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MARCH 3, 2003

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

Good morning. It's a great pleasure for me to be here this morning.

As we meet here this morning in Orlando, more than 200,000 American troops are on the border in Turkey, Oman, Kuwait and across the Persian Gulf. It's increasingly likely that in less than a month, the United States will begin military action to disarm Saddam Hussein. Meanwhile, North Korea appears to have restarted its dangerous production of nuclear weapons, and launched a test missile across South Korea. And lest we forget, Osama bin Laden was recently seen again on videotape across the Muslim world, urging his followers to commit acts of violence against us.

Here at home, that uncertainty has given way to a new level of anxiety. In the past few weeks, we've seen the first Code Orange warning since 9/11. We've seen members of Congress discuss plans to move their families out of Washington. We've seen some citizens take suggestions to buy duct tape and plastic sheeting too much to heart, and seal themselves into their own houses. Two weeks ago, we even saw the disturbing image of missile batteries stationed in the very heart of our National Mall.

In this challenging environment, I think it's fair to say that all of you have earned your trips to Disney World, as much as any Super Bowl quarterback.

A big part of the reason why our democracy has been able to maintain the open borders and free movement through all of this is because we have the best national security in the world. And a big part of the reason why we have the best national security in the world is because we have the best technology in the world. But that technology wouldn't mean a thing without all of you.

From where we sit, the CIOs and IT managers from the public sector are the quiet heroes in this war on terror. On behalf of the men and women of HP, I want join General Hayden in thanking all of you for what you do every single day to keep our nation safe.

I'm here today to talk a little bit about how we believe our experience at HP can help you in that effort.

Our CIO, Bob Napier, has a favorite saying: "Every business decision triggers an IT event." Think about it: every business decision triggers an IT event. Our IT department alone handles more than 500,000 business-driven IT events every week across the entire business infrastructure.

But in a larger sense, I think it's also accurate to say that every single national security moment—whether it's a bag being screened at an airport, fingerprints being run between agencies, or a routine sweep of security at a nuclear facility—triggers an IT event, whether it's a database, a network or a mobile device. In a very real sense, the front line of this battle against terror on our homeland is wherever all of you happen to be working.

As a company that has a long and proud tradition of being a trusted partner on homeland security issues—a company that gave one of its own founders (Dave Packard) to serve as an assistant secretary of defense—we understand that many of you are dealing with issues that go well beyond the routine pressures most CIOs face today.

On one hand, you're dealing with the fundamental reality that all CIO's face in today's world, which is that the value proposition for IT must change.

There used to be a time when stability was the name of the game in IT—when the old saying was that you never touched a running system. But those days are gone. No matter what industry you are in today, speed and agility are the name of the game. For all IT managers, it means you have to be able to adapt infrastructure more rapidly and deploy systems in real time—with words like manageability and interoperability taking on new meaning.

At the same time, your ultimate customers—the voting public—only seem to know about things when they go wrong, not when they go right.

In the past year, this audience has used IT to help meet extraordinary congressional deadlines on passenger and baggage screening, with nearly 50,000 highly trained screeners posted at commercial airports. But all we hear people talk about is how they have to remove their belts and shoes.

You've begun to use IT to restructure our border enforcement and immigration services to develop new 21st century smart-border agreements. But all people wonder about is how those terrorists got into our country and stayed in our country.

You've worked hard to use IT to create new plans to protect our critical physical and cyber-infrastructure—dams and power plants, computer networks and communication systems—to accelerate deployment of our nation's first early-warning network of sensors to detect a bio-attack; to begin smallpox vaccinations for those on potential front lines of terror; to lay the groundwork for a Terrorist Threat Integration Center. Meanwhile, the only thing people want to talk about are all those things that remain undone.

Of course, the biggest challenge of all: how do you continue to prevent terrorist attacks within the United States and reduce America's vulnerability to terrorism, while simultaneously working to integrate more than 190,000 employees in hundreds of organizations across 22 different agencies, with different cultures and with legacy IT systems that don't necessarily work together—systems that don't talk to one another, and don't speak the same language? It's not like we can power down our air traffic control system or port monitoring for a few days or even a few hours to get it right.

At HP, we agree with Secretary Tom Ridge. Even though March 1st represents the day when most member agencies come on board the Department of Homeland Security, this is less a beginning than a continuation of the hard work you've all been doing to answer these questions and protect our nation for a very long time.

