Speeches

CARLY FIORINA
CHURCHILL AND COMMONWEALTH CLUBS
SANTA CLARA, CALIFORNIA
JULY 21, 2003
"IN CONVERSATION WITH LOUISE KEHOE"

Louise Kehoe
I guess one of the questions on everybody's mind right now is really, are we in a real recovery? Is this the beginning of a recovery, or is this just another false start? But more than that, when this recovery comes, what is the tech industry going to look like? Is it going to be back to the boom-boom days, or is it going to be dull, slow growth, boring? What's it going to be like?

Carly Fiorina
Well I think in terms of economic recovery, what we see is clearly signs of stabilization, pockets of growth. Certainly I think there is more optimism, but we don't yet see a sustained recovery. I think we clearly will - there is a lot that has been done to help stimulate the economy, but of course Europe's economy continues to be problematic, so I would say we're not out of the woods yet, but things are better now than they were six months ago.

And I think the challenge is not to get ahead of ourselves, and that challenge in particular applies to the technology industry. In answer to your question, I would say neither is true. We will not return to how it was in the late 90s; we won't ever go back to that. But nor will technology be dull and boring and stodgy.

To put it in GDP terms, I think technology is going to be a two-time GDP spend industry, not a five-time GDP spend industry. But a two-time GDP is a pretty nice growth industry - it's just not 20 plus percent. And I think the reason for that, candidly, is because customers' requirements for technology - whether they are businesses or consumers - their requirements have gotten tougher. They're not willing to accept some of the tradeoffs that they used to be willing to accept. They're not willing to trade off cost and quality, or innovation and price, or flexibility and reliability. Technology has become so much the fabric of life and so truly mission critical, the customers actually do want it all. And in that kind of scenario, not everybody can deliver it all, and it takes longer to put it together. So technology is becoming more than it used to be as a scope and scale business.

Louise Kehoe
Interesting you mentioned mission critical…It reminds me of another sort of religious word, faith. Do you think that people have lost faith in technology, in the value of technology, over the last couple of years? I mean when people don't buy, is it just because they don't have the money, or don't they believe any more?

Carly Fiorina
Well I think there is a little bit of that. And I think that loss of faith, if you will, comes from perhaps two things: one is that I think people's expectations of technology were unrealistic. And let's face it, in some cases, those expectations for technology were set by technologists themselves, you know, a killer ap can solve anything…all you need is the latest hot box and it's all going to be okay…I mean, the truth is that in applying technology to a business, picking technology in some ways is the easy part. The change management that's required to really take advantage of the technology is the hard part. And so, what people weren't realistic about - it's not the technology alone that's going to cause you to be successful - people have to shift their expectations.

I think the other reason perhaps that some people have lost faith in technology is because in many cases, people overspent on technology. They threw too much technology at a problem. They didn't get the return they expected, and now a lot of customers, before they're willing to spend the next dollar on technology, want to make sure they've gotten the return for the IT dollar they've already spent.

You know, most customers tell me, for example, they are utilizing their current storage capacity at about 20%. They should be using it at about 80%. So, the first thing customers want to do is get better return from their IT investment. On the other hand, the Harvard Business Review article that was written that says IT doesn't matter any more, is absolutely dead wrong. And as technology gets to be even more mission critical, even more fundamental to competitiveness and part of the fabric of life - innovation is more important, not less important. But customers are also more realistic about what it takes to make that innovation pay off. So part of it, I think, is we've got to reset our expectations around what technology can do and what it can't do - shouldn't do.

Louise Kehoe
The Silicon Valley leads a long source of that innovation coming from start-up companies. Where do you see the role of start-ups in the industry going forward, given that you, of course, have long talked about consolidation; in fact, you've sort of done something about consolidation. But now Larry Ellison is doing the same - or trying to do the same. Do you think that there is going to be room for the small, innovative start-up company or is this going to be a battle of pricing?

Carly Fiorina
Well I think a little bit of both. Yes, there is room for small start-up companies, and yes, start-up companies can be a tremendous source of innovation. But it's also true that innovation doesn't come from only small start-up companies. Just as an example, HP generates five patents a day, today. Our rate of innovation has increased 350% in the last three years. We generated 2,000 patents in the last six months alone. Our $49.99 photo printers took 100 patents. So big doesn't mean no innovation.

