CIO FORUM / INFORUM 2003
ROBERT H. SMITH SCHOOL OF BUSINESS
UNIVERSITY OF MARYLAND
OCTOBER 10, 2003
© Copyright 2003 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.
Thank you and good morning. It is a great pleasure for me to be back here at the University of Maryland Business School. I was reminded this morning by the president here that the last time I came, I actually was still at Lucent Technologies, so that makes it like four-plus years ago.
I want to talk this morning about both leadership and technology. First, because I think that's what this place is all about, and secondly, because as the dean quoted, I think they are very much linked.
But before I do that, I want to just spend two minutes on a personal story of how I ended up here and what this place meant to me, because for those of you who are here or listening in other rooms who are students who perhaps feel a bit uncertain, a bit unsure of yourselves, maybe my story can provide you with a little inspiration.
I was saying this morning that I actually almost didn't get into the University of Maryland at all. I had graduated from Stanford with a degree in medieval history and philosophy, and I went off to law school because that's what my father wanted me to do. I thought I was going to be a lawyer. I hated it. I quit after a semester, and wandered off into the world to find myself, and did some strange things…I answered the phone and typed for a year at a commercial brokerage company. This was in the '70s when young women with degrees in medieval history probably weren't considered a great bet. And then I went off to Italy to teach English, and from Italy, I decided to apply to the University of Maryland Business School. Because it was in Italy, my application was late. And so the university, not really getting quite the connection of medieval history, and she's applying from Italy, and it sounds like she doesn't really know what she wants to do with her life -- they rejected the application.
Eventually, I made my way to Dean Lamone, who was the dean at the time, who agreed to change his mind, and they let me in. And throughout the period that I was here, I can tell you that I had great interactions with students, but it was deans and professors, most particularly Dean Lamone, who made a huge difference in my life by taking a chance on me, by taking me seriously – one of the first serious people to ever take me seriously – by asking me to do a major project for him, and by encouraging me every step of the way.
He as a leader saw something about leadership in me and gave me a different view of what was possible. And that is, in many ways, what leadership is all about.
I also had wonderful professors like Ed Locke, who actually wanted to write a paper with me, and eventually we ended up getting it published together. And once again, it showed me a whole different point of view about what was possible.
Professors like Bill Nickels for whom I was a teaching assistant and, frankly, he and I used to argue a lot because we didn't agree on many things. But that was also a great lesson for me. The truth is, we agreed on a lot as well, but I learned about discourse and debate.
So my years here were truly formative, not just in terms of the skills I learned, and the subjects I mastered, and understanding what marketing was about, and understanding what operations research was about, and organizational behavior. It wasn't just the skills and capabilities. Here I learned a different notion of what was possible. And I think, in very great measure, that is what leadership is about, and that is what education is about.
Rudy Lamone, in seeing something in me, in letting me see a different sense of possibility for myself, was exhibiting leadership. And so to begin by talking about leadership, I think one of the most important qualities a leader can bring is the ability, the energy, the desire to unlock potential in others. I think leadership is ultimately about helping other people achieve more than they think is possible; helping people see a different set of possibilities for themselves.
Let me also say a couple things about what I think leadership is not. I don't think leadership is about title. I don't think it is about stature. I don't think it is about how much money you make, or how many people work for you, or what your ranking is on any particular list. I think anyone can lead from anywhere at any time – which is to say that I believe that first, leadership is a choice; and, secondly, that leadership is about making a positive impact. And anyone can make a positive impact.
Some acts of leadership are very large, and happen on a large stage and a big campus, and some acts of leadership are quite small. But like a stone you drop in a pond and it has ripple effects, sometimes even very small acts of leadership can have a huge impact. And of course, it follows that if anyone can choose to lead at any time from anywhere, then it is the role of leaders to find leaders and to unlock for them the possibility that they can make a positive impact. And, by the way, while it may sound very philosophic in some ways, I think that is, in many ways, the essence of business, the essence of entrepreneurship, the essence of moving the ball forward.
