MARCELA PEREZ DE ALONSO
"HR's Role in Company Transformation"
The Conference Board
New York, New York
November 28, 2007
© Copyright 2007 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP
Thank you. Good morning, everybody. I'm really excited to be here, especially in New York at this time of the year, which is gorgeous. I miss New York. I was living in New York for a long time and then I moved to California, where it's the headquarters of Hewlett-Packard. Thank you for inviting us to share our transformational story.
I want to talk to you today a little bit about HP, the company and all the transformations that have happened at HP in the last few years. And then I'm going to talk about HR transformation and the role that we have played in the transformation. I would like to keep some minutes for us to dialogue and answer some questions or to have the opportunity to discuss these things. I'm going to go quickly through certain charts so you know a little bit about the story of HP and where we are as a company. And then we'll talk about all the transformation.
You might know HP is a company that has been around for 68 years. It was founded by Bill and Dave, Bill and Dave are Bill Hewlett and Dave Packard, two engineers in a garage. It was really a garage, where they started the company. The company, at the beginning, was an instrument company. They put together instruments, measurements and that's the way the company started. It was a partnership. Very visionary, they started growing the company significantly over the years. And the company became a global company and a very significant player in the IT industry.
You probably are familiar with several stages and things that happened at HP over the years. But the most significant one was the merger with Compaq that happened in 2002. And that merger was a commonly discussed merger. It was a year after 9/11, the economy at that time, especially in the IT industry was not booming. We made this decision to make that merger with Compaq and, over the years, have demonstrated that it helped us to build our portfolio and to become the number one in the IT industry.
You might know that three years ago, Mark Hurd who is our CEO, came on board after Carly Fiorina stepped down. So we have been in the news for all of these things and you are probably familiar with it. But the most important thing, today, is that we have become the number one IT company in the industry and we feel very proud of that. So I'm going to show you some numbers and statistics of what we have done in the last three years that have made us so successful.
First of all, we are a very global company. I want to tell you that our revenues, 67 percent of our revenues are coming from outside of the U.S. That is a very significant demonstration of globalization and the globality of our portfolio. We do business in 170 countries. We have more than a billion customers. Who owns a printer from HP, a computer from HP, an iPAQ or servers or data centers in your industries? So probably we have HP customers here in the audience. But that is the reach for our company.
If you look at the charts there, you can see better probably from your copies, we are the number one or number two leaders on a variety of products. HP has the Imaging and Printing Group, that delivers all the printers and imaging products. We have the Personal Systems Group and we have the Technology Solutions Group, that delivers all the data center support on not only the hardware, the software, but also the services. So we have variety and breadth in our portfolio, which none of our competitors has. We can compete with IBM in certain aspects, with Dell in others and a lot of other companies. We have a very unique business model.
This is our market share in some products. You can see the numbers are unbelievable: high, double digits in most of our products and 40 percent in some products. So we are really the leaders in where we play. Let me tell you a little bit about what has happened over the last three or four years in the company. When we finished 2004, we had a 151,000 employees around the world, $80 billion in revenues, which was growing from the year before by 9 percent and we had $4.2 billion operating profit. The stock price was $20 at that time. Look at the other side of the picture, which is how we end our fiscal year. Our fiscal year ends in October and we had 156,000 employees, $104 billion in revenues. We grew year over year 14 percent, that's pure growth of our company. Our operating profits are $8.7 billion and our stock price, the day that we were doing the slides, was $50. So incredible growth and profitability and we are very pleased with the results.
You might ask, what is happening? How did we achieve all of these good results? This is how our stock price has behaved over the three years and as compared to the S&P 500. You can see here if you put $100 in the S&P 500 and if you put the same $100 in HP, you would have made significantly more profit.
All the changes that we have done have been supported with employee engagement. Our employees feel that the company is going in the right direction and when the company is winning, employees are significantly more engaged. You can see there a demonstration of the surveys that we've done since 2004 to 2007 how much the engagement or employee satisfaction has increased over these years, not only employee satisfaction, but also employee productivity.
In looking at the proportion of the cost of the workforce versus the revenue growth, our productivity levels have increased. So you have seen voice of the workforce, productivity increasing, the results of the company going really in the right direction.