But I think the challenge for small companies is, I'm fond of saying, that I think we're at the point where technology has to yield to the disciplines of business. And when consumers of technology actually expect that technology works, and that it's not so complicated that only a geek - pardon me, all the geeks in the audience, a term said with great affection and respect, and thank goodness we have lots of great geeks at HP - but technology can't be something that just geeks understand. Mom has to know how to use it, and CEOs have to be able to understand and measure its impact.

And I think when that happens, start-ups need to work on how do they become more than a great idea and a science experiment. Sometimes, that means hooking up with larger companies for global distribution, for example, or broader distribution. Sometimes it means hooking up with larger companies that can help support their products. Sometimes, it of course, will continue to mean maybe an acquisition or an IPO. But again, I think it's about setting our expectations. The level of start-up creation and wealth creation that went on in the Valley in the late 90s was an aberration, it's not the norm.

Louise Kehoe
So I can't help but ask you, have you given Larry any advice?

Carly Fiorina
I don't know how to convey this look over the radio, but I don't know how to give Larry advice. But what I will say is this, every day when I pick up the paper and see all that going on, I think: thank goodness it's someone else this time around.

Louise Kehoe
Absolutely. Perhaps on a slightly more serious note, it was a tremendous series of events that you went through. Tell us how that Carly Fiorina finds the strength, the courage to go through that. I mean, I've met most of the leaders of this industry and I thought that was extraordinary.

Carly Fiorina
Well first, I guess I would say that I was very confident in the decision-making process that we went through. We went through an exhaustive analysis of where we were strategically, and it began when I came to HP. Who were we? What were our challenges? What were our opportunities? What were our choices and options? And in fact, I first began thinking about the Compaq deal in December of 1999, which is five months after I arrived at HP. But we couldn't do it then. It wasn't the right time. We at HP weren't ready, the industry wasn't ready, but it was a very thoughtful, thorough process.

And I and the board, we thought about really four questions: Does it make strategic sense - not only in and of itself, but as compared to every other strategic alternative we had and should and could consider? Does it make financial sense? Because I actually don't think there's any such thing as a strategic deal if the numbers don't work - you've got to have both. Can you execute? We spent a lot of time thinking about how to execute, because you can have the most brilliant deal in the world, and if you don't execute, it's worth nothing. And maybe the question that took the most judgment, that was the most difficult to prove, but came from knowing the organization in many ways was, is it more change than we can handle? Or is it a catalyst to make the changes we have to finish making anyway? So I was confident in that process. I knew we had done the right diligence on the decision.

And I guess at a personal level - I used this phrase a lot inside the business, but I think leadership takes what I call a strong internal compass. And I use the term compass because what does a compass do? When the winds are howling, and the storms are raging, and sky is cloudy so you have nothing to navigate by, a compass tells you where true North is. And I think when a person is in a difficult situation, a lonely situation - which is frequently what that was - you have to rely on that compass. Who am I? What do I believe? Do I believe we're doing the right things for the right reasons in the right ways? And sometimes that's all you have.

And I guess the last thing I would say is we had an incredible board; we had an incredible team of people and managers who were dedicated and committed to getting this done. And when you have people and managers who read every single day in the press - every single day: 'What a bad idea.' 'They'll never pull it off.' 'They are crazy.' - I mean you read that day-in and day-out. For people to be able to stay focused on never mind what the conventional wisdom says, never mind what the popular vote is right now, we are committed to doing what we think is right for us - their dedication, and their focus, and their resilience during an incredibly difficult time, I relied upon. It's those things that got me through.

Louise Kehoe
So you pulled it off. And you proved them all wrong. And the Wall Street guys seem to be pleased with the numbers. You've come in ahead on the numbers in terms of savings and so on. Tell us about the people side of this. Mergers aren't just about numbers, they're about people.

Carly Fiorina
Absolutely.

Louise Kehoe
And what some business leaders will call the soft side of this is the culture of the company and so on. I tend to think it can be the hard side of actually making a merger achieve the benefits that you set out to achieve. Where do you think HP stands on this today? Are you as far ahead on the people side as you are on the number side?

