Lewis E. Platt: Sharing Insight From 33 Years at Hewlett Packard

Until the end of 1999, Lewis E. Platt was chairman of the Hewlett-Packard Company (HP), based in Palo Alto, California. HP is a leading global provider of computing, Internet and intranet solutions, services, communications products and measurement solutions. Platt was recently named CEO of the Kendall-Jackson Wine Estates in Santa Rosa, California.

Platt earned his B.S. in mechanical engineering at Cornell University and his M.B.A. from the Wharton School of Business at Penn. He has an honorary doctorate in engineering science from Santa Clara University. He joined HP in 1966 and held a variety of management posts in the company’s medical products, chemical analysis, and computer operations. In 1987, Platt was named executive vice president, and in 1992, president and CEO. On David Packard’s retirement in 1993, Platt was elected chairman of the board. In July, 1999 Carly Fiorina succeeded him as president and CEO of HP.

In 1995, President Bill Clinton appointed Platt chairman of the advisory committee on trade policy and negotiation for the World Trade Organization Task Force. In 1996, he became co-chair (with San Jose Mayor Ron Gonzales) of Joint Venture Silicon Valley Network, an organization formed to strengthen the local economy and make the area a better place to live. Platt is also a member of The Business Council and The Business Roundtable. He has served on the boards of the Wharton School, Molex, Pacific Telesis, and The Boeing Company.

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Ethix: As you reflect on your Hewlett-Packard career, which of your accomplishments give you the most pride?

Lewis E. Platt: I think I am probably most proud of this last seven years when I served as CEO. During this period we had a pretty spectacular run: a threefold revenue increase, a fivefold increase in profits, and a sevenfold increase in stock price. A lot of other good things happened during my thirty-three years at HP, of course. From 1980 to 1984, I managed our Analytical Instrument Group — a business that was failing and a group of people that was pretty unhappy — and turned it around into one of HP’s best businesses. My early days with the company were also very exciting. When I came on board with the medical products group, we were literally inventing a new category of products for the monitoring of critically-ill patients in operating rooms or after heart attacks or serious surgery. We felt like we were making a real big contribution.

You were one of the first to talk about the critical role of the set-top-box as television and computers come together. That hasn’t quite happened yet. Is it still coming?

What I missed was what would happen to the price of personal computers. All of us, even Bill Gates, missed how quickly the price would fall, how cheap they would become. If you sign up for two years of Internet service you can get a PC for free! When the price gets low enough, the average person is no longer forced to make a choice of a single appliance or a single way to get an interface. The set-top-box is out on the market, by the way, for about $100. It provides an easy interface with the Internet but, of course, with WebTV you can’t watch TV and be on the internet at the same time. PCs have also gotten easier to use. It no longer takes a long weekend to get one up and running; you can literally get on the web in ten minutes.

Do you still envision these things coming together?

Less so all the time. Today I see a world where we’re going to have a lot of different appliances. I would liken it to the world of electric appliances. There is no generic electric appliance: things are highly specialized — hair dryers, toasters, rice cookers, and so on. I think we’re going to see information appliances just as highly specialized and all of us will have several of them.

Of course, you can buy a cellular telephone today that will also give you Internet access, but do you really want to do a lot of complicated things that way? No, because the screen is so small. If you want to get a stock quote, or a piece of information that can be conveyed in a relatively few numbers or letters, the phone can be an Internet appliance.

But, I see a world that explodes into a lot of different information appliances and the average person will have a bunch of them, including the PC and the TV, just as we have several electrical appliances. They’ll be pretty intuitive and inexpensive and we’ll have lots of them — in the car, the office, the briefcase, the coat pocket.

You once said that most of the revenue at HP comes from products that are less than eighteen months old. What is it like to manage a company where most of your products are going to be obsolete within two years?

