Mark Hurd
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Keynote address
HP Tech Forum
Las Vegas, NV
June 18, 2007

Video » HP Technology Forum: Mark Hurd

© Copyright 2007 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.

Well, thanks. Good to see all of you.

First let me start by saying I appreciate all of you being here. There are representatives from roughly 70 countries here, so a very broad-based crowd from a lot of places. And it's just great to talk to such a large group.

Let me tell you what I'm going to talk about today. I'm going to talk a little bit about where we are at HP; the things we're working on; the things we're trying to get done; what we're working on, again, at the company level. And I'm going to try to provide a little context for that beyond just what you might read in an article or something along those lines. And then I'm going to try and talk to you about the major market shifts that Hewlett-Packard's trying to drive. The ones we're trying to lead to, if you will, change the game. And then what we're going to try and do to improve our relationships with all of you.

The world's leading IT company

So, first, strategic objective for Hewlett-Packard is to be the world's leading information technology company. And that's a metric or a strategy that's measured in more than just revenue. It's measured in customer satisfaction. It's measured in innovation; a number of different metrics. And while, today, we're the largest company measured in revenue in the IT industry, we've got a number of improvements to make to lead in these other dimensions.

And, as we talked about a lot around the marketplace, we're a company still in transformation. I'm going to talk to you a little bit about that today. We've gotten a lot of credit for some of the improvements we've made in the company. And I'd really like you, as our customers and partners, to understand that those improvements are incremental improvements from a baseline as opposed to an absolute destination. We've got a lot of work to do to get to where we'd like to be.

Now let me start by giving you some facts and figures about HP, just to make sure that you have the current state of events. Analysts estimate, that's Wall Street analysts, not me, that HP in fiscal 2007 will do roughly $100 billion worth of revenue. So by definition, that's big. That's big. That's careful analysis. Analysts estimate that roughly $9 billion, roughly, of that would be operating profit. That would mean we, HP, have $91 billion worth of cost of one type or another. And those of you that are mathematicians can decide how efficient you think we, HP, are. And if we were at 90 percent efficient, we'd only have $9 billion worth of inefficiency. So we're working hard to try to certainly grow our revenue but, at the same time, be as efficient as we can.

We cut an invoice in 179 countries around the planet. We've spent roughly $4 billion worth of R&D on a bit of an inclining basis over the last five years. So, as a company, we've spent roughly $20 billion worth of R&D on trying to innovate technology over that timeframe.

So we've got a lot of scale. And I'm going to talk to you about the benefits of scale and also the challenges of scale in a second. Because, as I go through all this, our objective is to take all the benefits of that scale and try to do everything we can in our power to give you, on an individual and on a company basis, the benefit of all that scale with, hopefully, none of the challenges of the complexity that all brings. I'm going to talk to you about that a bit more as we go.

Transforming HP's IT infrastructure

Two major shifts going on in IT as we speak. First is a little bit about what we're doing within HP which gets into this whole transformation of IT and transformation of the enterprise. And I'm going to talk to you about that. You're going to hear a lot more from Randy Mott tomorrow. Last year, we started talking about that transformation inside of our IT infrastructure. We're now a year farther down the road than we were, obviously, then.

Secondly, there's another transformation which is this whole consumerization of IT. The fact that the consumer is actually helping transform the technologies that we, as enterprises, we of HP or you, actually use. And I'm going to talk to you about a couple of examples of that. And I'm going to try and spend time on both of those.

First, and I'm not going to steal any of Randy's thunder; Ann [Livermore] is going to talk to you a little bit about this. Last year, I described the complexity of the Hewlett-Packard internal IT system. And, obviously, we've acquired several companies along the way. Many of you were customers of those companies. But that whole set of acquisitions, the scale I talked to you about earlier, created a very, very big infrastructure and an infrastructure that was disparate at best; spread out; a lot of different applications. We thought we started with 5,000 applications but, as we started to integrate, every day, we'd find more. We thought we started with a set of spending and we worked hard to try to find all the shadow spending in the company. And every day, we'd find more.

It took us nine months just to gather the scale of what we had into, really, one integrated view of what we had in IT. And our costs were increasing. I've told the story before but it's probably, for the sake of this audience, worth telling again. Our costs were increasing in IT faster than the revenue of the company was increasing. You've got to work hard to do that but we were achieving it. And we were achieving it by, frankly, a pretty difficult model for us. And I don't think it's unique to HP. But it really came to the fact that labor, as a percent of our total spend, was increasing even faster than IT. With this disparate infrastructure we had, we spent 80 percent of our money in IT just to keep the existing infrastructure running; 20 percent of the money, we spent to try to innovate with new ideas to bring IT forward.