Carly Fiorina
I think so. And the reason I say that is because actually, people produce numbers. It's hard to produce numbers that are really great unless you have people with you. I think people who describe culture and values, and how people behave in the business - people who describe it as "the soft stuff," underestimate its importance. The soft stuff is the hard stuff. I actually would rather describe it as the software of a system, and in a computing system, the software and the hardware better work together really well. We tend to learn our business like a system, and a system for us is about strategy, and structure, and process, and rewards, and metrics, and values, and behavior. And strategy and structure and metrics - those are the hardware business. And values and behavior are the software of the business, and it all better work.

We didn't take the software of the business for granted. So we started by doing a process that we called 'cultural due diligence.' You know, you do financial due diligence, you do technical due diligence. We did cultural due diligence.

Louise Kehoe
What's that involve?

Carly Fiorina
Well what it involved was very early on, sitting down with managers and people from both companies all around the world and asking some basic questions. And some of those basic questions were: Who do you think we should be? What are the values you think this company should aspire to?

And what was interesting about that process is everybody gave basically the same answer - which reinforces to me what I have always believed, which is, most of the time people aspire to the same things. But what was really interesting, is if you looked at the values we have today, they are precisely the values that have guided HP for six decades - with one addition. They are values like passion for customers, and uncompromising integrity, and teamwork and contribution - and one addition: speed and agility. And speed and agility of course matter in a company, particularly a technology company.

So that's what it involved. It involved talking to people and having very open conversations, not only about the foundation. See, I think values are the foundation of the business. There were things about these two companies that were different and we explicitly not only talked about what is it that we hold in common - our values that give us our foundation - but also some of the things that makes us different, because I believe there is power in diversity - power in diversity of all kinds. I mean, when everybody thinks alike, and acts alike, and talks alike, you lose vitality in a business.

We had some clear differences, and so we were explicit about what they were. HP tended to be more process intensive. Compaq tended to be faster and more decisive. When you can put together process intensity and thoroughness with speed and decisiveness, that's how you accomplish the biggest merger in technology history and over-deliver, because you're both thorough and thoughtful, and fast and decisive. So we explicitly said we need to marry both of those.

HP people tended to look to the past for guidance. Compaq people tended to look to the future. Both of those are important. We can learn from our past, but we can't rest on our laurels. We can't be self-satisfied with our past - we have to also aspire to be something greater, better in the future. The aspiration is what pulls a business ahead. So, we were explicit about what was common. We were explicit about where we had differences that we could leverage. And I think one of the best compliments I got in this whole process is going to see customers, many who would tell me, "You know Carly, I can't tell the difference. I don't know who came from where." That, I think, is why we can produce the results we are, because people are aligned around a common set of goals and a common sense of who we are, where we've come from, and we bring multiple and great heritages to the table, and importantly where we're going.

Louise Kehoe
How would you describe your management style? You've described some of the things you did there, but HP in particular in the Silicon Valley in general has been known as the place of management innovation, as well as technology innovation. Where are you going with your management philosophy?

Carly Fiorina
Well, I mentioned earlier that I think a company is a system and it has to be managed through a systems approach. Particularly, we're a company now of $73 billion, we operate in 167 countries, we have 140,000 employees. You have to have a system for managing a company of that size and breadth, and a way of leveraging, harnessing the power that all that capability represents.

We used in HP what we call the leadership framework, which is a way of describing our systems approach, and the leadership framework is about the things I mentioned briefly earlier. Strategy is all about choice. What are you going to do? What are you not going to do? Structure and process - because if you make a strategic choice, you better have structure and process that allows you to execute that choice; metrics and rewards - because generally, what gets measured is what gets done, Bill Hewlett used to say that. Bill Hewlett was right, so you better have metrics and rewards that line up with what you're trying to achieve.

And then the software of a business, which is values and standards of conduct and behavior. Behavior can be built through leadership capability, behavior is how you walk the walk, instead of how you talk the talk, and we manage across all of those dimensions, and it's a frame that we use broadly throughout the business, to help us think about problems, to help us align ourselves around what we're trying to do.

So I believe very strongly that you have to have a systems approach. I believe as well that in some ways, leadership is all about - and the fun to me of management - leadership is all about helping people…enabling people to achieve more than they thought was possible. Leadership is all about seeing potential and possibility. Management is also, of course, about fixing weaknesses, shoring up problems. But it can't just be about that. It also has to be about possibilities, and potential, and aspiration.

And I think a lot of what a leader's job is - certainly I viewed it as my job when I came to HP - is to unlock the potential that exists within an organization and to build lasting capability for the business always to be, not self-satisfied, but wanting to continue to move ahead.