It puts a premium on speed. You still have to think about quality and functionality and all those other things, but you have to move very, very quickly. You simply have to imagine as you bring a product to market, that within six to nine months, either you or someone else is going to obsolete that product. That really does change your mentality. When we introduce a product we are already in the design phase of the product that will replace it. You have to have the nerve to take a perfectly good product that’s selling well, and generating lots of revenue and good profitability, and go out and kill it. That’s a hard thing for people to do, to take something that’s in the prime of its life and say “it’s over, let’s introduce a new one.”

That’s hard not only for the producers but for the users of the products, who might invest four or five years building a complex system — while all the pieces of this system become obsolete every 18 months. Some users would like to say, “Stop! I don’t want any more.”

Even those who say “Stop!” don’t really mean it! They love the fact that next year they can get something twice as powerful at 25% less!

Well, you couldn’t stop anyway because your competitors wouldn’t stop, but it creates a complicated world for everyone.

It does. And that really brings into play the importance of standards. If we could settle on some standard interfaces, operating systems, and network connections, then we could take advantage of this march of technology without having to tear the whole system apart. Our ideal world would become a kind of “plug and play” world, where we unplug the old and plug in the new. We’re getting better at this as an industry but we’re not exactly perfect yet.

There’s a great Gateway ad on TV right now, showing a guy in his convertible driving down the road with a new box sitting there next to him. It’s a PC and with big letters on it saying “T5.” He looks up and sees a billboard advertising the “world’s most advanced PC, the T5.” But there are a couple of workers up there and just as he’s driving down the street and puts his hand over and pats his T5 with obvious pride, the guys have their brushes out and they’re rolling out this thing called the T6. And his face drops. It’s a great ad.

The threat of the thin client as a $500 access device seemed to be what drove the price of the basic PC down from a $2,000 to a $1,000 to a $500 device. Moore’s Law is at work again, bringing more capability and lower prices.

Our company chose not to do a thin client. We concluded that we could get the price of the PC down to the point where we could offer a standard device with lots of capability that would be pretty competitive with the very thin client that other companies were building. The thin client never took off. It was destroyed by economics. It was a little bit non-standard, which hurt it, and it was so limited in capability that without offering other very significant advantages, price alone wasn’t going to win this game.

We’ve been talking, so far, about the “business of technology.” What about the “technology of business,” the way technology changes business and its culture? Is the famous “HP Way” being challenged or changed by today’s technology?

I like to describe the HP Way as consisting of three concentric circles. The inner circle contains our values. The next circle out contains our objectives. The outer circle contains our practices. The values in the center circle (the importance of making a contribution, of good citizenship in the community, of valuing, trusting, and respecting people) are timeless. They’ve worked great for the company so far and it’s hard to imagine that they won’t work at any point in time over the next hundred years.

Do you find that your new employees, raised in the MTV generation, are receptive to these traditional values?

Very receptive!
You have to have the nerve to take a perfectly good product that’s selling well, and generating lots of revenue and good profitability, and go out and kill it.

That’s surprising in some ways. Is it because these values somehow connect with everyone’s basic humanity?

Yes. These human values seem to connect with people as well today as they did sixty years ago. When we split the company recently into Agilent Technologies and the “new HP” we determined that both new companies will be based on our same core values. I think people still come to work at HP because of these values.

We also have objectives. These are not timeless but they change slowly. In the Fifties we wrote down our objectives for the first time. We’ve had seven since the beginning but there is nothing magical about seven; it could be five, it could be eight. Historically, we modified them about every eight years or so. We’re now in such a period of change with the company split.

Finally, we have practices, and these change quickly. The pace of change in business forces us to change these practices even more quickly now than we did in the past. When we hold on to old practices and don’t change them fast enough we get in trouble.
…brings into play the importance of standards. If we could settle on some standard interfaces, operating systems, and network connections, then we could take advantage of this march of technology without having to tear apart the whole system apart.
You can have any new objectives and practices you want so long as they are consistent with the values. I always said to HP people that we have to change what we’re doing in the company more quickly.

