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AUGUST 12, 2003

© Copyright 2003 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.

Thank you very much.

I must say I'm really delighted to be back with such a loyal and wonderful group of customers this afternoon.

Last year, we of course combined the best of two companies, and I think in many ways, today we are truly combining the best of both worlds. So, it's really a personal pleasure for me to be a keynote speaker at the very first HP World jointly sponsored by both the Interex and the Encompass user groups. I think this is a clear case where there is strength in numbers and strength in diversity, as well.

And I want to thank in particular Christie Browder and Barry Bragg for their strong leadership here today. So thank you both very much for getting us here today. I also want to say a special word of thanks to our Platinum Partners: Microsoft, BEA, Oracle and Cisco. These partners prove every day that HP + our partners truly make everything possible. And I'd also like to extend a very special welcome to all of the HP certified professionals who are in the audience this afternoon. Welcome to all of you, as well.

Now, as I've said to at least part of this audience in the past, it is not a fact lost on me or lost on any of the rest of us at HP, that the longest running information technology conference in North America is a conference of HP customers. Interex has been our partner for 29 years, and Encompass goes back even further to the early days of Digital.

At HP, we know - just as we have always known - that everything we are about and everything we do starts and ends with customers. Nothing happens unless you're willing to buy something from us and unless you're willing to do it again and again and again. And so, I wanted to come here today first and foremost to say thank you. Thank you for your support, thank you for your loyalty, thank you for pushing us hard when we need to be pushed. There is nothing that we as HP people can ask for from a customer than for you to be demanding, and fair, and loyal - and you are all of those things, and I want to thank you for that.

One of our great, fair, demanding and loyal customers reminded me when we first announced the merger way back in September of 2001, which seems like a really long time ago. In September of 2001, it seemed heretical that we would be talking about consolidation for the technology industry, or that we would be talking about an industry that would be slower growth going forward, not because technology is less important, but because in fact, it is more important - a subject I'll return to in a moment.

But I was reminded on that day after making that announcement, and of course as you will recall, all hell broke loose immediately thereafter. But as all hell was breaking loose, I was reminded of the centrality of customers by a customer who was very supportive right from the beginning, and he said to me, "Remember Carly, this is your merger, not ours." And what he meant by that was, don't let us get all caught up in all the things you have to do. What we want is a stronger, better company on the other end. What we don't want is to get lost in the shuffle on the road from here to there. And I and the rest of the team have kept that very firmly in mind all throughout the last couple of years.

I think Atlanta is actually a great city to host a conference of customers that understand the role that technology can play in transforming people's lives. And today, HP is working with some of Atlanta's very best known businesses to extend their trusted brands while helping them imagine the future. With Home Depot, for example, we've worked to provide 40,000 PCs for use in nearly 1,500 stores, among many other things, and work with them to improve operations and customer service.

HP servers help Delta Airlines coordinate more than 5,800 flights everyday to 447 destinations in 81 countries. HP provides Georgia Pacific with a range of products to help manage 61,000 people at more than 400 locations, including desktop and notebook PCs, Intel and Unix servers, NT storage, as well as enterprise management software. And our close relationships with a whole lot of Atlanta-based businesses are one of the reasons that we all feel right at home here today.

Now, a little over a year ago when we launched the new combined company, we talked about a company that would provide two important benefits to our customers. We talked of course about an improvement in our cost structure, and Jim Milton went through some of the improvements in our cost structure that we have achieved - and cost structure actually does matter to customers. Inside HP, we talk about a cost structure being one of two things: a cost structure is either a competitive weapon, or it is a competitive vulnerability. It's one or the other. We intend for our cost structure, our efficiency, our effectiveness to be a competitive weapon - a competitive weapon we use on your behalf as well as on our behalf. And so, improving our cost structure and at the same time creating not just worldwide efficiency, but worldwide effectiveness has been a lot of what we are about.

But of course, the second important benefit of all this to customers was improving our competitive position and broadening the portfolio of products and solutions that we could offer, so that we are providing a stronger portfolio of services, of products, of solutions, so that our sales force is more effective, so that we are extending our leadership in key segments of the IT market around the world. And as Jim mentioned, we have delivered on those promises.

We are not done in our journey, but we have come a long way…three and a half billion dollars in a year, instead of two and a half billion in two and a half years. We have achieved market share growth in virtually every business and every region around the world, when most people thought we would lose market share, and we have done it all the while continuing to innovate for our customers. We are a technology company. Innovation is our life's blood and one of the things that I am truly proud of is that our rate of innovation has accelerated in the last three years. In fact, our rate of innovation has accelerated by 350 percent in the last three years and we have achieved our highest rate of innovation in our company's history in the last year.