One of the essential ingredients to success in this integration thus far has been collaboration, not just between member agencies, but between the public and private sector. As this department swings into full gear, I wanted to come here today to urge all of you to increase—not decrease—your partnership with the private sector. I think we have a lot to learn from one another.

Facing one of the most daunting integrations in the history of the world—the first substantial reorganization of our federal government in more than 50 years—I'm sure it sometimes seems like answers are hard to come by, since there are really no good models of the same size and scope to follow.

I certainly don't come here today with all the answers. But I can share with you some of what we've learned through our own journey—our own recent merger—in the glare of the spotlight, in response to market changes, across two companies that had very different ways of doing things, and different systems and cultures to help them do it. As the General has requested, I'd like to spend a few minutes talking about our experience—band-aids, bruises and all.

The good news is, nearly all the technology and services that the Department of Homeland Security needs to complete this transformation already exist. And from our experience, you have all the talent you need to be successful right in your own organization.

HP doesn't have 190,000 employees like DHS—but we do have 140,000 in 160 countries and every single time zone around the world.

As the world's leading IT company, we know a little bit about what it takes to provide safety and security for our customers. At a time when about 80 percent of our country's critical infrastructure lies in the corporate world, HP is proud today to power more than 100 stock and commodity exchanges, including 14 of the world's largest. We support 95 percent of the world's securities transactions; help process two out of every three credit card transactions worldwide, and three out of every four electronic funds transfers; handle 80 percent of the mobile billing and customer care traffic in Europe and Asia; and help control 65 percent of the world's energy infrastructure.

In fact, we feel privileged to have powered up the New York Stock Exchange after September 11th, to have supplied printers to the new government in Afghanistan after the Taliban fell, to help screen airport baggage for harmful objects and to work with the Fire Department of New York to help train new recruits.

It didn't always seem like we'd have the chance to have that big of a role.

Four years ago, we saw the trends that were changing the value proposition in IT. It was clear that with the slowing economy, customers could no longer afford to simply rip out what they had and start over again. As a result, our enterprise customers were much less interested in what individual products could do, and much more interested in how their entire infrastructures support, respond to and drive change in their organizations.

It means that we are rapidly moving away from the era of pure products toward a new era of interconnected solutions. It's no longer a question of who has the best hot box or killer application; it's a question of who can deliver the best solutions. Customers—from the private industry to the public sector—are looking for fewer, more capable technology partners who can deliver more. This isn't a cyclical change driven by a tough economy—it's a permanent change.

Four years ago, our board of directors and management team had concluded that in light of these changes, we had already begun to lose ground. So, we began a two-year evaluation of every part of our business. We concluded that the best way for us to regain our position at the very center of our industry was to merge with one of our biggest rivals, Compaq.

We realized that by merging with Compaq, we would be the market leader in servers, storage, imaging and printing, UNIX, Linux, Windows, PCs and the third largest IT services provider—with a portfolio that runs from desktop to print shop, from palmtop to NonStop system, from printers that sell for $49.99, to multi-million dollar commercial publishing systems.

But to truly benefit from the scale and scope of the combined company, we knew that we had to plan the merger in great detail. It was an enormous undertaking, but we learned that there are three things vital to attempting any large-scale integration: the processes, the people, and the technology. If you only look at one or two of these critical dimensions, you won't succeed. You must address them all.

Let's start with process. Immediately after we announced the merger, we created a dedicated team of people that ultimately numbered more than 2,000 HP and Compaq employees to work full-time planning the merger, with more than a million hours invested. We called this team our integration team.

We began by studying data from hundreds of mergers across dozens of industries, along with HP's and Compaq's past mergers and acquisitions. We studied the good and the bad—with an eye to extracting lessons that would help us craft a rock-solid integration.

Compaq had merged with both Tandem and Digital. During the Digital integration, Compaq confused many of its customers because of shifting strategies and poorly understood product roadmaps. For this reason, we knew we needed to make decisions on the basis of customers first. We needed to make decisions quickly. And we needed to be able to clearly communicate our product roadmaps and transition plans to customers the day we launched the new company.

Then, we turned to HP's experience in our merger with Apollo Computers in 1989. It made us #1 in workstations—but integration planning for that merger didn't start until after the acquisition was approved, leaving little time for the rigorous planning that was needed.