I need the freedom to do that. In return, I’ll make a commitment that any changes we make will always be consistent with our values.

People need anchors, things they can count on when a lot is changing around them. I spent a lot of time on this challenge when I came into the office because I was the first HP CEO who was operating without the active involvement of the founders. There’s a great danger that when the founders leave a firm, the stone carvers get out and carve everything in stone and you’re just frozen in time! So I spent a lot of time saying I’ll commit to these timeless values — but you give me the freedom to make changes in the objectives and the practices.

How have HP practices been changing?

Let me give you two examples: first, the CEO can no longer drop by every facility every year and shake every employee’s hand. Dave Packard and Bill Hewlett were able to drop by the dozen or so facilities that they had — but we have 600 locations in 120 different countries! Today, we have to use video, e-mail, and other ways of staying in touch. MBWA (Managing By Wandering Around) is still an important concept because it suggests having an open channel of communication with people, but instead of wandering around physically, you have to do much of it electronically. You have to set up new channels of communication.

A second example of a change in practice: when I joined the company in 1966 HP was fiercely proud of the fact that it was totally vertically integrated. As a mechanical engineer I was taken to the shop and shown the machines where we were making our own screws. People looked at this and said “Hewlett-Packard makes screws like nobody else in the world.” Our practice was to be vertically integrated and control everything. We were control freaks who never let anybody else do anything for us. We hated to even buy material because it might not be up to our standards.

Well, in order to move quickly and to stay competitive this practice has changed. We do a tremendous amount of outsourcing today. Our really big change came when we decided that others could load and test printed circuit boards for us. This had always been seen as the heart of everything that we did, the most important part of our job. We used to make the raw board, stuff the components, and then do the soldering and the testing.
We used to say we would lose our flexibility on turnaround time but, frankly, they gave our engineers better turn around than our own printed circuit board shop did. …Today, you will no longer get marched around HP with a chest thumping, ‘we do it all.’
We thought we were world class, but then we forced ourselves to take a very objective look around and gather some hard data. Solectron, SCI, and other companies had been set up to load and test printed circuit boards. That was their whole business and — surprise, surprise — they were better at it than we were. Their boards were every bit as high in quality, they were more efficient, their boards were cheaper. We used to say we would lose our flexibility on turn-around time but, frankly, they gave our engineers better turn around than our own printed circuit board shop did. That’s a massive change in practice. Today, you will no longer get marched around HP with a chest thumping, “we do it all.” We have lots of partners who perform very critical functions for us. We manage that network of partners.

So the values are the same but the practices change. The creation of business enterprises that are networks of companies, the virtual company, is enabled by technology. We could not do some of the things that we do today with partners if we didn’t have the ability to exchange information with them electronically. We have partners in Taiwan for instance — can you imagine this happening with letters or even telegrams back and forth? We can be in constant contact with our people in Taiwan; they could just as well be next door in terms of the communication we have.

So while today’s technology challenges us to move faster and faster, it’s also an enabler allowing us to stay in touch with our employees and to build a virtual company with suppliers. Technology is a true double-edged sword — it drives you very hard and it is also a good enabler.

You are optimistic that the core values of the HP way are going to continue within the company, but how are things more broadly out into Silicon Valley?

I spend a lot of time thinking about this and talking to others about it. There are many companies today that I would argue are void in this area. They don’t have values or they haven’t thought about them; they’re just here today to get a project done, get a product to market, do the IPO and go public. Many companies here in the valley are very successful in the short term, but they don’t have any staying power.

I’m not sure they care whether or not they have staying power.

They don’t care. They use up people and they don’t generate a lot of loyalty. They may hold people as long as the money is good or the stock price is right, but the minute it starts to fall, their people march off to the next exciting opportunity. This creates a world with a lot of chaos.

On the other hand, there are many good companies in the valley. It’s hard to start naming names, but I think immediately of Cisco Systems, Sun Microsystems, and Applied Materials, as examples of companies that really have thought about building a culture. Their values may be slightly different from HP’s, but the construct of the company is really the same: caring about their people, their community, and what comes in ten years (not just ten months).

