HP E-Services.Solutions Rob Rochester

1. HP E-Services.SolutionsRob Rochester

2. ESS • ESS • Held the mandate to develop an internet strategy and framework for HP. • Challenges ESS Faces • Pull together great technologies and products within HP • Secure partnerships with new and existing companies • Needed to act fast enough to reinvent HP for the new economy.

3. HP • HP • A leading manufacturer of computer products. • Personal computers • Printers • Servers • workstations • Second largest producer of computers worldwide. • 80,000 employees worldwide. • Known as silicon valley's first “start-up”.

4. HP’s History • 1939 • Bill Hewlett & Dave Packard • Started HP with the goal to invent something useful. • Post WWII • HP created electrical instruments and consumer electronics. • Oscilloscopes • Signal generators • Electronic calculators • Hewlett & Packard wanted • A decentralized management style • “The HP way”

5. “The HP way” • The HP way • Management By Wandering Around • An informal practice, which involves keeping up to date with individuals and activities through informal or structured communication. Trust and respect for individuals are apparent when MBWA is used to recognize employees concerns and ideas. • Management By Objective • Individuals at each level contribute to company goals by developing objectives, which are integrated with their managers and those other parts of HP. Flexibility and innovation in recognizing alternatives approaches to meeting objectives provide effective means of meeting customer needs. • Open Door Policy • The assurance that no adverse consequences should result from responsibility raising issues with management or personnel. Trust and integrity are important parts of the Open Door Policy.

6. “The HP Way” Cont’d • Created a unifying corporate culture within a decentralized company which stressed • Trust • Openness • Consensus • Egalitarian culture • The decentralization and the HP way helped grow the company, the problem was it made it more difficult to maintain in a 40 billion dollar company.

7. HP history • 1978 • John Young is president and CEO • Helped to make HP a major player in the computer industry, producing: • Desktop machines • Powerful minicomputers • Printers • Dominated the market with its inkjet and laser printers. • 1992 • Lew Platt took over • Sales grew from 16 billion to 47 billion in 1998

8. A new unit • 1998 • With declining revenue growth rates HP decided it was time for a change. • Platt put HP’s corporate software and support division and corporate systems divisions under one roof and appointed Ann Livermore to run the new Enterprise Computing Solutions Organization. • A unit with • 15 billion in revenue • 44,000 employees • Livermore appointed Nick Earle as her Chief marketing officer. • Put Earle in charge of devising a branding plan and encouraged him to think outside the HP box and take risks.

9. ESS emerges • Earle assembled a taskforce of “revolutionaries” • 5 from within HP • From different functional areas and varying in skill level • All shared a frustration with HP’s slow progress to the Internet. • 5 outsiders • Recognized the opportunity to recreate an IT icon. • In the first weeks the group concluded that the root of the problem was a marketing weakness. • HP was already in the Internet space but it hadn't communicated it well. • The group soon realized this was a much more then just a marketing problem. • The team was forced to take a step back and consider the evolution of the Internet.

10. The Evolution • The team broke the evolution of the Internet down into three waves. • “Chapter 1” • Client-Server • Prepared the world for the Internet by developing a networked PC infrastructure. • HP “rode” this wave benefiting from it, but they did not position them self to catch the next wave. • The Internet Wave • Not only about the Internet but the audience on it. • The group realized they missed this wave but they predicted it would not last long. • Only venture capitalists and advertising were making money from it.

11. The 3rd wave • The goal was to identify the 3rd wave and capitalize on it. • The group envisioned • The world would be mobile-appliance centric, not PC-centric. • Software would evolve into a pay-for-use model. • All products would gain value when “wrapped” in services • Products would become services when delivered over the web. • Applications • Computing power • Storage • All rented online.