Jim talked about the number of patents - that translates, by the way, to about five patents a day. He mentioned that we launched our adaptive enterprise in May - a whole suite of products, and services, and solutions, and tools, and disciplines. Monday of this week, we launched 158 new products in the consumer space, bringing to life our strategy in the consumer space, which is to provide simple and rewarding experiences.

We are a technology company, innovation is our life's blood, and our job is to make innovation that is significant and meaningful to our customers, and to do it at a price our customers can afford with an experience that sets us apart.

High tech, low cost, best total customer experience - we think that is, in fact, what customers are demanding. Jim mentioned our competitors, and he was perhaps a little bit more polite than I would be. I'll be more direct. Dell is a company, a great company. They are a low cost, good total customer experience, and they're low tech. In fact, with Dell's announcement that they are getting into the distribution for televisions, I think what they are is crystal clear. They're not a technology company. I don't think it's a coincidence that they just changed their name from Dell Computer to Dell. I think they're a distribution company - they're a great distribution company, but they are a distribution company. And now, I think they intend to distribute whatever they can through a business model that's clearly very effective. But they are low tech, low cost, good total customer experience.

We know from all the data that we gather that IBM is high tech, but they are also relatively high cost, and we can provide example, after example, after example of where we can provide a value proposition against IBM that is more compelling, more effective, with higher value. Just as one example, in our last quarter we announced our largest Superdome win to date for the China Board of Taxation. We displaced a mainframe - lots of mainframes as a matter of fact - and we provided better technical performance than the mainframe, at about a third less cost. High tech, low cost, best total customer experience. IBM is high tech, high cost, and frankly, when we talk to most customers, fairly mediocre total customer experience. Now, I do not claim that we consistently deliver every time, high tech, low cost, best total customer experience. I realize that sometimes we deliver that value proposition and sometime we let you down, but I think it is important that you understand what our goals are, what our aspirations are…The standard we set for ourselves is to be the company that delivers high tech, low cost, with the best total customer experience.

Four years ago, when I first came to speak to what was then HP World, I think we kind of lived in an either/or world. You were either, four years ago - seems like 40 years ago - but you were either a dot.com company or you were a brick-and-mortar company. You were either a young Turk or an old guard. If you think about technology in the 80s, it was an era of stability, reliability, quality and technology. Generally, in most companies it was a cost center. Don't talk to me about it, just make sure it's all working at a cost that's predictable, reliable - I want it to be manageable, I want it to be high quality.

The 90s was an era where people got very fixated on speed and flexibility. And CEOs - lots of CEOs who really didn't understand technology - would respond positively to an argument from a CIO who would come in and say: "I'm falling behind, I need more money because I need to move faster, I need to be more flexible."

I think we are now at a place where actually CEOs and CIOs are demanding it all. I want quality, I want reliability, I want stability, I want predictability, and oh yes, I want flexibility, and speed, and agility, and I want it all at less than I used to pay for it. That is what you and your colleagues and your bosses are demanding today, and guess what? You should have it all.

Today, every single developer, every IT manager, ever CIO, and frankly, every CEO I talk to asks a similar question: "How do I link the business ideas I have today to the systems that I've already invested in? How do I build a bridge between application development and application integration? How do I do it quickly, and easily and inexpensively?" And I think you and all of your colleagues are asking all of these things. "I want it all…I demand it all." The reason you know you need it all is because technology has actually become truly mission critical - central to every business's success. Technology is also a competitive weapon or a competitive vulnerability, it's one or the other and smart people know that technology is essential to provide competitive success. Quality and reliability are critically important, and so are speed and agility in today's world.

How many of you have read that famous Harvard Business Review article, "IT Doesn't Matter Anymore"? We won't stone you if you admit that you've read it.

Actually, I have read it and it's gotten a lot of press and a lot of play, and I think - as you might expect - that it is not only dead wrong, but it is also an argument based on quantity, not quality. It is true, a lot of people are spending less money on technology than they used to, and it is also true CEOs that I talk with today spend less money on technology than they did four years ago, but they understand it better. The businesses that are winning in the marketplace and will win in the marketplace are the businesses that understand that there is no separation between information technology and business, and that technology is a weapon or a vulnerability.