Globalization has also been a significant contributor to our success. We have probably implemented globalization in every practical way. We have grown our revenues significantly outside of the U.S., but at the same time we have grown our presence outside of the U.S. by building our business, as you can see there, and recruiting people outside of the U.S. Our theory is to try to put our customers and our employees closer together, so that's how we have the revenues. So we try to, as we are growing our business outside the U.S., we recruit people and we build the business outside of the U.S. at the same time.
Interestingly enough, since it is very global, we manage our business in a very virtual way. Today it is very difficult to have everybody who works on a product together in the same physical location or even in the same country. So we are very virtual and we're applying virtual tools to communicate within our teams.
I was talking this morning with some of the Conference Board members and telling them about the tools that we have developed inside HP to make this happen. We have Halo rooms that look like real meeting rooms where you are connecting people from different places around the world. And you have all the more traditional tools that we use in order to train people. So we have developed a lot of tools that help us in getting the people together, although we are in very different places and different time zones.
This demonstrates also that we have grown significantly, our workforce in the last five years. So we are managing constant evolving workforce at the same time.
Let me tell you a little bit about the transformation of the company and how we've managed the transformation. First of all, we want it to be very clear that we want to keep the tradition of the HP values. Probably some of you have been familiar with the HP Way. The HP Way was the way that Bill and Dave managed the company. It was based on these values that probably are very similar to the values that you have in your companies. The difference probably was the how, how you really manage the company. It was a way of working and having open communications and trying to gather employees and be very direct in the communications in the strategy of the company, et cetera. We have continued using the same ways, although as I mentioned before, we use more technology today to keep us all together and communicate together. But it's important to know that we maintain the same values and our management practices are similar to what they were in the past.
Our strategy, as I told you, is a very simple strategy; we want HP to be the world's leading information technology company. And we manage this by growing and targeting our growth very specifically to our portfolio and also our customers' experience. We do business with consumers, with small and medium businesses and enterprises, and that's our strategy. We grow and we do acquisitions on certain things that can complement our strategy. We don't do just acquisitions for doing acquisitions, they are very targeted acquisitions. So we want to continue to grow in a targeted manner.
At the same time we want to maintain our cost efficiencies and look for more and more efficiencies. We are really managing our growth at the same time, in a very competitive industry, by the way. Our growth rates are incredibly big compared to our competitors. We are managing our cost efficiencies in a really disciplined way. And at the same time, managing our people and our finances. So that's the way we manage the company, very simple. We have communicated the strategy in such a way that people can understand it and can understand how they can make a contribution to this strategy. So lots of communication, again, around this strategy and we changed the operational model.
One of the things that we changed was the way we designed the organization. So our organizational design was matrices; we had a lot of matrices and it was very difficult to understand who was accountable for what. So one of the things we did was put in the businesses, a lot of the responsibilities that were very important for the business, such as sales and marketing and all the things that they can drive for. Be responsible for their P&L. And we took out of the businesses the responsibility for the corporate or global functions, for example IT, HR, finance, corporate marketing - our central organizations that we manage end to end. So somebody that is in HR for example in a business reports directly to me. So we were able to leverage a lot of the HR organization and the same thing happened in the other global organizations. That was one of the significant things we did in order to manage the cost efficiencies from one side. Make accountability clear so that the business leaders were responsible for the businesses end to end. And then we started changing the culture.
Once you have accountability clear and defined roles and responsibilities clear, then it's important to measure results and reward for results. That was something that was a little more diffused before Mark came onboard. We wanted to be very clear about measures, about results, about who is responsible for what. One of the things we did also was eliminate layers so that we eliminated the bureaucratic reviews from lots of people involved in a decision. Layers were reduced, spans of control were increased. At the same time, we wanted to have less layers in between the sales people that faced the customers and the CEO, so that was our objective. We accomplished all of that. At the same time we were trying to align our metrics, our results, our pay in terms of viable compensation to results. So that created a new culture inside HP.
I think you have a definition there of the things that we needed to do. One of the things we were working on very clearly was defining our total rewards strategy so when we were thinking about our compensation and benefits and the cost of health, we really worried also about that. But most importantly for us, was creating a team on the top that could lead the company to the new stage. One of the contributions from HR was to create the team that was going to lead the company. We recruited people from the outside, we promoted people internally and we created a new team at the top that at the same time started creating their own different teams at the company. So with promotions from people inside but also with external hires, that's how we created a new leadership team that has the culture and philosophy of building strong results.
