HP E-Services.SolutionsHP E-Services.SolutionsRob RochesterRob Rochester

ESSESS

ESSESS– Held the mandate to develop an internet strategy and Held the mandate to develop an internet strategy and

framework for HP.framework for HP.

Challenges ESS FacesChallenges ESS Faces– Pull together great technologies and products within HPPull together great technologies and products within HP– Secure partnerships with new and existing companiesSecure partnerships with new and existing companies– Needed to act fast enough to reinvent HP for the new Needed to act fast enough to reinvent HP for the new

economy.economy.

HPHP

HPHP– A leading manufacturer of computer products.A leading manufacturer of computer products.

Personal computersPersonal computers PrintersPrinters ServersServers workstationsworkstations

– Second largest producer of computers Second largest producer of computers worldwide.worldwide.

– 80,000 employees worldwide.80,000 employees worldwide.– Known as silicon valley's first “start-up”.Known as silicon valley's first “start-up”.

HP’s HistoryHP’s History

19391939– Bill Hewlett & Dave PackardBill Hewlett & Dave Packard

Started HP with the goal to invent something useful.Started HP with the goal to invent something useful.

– Post WWII Post WWII HP created electrical instruments and consumer electronics.HP created electrical instruments and consumer electronics.

– OscilloscopesOscilloscopes– Signal generatorsSignal generators– Electronic calculatorsElectronic calculators

Hewlett & Packard wantedHewlett & Packard wanted– A decentralized management styleA decentralized management style

““The HP way”The HP way”

““The HP way”The HP way”

The HP wayThe HP way– Management By Wandering AroundManagement By Wandering Around

An informal practice, which involves keeping up to date with individuals An informal practice, which involves keeping up to date with individuals and activities through informal or structured communication. Trust and and activities through informal or structured communication. Trust and respect for individuals are apparent when MBWA is used to recognize respect for individuals are apparent when MBWA is used to recognize employees concerns and ideas.employees concerns and ideas.

– Management By ObjectiveManagement By Objective Individuals at each level contribute to company goals by developing Individuals at each level contribute to company goals by developing

objectives, which are integrated with their managers and those other objectives, which are integrated with their managers and those other parts of HP. Flexibility and innovation in recognizing alternatives parts of HP. Flexibility and innovation in recognizing alternatives approaches to meeting objectives provide effective means of meeting approaches to meeting objectives provide effective means of meeting customer needs.customer needs.

– Open Door PolicyOpen Door Policy The assurance that no adverse consequences should result from The assurance that no adverse consequences should result from

responsibility raising issues with management or personnel. Trust and responsibility raising issues with management or personnel. Trust and integrity are important parts of the Open Door Policy.integrity are important parts of the Open Door Policy.

““The HP Way” Cont’dThe HP Way” Cont’d

Created a unifying corporate culture within a Created a unifying corporate culture within a decentralized company which stresseddecentralized company which stressed– TrustTrust– OpennessOpenness– ConsensusConsensus– Egalitarian cultureEgalitarian culture

The decentralization and the HP way helped grow The decentralization and the HP way helped grow the company, the problem was it made it more the company, the problem was it made it more difficult to maintain in a 40 billion dollar company.difficult to maintain in a 40 billion dollar company.

HP historyHP history

19781978– John Young is president and CEOJohn Young is president and CEO

Helped to make HP a major player in the computer industry, Helped to make HP a major player in the computer industry, producing:producing:

– Desktop machinesDesktop machines– Powerful minicomputersPowerful minicomputers– PrintersPrinters

Dominated the market with its inkjet and laser printers.Dominated the market with its inkjet and laser printers.

19921992– Lew Platt took overLew Platt took over

Sales grew from 16 billion to 47 billion in 1998Sales grew from 16 billion to 47 billion in 1998

A new unitA new unit

19981998– With declining revenue growth rates HP decided it was time With declining revenue growth rates HP decided it was time

for a change.for a change.– Platt put HP’s corporate software and support division and Platt put HP’s corporate software and support division and

corporate systems divisions under one roof and appointed corporate systems divisions under one roof and appointed Ann Livermore to run the new Enterprise Computing Ann Livermore to run the new Enterprise Computing Solutions Organization.Solutions Organization. A unit withA unit with

– 15 billion in revenue15 billion in revenue– 44,000 employees44,000 employees

– Livermore appointed Nick Earle as her Chief marketing Livermore appointed Nick Earle as her Chief marketing officer.officer. Put Earle in charge of devising a branding plan and encouraged him Put Earle in charge of devising a branding plan and encouraged him

to think outside the HP box and take risks.to think outside the HP box and take risks.

