TIECON 2001 KEYNOTE
SANTA CLARA, CALIFORNIA
JUNE 23, 2001
"THE BUSINESS OF CHANGE"
© Copyright 2001 Hewlett-Packard Development Company, L.P
Thank you. Good morning everyone.
All rights reserved. Do not use without written permission from HP.
Before I get started I want to congratulate TiE on its success. For a nonprofit organization that began in 1992 with only eight members to grow to more than 6,000 members and 29 chapters worldwide - with 14 more in the works - and to foster billions of dollars of new business is truly remarkable.
Clearly, TiE's core values of entrepreneurship, networking and mentoring are all great catalysts for business growth. In fact, they are among the same qualities that helped to ignite Silicon Valley more than 60 years ago.
I'm reminded of how HP's cofounder David Packard used to characterize the unique business culture here: its openness, its camaraderie, its interconnectedness, its sense of community. It was a place where even fierce competitors could share information and solve common problems together.
But this valley has also been characterized by rapid change - and the last few years have been no exception. We've been on a heck of a roller-coaster ride between exiting the old economy, entering the new economy and entering the new old economy. Somewhere out there, beyond today's shroud of "limited visibility," lies the new new economy.
If this ride has taught us anything, it has taught us that wealth can be created just as fast as it can be destroyed, that change is a powerful business reality and that creating sustainable value is not easy.
Consider this: As the 19th century drew to a close and the 20th century began, there were many successful industrial-age companies. But, of those companies that were thriving at the beginning of the 20th century, only a handful have survived to the end of the 20th century.
For those companies that can lead, those companies that successfully master change and keep on leading, the rewards are extraordinary. But it is also a challenging prospect to be resilient in the face of adversity, to champion constant change in the marketplace.
I believe that building sustainable value is a constant process of mastering change while continuing to leverage the timeless assets - or, as I like to say, "preserving the best and reinventing the rest."
I'll spend most of my time today talking about mastering change, but first let me define what I mean by timeless assets.
Entrepreneurship, networking and mentorship: TiE's assets are great examples of the kind of assets that organizations need to sustain themselves over time. These core values are responsible for attracting, retaining and accumulating other timeless assets such as talented people, intellectual capital, innovation, drive, competitiveness, inspiration, spirit and purpose - all of which are essential to creating lasting value for customers.
For example, when Bill Hewlett and Dave Packard set out to build a company, it wasn't about creating wealth or building an empire. It was, in fact, to do one simple very human thing: to invent. And it wasn't about invention for its own sake, nor was it solely about commerce, it was about inventing things that were both useful and significant. Useful in that the invention would serve a real purpose. Significant in that it wasn't about chasing fads; it had real impact on many people.
This spirit of invention, combined with a commitment to serving the communities we do business in, has always been a part of what defines HP. It is one of the main reasons I came to this company, and I continue to believe that it is one of our great competitive advantages.
But timeless assets by themselves are not enough. We need something that will help set them in motion - a catalyst for leveraging them, for using them to compete and win in the marketplace. The catalyst I am referring to is, of course, change.
But how do we look for change? How do we use it to our advantage?
I believe there are three things we must do to master change - whether we're at an organization that has eight employees or 80,000:
- First, we need to look outward to assess the change that is occurring in the business environment around us.
- Next, we need to look inward to assess how well we are prepared to operate in that environment, and to act on what we see. See the truth and act on the truth.
- And third we always need to be looking forward to find new opportunities for leveraging change and creating new value.
Let me begin with looking outward. There are basically five observations we can make about the changing business landscape:
The first is that the Internet era has only just begun. Many of you in this audience will be responsible for taking it far beyond where we see it today.
And, while the current economic slowdown has injected a bit of reality into some fairy-tale growth trajectories, we all know that the inherent value of the Internet is irrefutable. There's no going back.
Fundamentally, it's a new form of communication: a form of communication that is open, democratic, immediate, nonhierarchical. The profound shift to a communications medium that is open, democratic, immediate and nonhierarchical changes companies forever. And, in time, it will change society forever.
The second thing we can observe about the changing business landscape is that life is increasingly lived in motion. More than anything, the mobile landscape is about liberation from being tethered to things. We need only to look at ourselves to realize its impact. We're constantly on the move, so much more than just 20 years ago. We work during our commute to work, in our cars or on the train. Also, the lines between work and personal life are blurring; you almost can't separate them anymore.
The third important trend is that the customer is in control. Power has shifted to consumers, individuals, customers, who now have more choices then ever before. They can receive information anytime and anywhere, delivered through a medium that is open and democratic.
The fourth observation we can make about the changing business landscape is that complexity is increasing - as is our requirement for speed and agility.