There were good lessons to draw on as well. HP's spin-off of Agilent was successful because we identified new leadership early, determined employee placement, identified new positions and filled them quickly—under serious deadlines. We learned that you've got to move quickly.

From that review process emerged six best practices that we used to guide our merger with Compaq.

The first principle is customers first—to maintain profitability, leadership and relentless focus on our customers by keeping the integration team small and focused. It had the added benefit of making those really tough decisions and tradeoffs—those politically charged decisions—much easier. The customer became the tie-breaker on the tough decisions.

The second principle is adopt and go—to be decisive and mean it. Consensus-based decision-making does not produce results. We looked at the practices between HP and Compaq, and we decided to adopt the best, and go with it—not to invent new ones. Decide, then move on.

Third, was value capture focus—to have an integration team dedicated to identifying top and bottom-line growth opportunities for the new company, and working with the businesses to meet these financial goals.

Fourth, was short- and long-term planning—to be ready for close day plus one, and to have clear goals and metrics for C+30, 60, and 90, and to develop long-term plans that span the next two years.

The fifth principle was focus—to communicate just-the-facts information, milestones and key decisions—no fluff.

The sixth and final principle was to recognize cultural differences and take action; to acknowledge and communicate similarities and differences; and spell out how we're going to bring it together.

Of course, every integration—whether it's the merger of two companies or the consolidation of federal agencies—has its unique challenges, but we think these principles still apply. We see them in companies and organizations that have merged successfully—they represent how the work gets done successfully.

I don't want to run through a whole laundry list of things we did on process, but let me mention a few. To begin with, we organized into very specific teams around each of our vertical business groups, but we also had key horizontal functions—like accounting, and supply chain, and finance, and brand, and HP Labs—which cut across the company. We created separate teams responsible for each horizontal.

You have some similar challenges in the Department of Homeland Security. Even though there are 22 agencies within the department, you are divided into six areas. And while you may not have the same horizontal functions we have at HP, you have to have horizontal links with agencies outside DHS—particularly the intelligence community, law enforcement and the armed services. Those relationships cut across your vertical organization.

Each of our project teams was responsible for conducting regular issues management meetings and documenting decisions. Project managers would raise cross-project issues in regular meetings in which resolution owners identified and documented decisions. Project managers would then raise cross-program issues in weekly calls, and then the project management organizer would raise it to relevant steering committees—which would make decisions quickly.

Much of this effort was geared toward day one, on the idea that you never get a second chance to make a first impression. We were fortunate—the hard work paid off. On day one, we not only announced comprehensive roadmaps and transition plans, but we also named the account team leaders for our top 200 customers, the managers for our key partner relationships and more than 800 senior managers.

On the people side, we understood that employees were looking for the executive team to address the "me" in merger as quickly as possible. In order for HP to maintain a highly motivated and productive workforce, we felt it was imperative to foster frequent and honest communication.

Our firm belief is that business practices aren't driven by corporate culture—they reflect corporate culture. If you don't have ethics strongly coded in your own business, it's going to be difficult to project those values in the larger market.

At HP, we believe that values need to be constantly reinforced in an organization to be real—that how we do things is as important as what we do. Forty-five years ago, HP pioneered the idea of a corporate values statement, the famous HP Way. Of course, one of the challenges we've had in the past year in our merger with Compaq is how to combine two large organizations—140,000 employees—into one team without sacrificing the values that made us successful.

So, before the merger was even announced, we undertook a cultural due diligence study in both companies to learn what was important to every one of our employees. The study involved in-depth interviews with 127 executives and 138 focus groups involving more than 1,500 managers and employees from both companies in 22 countries around the world. We also conducted team-building meetings to examine our cultural perceptions, share ideas, and develop common goals. In the end, we were able to identify the key attributes of HP and Compaq—a set of values to which we all aspired.

The interesting thing is that the values that came out of that work were the same ones that made up the original HP Way, with one notable addition that says more about the times than anything else: speed and urgency.

The point is, people everywhere aspire to the same things. Our research reinforced the point that culture is indeed actually defined more by how we do things than by what we do. So no matter how much we aspire to a common set of values, it's only to the extent that our interactions with each other reinforce values like integrity and trust—that they will become the cultural cornerstones that we write about 20 years from now.

