We support three out of every four electronic funds transfers. We handle 80 percent of the mobile billing and customer care traffic in Europe and Asia. And we help control 65 percent of the world's energy infrastructure.
I told you earlier that we have a billion customers today…a billion customers who rely on our technology in small ways and in large ways. If you made a country of all our customers, it would be the third largest country in the world.
All of that is to say that while we must think about our largest and most sophisticated customers, we also have to think about our individual consumer customers. For consumers as our second principal, we're focused on providing what we would call simple, rewarding experiencestechnology and solutions that are easy to own, easy to buy, easy to use, and provide rewarding experiences that make consumers' lives more productive, more communicative, more fun, more valuable. And we build, we deliver, we invest in delivering the best return on information technology and simple rewarding consumer experiences.
Third, we build all of that on the base of a world-class cost structure. We believe that our cost structures in our business must be absolutely world-class so that we can compete on price as much as we compete on value.
And finally, we have a discipline that focuses our innovation, our people, our assets, and our R&D on the places where we believe we can make a unique contribution and lead, and we partner for the rest.
We believe we can make a unique contribution and lead in areas like systems management, interoperability, and utilization software and services, consumer device connectivity, imaging technologies, computing and grid technologies, mobility, and security and trusted systems. And despite the challenges of a tough economy and the merger, we greatly accelerated our rate of innovation in 2002. In the last six months of 2002 alone, we introduced more than 100 new products and added 1,400 patents, bringing our portfolio to over 17,000 worldwide. That happens to be a rate of about 3 patents every day. And this happens to be the fastest rate of innovation as measured by product introduction and patent generation in HP's 60-year history.
Our patents represent $4 billion in annual R&D investment, and we think it's vitally important that we maintain this level of investment, because innovation and invention is our life blood. And so, today we're directing our innovation in healthcare toward pioneering new approaches to applications, like CPOE, PAX, E-script writing, Charge Capture, Secure e-mail, and Web services.
We're working to create new solutions that use the Internet, SAN technology, mobile solutions, biometric security devices, data entry options, and voice recognition. Now, one obvious area that has tremendous carryover potential for the healthcare industry is in the area of mobility. Our best-of-breed technology includes the Compaq iPAQ which has become an indispensable tool in medical offices and private practices around the world.
As I mentioned earlier, when it comes to the kind of technology that will bring technology directly to the point of care, our new tablet PCs are quickly setting an industry standard, and the appeal is obvious. Doctors have been carrying clipboards from patient to patient for generations; why not carry an electronic clipboard that will immediately record entries into a database with prompts to reduce the chances of human error and that is immediately legible and available to the pharmacy?
We have IT professionals working in hospitals right at this moment training clinicians, working to establish wireless networks to make sure that information from roundsmake the rounds. It is unique. Let me mention something else that is unique. We happen to be not only the world's largest consumer IT company, but as well a very largethe largest, depending on how you countbusiness IT company. One other thing that makes us unique is that we are an imaging and printing company, as well as a computing systems and services company. And we think there are many exciting advances at the intersection between imaging and computing that only we can bring to market.
Today, for example, we are working on electronic paperliterally taking a piece of paper and having it become an electronic media. You use it precisely the same way that you would use paper. You can print forms, but everything you write on that paper is instantly digitized and can therefore be networked, and manipulated, and stored, and distributed as any other digital media. This is an example of innovation that comes at the intersection of imaging and computing, and we think represents what happens when you think about physical processes becoming transformed into digital processes, which is in the end what it is all about and the opportunity to create digital content one time and manipulate it, manage it, network it, distribute it, store it and mine it for insight. Create it one time and then ultimately transform it into the form that you want when and where you want.
Now, we are also innovating through our work with great customers in genomics research, which holds great promise for the next generation for decision support. We are reaching out to academic medical centers like the State University of New York in Buffalo, to help use technology to support new research in this area. We have also made investments in the patient safety institute to evolve a new model that could provide a different kind of care delivery system to a community using technology to digitize and streamline processes and improve workflow methodologies for clinicians.
And for those places where we don't innovate, we will partner for the rest. Many of our best partners are here in the room today with us, and we believe our partnership strategy gives customers the flexibility, the freedom, the choice to incorporate best of breed applications and processes.
Of course, we're also partnering with the best in healthcare to better server our customers, and as I mentioned, HP technology is engineered into the industry's leading software solutions. HP servers and storage products can be found at the infrastructure core of many healthcare organizations; for example, Sumner turned to HP to provide highly available and secure scalability systems for its technology center, as well as support for its Millennium software suite. For 30 years, IDX has relied on HP AlphaServers and our ProLiant line to deliver a range of integrating solutions for improving care and reducing costs, and today stands as the only leader to provide a 99.9 percent uptime guarantee.
Allscripts depends on a backbone of HP hardware to run its Touchwork suite of software solutions. McKesson HBOC uses HP servers to allow payroll organizations to better manage patient costsfrom Siemens to Meditech to Fuji, our partnerships help give our customers the support they need to meet their goals.
The best return on IT for business and simple and rewarding consumer experiencesbuilt on world class cost structures and a continuous stream of innovation; that is our strategy. The champion of what technology makes possible, the champion of empowered IT organizations...
Now, perhaps when I went through all the challenges that you face as CIOs, and on top of that, when we think about all the uncertainties of the age we live in today with Orange Alert status and impending war; perhaps all of that is depressing and unsettling. But in fact, I believe there has never been a better or more hopeful time to be part of an industry that is all about progress. Innovations that we thought were impossible just five years ago, are making patients more healthy, hospitals more efficient, medical records more secure, and the quality of careyes more efficient, but also more humane. And I am convinced that five years from now, the only thing we can say for sure is that what seems impossible today will seem routine then.
We thank you very much for allowing us to be part of your journey.