An Interview with Lew Platt

HP ProFiles:

A Conversation with Lew Platt

It's a fact: HP has taken its lumps on Wall Street this past year. In the face ofoverall slower revenue growth and lingering problems with expense control, HP's stockprice is down (as of this writing) approximately 36 percent from its 52-week high. As aresult, HP's top executives were asked to take a five percent salary cut. But the firstweek in August, 3,000 miles away from the cold shoulders of Wall Street (on Harbor Driveto be exact), at the San Diego Convention Center, HP was warmly embraced by its HP 3000and HP 9000 users at the annual HP World '98 Conference and Expo.

During his opening show keynote, Lew Platt, HP's chairman, president and CEO, spokeabout HP's vision for an Electronic World, HP's commitment and new initiatives in the UNIXmarket and its goals for pushing NT up into the enterprise. And staunch HP 3000 users werecongratulated "for their loyalty as well as their energy in letting us know theirconcerns over the years." Their reward: HP officially declared that IA-64, HP andIntel's next generation CPU architecture, was going to be part of the next generation ofHP 3000 too.

After his keynote, Mr. Platt was gracious enough to spend some time with HPProfessional's Editor-in-Chief, George Thompson for a wide-ranging discussion regardingHP's short-term corporate performance, thoughts on HP's long-term strategic thinking,insights about HP's competitors as well as his "surprise answer" when askedabout the "HP 3000 Renaissance."

HP Pro: You were quoted in a BusinessWeek (July 13, 1998) article as saying, "Competition has closed the gap. Executionjust isn't what it used to be." What did you mean by that?

L. Platt: Our internal surveys, as wellas virtually all the third-party surveys that I see at least, still show HP with the leadin customer satisfaction. That's really what I was talking about. The good news is we'restill the leader. The bad news is the gap between HP and the people who follow, the othercompanies, has been closed in virtually all categories. I don't like that very much.

You can find some areas where HP has improved [in customer satisfaction] andcompetitors have still closed the gap. I like a bigger gap is what it comes down to. So,I'm trying to prod people inside HP to move forward and really build some customerintensity. That's the word I'm starting to use -- customer intensity -- a really intenseand deep interaction with customers. I believe if we have a more intense relationship anddeeper understanding of what customers want, then we can widen the gap.

HP Pro: So, in effect, you're kicking itup a notch.

L. Platt: Yes. That's exactly right.

HP Pro: What about the recent perceptionthat HP has lost its "innovative edge?"

L. Platt: I don't buy that. Clearly, ourfinancial performance hasn't been terribly strong over the past year or so. There's noquestion about that. We missed our numbers pretty consistently. But when I look at all thereasons for it, I don't see innovation as the [cause].

I look at personal computers; we innovated a lot there. We moved up very consistently,as a matter fact. I would argue that we probably moved up consistently in the rankings interms of number of PCs sold faster than anybody would have thought, if that were[measured] on the basis of innovation.

If you look at the server product lines, I would say we've rekindled some of theinnovation and performance leadership in that area. In the printer area, we just rolledout a brand new ink delivery system, which is quite revolutionary. It cost us billions ofdollars in investment.

HP Pro: It seems that many of theinnovation critics are overlooking HP's development of the IA-64 architecture.

L. Platt: It's incredibly innovative. Andthat's one of the reasons for the [production] slip. It's a hard program. But again, untilit's out, and until it has proven what it can do, it leaves us in a funny position. Rightnow, it just represents a big investment without any return. But that's something we'rehaving to live through right now.

We went through it in the mid to late 80's when we were the first to bring RISC tomarket. The years -- '86, '87, '88 -- were not easy years for the company because we weremaking huge investments in RISC technology without getting much return.

That's like the issues we have today. We continue to keep the PA-RISC architecturefresh -- we just introduced very competitive products -- at the same time we are making ahuge investment in IA-64 and haven't got anything to show in the way of revenue. It soundslike an excuse. But because we are stepping up to the next generation of innovation, weget punished for it a little bit in terms of short-term results.

HP Pro: Down the road, I see IA-64 asaiding HP's move away from hardware to software.

L. Platt: I think it will. But there area lot of people in our industry right now -- I call them failed hardware vendors --running to build support capability, and it's probably not a bad move for them. They'llprobably become system integrators.

Yes, we are working on that broad range of support services. We think it will be agreat growth opportunity. But we are not going to lose our intensity around hardware. Weintend to be a really tough hardware competitor in the future.