Louise Kehoe
Do you think, Carly, that a woman brings a special added quality to this job, to this task? I should say that the first time I spoke to Carly, I was on the phone and I was up in Redmond visiting another small tech company up there, and so this telephone interview on the day that Carly was appointed and of course, I had to raise the gender question. So I said something about the glass ceiling and I nearly got my head bitten off. So I'm very cautious here about using this, but actually we've had some other conversations about it since. What is your perspective now?

Carly Fiorina
Looking back on that - my first day in the job - I was really very naive in a lot of ways. I was truly stunned and completely unprepared for the amount of attention that was paid to my gender. And I guess I was unprepared because I had so long ago stopped thinking about myself as a woman in business, and thought about myself as a businessperson who happened to be a woman.

And I actually, I know it sounds crazy now, but I actually thought that what people would be talking about was, 'Gee, she's an outsider, and she's not an engineer, and what does she know about computing anyway? It was all about the gender question. The reason I answered the question the way I did - people, I made what clearly was at the time, a very controversial statement - I said there is no glass ceiling. And people interpreted that to mean that I didn't understand that there were barriers, and prejudice, and bias, and of course, I understood those things. I mean, I had seen barriers and prejudice and bias. But I said it because I believe that a woman or a minority can do anything they choose to do, and can do it as well as anyone else. And I also said it because, back to this possibility thing, I said it because I think people who focus on possibilities achieve more over time than people who focus on limitations. And barriers and prejudice and bias are real. And the possibilities are real, as well.

Now, all of that seems maybe a crazy statement, but I think young women should get up every day believing that they can do anything they want to. I think young women should get up every day and say, "You know what? There is no barrier that will be strong enough to keep me from doing what I really choose to do." That I think is the message to send to young women - not that there is this invisible barrier that you won't see, you won't feel, but one of these days, it's going to cut you short. Will there be problems along the way? Will there be people who think you are capable of less? Yes. And don't let those people became your problem by believing it. There will also be people who see your potential and who take a chance, and those are the people who are smart, who know that the more talent they can use, the better off they will be, the world will be, their business will be.

I actually don't think that leadership is a gender thing. I think all leaders to be effective have to bring all of themselves to the job. And I think there is so much need for leadership in the world on a big scale and on a small scale that we can use all the different kinds of leaders we have.

I think anyone can lead. I don't think it's about level, or title, or budget, or position. I don't think it's about any of those things. I think it's about making an impact and having a positive result…being a catalyst for positive change. And I think I've seen great leaders who are men; I've seen great leaders who are women. But what's common is they bring all of themselves. All of who they are, all of what they believe, all of that they've experienced. They are authentic in their leadership, that's what I think is important.

Louise Kehoe
Thank you. Just to mention again for our radio listeners, that we are talking this evening to Carly Fiorina, the Chairman and Chief Executive of HP. And Carly, let's talk a little bit about the Silicon Valley and you're impressions of the Silicon Valley after four years. I don't think we were very welcoming when you arrived, and now look at this crowd. So what do you think? Has it improved?

Carly Fiorina
Well, in fairness, when I first came to HP, it was a venerable and beloved company. It had earned that. And I was a complete unknown and I can understand why people were initially skeptical at best, nervous at worst. I also think that change is always good in theory, it just gets hard when it's real. And -

Louise Kehoe
- and when it's you.

Carly Fiorina
I've forgotten who, but somebody once said, 'everybody wants to go to heaven, but nobody wants to die.' So you know, HP used to be known as the gray lady of Silicon Valley. And people used to talk about HP, "Oh, it's a great company, but it's stodgy and it's past it's prime. And you know, it's a great place to recruit from and it hasn't really innovated or created any new products. But don't change anything!" Part of that is just normal human nature. I think also at that time there was sort of a conventional wisdom - maybe it was a bias or a prejudice that said: only small companies are innovative and exciting. Big companies are boring and stodgy and nothing interesting happens. And yet, large corporations can have such an impact on the world for good or for ill. And so I think we've in some ways grown up together now. The Valley has gone through a lot of changes and learned a lot of things, and HP has gone through a lot of change and learned a lot of things, and I've gone through a lot of changes and learned a lot of things. So hopefully we're more at home with each other now.