ESS emergesESS emerges

Earle assembled a taskforce of “revolutionaries”Earle assembled a taskforce of “revolutionaries”– 5 from within HP5 from within HP

From different functional areas and varying in skill levelFrom different functional areas and varying in skill level– All shared a frustration with HP’s slow progress to the Internet.All shared a frustration with HP’s slow progress to the Internet.

– 5 outsiders5 outsiders Recognized the opportunity to recreate an IT icon.Recognized the opportunity to recreate an IT icon.

– In the first weeks the group concluded that the root of the In the first weeks the group concluded that the root of the problem was a marketing weakness.problem was a marketing weakness. HP was already in the Internet space but it hadn't communicated it HP was already in the Internet space but it hadn't communicated it

well.well.– The group soon realized this was a much more then just a marketing The group soon realized this was a much more then just a marketing

problem.problem.

– The team was forced to take a step back and consider the The team was forced to take a step back and consider the evolution of the Internet.evolution of the Internet.

The EvolutionThe Evolution

The team broke the evolution of the Internet down The team broke the evolution of the Internet down into three waves.into three waves.– ““Chapter 1”Chapter 1”– Client-ServerClient-Server

Prepared the world for the Internet by developing a networked PC Prepared the world for the Internet by developing a networked PC infrastructure.infrastructure.

– HP “rode” this wave benefiting from it, but they did not position them HP “rode” this wave benefiting from it, but they did not position them self to catch the next wave.self to catch the next wave.

– The Internet WaveThe Internet Wave Not only about the Internet but the audience on it.Not only about the Internet but the audience on it.

– The group realized they missed this wave but they predicted it would The group realized they missed this wave but they predicted it would not last long.not last long.

Only venture capitalists and advertising were making money Only venture capitalists and advertising were making money from it.from it.

The 3The 3rdrd wave wave

The goal was to identify the 3The goal was to identify the 3rdrd wave and wave and capitalize on it.capitalize on it.– The group envisionedThe group envisioned

The world would be mobile-appliance centric, not PC-centric.The world would be mobile-appliance centric, not PC-centric. Software would evolve into a pay-for-use model.Software would evolve into a pay-for-use model. All products would gain value when “wrapped” in servicesAll products would gain value when “wrapped” in services Products would become services when delivered over the web.Products would become services when delivered over the web.

– ApplicationsApplications– Computing powerComputing power– StorageStorage

All rented online.All rented online.

The Next PhaseThe Next Phase

The world was heading towards electronically The world was heading towards electronically delivered services.delivered services.– ““Chapter 2”Chapter 2”– E-services E-services

One stop brokered search enginesOne stop brokered search engines ApplicationsApplications Extra computing powerExtra computing power Extra computer storageExtra computer storage

– All “on-tap” over the net on a per usage basis.All “on-tap” over the net on a per usage basis.

– transactionstransactions– The partnership that provided themThe partnership that provided them

Announcing the visionAnnouncing the vision

Earle announced “a major branding Earle announced “a major branding campaign touting its new Internet strategy”campaign touting its new Internet strategy”– Earle bypassed HP’s traditional decision Earle bypassed HP’s traditional decision

process.process. He didn’t inform higher ranking company officialsHe didn’t inform higher ranking company officials Livermore approved Earle’s 100 million dollar Livermore approved Earle’s 100 million dollar

marketing campaign and gave him a 1 billion dollar marketing campaign and gave him a 1 billion dollar budget for acquisitions and equity investments to budget for acquisitions and equity investments to support the e-services strategy.support the e-services strategy.