I like it every time [a vendor] puts up the white flag and says we can't make it in thehardware business anymore. It's just one less competitor.

HP Pro: Measurement, Communica-tions& Computers or MC2 was an HP theme for awhile. But this morning, duringyour keynote, you talked about "Expanding Possibilities." Is MC2still a theme for HP?

L. Platt: Oh sure. If you look at thetelecom market place, there are lots of examples to be found of complete solutions we aredelivering to customers of our acceSS7 Solution, which is basically a Signaling System 7analysis system, which is a really good example of a comprehensive measurement andcomputing solution we deliver.

Quite clearly, MC2 is still alive. [But] MC2 doesn't make aparticularly good tag line. It's not a particularly good way to brand your company. So,Expanding Possibilities is really about branding. It's about setting an expectation ofwhat you can get when you deal with HP. Going back to something like GE's, "We bringgood things to life," I don't know what that means, but you get a warm feeling aboutit. I think "Expanding Possibilities" is the same thing.

"Expanding Possibilities" really talks about how you deal with HP and if youbuy HP products, this is going to help you expand the possibilities of what you can do. Soit's a much better tag line. A much better theme around which to build brand recognition.Of course, building brand recognition really has to be done in the consumer space. Thewhole notion of MC2 probably doesn't have a lot of currency in the consumerspace.

HP Pro: So, it's fair to say that whileMC2 drives the company internally, "Expanding Possibilities" is theexternal message.

L. Platt: That's probably a very good wayof putting it.

HP Pro: Speaking of marketing concepts:Why do you think HP has had such a hard time shedding its bad marketing image?

L. Platt: I don't know. We're a companythat's conservative in terms of not talking about things until we've actually done them.I've had some people already come up to me [during the show] and say, "Gee, I didn'trealize HP had ALL this stuff going on in the Internet space. We thought you missedit."

We haven't missed it. We just didn't go out and start talking about stuff we didn'thave. We really didn't start talking about what we had until we had it. So I think thesomewhat conservative approach is what leads to that.

I'm also not a big sound bite person. Scott McNealy is famous for handing outoutrageous sound bites. We're probably not ever going to be that way. I guess that has alot to do with it.

When I look at the real marketing we've done, the TV advertising that we did around"Expanding Possibilities," I think it was first rate. And we were reallyrecognized for first class marketing. But it's probably still a tad bit more conservativecompared to other companies.

HP Pro: You mentioned that branding isimportant in the consumer space. Is that to say that branding isn't as important in thebusiness space?

L. Platt: Branding is importanteverywhere. I think "Expanding Possibilities" works just as well in thebusiness-to-business space. But you can't establish a really strong brand unless youinvade the consumer space as well.

HP Pro: You mentioned in your keynote,referring to the "Electronic World," that "Maybe we haven't done as well attelling that story as we have at creating it. We're determined to change that." Canyou elaborate?

L. Platt: You're going to see us turn uplots more places. Lots more keynotes. I'll give you an example. This year, I've alreadykeynoted, three, four, five meetings. Places you would not expect HP to show up --Internet World, for instance. So, [I'm] just trying to get the story out. [It's about]more visibility on the part of myself and other HP senior executives in terms of givingspeeches, being present. Having the HP name there.

We also stepped up our advertising quite a bit. If you think about it, you've seenquite a bit more of HP everywhere -- more than you've seen in the past.

HP Pro: Are you practicing your soundbites?

L. Platt: I probably need to take somelessons from my buddy, Scott and start saying absolutely outrageous stuff.

HP Pro: One of the issues that HPProfessional is continuing to focus on is the change taking place in the distributionchannel. And with up to 60 percent of HP products now going through the distributionchannel, it's particularly important to customers. What are the next steps for HP in thatarea?

L. Platt: Of our total dollar volume, Iwouldn't be surprised if it's closer to 70 percent today.

There are clearly some new channels emerging. The Internet model is an example of a newchannel that I talked about [during my keynote] that we're experimenting with. I call it asemi-indirect channel. It's direct with HP, but it's still not direct-to-direct personcontact. So that's emerging. And that's certainly one of the most important things that isgoing to happen over this next year.