Leadership is about fundamentals, as well. The fundamentals of character counts; the fundamentals of integrity matters, and I think in many ways, the scandals of the late '90s and the early part of 2000, where we have seen too many CEOs take the wrong path and make the wrong choices, have been about a failure of fundamentals – fundamentals like a CEO's job is to manage the company, not manage the stock prices; fundamentals like it is a CEO's job to balance the short term and the long term, irrespective of the pressures of Wall Street. It may not be easy, but it is what we're paid for. Fundamentals like it is a CEO's job to balance the needs, the demands of multiple constituencies – investors, employees, customers, communities. And those four constituencies do not always have aligned interests, and it is the job of the CEO to balance those requirements and those interests. That is not an easy job. It is what a CEO is paid to do. And any time a company, in my judgment, gets one of those constituencies out of balance with the other, bad things happen over time.
We have seen in some economies around the world where the interests of employees become so paramount that a company or a country is hamstrung and straitjacketed. We have seen as well the dangers when a company gets so guided by investors alone that the wrong choices are made for employees, for customers, and for communities. And of course, it is always true that customers would much rather have as much as you have for as cheap as possible, and so how do you find the right notion of value for a customer that also delivers value for investors and employees, and ultimately, communities, if CEOs are thinking about a decade – and I do think a CEO has to think about a decade. Yes, short-term execution is important, but ultimately, I think short-term execution without a long-term strategy ultimately leads nowhere, while it is also true that a long-term strategy without execution leads nowhere.
But communities, if a company leaves a community worse off than when it found it, that ultimately has a huge negative impact on the business. Likewise, Hewlett-Packard is a company very engaged in communities, very engaged in reaching out and finding potential and talent in underserved and underrepresented and under-accessed communities all around the world. Many people call this work that we do philanthropy or charity. I call it smart business, because ultimately, as a business we think as we reach into these underserved, under-accessed, underrepresented communities, whether they are in East Baltimore or whether they are in South Africa -- we are building, we believe, entrepreneurs of the future, employees of the future, customers of the future, and partners of the future. So fundamentals count.
I think as well that leadership is a journey, not a destination. And again, it perhaps sounds so obvious, but I think successful companies – like successful people, like successful leaders – know you never arrive. You never rest on your laurels. You never stop learning. You never stop adapting. It is a journey, not a destination.
When I first came to HP, I quoted Charles Darwin, who said, "It is not the strongest of the species that survives nor the most intelligent, but those most adaptive to change." And the reason I quoted Darwin is, first, because HP as a company had a great legacy, a great history. It was a great company. But in many ways, it had fallen so in love with its legacy and its past that it had forgotten to build its future. And the vaunted phrase, "The HP Way," which at its core is about fundamental values like passion for customers, and trust and respect, and highest standards of integrity, and contribution to community, and innovation, and contribution, and teamwork and collaboration – values that guide our company to this day. But that phrase "The HP Way" had become a shield against change…No, we don't do it that way; it's not the HP way…No, we can't think about something different; it's not the HP way. And so when people or companies get locked into a certain way of doing things; that is, when people start to become less successful, then companies start to lag and ultimately lose.
Someone on my board said something very wise one day. He said, "You know, Carly, if you look at people when they reach over 40, the thing that distinguishes people who continue to grow and succeed past 40 and people who stop succeeding, is the ability to learn. And I think that is so true – the ability to learn and adapt.
And I guess the final thing that I would say about leadership is power, which always comes, I think, from the connections between things. In some ways, this school is about the connection between things. This school is about the connection between technology and business. In many cases, when we do research and development at HP, we find our biggest breakthroughs come when we bring disciplines together that generally have not worked together. Nanotechnology, for example, is all about bringing computing and biology together in some really interesting ways. Nanotechnology will, in fact, change the world fundamentally in our lifetime.
If you think about where we are now in the networked age, why is the Internet such a powerful tool? Because it connects things, it connects people, it connects ideas. All of you are familiar, I'm sure, with Metcalfe's law, which basically says that a network is powerful based upon the number of connections. And that is true in leadership as well.
