INTEGRATION – Q&A with Robert Napier, CIO at Hewlett-Packard

When Hewlett-Packard finally got to fork over its money for Compaq last May, you wouldn?t have expected anyone from Compaq to be running anything. That?s the unwritten law of the business jungle: The dominant company gets all the positions of power in the new company. But Robert Napier, 55, former CIO of Compaq, is now CIO of the combined companies. He?s a clear product of Compaq?s brasher culture and he worked for HP?s CEO Carly Fiorina in an earlier life, which may help explain his emergence. But there?s more to the combined Compaq/HP than meets the eye, as we discovered when we interviewed Napier last July.

CIO: How is the merger going?

Bob Napier: It?s going quite well. We had a lot of great day-one successes. Day-one e-mail systems on a global basis, one HP.com and?I think this was extremely important?one employee portal where all employees from either pre-merger company could get a consistent answer to most of their questions at a very trying time. [It took] huge network integration?39,000 network devices across 160 countries. In essence, we had an enormous day-one success. It was a necessity for two high tech companies. The interesting thing that I?m not sure I would have thought about from a pre-merger standpoint, but that has really come and smacked me upside the face post-merger, was the enormous addition it made to employee morale. People said, you know this stuff can really work, this integration can really work. Right on their desktops they had proof point and I remember I got all kinds of little e-mails from folks in the first week, even some of my IT folks. A former Compaq person went into an HP plant in France, found a cube that wasn?t occupied, plugged an Internet cable into the wall of that cube and, bingo, was attached to all of his former access in Compaq seamlessly. He didn?t have to change anything on his laptop; all the scripts were handled behind the scenes. I think that was a big deal.

The merger was approved during May, but when did you actually start doing all this work so that it was ready on day one?

We started probably September 10th of 2001. I think we announced to the world on Sept. 4th, or something like that, and by the 10th we had a pretty comprehensive yet small team of IT infrastructure folks from both sides starting to map out what we needed to do.

How many people on that combined team?

Initially, I think it was probably fewer than 20. Now, remember, we had to do things in what we call the ?clean room? fashion, so it was like hand-picking some of your best and brightest, and knowing that once you put them in place, you couldn?t pull them back because we have lots of federal trade commission and FCC rules to follow. I was referred to in those days as a dual-brainer. I was one of those folks who actually could go in and out of the clean room.

CIO: Explain the clean room concept.

When you got into sharing things of a competitive nature in the marketplace, the people that you dedicated to that could no longer occupy a job in either company. They were segregated to only work on merger-related issues. They were not allowed to discuss anything they were working on with any of their colleagues from whichever company they originated from. And if for some reason the merger had fallen apart they would have been sort of quarantined for a while before they could have been mainstreamed back into the company. That was to make sure that we didn?t violate any FCC or Federal Trade Commission rules. The lawyers watched everything we did.

What would you have done for quarantining? Given them some video games?

If you talk about people in marketing, you can see the ramifications, or people that were doing product development. One of the things I did early on, sitting down with both the Compaq and HP legal team, was to say, look, the kinds of things that we?re sharing from an IT standpoint are no different from what we would share as best practices with customers that came into either company. How do you run your HP shop or how do you run your Compaq shop. Or [it was like] a bunch of CIOs getting together at some forum, such as CIO magazine?s forum: We all have this similar kind of problem and everybody gets together and shares what they are doing to solve that problem. The majority of what we are doing are the kinds of things that we happily show Compaq customers or we happily share with our peer groups throughout the industry. There are maybe a few things that we think we do that have a competitive advantage, but most of it, I believe, we consider best practices in the industry and we would share. Over time I was able to make the case with the lawyers that we weren?t mucking around in the things that would make the Federal Trade Commission or the FCC concerned.

Was that ever tested? In other words, did you run into instances where people were talking about what was going on?

Well, the truth of the matter is that as much as I said all that, the lawyers still had a pretty anal view of the world. Yeah, you can quote me on that. We pretty much adhered to the clean room standards as I mentioned, but we got a jump on it. The point I was trying to make before was that the interesting thing was that my former CIO organization at Compaq had put together sort of a cookbook on mergers and acquisitions. It was something of a check-off sheet that we used and continually enhanced so that if Compaq made mergers or acquisitions, we had a pretty standard way to absorb them into our overall IT fabric. Interestingly enough, the HP IT organization had done something similar. So one of the first things we did was sit down, look at both sets of blueprints and figure out the best of breed on that and create a hybrid out of the work done on both sides of the fence. We had our blueprint to go with.