So I think the valley is settling out into a bi-modal sort of system: some companies are thinking long-term and have a construct about what they stand for and how they’re going to treat people. Other companies haven’t thought about these things and, sooner or later they hit a snag and either disappear or get purchased by another company, often one of the first type. Cisco Systems buys many companies every year, and most of these got into some kind of trouble because they hadn’t thought how they were going to be built to last. When they are brought into the fold at Cisco they find that construct, a company that really is built to be here a hundred years from now, not just one hundred days from now.

In contrast to acquiring companies and absorbing them into your own culture, as Cisco is doing, if you build a virtual company with other partners, do you need to look for partner companies that already share your core values?

Absolutely. You have to. You cannot assemble a virtual company out of pieces that don’t fit. While there are lots of companies with great technology, the best partnerships are formed around those who have some kind of a business construct. Our HP partner, Solectron, is a good example. If you were to interview Solectron CEO Koichi Nishimura you would think you were talking to me in terms of the way he talks about his company, their values, objectives, and practices. This commonality makes Solectron a great partner for HP.

Maybe this bimodality will follow the pattern of the coffee trade in America. As people discovered better coffee at Peet’s or Starbucks, many became willing to make sacrifices, pay more, and get quality over quantity. Maybe in time more people will decide to forego the quick buck available in a predatory culture and choose rather for a higher quality of life, work, and relationships.

We know that works or we wouldn’t have anybody working for us at HP. There isn’t a single person at HP who couldn’t make more money elsewhere. I mean every single person — whether it’s an administrative assistant or our brightest engineer or the president of the company. They stay here because they like the environment, and they’re pretty sure that if they do a good job they will have a job here in 2010 or 2020 or 2030.

I think, by the way, that for younger people today the tradeoff is harder to make. If you are just getting out of school and don’t have a family, you can afford to take some greater risks. If things don’t work out, you probably only have to wait 24 hours until you’re in your next job! There’s very little downside right now to taking a flyer at one of these jobs that may not last. You may hit it big financially. Even if you burn up a year or two you still have the rest of your life to settle into something more stable.

We often end up recruiting people at HP who have worked somewhere else two or three years and they’re now looking for something that’s been missing in their previous environment. It’s values and a bit more stability. It has to do with how you feel about where you work everyday. Maybe you’ve been through a couple things that were very exhilarating and you made a lot of money but at the end of the day you didn’t feel any attachment to people. People want to feel attached; most people spend more time at work than they do at home. This is a place where you have to have attachments. People will seek that eventually.

Can you make any comments on Microsoft and HP’s collaborations with them?

Microsoft is a very important partner of HP and we have generally had a great working relationship with them. We actually have a lab up in Redmond and our people work in Microsoft buildings every day. We’ve done a lot of good things together. A lot of our business success is due to the strong partnership that we share.

Nevertheless, some of their practices probably deserve to be scrutinized. They have some practices that are a bit over the edge. Speaking of ethics, frankly, they’re proud of the fact that they do no ethics training, or any other kind of training in terms of standards of business conduct. They don’t do it because they don’t want to encumber their employees in any way. I’m not sure that’s smart.

In The Lexus and the Olive Tree, Thomas Friedman argues that in our global era the economic necessity of collaborating with other companies around the world will force companies to follow the rules. He believes this economic pressure associated with working together will have a more significant influence on human rights and ethical business practice than any political pressure could have. Does HP’s experience in international business confirm this perspective?

People want to feel attached; most people spend more time at work than they do at home. This is a place where you have to have attachments.
I love that book. I agree with the author’s premise. I think he’s absolutely right. I was part of the U.S. delegation to the recent WTO meetings in Seattle. One of the arguments I always make about trade and globalization is that having a U.S. presence in other countries is the fastest way to bring them on board with a set of ethical standards that we would like to see these countries follow.

