Box 3, Folder 29 – General Speeches
April 20, 1977 – “Technology and Profitable Growth,” General Electric Spring Conference, Bellaire, FL
4/20/77, Copy of the typewritten text of Hewlett’s speech
[See also speech dated March 23, 1976, “The Four Musts of Hewlett-Packard” and one dated May 5, 1980, Personnel conference at Silverado]
Hewlett is addressing a group of General Electric people and he notes that while HP has just reached the one billion a year sales level, GE was at that level 38 years ago when HP was just starting, so he acknowledges that “we are still a little bit behind you.”
“In a sense then,” Hewlett says, “my talking with you tonight about technology and profitable growth might seem like carrying coals to Newcastle. However, I have spent my entire professional life dealing with these matters, and I firmly believe that regardless of a company’s size some element of its operations can stimulate interest and lead to valuable discussion.”
Hewlett says he will try to be “fairly practical “ in his remarks, as he knows that engineers are practical people.
He recalls that when they started HP they found that people they hired wanted to do the right thing, and would do the right thing if given the opportunity. “We found,” he says, “that by respecting the dignity and worth of these people, there was much they could contribute. I believe that a great deal of what we subsequently accomplished in the company is a direct result of this very basic approach to people.”
Engineering of Opportunity
Managing the engineering effort was a learning process Hewlett says. Since they could not afford to hire top engineers they had to make the best use of their resources as they could. He says they derived something he calls “engineering of opportunity.” Instead of telling their small engineering staff that they wanted a specific device developed they preferred to say “What technology can we apply to meet these …needs?” And he says they were able to invent a large number of useful products for their customers while staying within the bounds of their technical capabilities.
Hewlett describes another learning experience. He says that during the mid-fifties somebody in the company thought up the concept of a “vintage chart,” upon which they plotted the annual sales of each of their products over a period of four or five years. “We found,” he says, “that the average life of a product was surprisingly long, and that our entire growth was heavily dependent upon adding a layer of new products each year. This impressed upon us …that the route to growth was through new products – products that contributed real value content to our catalog.”
Other Early Lessons
They also learned the hard rule, “If you want to do something, you had better earn the dollars first….This philosophy of pay-as-you-go also had a long-term influence on how we approached management problems.”
Hewlett describes another key learning experience, –“…discovering the advantage of having a relatively small group of people working together closely – people who knew what they were doing and where they were going.” They wanted to preserve this characteristic and believed the method of achieving this was to decentralize their operation – even though their volume was only about 50 million at the time. They also recognized that in order to follow a decentralized organization they would have to develop an overall operating philosophy to guide the decentralized units.
To do this he says they chose a concept “that is now popularly known as ‘management by objective,’” — a term he says they had not heard of at the time. He describes the decentralized organization as one where the organization was divided into “several small operating divisions with well-defined product lines, to assign managers with complete responsibility for all their functional areas, to provide them with some broad, general guidelines, and then keep track of the division’s performance.”
Hewlett says he and Dave Packard “sat down and wrote six corporate objectives. The first of these dealt with the essence of everything we were trying to do – make a profit. The other objectives covered customers, fields of interest, growth, people, and citizenship.
“Although we have reviewed and modified these objectives from time to time, they really have not changed very much over the years.” They did add a seventh objective in the mid 1960s which had to do with management techniques – a reflection of their increased size. “These objectives have withstood the test of time, and our ability to follow them so steadfastly has been a major factor in the company’s achievements.”
Hewlett says he tried to boil down these objectives into a few catch phrases, and he coined four “musts: – You must make a profit, you must make that profit by technological contribution, you must work through people to achieve these objectives, you must put back more into the community than you take out.”
Hewlett goes on to discuss each of these themes, and he starts with technology. “To make a technological contribution,” he says, “you have to have good people, and you have to have a proper atmosphere. It is obvious…that good people attract good people, thus producing an exciting place to work. This is a positive feedback type of operation, and if you can get into this mode, it is extremely beneficial.”
Concerning the need to maintain a creative atmosphere, Hewlett says R&D people “don’t want to be on the sidelines; they want to feel that they have a major role in defining what a company does.”
“At HP, product decisions are almost always made between the divisional manager and the R&D personnel – not, in contrast with many companies, between the divisional manager and the marketing operation. In our business, we feel that – important as they are – marketing people must play a secondary role in the question of product definition.”
Being on the Cutting Edge
Hewlett says this is a very important for engineers, who want to be on the cutting edge of what the company plans to do – not simply asked to carry out a pre-determined course of action. “This… is the basis of one of our objectives – that you must make a technical contribution, not take a ‘me too’ approach.”