Louise Kehoe
Do you feel that the potential for the Valley in the future is the same as the potential for HP? Has the Silicon Valley already had its heyday, and I'm sure you wouldn't say that for HP, but what about the Valley in general?

Carly Fiorina
Well you know, I guess my short answer to that would be it depends on the Valley. I think any community, any company, any person can decide that because they have been successful in the past they, will always be successful in the future. You can decide that what made you successful in the past will always make you successful in the future. When I first came to HP, I quoted Darwin, who said "It is not the strongest of the species who survives, nor the most intelligent, but those most adaptive to change." And I think any institution - whether it's a community or company that says 'I've got the formula right, all I've got to do is keep doing exactly what I've been doing,' - is going to, over time, lose it's edge. The Valley now has to see itself as competing on a world stage for innovative capability and talent. This isn't the only place where innovation happens any more. I worry sometimes that California as a state, doesn't see itself as a state in a competitive battle - it is. And so, I think it's really up to the Valley to ask are we prepared to adapt to new realities? We don't have a monopoly on innovation; we don't have a monopoly on venture capital; we don't have a monopoly on talent and how should we compete going forward? And I think that willingness to ask those questions and adapt is half the game. But it's always hard. Because to most people, change is hard, as we talked about before and a lot of times, people - it's just human nature, you want to rest on your laurels and rely on what's made you successful, and sometimes you have to change the formula a little bit.

Louise Kehoe
So Carly, I would not mean to suggest for a second that you are resting on your laurels at HP, but some people wonder what you might do next. What about public office. And I'm not asking just because of the young ladies outside, but you know.

Carly Fiorina
Well I'll tell you the truth - everyone leans forward. One of the things that I've done all my life, and I actually don't intend to change it now is, I've never thought about the next job - never. People ask me all the time, "Did you plan to be a CEO?" No. I've never thought about the next job, and the reason I've never thought about the next, you're open to opportunity when it comes along. But when the HP opportunity came along, I was heads down focused, doing what I was doing at the time.

We have a lot left to do at HP. We can't rest on our laurels. I hope we never do as a company. But, back to leadership, it requires all of yourself. I think excellence, at least for me, excellence requires all that I have, which means I can't think about what comes next. I've got to think about what I'm doing right now and to do it with everything I've got. It's what I've done all my life and it's what I'm doing right now.

Louise Kehoe
There are enough people who are asking the question that that opportunity might arise before too long. Am I right?

Carly Fiorina
Oh you know, anything might happen. You know, we might buy another big company - just kidding…don't start that rumor. Never say never in life. It's foolish to say never. But it isn't want I'm thinking about. What I'm thinking about is the privilege that I have today, and it is a great privilege.

Louise Kehoe
I think we're going to get some questions from the audience soon. I'll just read these for the next half hour or so. Let's see…Is it true that you must employ bodyguards?

Carly Fiorina
Unfortunately, security sometimes is an issue. But no, we don't have bodyguards that pack heat. That was one of the rumors by the way early on in my tenure. That and I travel with a hairdresser. Those of you on the radio can't see, but this isn't high maintenance hair we're talking about!

Louise Kehoe
This is one of our questions from the audience this evening. What can leading U.S. companies do to address the 'growth without jobs' situation that we're seeing in high tech?

Carly Fiorina
I think it's a very serious issue and a very serious question, and this is where I think this confidence thing comes in. I mean there is - as I mentioned earlier - stabilization going on in the economy; people are seeming to feel a little bit better, but you really know when an economy is starting to take off when people are confident enough to make long-term commitments.

And long-term commitments are about making investments in people and making investments in capital. Real estate is an example of another long-term investment. People aren't yet doing that. So I think we will know when a recovery is really taking hold when you start to see firms hiring more people than they're taking out. I guess I would say as well, it's a bit back to this competitiveness issue. I think the most important thing that we as a nation and we as a high tech industry can do is make sure that we are investing in the education that is necessary, so that we have a truly competitive workforce for this country and for our industry.

And those are investments that we are not yet making to the level that we need to. This question allows me to talk just for a moment about one of the things I feel most strongly about, and something that our company is very much engaged in. But I talked about diversity, and the power of diversity and companies understanding that diversity is not a nice-to-do, but a have-to-do. If you look at the high tech industry today, we will not graduate enough qualified workers for the technology industry unless we reach deeply into underserved, underprivileged communities and bring more women and minorities into the technology industry.