12. The Next Phase • The world was heading towards electronically delivered services. • “Chapter 2” • E-services • One stop brokered search engines • Applications • Extra computing power • Extra computer storage • All “on-tap” over the net on a per usage basis. • transactions • The partnership that provided them

13. Announcing the vision • Earle announced “a major branding campaign touting its new Internet strategy” • Earle bypassed HP’s traditional decision process. • He didn’t inform higher ranking company officials • Livermore approved Earle’s 100 million dollar marketing campaign and gave him a 1 billion dollar budget for acquisitions and equity investments to support the e-services strategy.

14. Change In Power • In march of 1999 Platt announced that he was going to be stepping down as CEO and announced Carleton Fiorina as his replacement. • Fiorina • Former president of 20 billion dollar sales and services division of Lucent Technologies. • Plan to refocus on customer needs. • Total opposite of Platt.

15. Three key vectors of ESS strategy • Services • Created services • Helped other companies create services • E-Speak • Chai • E-Squirt • Appliances • Continue development until anything with a microchip would connect to the web. • HP is the worlds 3rd largest appliance company. • Infrastructure • Leading infrastructure provider. • Computers, storage, and software had to support trillions of transactions and billions of appliances.

16. “The killer segment is where you get infrastructure, services, and appliance are all intersecting. The growth is where these three things intersect.”

17. Target Markets • Their target markets could change monthly but initially there were nine key segments. • Mobile and wireless • Internet data service providers and telecom companies • Dot-coms and start-ups • Trading communities and business hubs • Small- to medium-sized business • Incubators and VC’s • Printing e-services • Corporate information portals • Digital media and publishing and education e-services

18. Partnerships • HP built an ecosystem of partners that allowed HP to provide services or technologies it didn’t have in-house and would attract more partners who wanted the plug and play solutions HP was lining up.

19. Value to partners • ESS could • Provide financing • Market and sell the e-service through the HP marketing organization and sales channels • 6,000 sales representatives • 30,000 channel resellers • Could be leveraged to sell a partners e-services. • Provide “membership” in the network it was creating • Use of the HP brand name • “We’re not selling computers anymore. When we go to an Internet service provider, I don’t say, ‘Our box is better than so-and-so’s box.’ I say, ‘look, I’ll build a business with you, and completely share you risk.’” - Earle

20. Bob Pearse was in charge of equity investments. 100 million dollar budget to make minority investments, typically about 5 million, with venture capital firms in start-up companies. Attracted partners Funded equity investments in start-ups and extended “creative” financing to start-ups looking to invest in HP platforms Strategic bets on new technologies Joanna Wampler Was put in charge of allocating up to 500 million dollars in ESS debt financing Provided the leases for equipment. Extended riskier terms than typical for HP Revenue sharing Convertible debt Warrants In exchange for equipment These unconventional deals create great press and interest from customers. Financing

21. HP’s platforms Unix Linux Windows NT Investments Substantial financing operation. 6 billion in outstanding credit. Prepared to take risks PC business Marketed and sold products to both enterprises and individuals Sun’s platform Only offered Unix Investments No financing itself Relied on a financing deal with GE capital. PC business Lacked a pc business HP believed its technology choices, financing, and sales reach were better than that of one of its main competitors Sun.

22. Culture and operations of ESS • Earle realized the culture of his group needed to be distinct from the rest of HP • Recognized the danger of attacking the HP way. • Human resource policies, incentives, and habits did not suit the speed or attitude of start-up organizations.

23. ESS offices • Initially located in building 44 on HP’s cupertino campus. • Earle planned to more the group off-site by 2000 • “ we want to go somewhere where we can be expressive. So if we want to paint the walls green, we can paint the walls green, not having to go through 28 people to be told we can’t paint the walls green”

24. Culture shift • Earle used a pub as an early meeting place to help show the employees the difference in them, and the original HP employees. • “for HP, it has been work, work, work…never any play” - Earle • To highlight the culture change Earle passed out a colorful book. • “The revolution starts here” • Financing teams also made a shift to encourage risk and speed.

