HANDELSBLATT STRATEGIC IT MANAGEMENT CONFERENCE
JANUARY 28, 2003
RETURN ON IT THE BUSINESS OF CHANGE
© Copyright 2003 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.
Thank you so much, and good morning.
Guten Morgen meine Damen und Herren und dankeschön. This is the end of my German, unfortunately.
And thank you for the very kind introduction. It is really a pleasure to be able to share an occasion this morning with Handelsblatt and the Wall Street Journal Europe.
Almost exactly 200 years ago, one of my country's greatest presidents, Thomas Jefferson, wrote that "given a choice between a government without newspapers, or newspapers without government, I would not hesitate for a moment to choose newspapers without government." Of course, it should be noted that he wrote this before he became president. After serving as president for eight years, Jefferson wrote that "the man who reads nothing at all is better than the man who reads nothing but newspapers."
I'm not sure what brought about this change of heart, but my guess is that it had something to do with the press he received when he pulled off the biggest merger to that point in the history of the United States, also known as the Louisiana Purchase. And of course, you all know our merger created some controversial andat timesquite colorful press.
Now, I understand that this is the ninth time that this audience has come together here at this conference, and in many ways we come here this year perhaps with a greater sense of uncertainty than we have in years past.
I come to this conference having just spent the weekend at the World Economic Forum in Davos, where the mood was, I would say, somber. And it is not hard to understand why. International tensions and the threat of war have been matched by a slowdown in business investment that only got slower in 2002, and does not yet show signs of recovery in 2003. And you don't need me to tell you that in our industryin the IT industryit is rare for business and consumer IT to slow down at the same time. But it is in fact what happened in 2002, for the second year in a row.
Although we come here to Düsseldorf perhaps with more on our minds this year than in years past, I actually come to this conference more hopeful and more optimistic about our future than I have ever been.
While the market for technology for technology's sake may be slow, we believe the need for technology to solve real human and real business problems is stronger than it has ever been, and we believe many of those innovations that are necessary come from the people here in this room.
So, I am actually not here to talk about our view of the world. I am here to talk about you. I am here to talk about what we believe is the real agenda in IT, and that is, the customer's agenda. And your agenda says that the value proposition for information technology must change.
I think a lot of the commentary around the challenges in our industry has focused on cyclical economic issues.
We all know that the economic environment that we're in has contributed to substantial declines in growth rates. Smaller companies are struggling to survive and that in fact, consolidation in the IT industry is happening.
And as a result, the conversation today is about lowering IT growth rates. It is about the requirements for scope, and scale, and breadth, and depth, and sustainability of your technology partners.
I think now people understand this, although in September, 2001 when we first announced our merger, I don't think many people did. But I think what people in some ways still misunderstand is this: the market trends we are seeing today are not driven by cyclical economics, although that's clearly part of it.
The shifts that we are seeing in the IT industry today are being driven by customers and by their changing requirements. In other words, these are long-term structural changes for our industry, not simply cyclical economic forces. Customer requirements are no longer about the fastest box. They are no longer about the latest killer app. They are no longer about what is the next big tech thing. Customers have come to understand that technology is not a silver bullet. Technology is a means to an enda serious end.
And so, customers now are focused on how to get a better return on their investment; how to get real value; how to make sure that they can live with not only the initial costs of technology, but also the ongoing costs of owning, operating, and managing technology. And this focus on value, I believe, is permanent and structural.
As customers of technology, you have concluded, for example, that you cannot make progress by throwing everything out that you've already invested in. You cannot make progress creating lots of standalone islands of technology. You cannot make progress unless there is a way to reduce the complexity you have in your current IT systems. And you cannot make progress, either, unless there is a way to increase the adaptability of your IT infrastructure.
In other words, you can only make progress if you can actually rationalize and leverage the investments you've already made. You can only make progress if you can evolve your IT, not throw everything out and start over. You can only make progress if the level of complexity is reduced. And you can only make progress if your total return on the investments you make in technology improve over time.
Make no mistake about it, this is a permanent change. These changes will be with us long after the economy comes back. And I think they are permanent changes, because despite the slowdown in technology spending over the last couple of years, technology today is even more deeply woven into the fabric of our business and the fabric of our lives.
While CEOs may have spent more money on technology more quickly in the late 90s, I think CEOs today understand technology more deeply than they ever have. And there is the recognition that technology is the business. It is a competitive advantage, or it is a competitive vulnerability.