Nothing important, nothing valuable, nothing significant, nothing happens when a single person acts alone. Nothing. And while I took the heat during the merger, which is appropriate – that's what CEOs are paid to do; frankly, I now get way too much of the credit because like anything else, it was a huge team effort to do what we had done. Power comes from the connections…the connections between things, the connections between people, the connections between disciplines. And in many cases, one of my most important jobs as the CEO of a company that is now almost $75 billion – we operate in 176 countries; we have 140,000 employees; we spend $4 billion a year on R&D; we generate five patents a day; our rate of innovation has accelerated 350 percent in the last two-and-a-half years – in many ways, my most important job is to make the connections between ideas, between people, between disciplines.
So my view of leadership is it is all about unlocking the potential in others and getting others to see possibilities they did not think of before, and helping people achieve more than they thought was possible. Leadership is about the fundamentals of value and character and judgment and balance. Leadership is a journey, not a destination, and those who stop learning and stop adapting start losing. And the power is from the connections between people and things and ideas, and frequently a leader's most important job is to connect things.
I want to talk a little bit, of course, about HP as well. The merger between HP and Compaq was controversial, to say the least. One of the things that I think leaders have to do also – leading companies, leading people – is to see things before everyone else sees them. When something is obvious, it may well be too late. And while I have the greatest respect for a company like Kodak, for example, I also believe that one of the reasons that the market has reacted in the way the market has to Kodak's change in strategy is because it has become absolutely obvious to everyone that traditional photography is dying and digital photography is winning.
The time to act is before it's obvious. The time to act is when you still have time to change. And we acted to have the audacity to say high-tech mergers can work and we can pull off the largest merger in the history of the technology industry. But we did it not to break records, and I wouldn't have wished the fight we had on anyone – although I would do it again if I had to. But we did it because we knew that technology was changing, and how customers would use technology was changing. And, therefore, we had to change, because leadership was the only goal worth aspiring to for a company with our great legacy.
Why do I say technology was changing? Well, in some ways, it's reflected in the quote that the dean honored me with. You know, there are two schools of thought right now in terms of technology that you can read. Both of them, in my judgment, are dead wrong, but there's that famous article from that other business school, which I'm not associated with. That famous article that was written in HBR: IT is dead – IT doesn't matter. And basically the thrust of that article, if you've read it, was it really doesn't matter, I mean, it's totally commoditized; it can't really drive competitive advantage anymore.
There is another school of thought that says as soon as the economy turns around, it's all going to just go back to the way it is. We're going to have, you know, massive growth in the technology industry. It's going to be a very rapidly growing sector. And in some cases, you see that reflected in the NASDAQ, where you once again have technology companies in some cases with PEs of 70 and 80 and 90-plus. That is wrong as well. We are not going back to the '90s in terms of the hot box, the killer app, and growth of 30 percent, 50 percent, 100 percent.
Technology has become core to every business. It will be core in every home. And it is the difference between people who will succeed in this economy, countries that will succeed in this economy. Technology and business, technology and life, truly are inextricably linked. And if you think about the challenges we face in our society, whether those challenges are education or health care or economic development, each and every one of those challenges will not be solved without the application of technology.
And when technology becomes incredibly core to everything that is going on, the requirements for what technology has to do go up. Customers – users – become more demanding. Technology is no longer a science experiment. It is no longer something that only the CIO can understand. It isn't something for the geeks in the back room. All of a sudden now technology is really mission-critical.
I like to tell people, because it's true, that CEOs today may be spending less money on technology, but they understand it better, and they have much greater demands for it. And, among other things, they are – and they should if they're not – demanding that an investment in technology be evaluated like every other investment they make: clear return criteria, absolute discipline around program management, and change management. It ain't in the back room anymore. It is in the front office and is core to competitive advantage.
And so when something becomes critical, core, key, central, inextricably linked from success in life, or success in business, then the bar goes up. And we knew we had to build a stronger, more capable company.