My favorite example is China, a country where there are labor practices, environmental practices, and intellectual property practices that are not very good. I’m not a defender of these practices, but I am strongly in favor of building U.S. trade relationships with China and creating strong partnerships with Chinese companies — opening markets so that we can be on the ground in China, building our own facilities and employing people. We have huge impact on the country when we do that.

Hewlett-Packard has thousands of people in China today. We started building our organization there in the early 80’s, and officially put together a joint venture in 1984. HP is a highly respected, maybe even the most respected, employer in China. People love to come to work for us because they like the way we respect people and the environment, the way we contribute to the local community hospital or help build a new art center. They like everything that our company stands for. They actually agree with our careful protection of intellectual property.
Our (U.S.) own labor practices weren’t so hot and we weren’t very careful with the environment. It is not at all surprising that other developing countries are not yet very careful with the environment, don’t have the kind of intellectual property protection we want, and don’t have worker’s rights the way we do.
We’ve affected a few thousand people but those few thousand people have affected tens of thousands of others. In May of 1999 I was on a one-hour television program with a university professor who is chairman of the board of the largest white goods manufacturer in China. It is a very large state-owned enterprise, but very enlightened, now adopting values and practices just like we have at HP. Our one-hour program was shown nationwide over and over again during an eight-week period. We are having an impact because we’re there.

If we somehow get into a trade war with China because we want to instantly impose our labor practices or environmental standards or whatever, if we use trade as a weapon to get those things fixed instantly we’ll get squeezed out of that market and we won’t be there as the positive influence that we are now. Being on the ground, having relationships with people, having partnerships with companies where in order to partner we insist on maintaining our values concerning people, the environment, and so on — this is the way to get it fixed. It’ll happen much faster and we’ll end up with better intellectual property protection, better worker’s rights, and more care for the environment than we will through any government negotiation. I’m absolutely convinced of that, because I’ve seen the influence that we’ve had by being there.

Friedman gives a wonderful example of a company in Russia, which was asked, “do you pay your taxes?” “No? Well then we can’t work with you.” Are they going to line up their practices and become an ethical company or are they going to lose the opportunity to collaborate with the American company?

HP has been in Russia 27 or 28 years and has partnerships there with good companies that anyone would respect, if they took a look at how they operate. Unfortunately, there are those who think that all this can be done in a political environment. I don’t think it can be. It is also important to look back at the early days of the industrial development of the United States. Our own labor practices weren’t so hot and we weren’t very careful with the environment. It is not at all surprising that other developing countries are not yet very careful with the environment, don’t have the kind of intellectual property protection we want, and don’t have worker’s rights the way we do. They look like the U.S. of 100 years ago!

We need to be a little more patient and allow business partnerships to develop that will fix some of these things. I’m very optimistic about that particular aspect of world trade. That’s why I fight so much for open and robust world trade. Because it is exactly the way these things will get fixed.

From another perspective, I was absolutely dumbfounded to see IAM workers from Boeing and longshoremen from the Port of Seattle participating in the protests against the WTO. I think these demonstrators must not understand what’s going on. We haven’t told our story very well. Without robust world trade I don’t think the job of longshoreman exists. I don’t know how many of those ships that they’re loading and unloading are purely domestic but I’ll bet it’s not many. And I don’t know how big Boeing would be as a company if it sold only domestically but its world trade provides jobs for most of those demonstrators.

Many people are afraid of big companies, afraid of what’s happening to their lives, intimidated by the pace of change, and are reacting without thinking very deeply or knowledgeably.

I agree up to a point, but I think there is also some well-founded resentment against capitalist influences around the world. There are many cases of corporations whose presence in foreign countries was either exploitative or corrupting — nothing like the HP China experience. HP’s good example is not enough to justify giving a pass to all other corporate interests and activities.