The smart application of technology increasingly will separate winners from losers. And so what you as customers want to know, are these basic things: How do I lower the cost of acquiring technology? How do I lower the cost of operating my environment? How do I make sure that the investments I make in technology flex and adapt to my business? How do I manage change? Because in fact, technology in many ways is not the hardest part of the problem; change management to take advantage of technology is perhaps the hardest part of the problem.
And let's also face it that the requirements for business agility and adaptability are accelerating. And just as important I think, you as a customer are also asking how do I retain my freedom and my control? Can I choose the pieces I want? Can I make sure that I stay in control of my environment and my investment? Not hand that control over to someone else. How do I as a customer stay in control of what is core to my business? Because the last thing I want to do is hand over the keys of my kingdom to someone else.
So in the midst of all this changepermanent, structural changewhat is it that HP is focused on? Where is HP going to stake our claim and make our investments?
Fundamentally, our strategyour investmentour commitment is focused around four fundamental principles:
First, that we will be the company that delivers the best return on information technology. And by return on information technology, what we mean is lowest total cost of ownership, improved productivity, better manageability, better interoperability, reduced complexity, improved reliability and security. And we deliver on that commitment through our products, our services, our people andimportantlyour 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. We think it is an advantage to our customers that we come to this conference today as the market-leader in supercomputing, network management capabilities through our OpenView platform and professional services, serversWindows and Linux, storage, imaging and printingat a time when imaging and printing are critical as businesses digitize processeslaptops, PCs, and 65,000 professional services people around the world.
Our portfolio runs from desktop to print shop, from palmtop to Nonstop computing systems, from printers that sell for $49.99, to multi-million dollar commercial systems. And we think it's a good thing for our customers that our portfolio has helped us become the leading consumer technology company in the world, the leading small and medium business technology company in the world, and the leading enterprise technology company in Europe.
For a company that does actually more than 60 percent of its business outside the United States, and over a third of our business here in Europe, we believe that it is an advantage for our partners and our customers that we do business in 160 countries, in 43 currencies in 15 languages around the world.
Just as an example of what this means: the new HP powers more than 100 stock and commodity exchangesincluding 14 of the world's largest. We support 95 percent of the world's securities transactions. We help process two out of every three credit card transactions worldwide and three out of every four electronic funds transfers. We handle 80 percent of the mobile billing and customer care traffic in Europe and in Asia. And we help control 65 percent of the world's energy infrastructure. In fact, today, more than 1 billion people use HP technology every day, and if you made a country of all our customers, it would be the third largest country on earth.
And all that is to say that we as a company have to think about our largest, most sophisticated customers, and also about our individual consumer customers.
And so for consumers, as our second principle, we're focused on providing what we call simple, rewarding experiences. Technology and solutions that are simple to own, to buy, to operate, and that provide rewarding experiences that make consumers' lives more productive, more fun, more communicative, and more valuable. We build, we deliver, we invest in simple and rewarding consumer experiences.
Third, we build that on a foundation of world-class cost structures, because we think a world-class cost structure can be a competitive weapon and a competitive asset to our customers. And we believe as well that if our cost structure is not world-class, it becomes a competitive vulnerability.
And finallyand importantlywe focus our innovations, our people, our assets, our R&D on the places where we believe we can make a unique contribution and lead, and partner for the rest, because partnerships are a critical part of our strategy. They are central to how we deliver value and central as well to how we deliver choice and flexibility and freedom.
Despite the challenges of a tough economy and the challenges of executing the largest merger in the technology industry, we greatly accelerated our rate of innovation in 2002. In the last 6 months of 2002, we introduced more than 100 new products into the market and added over 3,000 new patents, bringing our patent portfolio to over 17,000 worldwide. This happens to be the fastest rate of innovation as measured by product introduction and patent innovation in HP's history. And we spend over 4 billion dollars US in annual R&D investment, and we believe it is vitally important to maintain this level of R&D investment because invention and innovation are our life's blood.
But as I mentioned for those places where we don't invent and innovate, we partner for the rest. Partnerships are central to our strategy, and they're central to our strategy because we believe they make the best use of our assets, but also because they give you the choice and flexibility and best-of-breed solutions that you require.