Second, there's a lot of changing channel relationships. The traditional ChannelPartners are having to rethink their business models; having to rethink how they addvalue. And HP is working very closely helping them to reengineer their value added. Forexample, channel assembly, where instead of just being a storefront where HP goes to getproduct, it will be an extension of our selling organization. Our Channel Partners are nowactually becoming the last step in manufacturing. That's a new value added place for themin terms of what I would call mass customization close to the customer.

We are in the process of building kiosks with Circuit City. This is a new channel in away. This is not exactly a retail model where you walk into Circuit City and look at thethree models that they happen to have on the shelf. Now, you walk into Circuit City andyes, they have limited hardware there. But you'll be ushered into a kiosk -- with help orwithout help -- where you can actually work your way through a program that's been setupby HP that will allow you to custom configure your product.

So, the channel is in what some people might say a state of turmoil right now. It's ina state of very rapid change, to say the least, as Channel Partners search for lots of newways to deliver value because the old ways of delivering value are not of great value tocustomers anymore.

HP Pro: It seems that other vendors areimitating the HP model.

L. Platt: In the channel -- yes. We'vebeen the near dominant channel player. Certainly with our printers, we were quite dominantin establishing the channel. We have a lot of people who are trying to come into thechannel today. And at the same time, we have players like Dell and Gateway who are tryingto go direct. Obviously, with quite a bit of success. So, that says to us we've got tolook at that model too. Then you have to figure out how to fit together a direct programwith a channel program; so, that's a very challenging area right now.

HP Pro: What about Compaq?

L. Platt: Wait and see. They have hugeintegration tasks ahead of them. It's way too early to say how it's going. Based on theirlast financial report, [Compaq's] underlying core business wasn't very strong. You had totake that financial report apart to understand it, but the core business -- the old Compaq-- was actually down. Their revenue was down year-to-year, so that's not a very good sign.Never mind all the challenges with [the Digital] integration.

I have lots of respect for Compaq and Compaq management and what they can do and thecapabilities that DEC brings them. Over the long haul, if this integration is somethingthat can be accomplished, they'll be a very strong competitor. But they got some very hardstuff ahead of them.

HP Pro: Is there one specific arearegarding Compaq that worries you in particular?

L. Platt: If they are able to takeadvantage of all the things that DEC understands about the enterprise customer; how youserve the enterprise customer with complete solutions; how you support that customer afterthe sale. That's the value that they picked up with DEC.

DEC had a lot of capabilities. They always knew how to do things pretty well, but overthe last several years, people had given up on them. People had lost confidence. Compaq,with their strong brand and strong track record, brings back confidence. If they canmanage to take that skill and understanding that DEC had and rebuild customer's confidencein it, then they are going to be a strong competitor. But that's really hard work. I thinkthey have some tough quarters ahead of them.

But I have a lot of respect for them. It would be absolutely stupid -- and that's oneof the messages that I continually give inside HP -- it would be absolutely stupid toassume that [Compaq] is not going to be able to make it work. We should get ourselvesready for the battle; post a very good integration. Then if it doesn't happen, why, thatwill be great. But it's bad to assume that it's not going to work.

HP Pro:Did the growth in the HP 3000 market surprise you?

L. Platt: It actually did. Ourpredictions for the 3000 were that it would go away at a certain rate. And that hasn'thappened. What has happened is that the 3000 customers have proven to be a much more loyalgroup. But it's not just loyalty. I assume it's been for sound business and economicreasons that they have migrated more slowly than we expected away from the 3000. So, thatwas a surprise. That rate of change was different than we predicted.

Secondly, we are actually still booking new 3000 business. That was also a surprise.And that led to this focus on [five] vertical markets where the 3000 seems to beparticularly well positioned as a place of going and getting new business. We thought bynow that getting new business for the 3000 would probably be pretty hard.

[Those two] things, of course, provided positive feedback. And that caused us toincrease the level of investment we are making in the 3000 going forward which in turnmakes it a more attractive program. So, it has been a bit of a surprise.

HP Pro: Can you give some perspective onthe HP 3000 growth?

L. Platt: We don't break out the numbers.But let me say that the 3000 is not growing anymore. We expected that it would be goingaway at a really steep rate. The growth rate is negative, but it's a very small negativenumber compared to what we thought it would be. It's still absolutely a very good-sizedmarket. Now with the potential for new growth, that's pretty attractive.

Also, the 3000 today, the way we run the program really benefits tremendously from justthe core technology investments we make, whether in PA-RISC or now IA-64. In some ways,it's kind of a free ride in terms of technology refresh. It's a pretty good deal.