We are seeing changes in how customers value technology and what they demand of technology, and that is one of the reasons why the IT industry had to consolidate and will continue to consolidate, because customers are demanding more of their technology. They need to lower their IT acquisition costs, lower their IT operating costs, and improve the quality, the reliability, the speed, the flexibility - all of those things raise the bar. And not every technology company can get over that bar, and the fact that not every technology company can get over that bar as customers continue to demand more and more and more, is why this industry consolidates and will continue to. But all of these things are going on, all of these demands are accelerating because innovation and technology are more important, not less important. The way I like to describe it is that CEOs today - I mentioned earlier that CEOs maybe spend less money on technology today, but they understand it better. CEOs, CIOs - all of you can no longer tolerate IT as a science experiment or mystery. It can't any longer be something that only geeks in the backroom understand - I love geeks, but technology has to yield to the disciplines of business. And what I mean by that is because the opportunity to apply technology to solve basic social and business problems is enormous, because technology is the answer to some of the biggest issues that we have in our own businesses. Think about healthcare…the healthcare crisis will not be solved without the application of technology.

But, because technology is vital to the solution of these problems, vital to the progress of business, it can't be a science experiment, it can't be a mystery, it can't be a secret handshake and a code that only a few folks understand. It has to be an investment that is transparent, and that delivers just like every other business investment has to be transparent and delivers - that's what I mean by technology now has to yield to the disciplines of business.

You need security, you need reliability, you need stability, you need risk mitigation. One of the greatest examples of why technology now has to yield to the disciplines of business is what our own CIO, Bob Napier, likes to say. His advice is: one thing every CIO needs to read is Sarbanes-Oxley. It's a tough read, but the reason he says that is because Sarbanes-Oxley is all about how risk needs to be mitigated inside a company. And how risk is mitigated inside a company to comply with Sarbanes-Oxley is very much about how technology is applied. So you want all of that and you want flexibility and you want lower total cost of ownership and you want innovation.

So, just to repeat, what you want - what you demand - is frankly what we ought to deliver and what you ought to get. You demand and we ought to deliver better price performance. You demand and we ought to deliver more flexibility, more ability. You demand and we ought to deliver better risk mitigation. It can't be a science experiment any more; technology has to be tracked and measured like every other part of the business and it has to have a clear and measurable return, just like every other business investment we make.

Now, I've talked about cost, I've talked about quality, I've talked about stability, I've talked about reliability, I've talked about risk mitigation, and I keep throwing one other word in here, which is flexibility or agility - we like to use the term ability…the ability to change, the ability to respond to change, the ability to proactively perceive and get ahead of change. And I think the ability to manage change is increasingly the difference between companies that win and companies that lose.

When I first came to HP, I used a quote from Charles Darwin who said, "It is not the strongest of the species that survive, nor the most intelligent, but those most adaptive to change." And I think there's a lot of wisdom for companies in that quote.

So whether you are talking about the adaptability of the species, or the survivability of a company, the ability not only to survive change, but to thrive on it, to predict it, to get ahead of it, to embrace it is one of the keys to success in a rapidly evolving environment. It is not an accident that in our adaptive enterprise, we have labeled our reference architecture the Darwin Reference Architecture, because it's all about being able to thrive on change as well as delivering all of those other things that you demand. Because change, as it ripples across your systems has to be predictable and controllable.

Our own CIO, again Bob Napier - we quote him a lot because he has some quotable quotes - he says, "Every business decision triggers an IT event." And that's true. And of course, the goal is that those business decisions trigger an IT event that is pretty low stress and low trauma in the organization. Because technology has to be designed and used inside an organization to give the IT department, as well as the rest of the business, the ability not only to control the impact of change, but again to use it as a competitive advantage. Infrastructure has to be able to flex with the business, whenever the business demands it. It has to become a platform for efficient and effective operations in business and for the delivery of business processes and business applications.

At HP, we believe we have to eat our own dog food. Our goal is that at least we are eating our own steak, possibly our own caviar, but nevertheless, we have to eat what we serve others. And so we used our own experience, our own products and services, our own people, our own tools, our own methodologies and our own partners to build a platform for managing change. That is what we call the adaptive enterprise. It is at the heart of the solutions that we are offering to businesses today of any size.

And, before you say, "Oh boy, here we go…a bunch of slideware, and this is kind of pixie dust, and magic binoculars, and all those things…" before you go there, let me just tell you that this adaptive enterprise, how we think about it, and how we have used our own products, our own people, our own tools, our own disciplines, our own services, our own solutions, our own partners, it is a huge reason why we pulled off the largest merger in the history of the technology industry a year and a half ahead of schedule and a billion dollars over plan. And in fact, we believe that we had to use it ourselves before we could put it into the marketplace. It is one of the reasons why we waited until May of 2003 to launch the adaptive enterprise, because by then we'd kicked the tires a lot. We knew what we were talking about was doable.