It is one of the reasons why we come to this conference today, as the number one partner for Microsoft, Brocade, Intel, Accenture, PeopleSoft, BEA, Oracle, Siebel, CGEY, and BearingPoint, just to name a few examples. And yes, we are also proud to partner with EDS and AT Kearney. We think these partnerships, whether it's with EDS or Microsoft, give our customers flexibility, freedom and choice, as I've said. And we think one of our important roles in the industry is to galvanize partners on behalf of our customers.
Now, let me spend just a couple of minutes talking about how we lower acquisition costs, because frankly, a big piece of your return on information technology starts with the question of what does it cost to acquire technology?
We believe first that open, standards-based, modular building blocks are the surest way to lower acquisition costs. And that is why you have seen usand you will continue to see usinvest heavily to ensure that our product line is the most modular, the most standards-based in the industry. Because we think modularity and openness give you flexibility and freedom of choice.
You will see us stick to an engineering paradigm that assumes heterogeneity and a diverse technology environment. This is a long-standing commitment of HP, not something we have just come up with recently. It is why you are going to see us continue to invest in being, for example, the leading platform provider for Linux, and NT, and UNIX, because we think all three are critical to building out the IT infrastructure. It is why you will see us lead in both .Net and J2EE, because we have heard from customers over and over again that both are important for their environment, and that they need and want to create an infrastructure that deals with both.
It is why we have the deepest services expertise in managing multi-vendor, heterogeneous environments.
Now, a commitment to open systems also requires a commitment to standards, and that means that we have to participate in standards bodies. We've been a leader in standards for many years, and we have about 700 people who work on over 300 different standards organizations around the world. We believe we have one of the largest and most effective standards programs in the industry, and we are focusing our standards efforts around areas like improved compatibility and interoperability, because we think again that is what is critical to give you flexibility, adaptability and the economic benefit that you're looking for.
Lowering acquisition costs is obviously important. But it is not enough.
In addition, if we are going to deliver the best return on information technology, we also have to lower your operating costs. In fact, we know that a great deal of the cost envelope in today's IT shop, whether it is a large business, or a medium business or a small business, is the management and operations of the entire infrastructure.
Our surveys show that up to 70 percent of a total IT budget is spent on the management and operations of IT infrastructure. Now, we also know that within this envelope of the IT investments that have already been made, a lot of those investments are underutilized. We have heard from many of our customers that they are really focused on things such as storage utilization improvement projects, for example.
We're also betting very heavily on the area of improved manageability. We are betting that next generation infrastructure management will become one of the most important criteria that you will use when you select IT systems and partners.
We are the leader in manageability with OpenView and we intend to expand that lead. Just as an example, using OpenView's services management capability, our customers have been able to increase their IT staff productivity by over 50 percent, increase their IT staff efficiency by more than 26 percent, reduce their downtime by over 30 percent.
And manageability, we think, is not limited simply to servers and storage. We're also making significant investments in the manageability of everything from our PCs to our printing products, because we think you are focused on everything from the desktop to the copy center infrastructure, to the data center infrastructure.
In the area of better utilizationin other words virtualizing the IT assets that you havewe're investing in a range of virtualization products at the server, storage and the data center levels. And what we mean by the term virtualization is both flexibility as well as capacity utilization.
Just as examples, in the server environment we have the leading virtualization capability from the low-end to the high-end, from industry standard servers to OpenView software, to HP-UX's high-end, award-winning partitioning continuum.
In the storage environment, we have everything from the appliance-based approach, to storage virtualizationthat customers can use to get started very quickly and very inexpensively, to very ultra-scalable, feature-rich environments and implementations.
We've achieved network and data center level virtualization through our utility data center offerings. Utility Data Centerwhat we call UDCis the leading data center virtualization set of capabilities. And this is not us talkingGartner, for example, estimates that our UDC capabilities are at least 18 months ahead of our competitors. And we are using UDC today to run our own development environment inside HP Labs.
Now of course, it is not simply about the products that we invent. It is also about the services that we deliver.
HP Services is very proud to be a co-sponsor of this conference and I hope that all of you will take a moment to visit our booth in the lobby. As I mentioned with our merger, we now have 65,000 services professionals, and those services professionals are focused on answering every customer question and customizing solutions.
We do not just take things off the shelf and we do not aim to do it our way. We aim to do it your way.
