Wake Up Call for HP

Back when she was a Stanford University undergrad, Hewlett-Packard president and chief executive officer Carleton “Carly” Fiorina worked as an HP temp shipping clerk. After graduation, she quickly moved on to bigger and better things, rising from AT&T account rep to lead Lucent Technologies’ spinoff from the Bell mother ship. Her subsequent success as head of Lucent’s Global Service Provider Business helped enable Fiorina to beat out a strong pack of rivals to win the top HP spot a year ago.

Fiorina returned to Silicon Valley to take the reins of a company bedeviled by inconsistent financial performance. Seeking to reinvent HP, she evoked its original “garage” spirit and launched a $200 million brand and advertising campaign that included a new logo emblazoned with the word “invent.” She also cast aside HP’s recent division into four semi-autonomous business enterprises, each with its own president and CEO, in favor of a more cohesive structure with one chief executive: Carly Fiorina.

Reminding us that Bill Hewlett and Dave Packard “didn’t operate a democracy and they made very fast decisions,” Fiorina has mandated aggressive goals: growth in revenues and earnings of 12 to 15 percent for the fiscal year that began last November 1. She’s off to a pretty good start. The typically slow first quarter that ended on January 31-the first totally on her watch-saw revenues up 14 percent, though profits had farther to go. Meanwhile, HP’s stock price, at $114.65 when she took over, hit $155.55 earlier this year, and was trading at around $147 when TR went to press.

Fiorina returned to Silicon Valley to take the reins of a company bedeviled by inconsistent financial performance. Seeking to reinvent HP, she evoked its original “garage” spirit and launched a $200 million brand and advertising campaign that included a new logo emblazoned with the word “invent.” She also cast aside HP’s recent division into four semi-autonomous business enterprises, each with its own president and CEO, in favor of a more cohesive structure with one chief executive: Carly Fiorina.

Reminding us that Bill Hewlett and Dave Packard “didn’t operate a democracy and they made very fast decisions,” Fiorina has mandated aggressive goals: growth in revenues and earnings of 12 to 15 percent for the fiscal year that began last November 1. She’s off to a pretty good start. The typically slow first quarter that ended on January 31-the first totally on her watch-saw revenues up 14 percent, though profits had farther to go. Meanwhile, HP’s stock price, at $114.65 when she took over, hit $155.55 earlier this year, and was trading at around $147 when TR went to press.

Her early success, seemingly boundless energy and fearless leadership have already made Fiorina an American business legend. She spoke with TR contributing writer Robert Buderi about what it takes to reinvent a major corporation, and what Hewlett-Packard sees as the future of computing.

TR: What did you see in HP that made you excited to come back-and what are the main things you didn’t see that you felt needed to be done or put in place?
FIORINA: I could see that HP was at a pivotal point. It’s a unique company at a unique time in its history, a company poised to take full advantage of the Internet Age. I want to help the company achieve the right balance between preserving the core values of HP, the soul of the place that has been so special and so revered, but at the same time, reinvent the business in important ways.

TR: Can you describe the key steps to reinventing the company in more detail?
FIORINA: Reinvention to me is about four things. It’s about culture, it’s about strategy, it’s about what you measure and how you reward those measurements, and it’s about business process. All of those levers need to be pulled.

At a cultural level, we have to be explicit about the values and the behaviors that help us, and explicit about the behaviors that are getting in our way. So our emphasis on reaffirming the core values that have been with this company for 60 years-trust, integrity, teamwork, contribution-is a reaffirmation of the behavior we need to carry us forward.

Reinvention also requires some tough strategic choices about how and where we want to play. Those choices are particularly difficult for a company with the depth and breadth of capability of HP, because a company like HP honestly can do anything it wants to do. And so the hardest strategy is deciding what not to do. I’ll give you a very simple example. We had inside the company when I arrived at least five separate architectures for e-publishing-all of them good. And what we had to do was decide we’re going to have one-so that we have sufficient focus on that one platform to make sure it really is a winning play.