All you have to do is look at the numbers. And so, if the U.S. technology industry is going to continue to be leading in the world, then technology companies should be making it a priority to invest in minorities and women. That's part of keeping us competitive.

Louise Kehoe
There are a lot of questions here about stock options. I guess there are a few people out there who care about stock options. And perhaps you can tell me where you stand on this and where you think it's really going to come out?

Carly Fiorina
So I tend not to be in the business of predicting things that I don't know enough about, and I don't know enough about how the mysterious processes in Washington work to be able to predict that one. I truly don't know how it's going to come out.

What HP has publicly said on a number of occasions is that we don't think expensive stock options is the right way to deal with it. There are many, many ways to manipulate the expensing of options so that it's not any more clear what the real results of the business are. We regularly disclose what the impact would be on our income statement. We think that's important, but what we have also said is if there is a decision made, that options should be expensed, that we need to have a better, more common methodology and Black-Scholes probably isn't it. So there's work to do because today the expensing of stock options can be frankly manipulated in a lot of ways that won't help with clarity or transparency.

What I think has happened, is the issue of expensing stock options has become - if I can say it - the emotional or political substitute for what is in many cases the real issue, which is outrage over CEO compensation and the huge disparities, and the way in which some CEOs have been paid. And I think that is a very legitimate issue and that issue can and should be attacked, but that's not the same as expensing stock options.

HP happens to be a company that uses options very broadly in our organization. 96% of our employees have options. We first gave employees stock options in 1954. We think encouraging ownership in the company is important, and I think that options are a way of incensing people to take a risk. It is also true that there are economies in places like India or Asia that have no such compunction about expensing stock options and are handing them out. So that's part of what we have to think about around competitiveness.

Louise Kehoe
Now, there are also a lot of questions here regarding the Compaq deal and those you might expect, and some people are still not happy about it. Do you have any regrets about the merger? Has the HP Way died? What was the single most surprising result of the merger? Do you feel that you have destroyed a Silicon Valley icon?

Carly Fiorina
Well no. You know, I think there is so much misunderstanding about what the HP Way was all about. A lot of mythology. I never had the privilege of knowing Bill and Dave personally, but I know many people who knew them for many, many years. I am privileged to have two of them on our Board. Dick Hackborn, who built the imaging and printing business and worked for Bill and Dave for decades, and Jay Keyworth, who was one of Dave Packard's closest friends and served with him in the administration.

And one of the things that I knew in working with those two people, among others, is that the HP Way was never about mediocrity or becoming internally focused, instead of staying focused on the customer. It was always about excellence and serving customers and innovation and merit.

Do I have regrets about the Compaq merger? No, I think it was the right decision then or we wouldn't have made it, and I think it was the right decision now. And I think sometimes tough decisions are never unanimous, and change never happens with 100% of the people agreeing that change is necessary. Change occurs when you have critical mass, not when you have 100%.

Louise Kehoe
So now we've got a different category of questions. How many hours do you sleep a night? On a personal note, what sacrifices did you have to make to get where you are and was it worth it?

Carly Fiorina
So how many hours do I sleep a night? Depends on the night. I can get by with pretty little sleep for quite a while, and then I have to go to sleep for kind of a long while.

Of course, you make sacrifices. I am privileged to have an unbelievably supportive husband, who is here tonight and incredibly supportive family, but life is always a set of choices and you give up some things for other things. I have no regrets though. It doesn't mean that I've done everything perfectly, I've made mistakes, but I have no regrets. And I feel privileged to be able to do what I can do today.

Louise Kehoe
Do you feel that you achieve a work/life balance or is that just impossible in your position?

Carly Fiorina
Well it depends on what you mean by balance; if you mean 50/50, absolutely not. I mean, my life is work and when it's not work, it's family. People ask me what hobbies I have. It's sort of a joke. I don't have any hobbies. It's work and family. But I think balance is different for different people, and I think balance is different for different people at different times in their life. There have been times in my life when my family got more of my time than my work, because that was important and necessary at the time. This is a time in my life when work gets more than my family. And the hardest choice that I have to make every day - and it's probably true of all of you, as well - is how to spend my time, because time is the one thing that none of us have enough of. Everybody always wants you to do something.