Now, let me also say in what may sound like a shameless advertisement for my company, but let me tell you a little bit about what's different about HP, because we have built a company specifically designed to respond to the fundamental shifts we see going on in technology.
First, our portfolio is unlike any other technology company's in the world. We are the leading imaging and printing company in the world. We are a leading personal systems company. And just to give you a sense of how consolidated the PC market is today, Dell and HP are separated today by 500,000 units between number one and number two. Just to give you a sense, 500,000 units doesn't even represent our volume in a single month. And the next three players in the PC industry – IBM, Fujitsu Siemens, Toshiba – have combined, less market share in the PC space than HP alone. This is a market that is rapidly consolidating, and it is coming down to a very-few horse race.
We are a leading provider in enterprise systems; the number one player in Linux servers – we do about $2 billion, which is twice the next player – Linux servers, NT servers, UNIX servers, supercomputing, the leading player in storage, the leading player in management software, and we are now the number three player in managed services outsourcing. IBM today is number one in terms of revenue, although they have only nine percent market share…very fragmented market. EDS is number two. We are currently number three. We will be number two in several years at the pace that we are growing.
That portfolio -- from imaging and printing, to personal systems, to enterprise systems, to professional services – there is no other portfolio like it anywhere in the technology industry.
The second thing that's unique – and by the way, we fought hard to keep that portfolio together. Many people said, “Why don't you spin off imaging and printing? Why don't you spin off PC? Take apart this portfolio.” We kept it together because of what we see happening in technology.
The second reason we're unique is because we are the largest consumer technology company in the world. We are the largest small-and-medium business technology company in the world. And we are close to, not quite the largest, enterprise technology company in the world. That span from consumer to enterprise is unlike any other, as well. Over one billion customers use HP products. We power 95 percent of the world's securities transactions. 65 percent of the world's energy infrastructure is powered by our capability. We are a far-reaching technology company.
Now, why did we keep that portfolio together? Why have we built this company in this way?
First, because in an industry where the bar is very high, and CIOs and CEOs and Mom and Dad at home have very high requirements for what technology has to do, if you're not leading, you're losing. So leadership positions are important in technology now. But it goes beyond that. We see three really fundamental things going on in technology:
First, every process – and those of you who are CIOs know this – every process will become digital, mobile, virtual; every process. I spoke of Kodak earlier. What has happened to Kodak? Traditional photography, a physical, chemical process of limited flexibility, time and labor intensity, and in many cases, dissatisfaction – how many prints do you throw in the bottom desk drawer? That process has become a digital process. You take a picture. You create digital content. By the way, what is a camera? It is a computer with a lens. You create digital content. You manage that content. You network that content. You manipulate that content. You store that content. You edit that content. And when you are ready, you transform that content into something you can hang on your wall or hand to your friend. That process has been digitized.
Now it is becoming mobile. So I know many of you have probably a cell phone camera. HP, for example, just announced a collaboration with Nokia where every Nokia camera cell phone is now print-enabled…all you have to do is point yourself at an HP printer and it prints.
Now, digital process, mobile process, and virtual in the sense of anytime, anywhere – that will happen to every process. Every process. It must happen to the process of healthcare. It is happening to the process of education. Every physical process will become digital, mobile, virtual. And when those processes become digitized, what does a digital process require? It requires computing, storage, networking, management, services, and yes, imaging, because ultimately – by the way, we've done a lot of experiments with kids. We watched kids who are computer literate, and we brought them into our labs and we watched them use the computer and print. And we asked them: "Why do you print what you print?" The answer was interesting: "Because when it's on the screen, it's out there. When I print it, it's mine."
Think about it. It is kind of how we all operate. When we want it to be ours, when we want to own it, then we want to touch it. Every process will become digital.
Second trend: This technology is complicated stuff. The truth is it's becoming too complicated. And so now the requirement is for simplicity and manageability, and the requirement for simplicity and manageability is going to change what technology companies deliver, and it's also going to change how people work and how people operate. The biggest barrier to technology adoption today is complexity. It has to become simple and manageable.