At the end of the day, we were just losing the battle. From a capital expenditures perspective, separate than what shows up on a profit and loss statement, we were actually spending very little capital on IT. So if you were to look at it on a chart, capital was flat; costs were going up because we kept trying to squeeze more scale out of the existing IT infrastructure as labor was inclining.

Four simple objectives

So the only way we knew out of this was to interrupt it. And that's to just say stop. We had four simple objectives. I think they're simple. Obviously, they're not so simple 'cause Randy's going to talk to you for a longer time tomorrow. But I'm going to give you his objectives in 15 seconds. As I told him, if I can tell you in 15 seconds, you can get this done really fast.

First, I want to lower the cost of our IT on a P&L basis by a whole bunch.

Second, I want you to give me the best information in the industry. I want you to get the best information in the industry. I want you to get the right information to the right people at the right time to make the right decision at the time it makes a difference. And I'll tell you about that in a second. For example, we have 800 million consumer incidents a year; 800 million times, somebody calls us up or gets to us on the Web and says help. And we have roughly three minutes to make that the best possible experience for our customer. So, second thing, get the right information to the right place at the right time.

Third, we have, unfortunately, a pretty difficult compliance environment. And we have to lower the risk of HP with every move that we make; the fact that we have continuity in our IT system at every point.

And fourth, we had to do it with our stuff. You don't have that complexity. I hope you don't. But we don't live in a world where we believe everything will always be HP, although I wish it would. But in the case of our infrastructure, we had to make HP IT the most demonstrable example of us taking advantage of all of that R&D, all of that engineering talent and showing it up in a representation that, obviously, we could take to market.

And the scale, of course, I gave you the scale of the company in revenue. Operationally the scale is huge. We ship, in our supply chain, three printers every second. We ship two PCs every second. We ship a server, if we'd sell a few more, it would be one every ten seconds. And this thing goes 24 by 7 in 179 countries; creates 50 million line item orders a year; generating tens and tens of terabytes of transaction data as we do it. And we have to ship stuff across the planet at the same time and make sure it arrives in the right place at the right time. And, please, I know the anecdotes about not everything got to the right place at the right time. But the objective is to make that happen.

Once we modernize [the infrastructure], as Randy'll tell you tomorrow, our objective is to flip that innovation and maintenance spend to where we spend 70 percent on innovation; 30 percent on maintenance. But it's going to cost us money to go do it. And I would tell you, as you go through this; the key to success in this endeavor is not the technology. We think we make great technology and I'll tell you more about that in a second. You're going to hear a lot more about that over the next couple of days. But it's about leadership. It's about process. And it's about governance. And transformation requires commitment from CEOs, CIOs and business leaders.

It's been tough for us, to be very frank. IT has been a federation, or was a federation, at HP. We had IT in many of our businesses and, as Ann Livermore is going to come up to talk to you in a second, Ann is one of three people in our company who run a roughly $30 billion business. They're all running companies that are Fortune 50 companies of their own right. And all of them are in charge and if you're confused about that, you just have to ask them and they will tell you. So the only thing that really allows us to integrate our IT is the commitment from me; that IT is an HP asset. The leverage around HP comes to me and the power in the IT organization emanates from the CEO and the agreement on the part of the business leaders of the company that we're going to go accomplish those four objectives that we described earlier.

Reaping the advantages of transformation

So those are our key focuses. As I described, we'll cut our IT budget significantly. I'll let Randy tell you more about numbers. I know there are people from the press here, so I don't like to get that out as much; might get in the wrong hands. At the same time, we're going to cut our power and cooling usage by in excess of 50 percent. So as we go leverage all of this technology, we're going to cut out enough energy and power from our internal IT systems to power the entire City of Palo Alto, which is the city that HP is headquartered in. So we're saving a lot of power. And for us, it's not just about being green and environmentally friendly, it's a great outcome. It's also about the efficiency that we gain and the money we save at the same time. We get to accomplish multiple objectives. This is great for the environment. It's great for our customers. And it allows them to spend more money on innovation as opposed to maintenance of IT.

So we're trying very hard to take all of that leverage and turn it into an advantage for you. One example is we have several hundred applications, just as one example of our transformation, that are mission critical to Hewlett Packard; meaning if they don't run, we shut down. And after careful analysis, we've decided that's bad. So we want those mission critical applications to run all the time. And in one of the months, I think it was March, we had roughly 600 hours of downtime; 600 hours that one of those applications wasn't available. And roughly a third of that 600 was e-mail. So, for us, when e-mail goes down, communication stops. Roughly, a third of that e-mail had been transformed. Our downtime, on that third, was 30 minutes and all of the rest was on the two-thirds that hadn't been transformed. And I give you that as only one anecdote about the benefits of transformation in the category of better information to the right place at the right time and the pure availability benefits that we get as we move forward.