25. recruitment • 90 people in the ESS group • 20 from outside HP • Hunt preferred a mix, outsiders brought a new perspective, people from HP were able to link back to their former groups. • The 70 that came from HP • “we have a lot of people who are frustrated with HP and the lack of progress in their own little business…In fact I have many people who resign and their managers say,’before you leave, just go and talk to Yvonne in e-services because it may be that even though you don’t want to stay here you might want to join that group.’ so we get people as they’re going through the door literally.”

26. The old compensation plan • Traditionally HP did not offer its employees significant pay-for-performance compensation. • No cash bonuses • Profit-sharing program was typically only 3-5% of salary • 300-400 in options per year • Raises did not reward top-performers • Top performers typically got a 7% raise • Poor performers pay still rose 3% • Hunt believed a lack of accountability for results had crept in. • Earle and Hunt • Structured a compensation plan and culture that rewarded performance but minimized the risk of joining HP.

27. Compensation • “Culturally we had to break every rule in the book to do that... We went to meeting after meeting after meeting with the HR community with people saying, ‘You cant do this, you cant do this,’ and I just kept on saying to the HR manager, ‘Do it, do it, do it.’” • by march of 2000 they had won approval for a new ESS payroll and incentives scheme, separate from the rest of HP • Aligned rewards with stock performance and diminished other benefits. • Most ESS employees • Annual salaries were decreased by 15%. • No longer eligible for profit-sharing. • No longer eligible for the company car.

28. Culture shock • ESS employees were offered • Annual cash bonuses • 20-60% of salary was contingent on the group’s meeting its incremental sales target. • Each employee was granted an average of ten times more stock options • Some options had accelerated vesting based on ESS’s and HP’s performance. • Earle summed up the situation • “I thought they’d be dancing in the street because the average employee who works for me can earn $1 million - that’s the average employee. And actually we had the opposite reaction.”

29. Integration with HP • HP representatives essentially sold one type of product. • Computers • PC’s • Printers • software • ESS sales people • Sold multi-product solutions to market segments. • Earle had to re-educate sales people and change sales compensation. • Massive effort to train sales • Web casting • Video • Seminars • Speaking events

30. Looking ahead • Earle had three main goals • Create, own, drive, and get agreement across HP for the Internet strategy. Be the central point for strategy • Be a deal-making machine • Transfer knowledge from ESS. Take the learning's of the group and “throw them over the wall” to the rest of HP. • “If we just achieved the first two goals, we’d be wildly successful, and the rest of HP wouldn’t change. In many ways our job is to infect the rest of the organization – positively – so that we can help them change. Trying to change 100,000 people is an interesting job.”

31. Culture change at HP • HP introduced a new advertising campaign and a more contemporary logo featuring the companies initials, underscored by the word “invent”. • The logo was intended to convey a faster, invigorated, committed HP and reminded audiences of HP’s roots as a company of inventors that was reinventing itself. • Fiorina developed “the rules of the garage” • Created a “rules of the garage” committee made up of senior managers. • Determined what HP’s new culture should be.

32. Rule of The Garage • Rules of the garage • Believe you can change the world. • Work quickly, keep the tools unlocked, work whenever. • Know when to work alone and when to work together. • Share – tools, ideas. Trust your colleagues. • No politics. No bureaucracy. (these are ridiculous in a garage.) • The customer defines a job well done. • Radical ideas are not bad ideas. • Invent different ways of working. • Make a contribution every day. If it doesn't contribute, it doesn't leave the garage. • Believe that together we can do anything. • INVENT.

33. Future of ESS • Success would depend on • Changing the markets perceptions of HP • Executing deals well • Pulling together resources from inside HP. • Hunt noted • Deals created positive energy • The bureaucracy and impediment to “getting things done” in a large organization created a lot of negative energy.

34. “first of all, the chances of our existing in this form in a years time are remote. The honest answer is we don’t know, because long-term planning is three months. But if I had to predict my goal would be that we would be completely obsolete, but I don’t think it will ever happen. In other words, if we really are successful – its like don’t give people fish, teach them how to fish – if we are really teaching them how to do internet deals, then once everyone knows how to do it, why would they need us?” - Earle