Change In PowerChange In Power

In march of 1999 Platt announced that he In march of 1999 Platt announced that he was going to be stepping down as CEO and was going to be stepping down as CEO and announced Carleton Fiorina as his announced Carleton Fiorina as his replacement.replacement.– FiorinaFiorina

Former president of 20 billion dollar sales and Former president of 20 billion dollar sales and services division of Lucent Technologies.services division of Lucent Technologies.

– Plan to refocus on customer needs.Plan to refocus on customer needs. Total opposite of Platt.Total opposite of Platt.

Three key vectors of ESS strategyThree key vectors of ESS strategy ServicesServices

Created servicesCreated services Helped other companies create servicesHelped other companies create services

– E-SpeakE-Speak– ChaiChai– E-SquirtE-Squirt

AppliancesAppliances– Continue development until anything with a Continue development until anything with a

microchip would connect to the web.microchip would connect to the web. HP is the worlds 3HP is the worlds 3rdrd largest appliance company. largest appliance company.

InfrastructureInfrastructure– Leading infrastructure provider.Leading infrastructure provider.– Computers, storage, and software had to support Computers, storage, and software had to support

trillions of transactions and billions of appliances.trillions of transactions and billions of appliances.

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

Target MarketsTarget Markets

Their target markets could change monthly but Their target markets could change monthly but initially there were nine key segments.initially there were nine key segments.– Mobile and wirelessMobile and wireless– Internet data service providers and telecom companiesInternet data service providers and telecom companies– Dot-coms and start-upsDot-coms and start-ups– Trading communities and business hubsTrading communities and business hubs– Small- to medium-sized businessSmall- to medium-sized business– Incubators and VC’sIncubators and VC’s– Printing e-servicesPrinting e-services– Corporate information portalsCorporate information portals– Digital media and publishing and education e-servicesDigital media and publishing and education e-services

PartnershipsPartnerships

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

Value to partnersValue to partners ESS couldESS could

– Provide financingProvide financing– Market and sell the e-service through the HP Market and sell the e-service through the HP

marketing organization and sales channelsmarketing organization and sales channels 6,000 sales representatives6,000 sales representatives 30,000 channel resellers30,000 channel resellers

– Could be leveraged to sell a partners e-services.Could be leveraged to sell a partners e-services.

– Provide “membership” in the network it was creatingProvide “membership” in the network it was creating– Use of the HP brand nameUse of the HP brand name

““We’re not selling computers anymore. When we go to We’re not selling computers anymore. When we go to an Internet service provider, I don’t say, ‘Our box is 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 better than so-and-so’s box.’ I say, ‘look, I’ll build a business with you, and completely share you risk.’” - business with you, and completely share you risk.’” - EarleEarle

FinancingFinancing

Bob Pearse was in charge Bob Pearse was in charge of equity investments.of equity investments.– 100 million dollar budget to 100 million dollar budget to

make minority investments, make minority investments, typically about 5 million, with typically about 5 million, with venture capital firms in start-venture capital firms in start-up companies.up companies.

– Attracted partnersAttracted partners– Funded equity investments Funded equity investments

in start-ups and extended in start-ups and extended “creative” financing to start-“creative” financing to start-ups looking to invest in HP ups looking to invest in HP platformsplatforms

– Strategic bets on new Strategic bets on new technologiestechnologies

Joanna WamplerJoanna Wampler– Was put in charge of allocating Was put in charge of allocating

up to 500 million dollars in ESS up to 500 million dollars in ESS debt financingdebt financing Provided the leases for Provided the leases for

equipment.equipment.– Extended riskier terms than Extended riskier terms than

typical for HPtypical for HP Revenue sharingRevenue sharing Convertible debtConvertible debt WarrantsWarrants

– In exchange for equipmentIn exchange for equipment

– These unconventional deals These unconventional deals create great press and interest create great press and interest from customersfrom customers..

HP believed its technology choices, financing, and sales HP believed its technology choices, financing, and sales reach were better than that of one of its main competitors reach were better than that of one of its main competitors

Sun.Sun.

