InformationWeek:You've described HP as a company that had not been projecting its sense of the future clearly enough. Are you making progress?
Fiorina: I think we are. We painted a picture of the future that I think is both compelling and real. The picture of the future revolves around service-centric computing. It revolves around a world in which all content, all assets, all processes will be delivered as services over networks. A service-centric world that has to be supported by an Internet infrastructure, a computing infrastructure that is pervasive, manageable, available, secure.
You may have heard Dwayne Zitzner, president of HP Computing Systems talk about painless and pervasive availability, manageability, security--the "abilities" that characterize this always on the Internet infrastructure. We talk as well about a world in which all manner of devices will be intelligent and connected through which these services would be accessed.
Our strategy is to enable those E-services. We enable those services through a combination of software. We've made a set of investments. We enabled those services through a set of platforms. We enabled those services through our own professional services capabilities in many cases.
Our strategy is to enable and deliver that always-on Internet infrastructure. It's something that plays to our core strength, and by the way, our core brand proposition, which have always been quality and reliability and manageability and security. And then as well to enable intelligent, connected devices in that environment. I think that vision is compelling to customers because they can see pieces of it already happening, as can all of us in our everyday life.
InformationWeek: But you keep the sense that it's not a slam-dunk?
Fiorina: Of course.
InformationWeek: Would you say this notion of services is still somewhat unusual? And it's going to take a while for the marketplace to fully embrace it?
Fiorina: Well, yes and no. Yes, in the sense that the trend we're talking about is not for the next two or three years. It's for the next two or three decades. It is a major shift in computing. So, we are entering a new era of computing. We're at the beginning of this new game, not the end.
And service-centric computing and E-services have nothing to do with "dot-com." I think part of the confusion, earlier on, was, well, that must mean you're going to become a dot-com, it's going to be HP.com. It's not really about that. It's about exploiting the fundamental capability of the Internet, which is a pervasive, open, non-hierarchical communications medium, with the set of standards that are already pervasive.
But, no, in the sense that there's actually many everyday examples. There are great examples that people don't think of in that way. Digital photography is a great example of a process that has been people- and chemical-intensive becoming the digital delivery of services over networks through intelligent connected devices. That's what it is. And so people, I think, aren't connecting some pretty everyday examples that are becoming more pervasive, more quickly than we would have anticipated. We're talking about making that world pervasive for a whole set of tasks that today we do differently.
InformationWeek: So, provision is about its E-services?
Fiorina: Well, it's about three pieces. It's enabling E-services. It's providing the always on the Internet infrastructure that supports those E-services. And it's about enabling the intelligent connected devices and environment. And underneath all of that is this notion of service-centric computing. HP is uniquely positioned to help enable all three and not very many companies are.
InformationWeek: That all sounds good. Yet, other major technology companies, including IBM and Compaq, are doing something like this. So what is HP's value proposition or core competency when it comes to this? Because the vision is not entirely unique.
Fiorina: First of all, IBM's vision is very different. IBM basically asks customers to outsource the status quo. Give me your environment, outsource it to me, whatever you've got today is what you're going to get. They have some fairly deep vertical expertise in some of their software businesses. But what they're not doing is providing systems-class thinking to transform a set of processes.
When we go into an outsourcing engagement, our value proposition is we will transform your processes through outsourcing. That's a different play.
You made the comment that Compaq is becoming a services company. Look, all Compaq has done so far is follow our strategy by nine months to the letter. Including on June 25, saying, "You know that IA-64 idea that HP has been on for seven years and co-developed the chip? We think maybe that's a good idea, we're going there."
So, what I see Compaq doing actually is following us and I do not think they have the systems-class capability that we do, nor do they have the experience around rich content, which our planning and imaging business gives us. And more and more of the applications are moving to rich-content kinds of applications.
The other distinction that I would make is we are way ahead of both IBM and Compaq in terms of mobility. Way ahead. Mobility is a huge systems-class thinking problem. It is rich content getting delivered in unpredictable ways where lots of different networks and lots of different devices have to communicate.
InformationWeek: What about Sun Microsystems' ONE strategy and its idea of IT as a utility?
Fiorina: I find Sun very schizophrenic right now. I agree with the notion that service-centric computing basically accepts that a whole set of computing resources and assets will get delivered as services over time. In that much, we are agreed.