Our focus is on being the best technology company in the world, and being the best company at designing, building, evolving, supporting and running IT infrastructure.
We do not assume that customers can rip out one type of infrastructure in order to create a uniform architecture environment. We think there is no return on investment for ripping technology out before it needs to be replaced. All of our services offerings and our software capabilities are focused on managing heterogeneous environments and taking the complexity out of those heterogeneous environments. And we do not ask you to give up control and hand over the keys to your kingdom to us. We are focused on collaborating with you, on bringing you the best solution for you, with the choice and the flexibility and the freedom you need.
Now, all the things that I've talked aboutreturn on information technology, lowering acquisition costs, lowering operating costs, managing changewhether that comes from the way we design our products, or the way we manage environments, or by way of our professional services capabilities. Fundamentally, all of this is focused on making sure that your investments in information technology flex with the requirements of your business, adapt to the requirements of your business, because this next era of technology is not about the hottest box or the killer app.
It is about building a technology infrastructure that is adaptive, productive and evolves with your business. It is about creating a platform for change.
Our own CIO, Bob Napier, who has just successfully managed through one of the most complex systems integrations in the world, has a great saying: "If you get the infrastructure right, everything is possible."
Now, I don't think the path to the future requires magical binoculars, or time-machines, or many of the things you may have seen on television lately. We are not at a crossroads. We are continuing on a path that we have been on for some time. And the path to the future does not require a detour or a U-turn. It requires taking one step at a time.
And again, for us, we believe it is all around helping lower your acquisition costs … helping lower your operating costs, helping you manage change by improving your business agility and your business productivity, and making sure that you have the freedom and the opportunity to incorporate the best technologies, the best partners, the best solutions into your infrastructure over time.
That is the strategy that HP is focused on. That is the value we are delivering today in the marketplace. We hope to be, we aim to be, we invest to be the company that helps you get the best return on your information technology.
Now, the theme of this conference is all about business performance. And there can be no business performance without trust. And of course, one of the things that has also been on everyone's mind is the issue of trust and corporate governance. And so let me spend just a few minutes before I close on that topic.
The Enrons, the Tycos, the WorldComs shocked individual investors and CEOs alike. They were examples of inexcusable violations of public trust, as well as almost unimaginable greed, and clearly, reform was necessary.
It was an occasion for all of us to reexamine our own processes and our own procedures and ensure that we were confident in our own governance.
But I believe we must also remember that trust is a matter of values, of ethics, of behavior. Not a matter of regulation. Values must be deeply woven into the fabric of a company and everything it does. Not imposed through prescriptions and litigation.
Leadership is about character, as well as capability.
Values tell you how to act when no one is looking. They tell you how to decide when the decision is the most difficult.
When we were completing the merger with Compaq, we conducted an interesting process called: 'cultural due diligence.' You do financial due diligence, you do technical due diligence. We thought it was important to do cultural due diligence, and so we asked people what our values should be.
Interestingly, what emerged from people all over the world in both companies, in every kind of job … what emerged were precisely the values that had been at the heart of the HP way for decades.
For example, uncompromising integrity, passion for customers, teamwork and collaboration, innovation and contribution. And one important addition: speed and agility. And to me, this demonstrates that people everywhere aspire to the same things.
It is up to leadership to build a system around these highest aspirations and values. A system that expects people to behave ethically and consistently with our values and a system that delivers consequences for people who do not.
For example, at HP we have something called the open-door policy. The open-door policy has existed for many decades, and what it means fundamentally is that anyone can raise any issue to anyone, including any board member or the CEO, and they can do that at any time, without fear of retribution, and with the expectation that an issue raised will be examined.
Leadership is about character as well as capability, and trust is a matter of values. And trust is all about people. How we treat each other. How we work with partners. How we serve our customers.
Businessparticularly the technology businessis also all about risk-taking. Which is why we must take care that regulation and litigation does not become a straitjacket. Because risk-taking is how we make progress.
Honest risks, calculated risks, but risks, nonetheless. Without risk-taking, there is no progress.
And business, of course, is a human affair. And therefore like any human endeavor, it is imperfect. People make mistakes. Honest mistakes. Mistakes we hopefully learn from, but mistakes nonetheless.
Business is also all about ethics and values. Of all the things that I am proud of over the last 18 monthsour integration progress … our accelerating innovationI am most proud of, and most confident in, the people of HP.
Thank you very much.