HP’s platformsHP’s platforms– UnixUnix– LinuxLinux– Windows NTWindows NT

InvestmentsInvestments– Substantial financing Substantial financing

operation.operation. 6 billion in outstanding 6 billion in outstanding

credit.credit. Prepared to take risksPrepared to take risks

PC businessPC business– Marketed and sold Marketed and sold

products to both products to both enterprises and enterprises and individualsindividuals

Sun’s platformSun’s platform– Only offered UnixOnly offered Unix

InvestmentsInvestments– No financing itselfNo financing itself– Relied on a financing Relied on a financing

deal with GE capital.deal with GE capital.

PC businessPC business– Lacked a pc Lacked a pc

businessbusiness

Culture and operations of ESSCulture and operations of ESS

Earle realized the culture of his group Earle realized the culture of his group needed to be distinct from the rest of HPneeded to be distinct from the rest of HP– Recognized the danger of attacking the HP Recognized the danger of attacking the HP

way.way. Human resource policies, incentives, and habits did Human resource policies, incentives, and habits did

not suit the speed or attitude of start-up not suit the speed or attitude of start-up organizations.organizations.

ESS officesESS offices

Initially located in building 44 on HP’s Initially located in building 44 on HP’s cupertino campus.cupertino campus.– Earle planned to more the group off-site by Earle planned to more the group off-site by

20002000 “ “ we want to go somewhere where we can we want to go somewhere where we can

be expressive. So if we want to paint the be expressive. So if we want to paint the walls green, we can paint the walls green, walls green, we can paint the walls green, not having to go through 28 people to be not having to go through 28 people to be told we can’t paint the walls green”told we can’t paint the walls green”

Culture shiftCulture shift

Earle used a pub as an early meeting place to Earle used a pub as an early meeting place to help show the employees the difference in them, help show the employees the difference in them, and the original HP employees.and the original HP employees.– ““for HP, it has been work, work, work…never any play” - for HP, it has been work, work, work…never any play” -

EarleEarle To highlight the culture change Earle passed out a To highlight the culture change Earle passed out a

colorful book.colorful book.– ““The revolution starts here”The revolution starts here”

Financing teams also made a shift to encourage Financing teams also made a shift to encourage risk and speed.risk and speed.

recruitmentrecruitment

90 people in the ESS group90 people in the ESS group– 20 from outside HP20 from outside HP

Hunt preferred a mix, outsiders brought a new perspective, Hunt preferred a mix, outsiders brought a new perspective, people from HP were able to link back to their former groups.people from HP were able to link back to their former groups.

The 70 that came from HPThe 70 that came from HP– ““we have a lot of people who are frustrated with HP and the lack of 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 progress in their own little business…In fact I have many people who resign and their managers say,’before you leave, just go and 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 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 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.”we get people as they’re going through the door literally.”

The old compensation planThe old compensation plan

Traditionally HP did not offer its employees significant pay-Traditionally HP did not offer its employees significant pay-for-performance compensation.for-performance compensation.– No cash bonusesNo cash bonuses– Profit-sharing program was typically only 3-5% of salaryProfit-sharing program was typically only 3-5% of salary– 300-400 in options per year300-400 in options per year– Raises did not reward top-performersRaises did not reward top-performers

Top performers typically got a 7% raiseTop performers typically got a 7% raise Poor performers pay still rose 3%Poor performers pay still rose 3%

Hunt believed a lack of accountability for results had crept Hunt believed a lack of accountability for results had crept in.in.

Earle and HuntEarle and Hunt– Structured a compensation plan and culture that rewarded Structured a compensation plan and culture that rewarded

performance but minimized the risk of joining HP.performance but minimized the risk of joining HP.

CompensationCompensation

““Culturally we had to break every rule in the book to do Culturally we had to break every rule in the book to do that... We went to meeting after meeting after meeting with that... We went to meeting after meeting after meeting with the HR community with people saying, ‘You cant do this, the HR community with people saying, ‘You cant do this, you cant do this,’ and I just kept on saying to the HR you cant do this,’ and I just kept on saying to the HR manager, ‘Do it, do it, do it.’”manager, ‘Do it, do it, do it.’”

by march of 2000 they had won approval for a new ESS by march of 2000 they had won approval for a new ESS payroll and incentives scheme, separate from the rest of HPpayroll and incentives scheme, separate from the rest of HP– Aligned rewards with stock performance and diminished other Aligned rewards with stock performance and diminished other

benefits.benefits.– Most ESS employeesMost ESS employees

Annual salaries were decreased by 15%.Annual salaries were decreased by 15%. No longer eligible for profit-sharing.No longer eligible for profit-sharing. No longer eligible for the company car.No longer eligible for the company car.