There are lots of inconsistencies. There are some downsides to development and your examples are exactly right. But when I spoke at the NGO meeting, fool that I was (the only CEO on the panel), I got into a little tete-a-tete with a gentleman who stood up and challenged me with some assertions that were just factually wrong, totally incorrect. Finally, I asked him if he had ever been to China. No, he had not. Well, I said, your picture of China is wrong. Before you attack, maybe you ought to go visit. All you have heard about is the down side. I have gone to China at least once a year since 1984. The upside is that the average Chinese is much better off today in terms of working environment, food, and shelter for their family. It’s remarkable what’s happened there.

Can you comment on a couple of books that have affected you?

I liked Built to Last a lot because it really brings home the importance of some sort of a construct, the building of a culture that can lead to sustained success of a company. I also liked Colin Powell’s book a lot because it speaks to courageous decisions and leadership.

Can you give us a word about your new position?

I was going to retire from HP, serve on some boards, and maybe do some teaching. I had it all lined up. But I’ve had a sort of twenty-year love affair with wine and I got a call from a headhunter who ran this opportunity by me; I just laughed at him. But like a good headhunter he called back about ten days later and asked if I had thought at all about it. Well of course I’d thought a lot about it. This kind of company leadership has interesting dimensions to it, it’s something I really enjoy. So one thing led to another and he said why don’t you go out and talk to the people. Well that’s starting down the slippery slope. I liked the people a lot. I found a very strong sense of values in this company that reminded me a lot of HP in the early days. And as I said, there are a lot of interesting business challenges in areas I’m familiar with and where I’m pretty sure I can make a contribution. The wine industry is in a period of tremendous consolidation. Only about 3% of Kendall Jackson’ sales are overseas and they want to build overseas markets. There is the excitement of learning a whole new industry, one for which I’ve had a passion for twenty years. It’s a fascinating business. Maybe I wasn’t quite ready to hang it up as CEO. What I found is they have enough really interesting business challenges and while it’s an enormously successful company there are two or three areas where they’re just barely getting started where the company can be much more successful.

Have you thought about the interesting paradox that in technology products the youngest is almost always the best, whereas in wine the oldest is usually the best?

That’s right but, on the other hand, technology is having quite an impact on making higher quality wine. Better harvesting and production technologies can actually have an impact on the quality of wine. Technology and wine do go together sometimes!

You have spoken of how technology and business can lift the world out there. Some say that within the United States we are turning into a two class society, not based on race but based on technology. What can we do to ensure that everybody in America has basic access to technology?

This is a very big issue. It has the potential of being a separator and driving the classes even further apart than they have been historically. I think there are roles for governments, for companies, and for individuals. This is a perfect place for governments to step in help to make sure that less well to do communities have access to the technology. A good parallel is universal telephone access. You and I pay a subsidy so that everybody can have telephone service. Basic service is about $11.20 per month, and on average it can’t be provided for that, especially in poor rural areas, so you and I subsidize it. The government made that decision because they wanted universal access. I’m not big on having the government get more involved in our lives but I think they need to make some decisions about universal access to this new technology. Government is probably the only force that can ensure that the infrastructure is there so that all communities have access to this technology.

Beyond that I think it’s up to community organizations, individuals, and companies to get involved and make sure that this technology finds its way into those communities. A great example is East Palo Alto, a very poor community next door to Palo Alto, one of the most well to do communities in the nation. Well Palo Alto and other communities have said we can’t allow this to happen. We need to make sure the technology finds its way into those communities and help them improve. So there are community outreach efforts, one community to another. There are a lot of individuals, many of them well to do, who have made it their mission to make sure that technology is there.

There are a lot of companies, HP, Cisco, Sun and others, who have made sure that access to the technology is available. We built centers that are staffed on a volunteer basis by our employees. These are great places to visit, by the way. You see kids, who otherwise might be out fighting in the streets, working on computers at 11:00 at night. And not only are they working with the technology, they’re being mentored by people who have had goals in their lives, really good mentors. So if individuals, companies and governments step up, this needn’t be a big problem; it can be solved. But we have to move more quickly.