So, the first thing I want to say about the adaptive enterprise, and you probably got the point when I quoted Darwin - Darwin, after all, wrote "The Origin of Species," this is about evolution, not revolution. Building an adaptive enterprise does not require you to throw everything out and start over. Why? Because we know you can't do that. We couldn't do it either. And, it doesn't require you to make a major U-turn to decide that everything you've done before was the wrong thing to do. It is something that can be achieved from wherever you start, achieved in a step-by-step methodological fashion.

So, the first step is to measure and assess your business agility and your adaptability across three dimensions: time, range, and ease. Time is probably the most obvious, so measuring and accessing how agile are we. What do we have to do to become an agile enterprise? When we're measuring time, what we're talking about obviously is the speed at which changes can be made in the infrastructure in response to a business decision. So, for example, how long does it take if your company wants to introduce a new product or a new price? How long does it take for that decision to be recognized throughout all of your infrastructure, all of your applications, all of your processes, all of your departments?

Range is about the breadth of change that can be introduced at a single time. Ease is the level of effort it takes. How much cost? How much risk do you have to be willing to bear? That's what we're talking about when we say ease. What is the level of effort required to introduce and support change? In other words, can you - with one data input, with one click - can you capture the introduction of a new product and a new price, and have it reflected throughout the whole company?

Now, we've said that these methods: time, range, and ease, and the ability to assess where you are, are critical in linking technology to the business. And we have a set of services, and tools, and practices, and methodologies that enable us to measure our own business agility and the business agility of our customers. It's real intellectual property that we have developed in conjunction with some of the great universities in the world. It's real intellectual property that gives us a strong foundation and that we have tested and tried and used on ourselves and continue to use on ourselves.

Now, to build a truly adaptive enterprise, we also know that companies need an IT architecture that supports the integration of business processes so that it is possible to have an efficient flow of information across processes and across applications. And we believe that this calls for a new kind of enterprise IT architecture; one that works horizontally instead of vertically, that links IT with the rest of the enterprise and extends to our customers, to our partners, and to our suppliers. And this horizontal approach to building an adaptive enterprise is founded on four fundamental, actually pretty simple, design principals:

First, it's simplification. Simplify the environment to reduce complexity and risk. Second is standardization, because standardization provides better flexibility through standards-based components and standards-based processes. Third is modularity, meaning it gives you the ability to change, to manage, to virtualize and use components collectively, independently, adaptively. It's all about getting the maximum utility out of every single IT asset you've invested in already and that you plan to invest in.

Today, most customers candidly get between 20 and 40 percent utilization out of their IT investment…20 to 40 percent. Utilization rate ought to be 80-plus. And fourth, integration of all the components into a uniform system that is easy to manage, easy to modify, and easy to change. Our Web services technologies are particularly important here because they enable data integration, application integration across the enterprise, or integration across an entire ecosystem of customers and partners and suppliers.

And if you look at the Darwin Reference Architecture, what you will find is that it is a standards-based framework that leverages technology, and components, and services, and tools, and disciplines, and practices not only from HP, but also from our best-of-breed of partners. And the architecture we think provides several key advantages: it provides a new level of integration between business and IT; it lowers IT acquisition and operating costs because industry standards drive efficiency and economies of scale; and it provides an evolutionary path to the adaptive enterprise - not a revolutionary path, not a U-turn, not a throw-everything-out-start-over, or frankly, not "let's give over the entire environment to someone else to manage."

I mentioned at the outset that our strategy for our business customers was to provide the best return on information technology, and the adaptive enterprise is at the heart of our ability to deliver the best return on information technology - return as measured by all those things I said you should be demanding, and we should be delivering. Return in terms of - yes, lower cost of ownership, and lower cost of acquisition; return in terms of quality, and reliability, and security; return in terms of improved risk mitigation, and return in terms of increased flexibility and agility. All of those things equal return on information technology and there ought to be a return that any business person can understand.

So I need to spend a moment on some of the key elements of the Darwin Reference Architecture. It starts with a view - and this is an important part of thinking about the whole enterprise, and thinking about the whole enterprise horizontally, instead of vertically - it starts with a view that any enterprise, any business, is a set of business processes that link customers to the company, employees to one another, and in many cases, customers and suppliers to all of the above.

And these business processes are supported by a set of applications and a set of infrastructure technologies. The architecture builds on a foundation of services and software. The measurement and assessment services I mentioned earlier that we provide look at the breadth and depth of the enterprise, from business process all the way down to infrastructure. So, when we measure agility, time, range, ease, we start with business process, and we go down to the infrastructure. A good example of that would be our adaptive application architecture. It is a service that builds on the reference architecture by applying Web services to help speed up a company's ability to develop applications, integrate them into their own IT environment and then management them more effectively.