But service-centric computing, IT as a utility, by its nature requires truly open standards and ubiquitous standards. And Sun is precisely the opposite. I think Sun wants to be the vertically-integrated, proprietary Western Electric--you buy everything from us, hardware to software, everything, and that's how it's going to work. The only problem is the telco industry has started to look a whole lot more like the computing industry, not the other way around. So, I don't think they're going to get there with that strategy.
InformationWeek: Sun CEO Scott McNeely makes the argument that the customer wants one neck to choke. Partly to blame, partly to buy things from.
Fiorina: Well, I agree with that up to a point as well. Customers want to know who's accountable for what.
InformationWeek: EMC pushes that too. They say the pendulum is going to swing back toward big centralized storage.
Fiorina: I disagree. It's not big centralized storage. In fact, just the opposite. It is going to be distributed network storage--that is a flexible resource; that is dynamically brokered as the application of the traffic warrants. That's where storage is going. And that's the bet we've made and I think that is very sound. Obviously, we have to execute against that bet but I think storage is more and more going to be provisioned as a distributed resource. That requires, by the way, interoperability. It requires open standards.
Open is inevitable. By the way, there are periods in time where you can bet against being open and win really big. So, Sun won really big in a very particular time in the market. They were fueled by a whole bunch of dot-com and ISP kind of growth. EMC has been fueled for a long time on very proprietary closed storage architecture. Both those companies enjoyed for their period of time 60+% gross margins. It's over.
Now, there's one really good thing about HP. We're learned to live on high-20s gross margins.
Do we expect to get pretty good gross margins on a storage business for awhile because it's high value-add and we're early on in the market? Absolutely. But we're not betting on closed proprietary systems to drive gross margins. In fact, we're betting that closed proprietary systems won't last.
InformationWeek: Can we bring you back to the consulting and services of business? You've shown growth in that part of the business more so than other parts of the business in the last couple of quarters.
Fiorina: Way above market.
InformationWeek: It's surprising to see some of that growth actually, when IT spending is tight and when consulting is one of the things that many businesses are cutting. In 1999, there were some key accounts where your business was actually declining. And you've turned that around to some extent. Can you talk a little bit about the idea partnering and consulting and how you've managed to get back the business of those key accounts.
Fiorina: There are separate issues but related. What we were doing in our major accounts was what we were doing all over the place, one of the primary reasons that we reoriented the business in a fundamental way. Every product division had its own sales force. And they all met in the customer parking lot. The big joke was that you'd show up in a customer meeting, and there will be 25 HP sales people, and many of them would meet each for the first time, and they'd duke it out in front of the customers. That's a really bad way to serve a big account.
And so we had to totally reorient our business to say we are going to provide a relationship manager to those key accounts that represents the depth and breadth of HP. That's pretty basic. We went from negative growth to 20+% growth in those accounts.
The services and the consulting piece clearly is a big piece of the portfolio that we put at our large accounts disposal, but it's also been a piece of our portfolio that's been critical in winning new accounts. That's why I say they're separate but related issues.
It turns out that there are a couple of important things that are going on, in consulting, in outsourcing. One of the reasons we can grow those pieces of our business well above market.
By the way, part of what's going on here is the economy has just been turning down in segments. So, one of the reasons we've been able to call the economy earlier than most people--I didn't like calling it earlier than most people because you get the crap kicked out of you--but it started in the consumer PC business.
So we saw it there first. We saw this very clear pattern of consumer PC purchase turning down and then segments would follow on in waves. And if you look at what happened in the United States, it went from consumer PCs to enterprise hardware to networking, then it cycled back through enterprise hardware. Then it went into software, then it started going to consulting. There's this pattern as it rolls to the economy. That pattern is playing out precisely that way in Europe.
Consulting growth is coming down but the important thing for us in a down market is are we growing faster than the market because that's the standard we think we should be measured against in good times or in bad. The reason why we're able to grow well in consulting and outsourcing is one, our support business is a competitive advantage. That's not true for a lot of IT companies. Their support business drives their customers crazy. Customers love our support business, and because we're so good at support, customers assume we will be good at consulting and outsourcing. You know a lot about my IT infrastructure, I really like how you do, what you do. I want you to do more. So we have credibility in this space.
Secondly, customers want an alternative to IBM. Customers want one neck to choke, but they don't just want one neck. They want to hold somebody accountable, but they want more than one supplier, so they're not captured.