And, finally, it is a horizontal, heterogeneous, connected world. It is a horizontal, interconnected, heterogeneous world. By the way, that's a real different point of view for a company. Most companies had thought about themselves vertically. Most companies had built their IT systems vertically. They've created stand-alone islands of automation around specific processes, specific applications, specific divisions, specific departments. And, by the way, what they have when they've done all that is something that is too expensive, way too complex, and they can't make the connections between things, between people, between processes, between applications.
And so, we believe companies now have to literally think completely differently about what an enterprise is. An enterprise is to us – by the way, this is how we have managed our integration; it's how we manage it, and it's how we deliver technology to our customers. Enterprises and technologies are no longer about vertical chains of command and stand-alone islands of automation. Enterprises are horizontal collections of processes, supported by applications, supported by technology.
That horizontal, heterogeneous, connected world is why we believe it's important to have the portfolio we do. It's why all of our software strategy is focused on management – management of heterogeneous worlds. It's why we believe we have to lead in Linux and NT and UNIX. It's why we think our great contribution in terms of Web services is making .Net and J2EE interoperable, because guess what? They're both going to be around. And it's also why we believe that ultimately customers now are unwilling to make any trade-offs.
What do I mean by that?
Customers frankly, again, whether it's Mom and Dad or whether it's a CIO, customers now – let's go back to the '80s. A CIO in the '80s said if it's reliable, if it's stable, if it's on budget, that's good enough. In the '90s, it was: it's got to be fast; it's got to be flexible; and, by the way, spend whatever you need. Most CEOs, frankly, were embarrassed that they didn't understand what their CIOs were asking for, and generally gave them the money. And now – you all remember the good old days, that's how it was. – And now, people are saying, “You know what? I need it all. I need lower total cost of ownership. I need higher quality. I need better reliability. I need simplicity and manageability. I need security. I need consistent, sustainable innovation. And I need my technology to help me adapt, not to hold me back.” That is a tall order. But it is what customers demand, and it is why we have built a company that we think can deliver that.
And it is the same for consumers, by the way. We just launched our biggest product launch into the consumer market in the history of our company – 158 new products in a single day. By the way, think of the supply chain it takes to do that in 176 countries…
But those 158 products are focused on the experiences of digital imaging and digital entertainment. And the big barrier to technology adoption in the home today is it's too complicated, it doesn't work well together.
Every process will be digitized. It is all about simplicity and manageability. And it is a horizontal, heterogeneous, connected world.
The last thing I will say – and then I'll stop here and take your questions – is that, if you think about that list of requirements that I've just laid out that customers have now that they really can't compromise on, really can't compromise anymore between lower total cost of ownership and innovation, or between reliability and innovation, you really can't compromise anymore. That, for us, has two consequences:
First, we are building a value proposition. We deliver a value proposition to our customers that we describe as high tech, sustainable, reliable innovation, and low cost. We think that cost structure is a competitive weapon or a competitive vulnerability. There is no in-between. And when customers demand consistently lower total cost of ownership, it better be a competitive weapon. And a best total customer experience. And we use the term "experience" in a very disciplined way. We measure it. We track it. We have engineers now who design experiences, not products. And designing experiences means thinking through the software, the hardware, the networking, the out-of-box experience -- all of it. High tech, low cost, best total customer experience.
And the second thing it means for us is when we think about our $4-billion worth of R&D and our five patents a day, we're really focused on security and mobility and rich media and management. And we think about those things, security and rich media and mobility and management, not this way – a product at a time, but this way – a process at a time, a system at a time, an application at a time.
So, let me go all the way back to the beginning, which is business and technology are indeed inextricably linked. I have had a great privilege to lead a great technology company, and one of the reasons that I get so excited about what I do is because I talked about leadership being unlocking the potential in people. I think when people are animated by the right sense of possibility and the right goals and they are empowered by the right tools, that everything is possible. We use that tag line in our ads. I actually believe it. Not everything's easy. Not everything happens right away. But everything is possible. And technology is a great tool that unlocks potential in businesses and in people. And that's what gets me up every day.