Everyone views HP as the acquirer here, so how does someone from Compaq become the CIO of the combined companies?

I think it?s a good question. The decision was made by Carly [Fiorina] and Michael [Capellas].

It?s unusual.

I think I was a well respected, highly regarded executive of Compaq and considered by the senior management team of Compaq to be extremely competent. Compaq?s internal IT organization was considered to be best of class in the industry. We?ve won a lot of awards in the e-commerce arena as well as in a lot of general categories. We were considered one of the top five shops in the world, that kind of stuff. So that matters. I know Carly from a past life. We worked together at AT&T and at Lucent. And I?m just an all-around nice guy.

Were you at Compaq when it did the Digital merger?BR>I came in just after. I replaced Capellas. They decided they really needed a CIO that knew what he was doing so they made him CEO.

What about the intense public focus on this merger? How did that affect what you did, if at all?

It was really a roller coaster ride, for sure. We just stayed the course. We knew we had to get it done. We always believed it was going to get done. We never wavered from that and it was really about just keeping the team focused on the plan. We were ready to go with most of the key day-one pieces by mid-February, so some of the controversial things that happened actually bought us more time. The proxy fight and the suit that followed probably bought us a couple more months that we didn?t expect to have, quite honestly. I think it just made us a lot stronger as far as making sure that we had our T?s crossed and our I?s dotted. I mean, we did some pretty clever stuff because we couldn?t physically merge the company until we had all the approvals. There are pieces that we?re watching: A couple of countries right now are still not integrated because of legal stuff. Technically we?re not officially merged in some countries. But we did some interesting work around the global network where we created six major points of presence. Anytime you get six, usually you put a team on it, and the name of the project becomes six-pack. We had our six-pack project which was basically six major places where HP and Compaq both had networks with sizeable backbone bandwidth. So we created these points of presence with basically OC3 pipes where we could interconnect the routers at that point and interconnect the two networks on top of one another, and we came up with an IP addressing scheme that allowed us to run it as one network. We came out of this with a lot of interesting best practices that we now can share with customers. We were able to do some testing once the FTC had approved [the merger] and we got some legal sanctions just a couple of days prior to launch.

What was your agenda on the merger? What did you accomplish?

In very high-level business terms, we needed to look like one company to our customers. That was a day-one piece. We needed to be able to go to market with products and services that looked like one company, and we needed to look like one company to our workforce. We had to have that ?one company? theme sitting down at our first combined HP management-Compaq management get-together. That was sort of the requirement that came out of that first meeting?one company to our customers, to our partners, to our suppliers and to our employees. I think the things I said early on accomplished that. Day-one we had a new HP.com up and running, which was selling HP products and Compaq products in bundled fashion so you could still buy a Compaq PC but now you could buy it bundled with an HP printer. You could do that on day one. From an IT standpoint, we needed to be able to have common goals, common values and language, and we needed to have enough team-building done that we had developed enough trust before day one, at least in my direct reports and in their direct reports.

How did you do that?

We did a bunch of off-sites, quite frankly, a lot off-site team building meetings led by me.

How do you build teams? What?s your method?

There was a lot of controversy around the two very distinct cultures. The Compaq people were sort of ready, fire, aim, adjust. The HP people were ready, aim, aim, aim, aim. When you get people together, you?ll find out it?s neither one or the other but somewhere in between. We took a lot of time examining cultural perceptions of one another and to really figure out what the real norms were about how we operate. Then we actually sat together and defined what we wanted the new culture to be and what we thought our common values should be.

How many of those meetings did you have?

I did it with my direct reports and my direct reports did it with their direct reports. We?ve cascaded it down to where we?ve probably covered about 8,000 people.

I think another thing was the common language. I am a big, big proponent of a standardized global IT program management function or office: a common IT methodology, a common way of doing reporting, a common way of doing priorities, a common way of doing metrics. I?m a firm believer that if you can?t measure it, you can?t manage it. I believe that everybody who is an IT professional, at least in my organization, needs to speak the language of program management and project management. It?s all about planning to win.

In the pre-merger Compaq, everybody in the IT organization had been through formal project management training and I signed everybody?s diploma, thousands of diplomas. So we embark on putting the same methodology discipline into the new organization. I call it speaking the same language. It?s not a language like German, French or English; we speak the language of project management. When we?re all talking about what we do?whether the project is a $10,000 project or a $10 million project, whether the project is about provisioning and implementing infrastructure or it?s about implementing a new release of Siebel?we all speak the same language, we all approach the problem in the same methodical process way.