So that's the agenda that we have in terms of the transformation of IT. When we're done, we'll have virtualized our server environment. Roughly, for those of you that are in this server technology, 50 percent of our infrastructure, roughly speaking, will be bladed; 50 percent will be running on Integrity Itanium systems. We will have integrated our management suite across that entire infrastructure. We'll have shifted from 70 percent of our IT resources on maintenance and 30 percent on innovation to roughly 20 percent on maintenance and 80 percent on innovation. We'll have great energy efficiency between our consolidation of data center layouts. We'll have integrated racks, dynamic smart cooling. You're going to hear about it if you walk into one of our data centers. I just walked into a data center in HP Labs. And I had the Secretary of State of the United States, who was actually with me. She's a Stanford grad and was in the Valley bringing the Minister of Trade of Australia with her.

And I walked in to the HP Labs data center and it was about 74 degrees. And I walked in and it was the first time I'd walked into the newly modeled data center and I said, "Wow." And she looked at me and said, "What's wow?" And I said, "Well, it's 74 degrees." And she looked at me and said, "Is that a big deal?" It's a really big deal.

This is the type of technology that's able to cool the specific part of the technology that's hot as opposed to the entire room. And I've already given you the benefits from the consumption perspective that it brings. It brings from a cost and efficiency perspective. This is quite big for us.

So you'll hear more of the next couple of days. You'll hear more from Ann tonight, more from Randy tomorrow. And you'll get plenty more details on what we're doing. But I wanted to make sure you knew this is a company strategy, not just an IT strategy. It's a strategy integrated at the Executive Council level of HP with one of the four key objectives to bring this to market and bring this to the benefit of our customers.

The consumerization of IT

Let me talk a little bit about the consumerization of IT. There is a lot of activity going on now at the consumer level that's probably something like we haven't seen before. For those of you who are in enterprises, there is a tremendous amount of innovation at the consumer level. And I'm going to try and give you a couple of manifestations of it and what I think it means to all of you.

First we're trying to leverage everything we can. We compete in a $1.1 trillion market. About half of that market sits in the enterprise high-end, SMB, small and medium business. And the other half in the consumer market. Both markets are critically important to us.

And I see it to be a tremendous advantage for us to be able to leverage what goes on in consumer. As we learn, we turn it into solutions and services for the enterprise.

So, for example, today the semiconductor industry is being driven by what's going on with the consumer. The military and the consumer are defining how the semiconductor industry builds its products. We're taking advantage of that and we're leveraging that.

Give you an example: Internet and instant messaging were adopted by consumers long before they were ever used in an enterprise. Now blogs, wikis, social networking, all are being leveraged by enterprises in a big way, but they were certainly leveraged by consumers long before they were leveraged by the enterprise.,

Consumers today have more computer power, bandwidth and mobility in many cases than enterprises do. Consumer influence today spans applications, services, devices, and all have implications back on our IT. We see the trends in our own enterprise products. And I want you to get some idea again; we try to leverage our scale.

Taking industry standard components in consumer products, today, roughly 70 percent of the components in an industry standard server are leveraged from our PC business. 70 percent that's either a direct, the same component, or it's a derivative component.

In our Blades business which is now 50 percent of our infrastructure, you have roughly the same set of numbers. 70 percent of the components in a Blade are either a direct component used in the industry standard server or a derivative of that technology. So now think about the implication of that, that the consumer PC product and that bill of materials or cost of goods sold is now the very same component or leveragable derivative component of that in a Blade.

So you have that kind of leverage of components going on inside the industry. Now when you pull all these Blades together, certainly you integrate more complicated systems, more density, more heating, all of the things that you know about. But the leverage, the leverage itself is significant. We'll spend our money innovating above those standards. Power regulation software is key for us for greater energy efficiency. Virtual Connect for Blades is key for us so we reduce all of the cabling that you see in those data centers and all of those cabling costs. And there is no company on the planet Earth in the technology sector better equipped to leverage this trend.

We have the opportunity to leverage this across all segments. To leverage this across all industry standard technologies. To be so efficient so that that R&D that we bring to you gets more and more leverage as we bring it north in the stack. And that's what we'll do. We'll leverage those industry standard components to give you the lowest unit cost on the planet with the highest levels of integration and innovation above that level.