The high degree of engineering involvement in HP’s entire program requires people in divisional management who understand engineering. “It is not by accident,” he says, “that 35 of our 36 or so divisions are headed by people with engineers’ degrees. (He adds, parenthetically, that less than a quarter have an MBA.) “This means…that we are taking people who are not trained in management and putting them into key management slots. In turn, this approach requires a strong commitment by top management to provide these people with considerable back-up support.”
Deep Commitment to ICs
Hewlett describes HP’s philosophy on IC fabrication. “We have,” he says, “nine divisions with integrated circuit facilities, and a tenth just coming on-stream. People from the semiconductor industry tell us that no one can afford to spread such sizable capital resources out among nine or ten areas – but we don’t look at it that way. Our feeling is that while we won’t make money on integrated circuits, per se, we will profit from the sale of products built around these tailor-made integrated circuits. As an indication of this, I would guess that probably 90 to 95% of our products now have one or more of our proprietary integrated circuits in them.”
Profit…A State of Mind
Making the substantial commitment of dollars into technologies such as ICs requires a high level of financial security. Hewlett says “One measure of financial security is whether you’ve been able to finance your growth from earnings, or whether you’ve had to engage heavily in debt financing. It is for this reason that we have continually stressed the importance of profits to HP people at all levels of the organization.
“Profit, as far as I am concerned, is a state of mind. It is not just something the boss is harping on; instead it is something that each person in the organization must be convinced is in his own best interest. Once that attitude prevails, each individual will have a direct concern that this part of the organization is making a profit. I think that concern is even more important for technical people. Because in a more sophisticated sense, profit is the difference between what an item cost you, and what your customers perceive its value to be –that is, the technical contribution if you are in a technical field. I think that every one of our technical people now appreciates this fact fully. They recognize that if you are going to make a profit, it has to be on the basis of some kind of contribution.”
Technology and Profitable Growth
Talking about his third “must,” working with people to achieve objectives, Hewlett says he doesn’t need to elaborate on this area because, of all the companies he knows, GE is “the most conscious of this need and has done the best job.” He adds only one comment: management by objective is a extremely costly program, personnel-wise. It requires a large number of managers because you are spreading the workload among a great many people. Additionally, if you are drawing your management talent from the engineering staff, it is important to recognize that these people have not necessarily been trained in basic management principles. Therefore, it is essential that you provide training and development programs and facilities to be sure that when you put these people into management positions, they are indeed able to handle them.”
Hewlett says he does not want to take the time to discuss the fourth “must,” …responsibility to the community. “That is a very broad area with many ramifications. I just want to assure you that we supported the concepts of good citizenship long before it became the popular thing to do.”
No Perfect System
Realizing that there is no perfect system for running a company – Hewlett says he can draw some general conclusions.
“We really have not solved the problem of the dual ladder. I know that you people have given this a lot of thought too, and the solution still lies in the future.
“In terms of management by objectives, I think we have had reasonably good results at the upper levels. The approach has been quite successful as a motivation for our management team. But I have some doubts as to the degree to which it operates at the lower level in the corporation – and that, of course, is one of the places we would like to have it operate most effectively. We intend to work on this problem.
“I believe we have been reasonably successful in making profit a viable concept in practically everything we do, and that the profit center itself has been satisfactory despite some short comings. We have accomplished this partly by our management-by-objectives approach, and partly by creating a special management accounting system that tends to remind managers where their primary focus should be.
“Finally, at HP we have committed ourselves to the concept that achieving profit and growth via a constructive R&D program on a pay-as-you-go basis is the path we want to follow. I see no reason why it will not continue to work for us just as well in the future.”
Box 3, Folder 30 – General Speeches
October 19-20, 1977 – Visit to Toronto Sales Office, Canada
10/19/77, Copy of typewritten text of speech
Hewlett says a few words about FY 1977 which is about to close. He says he “thinks it is going to be pretty good year – about 107% of quota in U.S., international a little weaker.”
“I really think the company is in very good shape – in a very strong financial position….It is my view…that we are probably in as good a position as I can recall we’ve ever been.”
And that leads into what Hewlett says he really would like to talk about – “the transition that is going to take place in management during the next few months.” He mentions the previous announcement that John Young has been elected President and Chief Operating Officer of the Company. He says that implies that “unless he does something horrible before I retire as chief executive officer he will assume that title.”