Metrics has a lot to do with what’s expected. So we talk around minimally acceptable performance and aspirational performance. Minimally acceptable performance is performance that meets the expectations of customers and shareowners. And aspirational performance is performance that leads the market-that sets the standard-and we pay people very differently for those two levels of performance.

Then there’s a whole very broad area around processes-whether we’re talking about a pricing process (or) the processes we use to build the relationship between our employees and the company.

TR: Going back to the point about culture, the traditional HP culture is one of excellence in engineering and conservative management. This has many positive aspects. But it has also made it extremely difficult to take risks.
FIORINA: You are right that HP had become too reluctant to take risks. We’d become too slow. Everything had to be decided by consensus. But bad habits develop in any company, any family, any individual. So I’ve asked the company’s senior leadership, management ranks-indeed all employees-to “look in the mirror.” In other words, to be explicit and open about what has to change, what should stay the same. I intend to preserve and nurture the core values that have made this company great. Respect and service to customers and to the communities in which we live and work are things I call HP’s shining soul. It’s our essence, giving us a competitive advantage.

TR: How does this relate to your $200 million brand campaign?
FIORINA: The brand is a promise to our customers and our partners about who we are, where we’ve been, and where we intend to go. It’s a reminder to the people of HP about our inventive capability, returning, in a way, to the “Rules of the Garage”-reflecting the garage in which HP was born. You’ll see it in ads, in poster form in employees’ cubicles, and it’s actually become a popular item among our customers, too. So, we are building very consciously an organization where roles and responsibilities are clear, but where there also is a requirement for interdependence and collaboration-and we’re doing that because we think the market demands it. We’re doing it because we believe when we really leverage the capabilities of this company we are, I don’t want to sound overly aggressive, but we’re almost unbeatable.

TR: Shortly before you joined, HP announced plans to split off its original instrument business-something it’s subsequently done as Agilent Technologies. Why was that move necessary? Doesn’t it take away a lot that was unique about the company and make innovation more difficult?
FIORINA: Focus is crucial for a company, especially a large one. I believe it was a wise decision to spin off Agilent-making up HP’s former test and measurement, medical products, chemical analysis and semiconductor businesses. What continues under the HP name-computers, printing and imaging products, information technology services and software-has a rich history in innovation, outstanding people and technologies, and world-class partnerships. We’re confident both companies will be able to innovate better and faster as separate entities. And there’s no reason we can’t partner on certain things.

TR: Until the 90s, the company had rolled along at something like 19 percent growth per year. More recently, growth has been sluggish at best. In what areas will you push for new growth opportunities?
FIORINA: HP can grow faster as well as earn more; I’m convinced of it. We are now poised to capitalize on some real innovations with huge market potential. Digital imaging is one, e-services is another; at the same time, we have to aggressively continue to defend and grow our core businesses. We will do all of this passionately. And we are growing again. We have become the world’s number one consumer IT supplier, and we’ve just begun. We see great growth opportunities outside the U.S. HP has been a global firm for a very long time. We’ve been in Asia for thirty years; we’ve been in Europe that long. We’ve been in places in Latin America that long. So for us it’s not about building a presence-we have it. We have deep roots in countries where longevity matters. Now it’s a question of leveraging off the relationships and the presence that we have.