And we want to change the game. Trust us, we don't want to protect the old. We want to drive the new. We want to be the leader in integrating industry standard components into enterprise systems. Lead in the kind of innovation that you care about. Design simplicity, ease of use, connectivity, integration with the other personal and entertainment devices as well as enterprise systems. Differentiate in all markets using software and using services. Transform and simplify the experience for our customers at home, at work and on the go. And I believe and we believe that we are the only vendor on the planet positioned to get this done.

{Applause]

Well thanks-that's very nice.

Making it easier to do business with HPT

Let me switch to a subject that's always been interesting for this group and that's our account management and partner relationships.

Well thank you. I'm sure that's always a thrill.

[Laughter]

Listen, we know we've got a lot of work to do in this area. The key for us is to have the right engagement with the right customers and the right place at the right time. We're obviously a large company. With that innovation that I just described, that R&D, we build products and services that we can bring to market that compete for the $1.1 trillion worth of market as I described earlier.

I mean that, again, if the world was perfect, we'd have instead of analysts' estimates of $100 billion in revenue, we'd have $1.1 trillion in revenue, which would be better than $100 billion. Today we don't call on all of that market. So if you looked at a simple exercise, you went and did a lot of R&D to build products and services to under-distribute in the marketplace. And now nobody thought of it that way. But that is precisely what we've done.

We are investing to improve our coverage. We're investing to improve the quality of our coverage. We're trying to get the right amount of people in the right place at the right time. We're trying to get the right coverage by region, by industry and by customer. And we're trying to get the right skill sets and training and the right time allocation with the right tools.

Since I saw you last we've added approximately 1,000 people — and for those of you that weren't at Tech Forum last year, we knew we were short on resources. We planned to add resources. We added between then and now roughly 1,000 people, indoor enterprise sales efforts, around the world. Almost two-thirds of those in our Technology Solutions Group or what you would think of traditionally as our enterprise segment.

We doubled the number of accounts that we cover with one account manager to one account. We've improved our discipline in account level planning. We're trying to extend our customer reach and our service through yet more partners. We have 140,000 people or companies that represent HP products. We're not truly looking for 141,000. We're actually trying to get segments of that 140,000 deeper into the markets they cover with more education and more knowledge of HP. And we have a deep commitment to extending and strengthening those partnerships to help us with mid-market accounts.

We want to make it easier for you to do business with HP — the biggest complaint that I ever get is how hard it is to do business with HP. I think people love our technology. It's what I get, customer by customer. I think customers like our people. Our people are thoughtful people who want to do a great job.

We have to take that complexity that comes with being as big as we are and turn all of that capability into an asset for you. Pushing our complexity on you is the wrong answer. We know that. Our objective is to move all of it out of HP as fast as we possibly can and turn those assets into assets that help you transform your business.

We measure our performance; we have independent groups that measure our effectiveness with the customer. A year ago we got roughly 14 vendors that are ranked. Two years ago we were in the high double-digit numbers — well let's put it at ten. We've moved our way up to roughly fourth. And make no confusion; this is all about us trying to make better decisions faster. And make sure that information gets to you and making sure we're aligning the massive capability of our company and turning it into an asset for you.

We're not there yet and we're not confused about it. We've got a lot of work to do to improve performance at all levels, to improve our costs, to improve our growth, to improve our profitability and to improve your satisfaction with us.

So, listen, we have plenty of challenges. First, on the good new side, we think the market is playing to our strengths. Where we think the market is headed is what we think we do best. We think we have an opportunity to be the defining company in the marketplace. And we will work hard to seize that opportunity.

We'll take on what we've learned in our own IT transformation and we'll share it with you. We'll leverage the consumerization of IT to drive industry standards, innovation and integration across all of our products and markets. We're investing and building strategic relationships with you and our partners so we can drive more value for your businesses.

In addition you'll see us invest in software and services to differentiate those industry standard components and those levels of integration I described to create the most defining solutions in the IT industry. Our pursuit is not without challenges. We face them every day. Our job is to ensure that all of that capability and all of that skill gets to you in the most efficient, effective form it possibly can.

And I can tell you we've got a long way to go to get there. I'd be remiss if I didn't tell you that the company's been going through a ton of work over the past two-odd, two and a half years that I've been at HP. And I can tell you that with all that effort, there's probably no CEO who could stand before you who is prouder of the company they're a part of than I am of HP. I am very proud —

[Applause]

Thank you.

And this — we have put a lot of things in front of our people to get through over the last two and a half years. And we've made improvements. And I want to make sure you know across HP, I don't think there's any confusion about how much work we have ahead of us to thrill you to the level that we want to thrill you. And I want you to know we're totally committed to that effort.

I hope you have a great rest of the conference. Thank you very much and I really appreciate your attendance and your support of HP. Thank you.