At the same time, we needed to transform HR. The company was transforming. I mentioned to you that we had a new operating model and we needed to create a new operating model for HR so that HR could make a contribution to the transformation of the company. Here are a lot of the things that we have accomplished.
One of the things we needed also was to drive efficiencies within HR. I can show you the graphs, you don't have all the numbers there, but I wanted to share the trends. We decreased the cost of HR significantly, more than 20 percent, by the way. At the same time, we decreased headcount and increased the return for the cost of HR for each of the revenues of the company; it was a significant improvement. This is the way we are measuring the efficiencies of HR, that HR can make contributions to the efficiencies of the company. At the same time, we needed to create a lot of new programs to help the company transform. So it was not only about efficiency and reducing cost, but at the same time creating new confidence in HR so we could make the contribution to the transformation of the company.
Some of the things we did were to create a self-service model for managers and employees. I imagine you have these tools in your company, but we are leveraging our technology and we have a self-service model. For all the transactional work and information that is happening inside HP-- we have a very robust portal globally so that we can drive global systems and people can change addresses, change benefits, do all the transactions they need. A manager can do a promotion, can open a requisition, can do everything through the portal. So we are eliminating a lot of the work that HR was doing in the past. And we have metrics also in the way the portal is working; we wanted to make it effective and efficient at the same time.
We are asking people about their experience with the portal. If it is easy to find what they need to do and do they respond on time when they have a question. Everything is done through the portal. So we don't have hotlines or phone calls or any face-to-face service provided by HR. We do everything through the portal. One of the comments that people made is that we went through, at the beginning, for HR to get out of that transactional mode and for the managers to do it themselves. This was not necessarily a very popular measure when we started. You can imagine our HR colleagues losing their relationship with their managers, et cetera, et cetera.
But it helped us a lot to create efficiencies and create the competencies that we needed to create in HR to be part of the transformation. We needed HR to be recruiting the teams, to be more involved in the communication of the transformation. To be really involved around what were the competencies and the workforce plans and the acquisition of new companies and the integration of the new companies. And we needed for them to be the leaders of this enormous transformation that the company was going through and is still going through, by the way. This was an opportunity for us. We said, okay, we're going to take all of this work out from you and we're going to create a strong shared services organization that manages the portal. Now you have to do all of this other work, which is the work that the company needs from HR at this time.
I'm going to tell you a little bit about what we did on that. After all of these changes, our results in HR, we were going through the enormous transformation and the reductions. As you see we went up, a little down and now we're up again. I think it took us some time for the HR community to internalize what their new roles were and we trained them also for that. This is a new operating model in HR. At the top we have Centers of Expertise and probably the more traditional one, Compensation and Benefits, so Total Rewards. We have all the learning solutions that we do at HP centralized in the Center of Expertise. This is all the training that we do for leadership development programs, sales programs, and all the technology that we need to train our colleagues inside HP. So we manage all of that in the Center of Expertise.
We also have a people development Center of Expertise, which is more the talent management and career development. And we have also Centers of Expertise that basically drive the policies and drive the programs for HP. We have a workforce planning Center of Expertise that really works very closely with Finance in projecting not only the financials that the company needs but we project the quality of the people we need, the quantity, the locations, where we need the people, at what time, at the right cost, et cetera. That is a new core competency that we have developed very strongly inside HR. That is one of the Centers of Expertise.
Then we have the business HR leads. We have taken from the business HR leads all the transactional work so that we can really make them business partners. And then we have a strong HR global operations, which is the shared service organization. That is a global organization because we need to deliver our programs globally. So every country's HR organization reports into this global HR organization.
Once we analyze what was required in terms of core competencies, we have to define our new roles. So we did our roles, the competencies that they would require and we define a new career path for HR. You can see there that we have career paths for the Centers of Expertise for the business HR and for global operations. But at the same time we have, and I didn't bring that chart because it was too much, but the idea is we have cross functional and cross experiences within the three buckets of work. We think that if you have functional expertise, you need to be a business partner in the future. We want to move people around and that was part of the transformation of HR.