TR: Your new logo includes the word “invent.” This is reminiscent of the Lucent motto’s reference to “Bell Labs Innovations.” Does this mean a bigger role for HP Labs (the company’s central research house)?
FIORINA: HP Labs has always played a critical role in the company. In fact, the innovation that’s come out of that organization has been one of the best-kept secrets in the industry. We’re changing that by letting the world know what a tremendous asset we have in the Labs. We’re also going to put more of a focus on developing “disruptive technologies”-those that create entirely new markets. We had gotten to the point where HP Labs was really totally funded by the businesses-and that caused a focusing of the Labs’ attention on pretty near-end opportunities. Now, that connection between the Labs and the business is important and we don’t want to sever that connection. But at the same time we also want to give the Labs the resources and the freedom to focus on farther-out technologies-and also to feel free enough from the day-to-day budget battles that they can be a voice of contention where one is necessary. And so what we’ve done now is say there will be a portion of HP Labs’ funding which will be top-down, which will be based upon both further-out technologies and perhaps alternative approaches to a problem.

But you also need to remember, HP was founded by two inventors 60 years ago. We are a company of inventors, so the word “invent” is for every HP employee, not just those at Labs. We can, and do, invent different ways of working and new business models, in addition to new technology.

TR: Can you provide some examples of “disruptive technologies” that you’re working on?
FIORINA: Digital photography is one area. We have some of the world’s best color scientists who have written algorithms for a chip that will go into a digital camera that will virtually guarantee you a perfectly exposed picture every time. Vivid, natural colors, sharp focus and no more images lost in the shadows or bright lights. Our technology is going to revolutionize the world of consumer photography. We’re also doing some ground-breaking work in advanced storage technologies. One, called ARS, or Atomic Resolution Storage, holds the promise of storage densities a thousand times greater than those that exist today. You could carry enough storage in your pocket to record everything you’ve ever seen, done or heard in your entire lifetime. That kind of capacity just changes the ground-rules for what you can do with storage technology.

TR: The pursuit of this kind of storage capacity raises the question of the future of computing, which is the subject of this special issue of TR. Where does the company believe computing is heading-over the next few years and farther down the road-and what will HP’s own role be in fulfilling this vision?
FIORINA: Well, we are really playing now at the intersection of three technology vectors-the infrastructure or computing utility, information appliances and e-services. We believe that the vision of pervasive computing-an idea, by the way, that HP Chief Scientist Joel Birnbaum promoted back in the early 90s-is finally going to become a reality. In the next five years, there are going to be 50 million new hand-held computers and a billion cell phones. You’re already seeing a lot of new services popping up to serve this market. Well, that’s just the beginning. When computing becomes truly pervasive, it’s going to change the way we work, play, become educated, get medical treatment, deal with the government-in fact, the way we live our lives.

For this to happen, you’re going to need an infrastructure that works, regardless of product, platform or program. And you’re going to need a wide variety of smart information appliances that can be tied together. Once those two vectors are in place, it opens up an absolutely unlimited number of e-service opportunities. At HP Labs, we have a research project called “Cool Town,” which we think provides the practical infrastructure that’s needed. Every person, place and thing in “Cool Town” has a Web presence. They can all be tied together. We’re also working on “context-aware” appliances-tools that know who you are, where you are and what’s going on around you. Imagine a phone that knows-by some biometric means, for example-who you are and uses GPS to determine where you are. It can know all of the numbers you call, your passwords, access codes and so on. All you have to do is say, “Call Bob Buderi,” and it will know exactly how to reach you, whether you’re calling from Palo Alto or Cambridge.

Of course, there’s a tremendous amount of work to do to make this vision a reality. But we’re getting there. And the payoff for HP and its customers is tremendous.

TR: HP scientist Stan Williams is working on basic nanocomputer technologies that may not bear fruit for 10 years or longer. Can a company really afford to support this kind of basic research, given the extreme pressures of the here and now?
FIORINA: We can’t afford not to. Ten years may sound like a lot in “Internet time,” but it’s not in reality-not when you’re talking about something as fundamental as replacing a technology, like silicon, that will finally reach its physical and financial limits. You’ve got to start now or risk being left behind or missing out altogether.

Basically, high-tech companies have to do both: continue their efforts to extend current technologies, and to work on “disruptive” technologies that show great promise for the future. There are very few companies in the world that have the resources to do both successfully. HP is one of them.