And the fifth observation is that interconnectedness is more and more prevalent. Interconnected markets are functioning as larger interconnected ecosystems - loosely coupled through technology - and carrying on billions of transactions at the speed of light. Increasingly, regional economies are becoming borderless, moving toward a single real-time global ecosystem.
In this changing business landscape, where companies are operating more like interconnected systems than isolated machines, where they are becoming more permeable and interdependent than rigid and independent, it's becoming more and more evident that our thinking must be holistic. It must take into account that all the relationships I've been describing have an impact on each other.
We need to look for patterns in these relationships - end to end - from people all the way to infrastructure on a global scale. What are some of the dynamics? How do these linkages influence the prosperity or health of a company? It requires using what we inside HP call systems-class thinking.
I mentioned earlier that the Internet and mobility are changing everything. While this is true, there is a whole lot more to the technology system than just these two factors.
We see a world of interconnected enabling technologies that work together in radically simple ways, where complexity will be engineered out and simplicity and usefulness will be engineered in. We're calling this emerging computing landscape "service-centric computing."
The term "service-centric" helps emphasize the transition from the computer-centric world we've been living in for the last 30 years to a world where everything is connected and capable of supporting a variety of dynamic services for anyone or anything that requires them.
In the service-centric world, information technology capabilities will be provisioned as a service, delivered as a service, metered as a service, managed as a service and purchased as a service.
It's a world where it becomes more important to understand why things connect than how they connect.
In this world, we see the computing landscape evolving along three dimensions: the rise of e-services, delivered to and accessed by intelligent connected devices and environments, over an infrastructure that is always-on. Our business strategy at HP is focused on enabling and participating across all three of these dimensions.
But to truly thrive in this dynamic global ecosystem, it's not enough just to look outward and recognize all of the changes that are occurring. We must be able to adapt to them and create sustainable value within the larger global ecosystem.
This brings me to the second part of my talk today, looking inward, or what I have referred to inside HP as looking in the mirror, seeing the truth and acting on the truth. It's how we use change to create new value and to adapt in a dynamic marketplace.
To quote one of biologist Charles Darwin's most famous observations, "It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change."
Perhaps the best way for me to explain the importance of being responsive to a changing world is to briefly describe the process of reinvention we're currently undergoing at HP.
HP is known in this valley for the one-car garage where it began in 1939 - a garage that has become a symbol for inventiveness, and, among other things, the designated birthplace of Silicon Valley. HP is also known for inventing legendary management practices, such as "management by walking around" and flexible time off, and for thinking globally back in the 1950s.
Over time, however, HP had also become known as the "Gray Lady of Silicon Valley" - an immovable icon, sort of a Statue of Liberty that was frozen in time.
According to Gary Hamel, author of Leading the Revolution, in order to survive, companies in the 21st century need to mirror the Internet itself. They need to be open, democratic, tightly networked, experimental, endlessly adaptable, utterly restless.
Our challenge was not that we had lost the timeless assets that once made us great: our legendary engineering prowess, our inventive capability, our trusted advisor relationship with customers. The problem was that we had become too inwardly focused. We were too busy celebrating our great past, and no longer searching for our future.
We were operating as a company of independent silos and not as a coherent collective. In HP's early days, our founders worried about becoming too big and too slow. Each time a new business group would reach more than 1,500 people, it would spin off as a separate, independently operated division. Each division had its own P&L, its own marketing budget, its own sales team. Different divisions had no incentives to work together. This decentralization also led to massive cost structures for the organization as a whole. And while this may have worked well in a pure product era, it would not work well in an Internet era.
In an Internet era - where leveraging assets, being open and democratic, being tightly networked and providing a quality customer experience are king - this decentralized structure had become a liability. People from different divisions were competing for the same customers. They weren't working together on behalf of the same company and, more importantly, they weren't working on behalf of customers.
We had become trapped in a disconnected system that was not adapting to a new and changing marketplace, not adapting to the changing needs of our customers. Reinvention was not a choice, it was a matter of survival. We needed to adapt or die, to reinvent or to wither.
I believe companies are more than just a set of assets, more than a set of income statements or balance sheets. I see companies as living systems. And like any other living system, for a company to perform at its peak, it must have its system in balance.
In order for any business, no matter what size, to be truly responsive and open to change, I believe it must have four core components of its system in balance:
- structure and processes
- metrics and rewards
- culture and behavior
Strategy is about what we do and why we do it. And, in what is particularly important for companies with great capability, it's what we don't do. Strategy is all about asking, How do we turn our depth and breadth into a competitive advantage? What do we choose to focus our considerable assets on? And what do we choose not to focus on?