“Now I want to be very frank with you on this matter because I think it’s important for all HP people to understand what is happening and what is going to happen. These are not easy remarks for me to make. So I’ll tell you quite frankly that Dave and I are not doing to be easy fellows to replace. To be absolutely frank, it will be impossible! I’d be dishonest if I said anything different. But I think it’s better for us to make a decision now, when we have a choice, than have to do it at some later date on an involuntary basis.”
Hewlett points out that the change is not just a change in management, “it is a change from an owner-founder management to a professional management. We took a half-way step some years ago when we changed the company from a privately held company to a publicly held corporation. At the present time, the Hewlett and Packard families still own about half of the stock. This will be reduced in time. Inheritance taxes in the U.S. are such as to be almost confiscatory, and as you probably know, my wife’s estate sold quite a bit of HP stock simply to pay death taxes on that estate. The remainder will go into a charitable foundation and the foundation must sell some stock eventually to provide needed liquidity. So time will take care of disbursing much of these holdings.”
Hewlett says he has come to realize that Dave and he are getting to be legends. “I honestly say that modestly, but so many people come up and ask to shake my hand before I leave – you begin to sense how legends grow.”
“And perhaps people want legends. Perhaps they want to feel that there’s something special about people who lead them. And if that’s what they want, let them have it – although I must say I sometimes swallow pretty hard.
“I think the fact stands that Dave and I have held a special position in this company, that will not duplicated. But in the long run we’ve got to be replaced and, as I said, it’s better to do this on our own time schedule than involuntarily.” He also admits that he feels himself “running out of gas to some extent” – further indication that this is the right time.”
Hewlett tells of the Stanford professor who studied what he called HP’s ‘management by cultural control’ – The HP Way. “So I assure you,” Hewlett says, “that even if the new management team had an inclination to change the character of this company, they would have a hard time doing it. Because each one of you – and there are now 35,000 people in the company – would be there to protest indirectly, and to say, ‘This isn’t the way it’s done at HP.’”
“What you must realize is that there are going to be changes. There must be changes. In fact as John [Young] talks to you shortly about the next five years, you should begin to see how the kind of growth we foresee will inevitably pose problems. We’ill probably have twice as many divisions, for instance, if we follow our present policy. How will we control that number of divisions? Will six groups be right? Or will we need more groups, or fewer? Is the concept of three executive vice presidents the proper way to run this company? What will we do about the collision course that calculators and computers are following? And what role should the labs play in the company as it grows larger? Those are some of the problems we face, and we are going to have to make some changes to resolve them. I don’t know what those changes are going to be, but certainly John and his people are going to have to come up with some suggestions.”
“Dave and I have a great deal of confidence in the new team. I don’t think we would have recommended them to the board if we didn’t. It might just interest you to know how a decision like that comes about. I really think it has roots in our management by objective because under that concept a person is given the opportunity at the very early stage to make independent decisions, and to follow his own management style with the bounds of the corporate guidelines…. Speaking further about John Young, Hewlett says “He was known to the board, he was well known to the company, and in view of all who knew him, he was exceedingly well qualified to lead the company in its next generation of management.
“Now I probably have more at stake in this company than anyone in this room, except Dave, and I want to tell you that I feel comfortable with the new management team that is going to be with you next year directing the future of the company.
Box 3, Folder 31 – General Speeches
November 2, 1977 – Herbert Hoover Medal for Distinguished Service, Stanford Alumni Association, Location not given
11/2/77, Copy of typewritten statement, with handwritten notations by Hewlett
Hewlett says he is very honored to be the 10th recipient of this award, especially when he looks at the names of the previous recipients.
He recalls that Herbert Hoover, in approving the use of his name for this award, stipulated that the recipient should decide the time , place, and nature of the presentation ceremony. “It was not the date that was the problem” he says, “once a moment of thought allowed me to determine that it should informal and with friends. It was where and who. The real question at issue was a curious one. Who are my friends? In thinking about this subject, I realized that a very high percentage of people whom I put in this category have been associated with the management of Stanford during the past 10 or 15 years and in particular, during 11 years I served as a trustee. This was a period during which I cemented old friendships and established many new ones.
He says his experience was “exciting and stimulating, and that the people he associated with were “thoughtful and dedicated.” He realized that most of the people he thought of as his “friends” were those associated with his experience on the Stanford Board. So he concluded that he should “build the invitational list around these people and supplement it with family and a few old friends.” He says the decision as to “where” was an easier one. “I wanted it to be informal and local. I am afraid that I imposed upon Dick and Jing when I asked that the award be made in their home.”
“Subject to one obvious absence, I can truthfully say that there is no group with whom I’d rather share this honor than those of you here tonight. You honor me by your attendance.”