BUSINESSWEEK ONLINE : FEBRUARY 19, 2001 ISSUE
COVER STORY ONLINE EXTRA: HP Sees the Future--and It's Printing In a major "cross-company initiative" teams of HP'ers are hatching plans to build a Web-friendly printing empire Sun Microsystems Inc. boss Scott G. McNealy has had lots of fun over the years deriding Hewlett-Packard as "that printer company" -- a way of hinting that HP isn't very high-tech at all. If dozens of engineers from all corners of the huge company have their way, that printer company could soon be swimming in a sea of new sales -- not only of printers, but of computers, scanners, Web services, and -- most of all -- ink. That's because HP is knee-deep in an effort to make printing off the Net as common as sending e-mail. If the strategy works, "it would be pretty easy to double or triple the size of HP" in three to five years, says Lee Caldwell, chief technologist of HP's printing and imaging effort. Sure, doubling or tripling a $50 billion company is a long shot at best. But if there's one mega-opportunity awaiting HP, it's merging its computing and printing strength to make Net printing routine. Just consider the possibilities. Given HP's Microsoft-like dominance of the printer market for 15 years, consumers and companies worldwide have an installed base of 200 million-plus HP printers. By making underlying computing technologies and driving industry standards, HP could make printing off the Net far easier -- whether it's the latest snapshot of the grandkids, a personalized morning paper with only articles on your favorite topics, or tickets to tomorrow night's opera -- especially as broadband pipes make sending high-resolution images via the Net more feasible. That's just the start. If the Net were truly image-friendly, literally billions of pages that are now printed on offset presses could move from that 300-year-old technology to HP-style printers. That way, corporations could print out employee manuals, sales brochures, investor prospectuses, and other documents only when they're actually needed. That could save lots of money in printing charges, but also make printed materials more personalized and effective. BACK TO THE FUTURE. The big payoff would be in sales of printer ink, already HP's best business. With virtually no competition, loads of patents on inkjet technology, and massive economies of scale, HP commands 50%-plus margins on its ink cartridges. As a result, HP's $5.1 billion ink supplies business raked in $1.7 billion in profits in the year ended Oct. 31, say insiders -- a staggering 47% of HP's total profits on a business that represents just over 10% of sales. Indeed, HP's profits for the year would have dipped 5.9% from 1999, rather than rise 13%, if it weren't for ink. To be sure, HP has been talking up gee-whiz services for years. There was an effort to make equipment so booksellers could put together rare or out-of-print titles right in their stores, rather than taking the risk of holding the inventory. And HP was going to let apparel companies use industrial-strength inkjet printers to do short-run clothes production -- right down to monograms. The biggest thrust was its 1997 digital-photography hypefest. That year, HP launched its Photosmart printers, scanners, and camera, in an effort to get people to trade in their film cameras for an at-home way to get pics. But when growth slowed, HP backed way off. In 2000, HP logged more than $1 billion in sales of such equipment, up 333% from 1999. Rather than leading the digital-photography revolution, though, HP has provided basic, low-margin products but hasn't made a big dent in changing the way most people do photogaphy. "HP has the name, the resources, and the R&D. If they only had the will, they could really do something," says Rensselaer PolyTechnic Institute professor Frank Romano. So what's different this time around? Plenty. In the past, HP's efforts were fragmented in as many as 40 different thrusts. Now, CEO Carly Fiorina has named digital imaging and commercial printing as cross-company initiatives. That means a core group of engineers who make everything from printers to computers to Net software are working together to create an all-encompassing foundation for imaging over the Net. Today, images are pretty much "second-class citizens on the Net," says imaging technology chief Caldwell. They're sent as attachments with e-mails or plugged in as static objects on Web sites. In other words, you can't easily do anything with them. What's more, with all the different imaging formats and networks to traverse, they often take forever to get to their destination. As a result, only 20% of objects sent over the Net today are images, says Caldwell. HP execs want to raise that percentage to 80%. GUERRILLA WEEK. A group of engineers from 14 HP divisions set to work on this task in October, 1999 -- months before the cross-company initiatives were formally launched last spring. During this "Guerilla Week," as HP execs now call it, 58 HPers from Boise to Barcelona convened in a spare hotel ballroom at the Elk Horn Resort in Sun Valley, Idaho, to finally get HP's act together. They kicked out all managers except Caldwell. "Lee paid the bills, so we let him in," quips Bob Taylor, who helped launch the effort. "We wanted people to forget all about HP's reporting structure and just create." They set very un-HP-like goals. Rather than deliberate endlessly, they gave themselves five days to create a prototype for this imaging foundation. That meant defining how images would move over various networks and how they would get passed between various types of devices -- say, from a scanner in Schenectady to a Palm in Paris. And six teams worked on specific e-services, including a way for companies to safely store and quickly access their documents from huge disk drives out on the Net rather than in paper form. The leaders of Guerilla Week took a radical approach to management, as well. The engineers broke into teams of four -- with no team including any two people who had worked together previously. The point was to foster new relationships to get more of HP working together -- not let old allies push their own agendas. OPERA E-TICKETS. And they set rigorous daily milestones. Every afternoon at 5 p.m., each group had to present its progress for the day. The pressure became intense, says Taylor, because they all depended on each other. If the group working on document storage couldn't show its progress, for example, other groups whose services also required Net storage -- say, wirelessly printing photos on the Net from a handheld computer -- would be left twiddling their thumbs. The week got the effort off to a good start, but there's far more to be done -- and it will take years to pull off. Just consider the simple-sounding job of letting opera-goers order and print their tickets from home. Besides simply configuring and sending the image, there has to be a way for the theater owner to know the ticket was printed on the right printer. And the ticket could be printed only once. Still, tackling hard problems is what HP has long been known for. And the payoff could be huge. According to consultant Bain & Co., which is helping HP with its cross-company initiatives, the digital-imaging market could swell to $49 billion in 2002 from $32 billion last year. And the commercial printing opportunity could jump $50 billion in that time, to $96 billion. But HP is finally attacking the challenge like it means business. By designating printing as a cross-company initiative, the effort will receive top priority. The company has already invested $100 million in Israel-based Indigo Systems and is about to begin reselling high-speed printers that could be used for industrial-strength printing jobs -- like customized direct-mail pieces or bank statements. Should it all come together as planned, being "that printer company" may not be so bad after all. By Peter Burrows in San Mateo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Radical COVER IMAGE: The Radical CHART: HP Stock Price GRAPHIC: HP the Fiorina Way TABLE: Carly to HP: Snap to It ONLINE EXTRA: Q&A with Carly Fiorina ONLINE EXTRA: HP Sees the Future--and It's Printing VIDEO: Q&A Carly Fiorina and BW's Steve Shepard INTERACT E-Mail to Business Week Online

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