Structure and processes are about how we get our work done. How do we collaborate inside the business? Who is responsible for what? How do we vastly improve the total customer experience? How do we create world-class cost structures? How do we eliminate redundant processes and move processes onto the Net?
As for metrics and rewards, What do we measure? Because, in fact, inside companies, what gets measured is what gets done. And as for our rewards, how do we tell people what to focus their time and attention on? We need to be focused on driving the right actions, the right behaviors, by rewarding the things that make HP a better competitor, a better employer, a better investment. We need to measure how well we are doing in the eyes of shareowners. How well are we executing, in the eyes of customers?
And, finally, culture and behavior: How do we preserve the best while reinventing the rest? We found the best of our culture by going back to our roots, to our origins in the garage and to the ways of working, the mind-sets, the beliefs, that that garage symbolizes for us. We've developed our "rules of the garage" to truly capture the essence of HP's culture.
Then there's behavior. In periods of great change this is also critical. In fact it can be the ultimate test for a company's people. Because change is always hard, change is always difficult, and, in periods of systemic change - although it can also be exciting and exhilarating - employees look first and foremost not to what you say, but to how you act and what you do.
And so we believe that in order to make great progress in our reinvention, we have to reinvent the whole system all at once. To do only a piece of it is, in my view, to guarantee underperformance and perhaps even failure.
In telling this story, I'm hoping that you are beginning to see how looking outward and looking inward must be an ongoing process. One thing I always say inside of HP is that the companies who think they are done reinventing are done. So it's important that we always keep moving, that we are always open to change and to the outside world and, especially, that we are always open to the future.
This brings me to the third step of mastering change: looking forward.
As all of the trends I discussed earlier begin to converge - as information technology becomes more pervasive, more open, more democratic - we have to look to places in the global ecosystem where we can create discontinuities and foster new markets.
We can also think about how we can extend our core assets and apply them in new adjacent markets. We can also fuel and capitalize on change by providing access to information and communication technologies where it currently doesn't exist to create growth opportunities in the global ecosystem.
As entrepreneurs, we are always asking, Where will the next fast-growing markets come from? Where will new ideas come from? New business models? Or talent? Where will our customers come from? We can begin to think about the answers to these questions by thinking about imbalances in the global ecosystem.
I've spent a lot of time today talking about solutions that serve the one billion people on the planet who have access to technology. What about the other four billion people on the planet who currently don't have access to technology and the social and economic opportunities of the digital age? The four billion people who live in impoverished areas all over the world?
As you know, economic growth rates for the developing countries over the next three years are forecast by the World Bank to be anywhere from 1.5 to 2 times that of the OECD [Organization for Economic Co-operation and Development] countries. And for the first time ever, as of last year, spending on information technology in emerging market economies was growing at twice the rate of spending in the industrialized world, although it started from a lower base.
HP has a long-term business strategy called World e-Inclusion. World e-Inclusion is designed to engage these four billion people. If you believe, like I do, that we're living in an era that's defined by the power of ideas - the power of connections to people, to knowledge, to information - and, if you believe, like I do, that really smart people are everywhere in the world, then you need to acknowledge that there is an untapped market of four billion people out there, people brimming with ideas.
Our World e-Inclusion program is guided by three principles:
- a focus on people and the right solutions
- a focus on partnerships and combining complementary solutions from local and global organizations to stimulate change
- a focus on sustainability
World e-Inclusion will make business sense only if we can devise appropriate information solutions that work reliably over long time frames. They need to be aligned with social and cultural mores as well as with regional and local idiosyncrasies.
Just some of the exciting initiatives we announced when I was in India this last April are:
- In health care, we're developing cost-effective telemedicine solutions. We're leveraging our expertise in digital imaging and digital capture and compression as well as infrastructure to create greater access to expert care in rural villages. We're also developing sustainable solutions to foster distance-learning programs.
- In commercial markets, we're developing e-job programs to stimulate opportunities locally and globally. In India we're working with the TENET group of the Indian Institute of Technology, Chennai, to expand Internet connectivity into several rural villages.
- In consumer markets, we're fostering opportunities in digital entertainment and digital culture to allow local artists, musicians and storytellers access to broader audiences for their work.
We're opening two worldwide research laboratories in India - in Bangalore and Chennai. Their mission is to generate innovations targeted at the world's emerging economies by deeply understanding the confluence of relevant social, cultural, economic and technological drivers.
These are some of the ways we have been looking forward and investing in long-term change opportunities in the global ecosystem.
And so let me close by reiterating that we, as business leaders in the 21st century, will need to embrace change as a fundamental tenet of business - as part of mastering the basics.
To create sustainable business value, we need to be constantly looking outward, looking inward and looking forward to ensure our survival and to use change to our advantage. Today, in order to be "built to last" we also need to be "built to change."
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