In terms of software, our management software monitors all aspects of the data center, detects issues that need to be resolved, and takes action either automatically, such as server virtualization, or storage utilization, and as well there are a set of self healing services.

Our architecture discussion starts at the business process level where we get the most leverage, and it's helped us clearly define the business application infrastructure that has to support business processes. And we are focused as a company on taking our software management capabilities and really extending them from managing an environment, to managing a set of business processes and applications. And of course, there is the infrastructure layer where all of the technology, and the products, and the services, and the standards come together in what is hopefully a truly adaptive and flexible enterprise. And at this layer, ideally we are virtualizing all of the resources, including servers and storage and network capability, and of course, as I mentioned earlier, you don't get to a totally virtual environment without taking some very clear, basic steps around simplification and integration and automation.

And as I mentioned, we are doing all of these things, have done them in our own massive IT integration. Let me just give you some data points…

When we brought the two companies together, we had over 7,000 applications. We had 160,000 employees in 167 countries. We actually are the largest e-commerce transactor in the world. We had 260,000 total e-mail addresses - yes, that means many people had more than one; I'm still struggling with that - but we had 260,000 e-mail addresses and again, using this reference architecture, our tools, our disciplines, our products, and our people, we have been able to pull off a massive integration. And importantly, because we wanted to keep our customers at the center, we were able to do business as a combined company on day one. So, on day one, we had our integrated Web site, which we have now taken through successively two more generations. We've integrated our supply chains, we've integrated our e-mail - integrated our e-mail on day one actually, so employees could collaborate, could talk to one another, could find one another on day one.

And all of that has been done while we reduced our IT spending by 25 percent. In other words, we achieved a better return on our information technology and created a more agile, adaptive, effective, and efficient enterprise in the process. Now, you've already heard from some people on our team about a lot of this. Yesterday, I believe a number of you heard Shane Robison talk in more detail about the adaptive enterprise. You've heard Dick Lampman talking about what we do in HP Labs. Ann Livermore, I think will talk to you tomorrow about what we are doing in HP services, and Peter Blackmore is going to take an even deeper dive in terms of what we are really doing around software, and servers, and storage.

And I hope as well that you will get into the hall to see the exhibit, if you haven't already. Our people and the people of our partners are very excited to be able to show you all the work we have been doing since last time. This is the first time this particular group has gotten together, but the work we have been doing over the last year.

And you may notice, if you haven't already, that we are celebrating this first HP World in a sense, with a football field-sized display. It is more than twice as large as last year's, and it's a good thing that Dean Kamen is here with his little Segway™, because we actually might need one to make it all the way around the exhibit.

But before I close, let me return to a point that I made earlier, and that is a point you'll just hear us continue to reinforce; CEOs and CIOs and I believe all of you are demanding more of your IT and more of your IT partners. We think you should and are demanding more accountability from us for what we do and for what our partners do - more agility and a better return on your IT investment. To us, being more accountable means delivering on our commitments - our own and those of our own partners, and as I mentioned earlier, it also means that we feel we must eat our own dog food…steak…caviar. We have to practice what we preach. But delivering on our commitments means doing what we say we're going to do. And when we don't do what we day we're going to do, we need to stand up and take it, and you need to make sure that we do.

Delivering more agility is all about a new discipline in measuring, architecting and operating IT as efficiently and effectively as every other business process. It is about technology yielding to the disciplines of business. And. it is also about solutions and services and technology that link business and applications to IT infrastructure and also linking customers and partners and suppliers and employees. And finally, of course, a better return on IT means what it has always meant. It also means stability, and reliability, and quality, and risk mitigation, and speed, and flexibility, and lower cost of ownership, and lower cost of acquisition. IT cannot be an either/or world any more. The best way to address the challenge of complexity - which is frankly what all of us face in our businesses - the best way to address the challenge of complexity is not simply to throw more people at the problem, it is to combine smarter technology with smarter tools and yes, smart people and smart partners.

At HP, we of course are a technology company, so we have always believed that technology drives business value. But we have learned that again, going through the merger of these two companies, we know technology drives business because we think we have the biggest proof point in the industry. It is our commitment - it is our aspiration to deliver more of what you demand of your technology partners. We are proud to be your partner, we will work every day to continue to earn your business and your trust, and I want to thank you again personally for your loyalty and your support. I hope you very much enjoy the rest of HP World and all the exhibits and the other speakers.

Thank you very much and enjoy the rest of your afternoon.

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