I think the third thing that's going on is how customers buy is changing fundamentally and the economic downturn is accelerating it. Customers used to buy hardware and operating system. They talked about feeds and speeds. Now, what customers are increasingly buying is application and business process. How does an application or a business process transform my business? Transform my ability to generate revenue? Transform my ability now most importantly to save money?
That's a different buying process and it's a different selling process. It means there has to be a real clear understanding of how an application for a business process can be transformed and how technology can accelerate that transformation. Customers think we get that.
InformationWeek: That leads into a question from the CIO of Sears, Jerry Miller. What can HP do to help the CIO who wants to enable his or her company to win using technology while also dealing with decreasing IT budgets.
Fiorina: Well, let me give you a real simple one. First of all, there are lots of business processes sitting in retail that need to be transformed that will require an IT platform to deliver that transformation. That's why I say, there's a big difference between outsourcing the status quo and coming in and saying, let's transform the business process and the technology platform that goes along with it.
But I'll give you a less esoteric example: server consolidation. Most customers have way too many servers. Most customers have more storage than they need. So, one of the programs that we have right now that is pretty quick sale, pretty easy to save money involves planning to consolidate your platforms.
InformationWeek: Which brings us to this discussion of IT as a utility. Do you think that it's really going to catch on?
Fiorina: Service-centric computing doesn't mean that everything will become a hosted application in a big huge Internet data center. Qwest certainly is providing computing and storage assets as a service and I think that is an important and growing market. But in large part what service-centric computing means is how a CIO thinks about his own computing assets within the walls of the enterprise. And how that computing fabric interacts with the applications requirements and fabrics of all the constituencies that that enterprise has to deal with: suppliers, partners, in some cases customers.
It isn't about hosting, per se. It's about thinking building a computing capability that instead of being a collection of fairly static boxes, networked together in a pretty inefficient way, is a network environment that is flexible, that can be dynamically reallocated based upon real-time requirements. That appeals to CIOs because that's about efficiency and effectiveness.
InformationWeek: There's also an element of the way businesses pay for technology in this model. Is that changing in some way?
Fiorina: I think that change will come more gradually. One is not depended upon the other. In other words, I think computing will move to a service-centric model without necessarily all computing being paid for like a service.
InformationWeek: One of the trends we hear recently is deriving more benefit from existing assets.
Fiorina: Server consolidation is actually a great example of that, where you're not throwing everything out and starting over. You're talking about using the assets you have more efficiently. It's also true that server consolidation requires reliable performance. We're really good at that. Most customers give us real high marks for reliability and manageability.
InformationWeek: Let's talk about the hardware a little bit. How does Compaq's recent announcement with Intel change things for you and your alliance with Intel? Can you talk a little bit about the future of PA-RISC?
Fiorina: First of all, we love Compaq's analysis. Absolutely love it. Because we have an alliance with Intel. We sat and co-developed that chip with them for seven years. And by the way, we're co-developing it with them now. We know that chip better than anybody else. We've been at this for a really long time.
Compaq may have suddenly come up with a single server strategy on a single platform, but we've been on this path for a long time. So we think we're way ahead of them. But the reason we love it is because it makes it indubitable that IA-64 is going to become an industry standard and we think that's great.
It's great because it gives us greater cost efficiencies and therefore, greater profit margins because we can get three operating systems on a standard platform. But we understand how to tune that chip better than anybody else. So we can bring up more stuff, faster, more effectively in any way.
InformationWeek: It seems like there's a bit of a leap of faith in going to the Intel chips on the high end.
Fiorina: Yes. And to answer your question specifically, we have said publicly that we would turn PA RISC three more times because you're absolutely right. You have to have a migration path that's sound. So, we will turn PA RISC a couple more times here. But we are confident enough in the capabilities of IA-64. We're confident enough in our deep knowledge of those capabilities. We've been working this transition plan long enough that we think we really do know how to do this. I wouldn't want to be doing that transition plan just having thought this up a couple of months ago. This is complicated stuff. I think we're very well prepared.
InformationWeek: HP's server business has not been growing in the same way, for example, as its services business.
Fiorina: Neither is anybody else's. If you look at the latest data on the server market, in first quarter of this year it shrunk. You should also look at what happened to our market share.
InformationWeek: There's a lot of strong competition in hardware market. Would you agree with that?