Culture shockCulture shock

ESS employees were offeredESS employees were offered– Annual cash bonusesAnnual cash bonuses

20-60% of salary was contingent on the group’s meeting its 20-60% of salary was contingent on the group’s meeting its incremental sales target.incremental sales target.

– Each employee was granted an average of ten times Each employee was granted an average of ten times more stock optionsmore stock options Some options had accelerated vesting based on ESS’s and HP’s Some options had accelerated vesting based on ESS’s and HP’s

performance.performance.

Earle summed up the situationEarle summed up the situation– ““I thought they’d be dancing in the street because the I thought they’d be dancing in the street because the

average employee who works for me can earn $1 million - average employee who works for me can earn $1 million - that’s the average employee. And actually we had the that’s the average employee. And actually we had the opposite reaction.”opposite reaction.”

Integration with HPIntegration with HP

HP representatives essentially sold one type of product.HP representatives essentially sold one type of product.– ComputersComputers– PC’sPC’s– PrintersPrinters– softwaresoftware

ESS sales peopleESS sales people– Sold multi-product solutions to market segments.Sold multi-product solutions to market segments.

Earle had to re-educate sales people and change sales compensation.Earle had to re-educate sales people and change sales compensation.

Massive effort to train salesMassive effort to train sales– Web castingWeb casting– VideoVideo– SeminarsSeminars– Speaking eventsSpeaking events

Looking aheadLooking ahead

Earle had three main goalsEarle had three main goals– Create, own, drive, and get agreement across HP for Create, own, drive, and get agreement across HP for

the Internet strategy. Be the central point for strategythe Internet strategy. Be the central point for strategy– Be a deal-making machineBe a deal-making machine– Transfer knowledge from ESS. Take the learning's of Transfer knowledge from ESS. Take the learning's of

the group and “throw them over the wall” to the rest of the group and “throw them over the wall” to the rest of HP.HP. ““If we just achieved the first two goals, we’d be wildly If we just achieved the first two goals, we’d be wildly

successful, and the rest of HP wouldn’t change. In many ways successful, and the rest of HP wouldn’t change. In many ways our job is to infect the rest of the organization – positively – so our job is to infect the rest of the organization – positively – so that we can help them change. Trying to change 100,000 that we can help them change. Trying to change 100,000 people is an interesting job.”people is an interesting job.”

Culture change at HPCulture change at HP

HP introduced a new advertising campaign and a HP introduced a new advertising campaign and a more contemporary logo featuring the companies more contemporary logo featuring the companies initials, underscored by the word “invent”.initials, underscored by the word “invent”.– The logo was intended to convey a faster, invigorated, The logo was intended to convey a faster, invigorated,

committed HP and reminded audiences of HP’s roots as committed HP and reminded audiences of HP’s roots as a company of inventors that was reinventing itself.a company of inventors that was reinventing itself.

Fiorina developed “the rules of the garage”Fiorina developed “the rules of the garage”– Created a “rules of the garage” committee made up of Created a “rules of the garage” committee made up of

senior managers.senior managers. Determined what HP’s new culture should be. Determined what HP’s new culture should be.

Rule of The GarageRule of The Garage

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

leave the garage.leave the garage.– Believe that together we can do anything.Believe that together we can do anything.– INVENT.INVENT.

Future of ESSFuture of ESS

Success would depend onSuccess would depend on– Changing the markets perceptions of HPChanging the markets perceptions of HP– Executing deals wellExecuting deals well– Pulling together resources from inside HP.Pulling together resources from inside HP.

Hunt notedHunt noted– Deals created positive energyDeals created positive energy– The bureaucracy and impediment to “getting The bureaucracy and impediment to “getting

things done” in a large organization created a things done” in a large organization created a lot of negative energy.lot of negative energy.

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