At the same time, we needed to understand that we had the right people in HR. We needed to understand the people who have the competencies and have the possibilities to learn different roles. We partnered with DDI. We did assessments for most of the senior HR people, and we now have an assessment program for everybody else in the organization.
But at the beginning, this year, we did the assessment of all the senior leaders; it was around 150 people, with DDI and also with a search firm. So that they can give us a calibration of how our people in HR were compared to our competitors. They gave us a very good analysis one by one and we looked at the results and decided what was the trend and what were the
competencies that we needed to build. So as a result of the assessments, we developed some learning programs. And I'm going to show you in the next slide, some of the things that we are training our people today.
We designed a new business acumen course, we are teaching financials to our HR community.
Also, we developed an
organizational effectiveness system, which included learning solutions; business simulation sessions, a lot of combinations of techniques so that we could train our people in something that was so critical for the transformation of HP. So we couldn't make it if we didn't have the tools for our own HR community in terms of organizational effectiveness.
Let me show you a little bit of the things that we have helped on with the transformation of HP. First of all we are totally aligned with the strategy of the company. And every person in HR understands now how their work makes a contribution to growth, to cost efficiencies and to financial and human capital development. And that is the alignment of our strategy with HP strategy. We define certain priorities. In order for us in HR to be successful in the transformation of the company, we need to establish these priorities. Lead the workforce planning and business transformation. This means we are involved from looking at the leadership teams that we need in each country, in each product around the world. Very much involved in assessing the quality of the talent, very much involved in the assessment of the talent that we bring with acquisitions. So we are partners on the acquisitions team. We integrate the acquisitions. We have done restructuring of an enormous amount of work and that means that we have to work on workforce reductions and at the same time we are growing our sales force and growing globally, so we have to be involved on the recruiting and the redeployment of people around the world.
This has been one of our major contributions to the transformation. I think, if anything we feel good that our colleagues in HR are experts in workforce planning today and are experts on transformation, communication, involvement, planning of the transformations, recruiting, redeployment, designing early retirement programs when we needed to and managing everything at the same time. Just think about the last three years. In the life of our HR organization, we have been really doing all of the things at the same time and transforming HR simultaneously.
Driving people and leadership development. We have driven a significant talent management process that was not part of the company before. So now we have talent management systems and we have the reviews with Mark twice a year and we have
follow up reviews and action planning after the talent management reviews. Significant investment on leadership solutions. By the end of FY08, we will have trained all of our managers on a leading for results course, which is the way that we involve our managers in the transformation of the company.
We have changed our total rewards packages. As I mentioned before, at the same time to align it more to pay for performance from the top to the bottom. So that has been a significant part of the work that we've done implementing this year. We continue to make investments in our portal so that we can continue to make the portal a very important part of the transactional work that continues in HR. And we have a mission to build the best-in-class HR organization. So that's why we are also investing in the developments of HR, in the assessments of HR, in career development for HR and in some tools like the organizational efficiencies. So lots of things have been happening this year. I put some charts about the workforce planning because this has been a core competency that we have been developing lately. It's about putting the right people with the right skills in the right place at the right time with the right cost. We really have a discipline and tools that help us drive that.
Our practices are around development. I told you that we are investing in the development of our people in HR but we are doing the same for the people outside of HP. We created an hpFirst program which means that we try to, as much as we can, to recruit from inside HP before we go outside. We have talent management, a career development framework so people can understand what job can be good for their career next. And we also have leadership and management development programs. This year we are going to continue to work on recognition and reward for performance, so lots of work being done around employee engagement, recognition, rewards and also all the things that we did on our total rewards programs.
Transformation is a journey, so we are not done. And we hope we are never going to be done because companies are evolving. We, in IT, are in a very competitive environment and at the same time, a very innovative environment where people develop new programs, new tools, new businesses everyday. So in HP if we don't adjust to the environment when we don't compete effectively in the environment, it's something that will be very dangerous for us. So change and transformation will continue to be part of the journey for HP.
We have very aggressive goals for '08 and we are already in our '08 fiscal year, so we are very excited about that. And HR is making an enormous contribution to the results of the company and I'm very proud to say that the journey is not done at HR either. But we will continue our journey, our development and our contribution.