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JUNE 18, 2003

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

Good afternoon.

It's great to be with you all this afternoon and it is a pleasure to join SAPPHIRE '03 in Orlando. Despite the weather, Orlando is a great place to host a conference about technology with so many executives who care about technology. It is a city that understands the role and the value of technology in transforming people's lives and experiences.

I say that because Disney and HP have been partners for many years, and over the last several years, we have been working together, among other things, on a new attraction at Epcot Center called "Mission SPACE." It's an attraction designed to bring the thrill of space flight to life for those of who are never going to get a chance to experience it in real life - although having been on one of the simulators six months ago, it feels like real life. And HP engineers, working with Disney imagineers, are working hard to make that experience truly memorable.

I bring it up because this is a city and Disney is a place where memory and tradition intermingle to tap into some of our older and deepest childhood experiences, all together with one of the world's most beloved brands, where lives and experiences are transformed by technology. And I can tell you, every single day the executives at Disney ask themselves a simple question: how do we extend the trusted brand experience that has made us great while also imagining the future? How do we take the best ideas, our most enduring assets, and use technology to market them, to maneuver them, to add new levels of magic and excitement to the Disney experience?

And I think every single day, every developer, or IT manager, or CIO in this room asks a similar question, although it may not feel as magical every day. And that is, how do I link today's business ideas to the systems and data that we've invested in for years? How do I build a bridge between application development and application integration? And, how do I do it quickly and efficiently and yet inexpensively? I think you're here today because you understand - you know actually - that information technology is vital…vital to the success of your business. And you know that IT is more than necessary overhead. It is a competitive asset. And you also know that IT is essential to provide the speed and agility in a world where business decisions and market changes have to be managed in real time.

And how many of you have heard about or seen or read that now famous Harvard Business Review article entitled IT Doesn't Matter? I happen to have a Masters from MIT, and when I think about that Harvard Business School article, I think about a joke that used to go around the campus of MIT when I was there. And as you know, MIT and Harvard are right across from each other. But there used to be a joke around campus that a student goes into a grocery store and he shops for ten items and he goes to the checkout stand which says eight items or less. And the clerk looks at him and says what's the matter; either you go to MIT and you can't read, or you go to Harvard and you can't count.

Well, that Harvard Business Review article to me is making an argument based on quantity, instead of making an argument based on quality. Just because everyone today has IT, doesn't mean that everyone's IT is the same. The businesses that are winning in the marketplace, and will win in the marketplace, are those that understand that there is no separation between information technology and business. Or as our friend, Craig Barrett at Intel said recently, "The only people I hear who suggest Moore's Law is dead, are those who don't want to keep up."

It is of course true that we are seeing structural changes in how companies and customers buy and perceive technology. The value customers place on lowering IT acquisition and operating costs, on scope and scale, on adaptability and sustainability, those are here to stay. Actually these changes are driven by the very fact that technology and innovation are more, not less, important. Customers can no longer tolerate IT as a mystery or as a science experiment, when it really is mission critical. The opportunity to apply technology to fundamental business and social issues is enormous. Think about the health care issues we have. A vast number of those health care issues will be solved by technology. Therefore, the opportunity to turn innovation into competitive advantage is huge.

Just think about the problems that you are wrestling with in your own organization… security, reliability, stability, risk mitigation. As HP's own CIO says, "one thing every CIO needs to read is Sarbanes-Oxley." Talk about a new definition of risk mitigation that has real impact on how technology is used and managed. But you want all those things and you want flexibility and, yes, you want lower total cost of ownership. And these are all problems that are solved by technology and all of them require ongoing innovation.

I spend a lot of time talking with CEOs and CIOs around the world, and while perhaps it is true that CEOs are spending less on technology today than in the late 90s, the truth is that CEOs understand technology better today than they did then. And CEOs and CIOs are demanding more from their IT infrastructure and more from their IT partners. They want better price performance. They want more flexibility and agility. They are less tolerant of risk. They are not willing for technology to be a science experience. They demand that technology yield to the discipline of business. And what I mean by that is that technology has to be tracked and measured just like every other part of the business, and that it must have a clear and measurable return that everybody can understand, just like every other business decision and business investment that gets made. And why is that? Because business and IT have never been more closely linked.

Now you know the problems. In the 80's, a lot of IT environments - which we are all still dealing with today - were built up as islands of automation and the focus was on cost, and quality, and stability. And then in the 90's, when a lot people threw a lot of killer apps and hot boxes at the problems, it was all about speed and flexibility. But the game now has changed because now it is about, stability and reliability, and cost, and quality, and speed, and flexibility. In other words, customers want it all because they need it all. They need all that and they need, particularly, the ability to adapt their technology to the demands of their business.