Fiorina: Absolutely. I don't mean to suggest there isn't strong competition at all. I mean to suggest that to say that our server business isn't growing and conclude that that's an HP problem, I think is not realistically looking at what's going on in the server market, and how we're growing relative to that market. That's my only point.
InformationWeek: So, in the server business, what is it that HP is best at?
Fiorina: I think we are best at high availability and manageability. Absolutely terrific at that. I think we are best at the underlying platform that we've just been talking about and understanding how to exploit the capabilities of that platform.
If you want to talk about the value proposition around the hardware, which I think is the focus of your question, that's what we're good at. High availability, manageability, and we understand that platform.
InformationWeek: What can you tell us about what kind of progress HP has in its effort to improve what you call the total customer experience?
Fiorina: I think we're making good progress. I think we have a lot of work left to do. Fundamentally, what we're doing is reorienting a company from being purely technology push to being a company that also has deep knowledge and understanding of what makes a customer pull, and that's important. But it doesn't happen overnight. The good news about HP's culture is HP people love to serve customers. So when they can get oriented around the customer problem, that's fun for them.
InformationWeek: We get the impression that not everything is so easy in managing the HP culture.
Fiorina: None of these is easy. I don't mean to suggest that. I have great confidence in where we're going and I have great confidence in this company. But don't mistake that confidence for a supposition that this is easy, it's not. Or a premise that we're all done, because we're not.
Our culture is, as most strong cultures are, our greatest strength and our greatest weakness. It is our greatest strength because it binds employees to this company, which is a competitive advantage. It is a strength because it binds many of our customers and our partners to this company, which is competitive advantage. It is a weakness when it causes people to get frozen looking into the rearview mirror instead of forward into the oncoming car. Again, those are the characteristics of all strong cultures but they make them both great assets and a difficult part of the change process.
InformationWeek: One of the things that you have both talked about is 360-degree feedback. What kind of feedback are you getting at HP and how do you feel about what you've been able to accomplish in kind of a pressure cooker environment.
Fiorina: It takes the form of starting way back in the interview process with the board, having a long series of conversations with them before I even took the job on--are we all clear about what we're really talking about here? That this is a complex, long-term set of issues that we're dealing here with that will take time and resolve to fix?
Those conversations are ongoing obviously. There is the feedback that I get everyday from employees, which I encouraged the day I arrived. I encouraged employees to E-mail me and they do. And that kind of feedback is important because it gives you a window on patterns out there.
By the way, a lot of the feedback isn't about me, it's about what's going on in the company. Some of it is about, gee, you said this, here is what I think about it. But I think the most dangerous thing in the world is a disconnected CEO.
CEOs have to work at staying connected, to reach deep into the organization and have formal networks of people who tell you what's going on is really important. There is the formal process of using a tool to understand how your immediate team is operating because one of the things that we're working hard on, and I think making good progress on, is building a high performance team, and it's a team. It's not 83 separate product divisions. It's not four stand-alone CEOs, which was the structure that was here when I arrived.
This has been as challenging as I thought it would be, which is to say I went into this with my eyes wide open, so did the board. I think we're making good progress and I think we're not done. I think the economy and the severity and the suddenness of the downturn have clouded a lot of people's perception of what's really going on here.
InformationWeek: Because of the focus on HP's numbers rather than other things?
Fiorina: Partially, but the reason I say that is, some people have stopped focusing on the things that we've been focused on since the day I arrived here. What are the markets we compete in? How fast are they growing? Are we growing at or above that market rate? People have gotten real confused about how fast are these markets growing. So, people say, well, there's no progress because revenue isn't growing.
Well, you're right, revenue isn't growing right now. There isn't a lot of revenue growth overall. But if you look at the segments we compete, we're gaining share in every consumer category in which we compete. That's a fact. We're gaining share in our inkjet business. That's a fact. We're outgrowing the market in consulting and outsourcing. That's a fact. We're gaining shares in some important areas of the server market. That's a fact. Our storage business is growing at the high end, which is where we're focused at 50+%. That's a fact.
Those are facts that represent real progress in the areas that we've said we're going to bet on. But I think that it gets clouded by an overall economic environment that is having a real impact on our top line and bottom line, and everyone else's as well.
What questions do you wish we'd asked Carly Fiorina? Tell us, in John Foley's Listening Post discussion forum.