How many IT people did you have in both companies? In other words, how much smaller is this group going to be than the two IT staffs you had at HP and Compaq?

At Compaq, we had about 4,000 folks and HP about 6,000.

So, it?s netting out to the same?

The application portfolio of the two companies is right now about 7,000, so that drives a lot of support needs. I think about 1,800 of that was the former Compaq. One of the critical next steps as we get over the next 18 months on this integration roadmap is the drastic reduction in our overall application portfolio. That?s the crux of the integration work.

And therefore you?re on a schedule to then cut the staff?

You could come to that conclusion.

There?s a focus in the press and among analysts on the supply chain. To what extent can you effect changes? Will you be working directly on those changes to cut costs on the supply chain?

I have an interesting mantra and I really believe this: Every business decision generates an IT event. That?s a fact in this world today. If I?m manufacturing PCs in Scotland?this is a hypothetical?and I decide to move that manufacturing to an outsourcer, the systems work doesn?t go away. Because now there?s a whole bunch of things that need to change. Now I?m going to electronically move an order to a contract manufacturer, I?ve got to move it to his ERP system, I?ve still got to have access to his system to track that order, I?ve got a whole bunch of EDI signals I?ve got to manage, etc. That business decision generated a whole bunch of IT work. We are absolutely knee-deep in every business decision that goes on as it relates to the supply chain integrating these two companies. We?ve created a worldwide operations organization, which is sort of a horizontal. It runs across the vertical business. We have a divisional CIO in that group who runs all those supply chain systems.

What changes do you plan in those systems?

We?ve taken an adopt and go approach. We?re comparing like categories, which former company had the best of breed approach for particular systems or a particular product line. We?re adopting those systems and moving forward. Compaq was a big SAP shop; HP was a big SAP shop. So now we are probably one of the largest SAP shops. We?re combining strategies, picking the best of both worlds, depending on whether we?re supporting the direct model or the indirect channel or some of the inbound just-in-time inventory or issues around real-time inventory management.

The latest figures show Dell?s supply [of] finished goods [inventory] are measured in days while Compaq?s are being measured in weeks. What can you do to change that or do you need a fundamental change in the supply chain itself rather than the systems?

We put in a great direct model. We built our e-commerce over the last three years to be number two, only to Dell, quite frankly, in that marketplace. We have cut the living crap out of our inventory. Our inventory turns are up around 60 [per year] on the PC business. [Ed. note: Analysts estimate Dell?s to be 90 turns?more is considered better.] When you moosh all this together I sometimes wonder who?s doing the counting. I think we?ve got our collective act together on inventory in North America. I think we?ve got our collective act together on direct and getting better, and I think our e-commerce is very strong and getting better. We?ve done a lot of unique things with global exchanges as far as allowing customers like General Motors to be able to do all their own online ordering. We have a lot of examples of that. Where everybody has been sort of slow to start has been in Europe. Customers never really adapted to the direct model there. They have preferred for a long time to deal with the indirect channel.

What is the biggest cost savings that you?re going to achieve through IT during this merger?

The number-one thing that would pop into mind would be simplifying the application portfolio, and if you simplify the application portfolio it?s easy to see that you?ve got to simplify the business. To simplify the business you?ve got to simplify the processes, which means the systems that follow can be simplified. If you reverse-engineer the comment of simplifying the application portfolio, it says you?ve really got to radically simplify the way you run an $80 billion company. That?s where the honey pot is and that?s why the whole executive council has been driving towards strong horizontals that pull that together across these multiple $20 billion global companies. The other side of it, in lots of ways we?re one of the 400-pound gorillas and so we have a lot of clout with suppliers, even the ones that are not necessarily that easy to deal with at times, like Microsoft and Intel. Our buying power alone drives an enormous amount of money to the bottom line.

Any more advice for CIOs going through a merger?

Set your priorities early on. It?s got be a positive for customers, shareholders and employees. Understand what your critical success factors are. That?s the obvious. The least obvious to me was to get in with both feet, assume it?s going to be successful and dedicate your best and brightest to it. You can?t hedge on things like that and you really need to develop an absolute esprit de corps around this issue of project management because it can?t be an art form. It?s got to be a science. We used the term that I actually kind of stole from Carly at a meeting early on, which was, ?We?re burning the boat?there is no turning back.?