Now in addition to cost, and quality, and stability, and reliability, and risk mitigation, why do I focus on change? Because the ability to manage change is increasingly the difference between the companies that win and the companies that lose. Inside of HP, I have been using a quote over the past several years that talks about change, and it's from Charles Darwin, who said: "It is not the strongest of the species that survives, nor the most intelligent, but those most responsive to change." And whether you are talking about the adaptability of a species, or the survivability of a species or company, the ability not only to survive change but to thrive on it, is one of the keys to success in a rapidly evolving environment.

Change, as it ripples across your systems, must be predictable and controllable. Our own CIO says every business decision triggers an IT event. And so, the changes that are triggered have to be predictable and controllable. Your technology has to be designed to give your IT department the ability not only to control the impact of change, but to use it as a competitive advantage. Infrastructure has to be able to flex with the business, whenever the business demands it. It must become a platform for the efficient and effective operation of the business - a platform for the efficient and effective delivery of data and business applications and processes.

Now at HP, we are using our own experience, the industry's strongest portfolio of products and services, and people, and tools, and methodologies, and world-class partners like SAP - to build a powerful platform for managing change. We call it the Adaptive Enterprise, and it is at the heart of the solutions that we are offering to businesses of all sizes. Now, let me just warn you before you tune out and say, "this is just more magic pixie dust and slideware, and maybe those binoculars…" Let me just hold your attention by saying this: what I'm about to describe is one of the reasons we pulled off the largest merger in the history of this industry, and did it a year and a-half ahead of schedule, and saved a billion dollars above the two and a half billion we promised we could deliver. In other words, we do practice what we preach and we use what we sell. In fact, we use it on ourselves first because we believe if we don't believe it, we can't get you to believe it.

So everything I'm about to tell you is what we've done and are doing. First I want to say this is about evolution, not revolution. Building an adaptive enterprise does not require you to throw everything out and start over. Why? Because you can't do that. None of us can do that. It doesn't require you to make a major U-turn in the path that you're on. It is something that can be achieved step by step in a very methodical way.

So, the first step is to measure and assess your business agility and adaptability across three dimensions: time, range, ease. Time is probably the most obvious. It's the speed at which changes can be made in the infrastructure in response to a business decision. How long does it take, for example, for a new product or a new price to be recognized throughout the whole infrastructure, all the applications and all the business processes? Range is the breadth of change that can be introduced or supported. Ease is the level of effort; cost, risk, required to introduce and support change. In other words, can you, with one data input - with one click - capture the introduction of that new product and its price, and have it reflected throughout the whole company? We've claimed that these metrics - time, range, and ease - and the ability to assess where you are, are critical in linking business IT. And we have a set of services, tools, and practices that enable us to measure a company's agility - intellectual property that gives us our strong foundation and is tested and tried on ourselves.

To build a truly adaptive enterprise, companies also need an IT architecture that supports the integration of business processes that make possible an efficient flow of information across processes and between 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 out to customers, and partners, and suppliers. That's built on four fundamental design principals.

First is simplification, for reduced complexity and risks. Second is standardization, for increased flexibility through standards-based components and processes. Third is modularity, giving you the ability to change, and mange, and virtualize, and use components both collectively and independently. It's all about getting the maximum utility out of every since IT asset. Today we know our surveys tell us that many of you use only 20 to 40% of your IT infrastructure. That utilization rate ought to be 80% plus.

And fourth, integration of all components into a uniform system that is easy to manage, and modify, and 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 with customers and partners.

Now, the core of our adaptive enterprise is a framework that we call the Darwin Reference Architecture. It is a standards-based framework that leverages best-of-breed technology and components, not only from HP, but also from partners like SAP. And the architecture provides several key advantages. It creates a new level of integration between business and IT; it lowers IT acquisition and IT operating costs by using industry standards to drive efficiencies and economies of scale; and, it provides an evolutionary path to adaptive infrastructure, enabling you to take the right steps at the right time.

Let me take a minute and describe the key elements of the Darwin Reference Architecture. It begins with the view that an enterprise 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 them. And these business processes are supported by a set of applications and infrastructure technologies. The architecture builds on a foundation of services and software. The measurement and assessment services that we provide look at the breadth and depth of the enterprise, from business process, to applications, to infrastructure. And a good example of that would be our adaptive application architecture. It's 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 IT environment and manage them more effectively.

On the software side, management software monitors all aspects of the data center, detects issues that need to be resolved, and takes action either automatically - such as server vitalization, storage utilization - as well as 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 supports the business processes. And it's a place where SAP plays a very important role in the solutions we provide to customers.