We also have something called the "open door practice." Anyone can raise any issue with anyone else, anytime. I think the thing that's impressed me the most is that in the three years at HP, every communication I've ever received has been signed. Even during the emotion and turmoil of the proxy contest, every communications I've received has been signed—even though there were a few I wish I hadn't read.

I've talked about how we addressed the issues of process and people.

The final requirement was the technology—making sure that we integrated the critical infrastructures necessary for our employees to communicate, collaborate and operate within one company—on day one. You can't command the battlefield if you can't communicate. Our IT infrastructure was the glue between the processes and the people—and it remains a critical link in the merger integration.

The key to our communication was an intranet we set up at HP called the @hp portal. It was a critical and powerful tool. The portal became the delivery system for employee services. All employees had access on day one. All information to conduct day-to-day business was accessible. All employees could find internal departmental information.

It was a 100 percent paperless, self-service vehicle for standard global processes. It centralized our policy and program information from business groups and global functions, based on industry standard software components. It also included the entire employee directory, so anybody could find anybody else right away, which made people feel like they were part of a single company from the start.

Today, we regard the HP portal as one of the best proof points for our products, services and solutions. We're big believers in eating our own dog food and big believers in being our best reference accounts.

As for e-mail and directory services, we had a new hp.com address for all employees, which required a name rationalization process. We were able to enable full NT domain trusts between HP and Compaq and cross-populate and sync directories.

For day one, we merged a complex IT environment with 229,000 mailboxes, 232,632 accounts, 220,000 desktops, 1,193 networked sites, and more than 7,000 applications—with a weekly e-mail volume of 24 million messages. But it goes beyond the numbers. Our IT infrastructure was also critical to getting everyone on the same page—employees, partners, customers, suppliers and shareowners.

We figured out a way to put these two networks together with something we called "The Six-Pack." That's because there are six major points in the world where we created points of presence, or POPs. With these points of presence, we could simultaneously throw switches and interconnect the network.

Now, this was important not only because it was critical to our operations. It was also important because of the business we're in. If you are in the soap business, having world class IT might be interesting, but you're judged on your products, not on your infrastructure.

If you're in the IT business, however, and you're selling hardware, software and solutions and services, it is incumbent upon you to have one of the best shops in the world because customers want to know that you're using the stuff you sell—that you are your own best case study.

We've created the equivalent of a living lab—not only to run all of our production systems, such as our SAP environments, but to show our customers every product, most services and most solutions in production. In fact, what started out as merger requirements have now become a service practice within HP itself.

Integrating an infrastructure as complex as ours is a long term process. For all our success, there's still a lot of work to do as we integrate key systems like supply chain and human resources, and as we reduce our large application portfolio.

The key to success really goes back to our first pillar—process. Our IT group has a very detailed plan of record—believe me, I've seen it and it weighs several pounds. It sets out everything we're going to do from an IT standpoint on a global basis, and it is tied off with the plan of record for every business unit and every function. So we know the priority of every program, and we know how we're going to deliver it.

It is a rigorous process, but we would not have been so successful without it. With it, we're setting the standard for IT integrations. In effect, we have created a guidebook for other companies—as well as for public sector agencies like the Department of Homeland Security—to follow and adapt to their own circumstances.

Looking back on all three pillars—processes, people, and technology—we learned that adopting an architectural approach as an organizing concept worked. We learned that it was vital to integrate the best values and corporate objectives of both companies. We learned that executing rapidly and with a high degree of discipline was vital. We learned that establishing a common set of rules and language, with very clear roles and responsibilities, was also vital. We learned that the best approach was to map clear, obtainable milestones and deadlines and stick to them. And we also learned to be prepared for anything.

In your line of work, you don't need anybody to tell you that. There is simply no more vital function in our country today than the work you are doing.

HP has been a trusted government partner for many years, and we'd be honored to help you work through some of the challenges you face in integrating the Department of Homeland Security today. That's one reason we have set up a new program office devoted to homeland security, with the charter to bring the full capabilities of HP to bear on this critical work.

Nothing is more important than safeguarding the security of the American people, and we are all grateful for your commitment to this mission. You have a huge challenge ahead of you, and making the right decisions is never easy. It will take a lot of planning and a lot of hard work. But in the end, both leadership and transformation are essential to respond to the needs and requirements of our people.

Thank you, and best wishes for a successful conference.

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