And then finally, there's the infrastructure layer where all the technology, the products, the services, and the standards come together in a truly adaptive and flexible enterprise. At this layer, we virtualize all the resources, including servers and storage and network capability. I want to emphasize this is not an abstract concept; it's not slideware. We are delivering against this architecture today, and it builds on the expertise and the experience as we integrated the IT infrastructure of HP and Compaq during the past year. We're bringing to our customers the expertise, the tools, the people, the services, the products, the discipline that we've used and developed as we accomplished our own massive IT integration.

And just to give you a sense, when we brought these two companies together, we had over 7,000 applications, 160,000 employees in 167 countries. We are actually the largest e-commerce transactor in the world. We had 260,000 total e-mail addresses. If you do the math, that means that a lot of people had more than one. I don't think we're unique in that, by the way. And, using this reference architecture, these tools, these disciplines, our products, our people, our services, our partners, we were able to pull all that together and do business as one company on day one. That means an integrated Web site to our customers, integrated supply chains, integrated e-mail so that all of our employees could collaborate, find one another, and talk with one another on day one. And in the process of doing all that, we reduced our IT costs by 25%. In other words, we achieved a better return on our IT investment, which is precisely what we think you want to do.

Now one of the major successes of HP's IT integration has been our integration hub project, which is also known as iHub. Based on our NonStop systems and NonStop operational data store, the iHub provides real time integration of multiple SAP supply chain applications, versions, and data. It delivers today a single, up-to-the-second view of our entire supply chain. And just so you know, when we started we had more than 70 SAP production instances across the combined company. iHub is all about getting the greatest value out of our SAP investments, which again is one of the reasons we think you are here this week.

HP is not just a satisfied SAP customer. We have also built a partnership that I think is a benchmark in this industry. It's a demonstration of what can happen when two companies really collaborate to deliver integrated solutions for customers. Fully half of all the SAP implementations in the world run on HP platforms. All together we have partnered on more than 30,000 customer installations across every industry sector - from small and medium businesses, all the way to the largest global corporations.

Let me give you two very recent examples. In the U.S., we recently won a contract to manage Procter & Gamble's IT infrastructure. It happens to include one of the largest SAP implementations in the world. HP will manage more than 270 SAP servers and 50 SAP instances around the world. P&G is already a recognized leader in their use of SAP and we build on that leadership through vitalization and resource optimization with HP's Utility Data Center - again, something we use internally since we run our HP Labs on Utility Data Center - and through improved monitoring with HP OpenView.

We're also consolidating the Eastern and Western European SAP solutions for Delphi, which is the world's largest automotive supplier. Delphi's global operations will be able to run its entire SAP suite from HP's datacenters, reducing costs, and improving the company's return on IT.

And SAP itself has selected HP to provide and manage SAP's hosting infrastructure here in the Americas.

HP and SAP also share a common vision of what it takes for companies to build an adaptive enterprise. A good example of that is SAP's NetWeaver, which allows companies to create and improve business processes across their value chain without changing out all the underlying technology foundation.

Another example I think, is HP and SAP's shared commitment to standards-based systems and solutions, and a good example of that is SAP's support for Itanium on HP's UX and Linux and Windows platforms.

In the next few weeks, HP will launch powerful new Itanium 2-based systems all the way from 2-way to 64-way servers, and these will be ready for the most demanding IT challenges, including high end, midrange, and entry level systems that provide an exceptional foundation for hosting enterprise SAP applications.

We are working today with SAP and our joint customers on many production, as well as pilot projects, in the US and Europe and we are seeing growing customer excitement about Itanium. And SAP's commitment is also representative of the support we are seeing for Itanium from virtually every major ISV.

Now, before I open it up and take your questions, I want to conclude by returning to a point I made earlier, which is that CEOs, and CIOs, and most of the people here, I suspect, are demanding more of their IT and more of their IT partners. What we think you and they are demanding is more accountability, more agility, and a better return on IT. To us, being more accountable means delivering on our commitments - our own and those of our own partners. And it also means that we eat our own dog food, or I would prefer to suggest our steak, at the very least, if not caviar. But delivering on our commitments means we do what we say we're going to 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. And it's also about solutions and services and technology that link business and applications to the supporting IT infrastructure and that link customers, and partners, and employees.

And finally, a better return on IT means yes, stability; yes, reliability; yes, quality; yes, risk mitigation; and yes, speed and flexibility and lower cost of acquisition and lower cost of total ownership. The best way to address the challenge of complexity - which is what we all face - is not to throw more people at the problem. It is to combine smarter technology, with smart tools, and smart people, and smart partners, like SAP.

At HP we know IT drives business value. We think we have the biggest proof point in the industry. We know IT drives business value, and we know it drives performance and competitive advantage. And at HP, we are committed to delivering more of what you demand.

Thank you very much.

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