You can fill up 24 hours a day doing things that other people want you to do and never get everything done that people want you to do, and so how you choose to spend your time is a really important set of decisions, and it's a set of decisions only you can make and inevitably you end up disappointing somebody.

Louise Kehoe
So now, this is switching topics again, quite dramatically. But there are questions about IBM and how HP is going to compete with IBM. I guess I would frame it a little differently and say some people see HP now at being caught in a squeeze play with IBM and its services strategy on the one hand - shall we say on the enterprise end of the market, and then with Dell with their lower costs and their success in the low end of the market. Are you the pig in the middle?

Carly Fiorina
No, but I think we offer a clear alternative, and I would describe it in the following way: If you look at Dell - by the way, Dell is a great company, they are a great competitor, but they are a one-trick pony. They do that trick pretty well. I would describe them as low tech, low cost. Dell by the way has said, 'Gee, we need to get into a bunch of other businesses.' They announced with great fanfare that they were getting into the printer business. They haven't made much of a dent. They announced with great fanfare that they were going to get into the networking business. Now maybe it's not going to be a real business for another five years. They announced they were going to get into the eight-way server business. They just announced today they were getting out. Two- and four-way servers were good enough. They announced that they were going to get into the retail business, and with great fanfare announced kiosks at Sears. They announced with less fanfare that they are closing those kiosks down.

But it's interesting, if you think about all the announcements that Dell has made. In essence, what they're trying to do is build the portfolio that we have: printing - we're not in networking, but printing, services, storage, servers. It turns out that low tech, low cost will only go so far.

And if you also look at the data, what you will see is the PC business has become a two-horse race. Dell and HP are separated by about 500,000 units a quarter, in a business where we're shipping tens of millions of products. There's Dell and HP separated by about 500,000 units. There's the next pack of about three, none of whom are making money and who have less volume - all three combined - than HP does as a standalone company. And then there is a set of players that are down in the 2 to 3% range.

IBM, I would describe as the classically vertically integrated model from microprocessor all the way up to high end consulting now. They are high tech and relatively high cost. And that vertically integrated model is good for a lot of things, but what it's not good for is cost and flexibility.

We are high tech, low cost. And what I mean by high tech, low cost is - let me just use the PC example. We happen to be the largest and fastest growing notebook player in the world - bigger than Dell, faster growing than Dell. Notebook mobility is a place where innovation still matters. Do we have to have a cost structure that's a competitive weapon, not a competitive vulnerability? Absolutely. But there are places where we can innovate and win.

If you look at IBM, we just became the number one server player in the world, even with mainframes included. One of the reasons we did that is because we have a product at the high end of our UNIX line called Superdome. Superdome can deliver better performance than a mainframe at about a third of the price. That's high tech, low cost. How do we win big managed services deals like Proctor & Gamble? It's because we can offer a better value proposition.

So I do think we offer an alternative. We are not trying to be IBM. We have arrayed our assets differently. We have a very different portfolio. We're the largest consumer technology company in the world, for example. We are sitting on 10% of the world's retail shelf space today. IBM isn't in the consumer business. We have a huge printing and imaging business which we think is important as processes get digitized in the home and in the business. IBM doesn't play in that space.

We have different portfolios, different capabilities. We're not trying to be a vertically integrated stack - we believe that partnering is effective with others. We focus our innovation where we can make a unique contribution, and lead and we partner for the rest. We think that strategy is our customers' choice, and flexibility, and better value over time.

So, we're different than IBM and Dell. We're not trying to be IBM; we're not trying to be Dell. We are trying to beat them and we're doing an okay job right now and we're going to get better.

Louise Kehoe
There are some concerns that come though in these questions about what some call the 'exported jobs,' and in particular, the growth of outsourcing in India is mentioned in two or three questions here. Does the U.S. tech industry need to move beyond that sort of insularity of thinking or is this a real issue that we, here in Silicon Valley, should be concerned about?

Carly Fiorina
Well, I think we in the Valley have to be concerned about our global competitiveness. We cannot stick our heads in the sand and pretend that we are the only spot on earth with competitive talent. We cannot stick our heads in the sand and deny that there is extremely good talent available in lots of parts of the world that is cheaper than the talent that we have here.

That is part of what I said earlier when I made the comment that I think the Valley has to really assess it's competitiveness on a global playing field. And so, what that means is that we have to make sure that we are investing in the talent that we have here - my comment about education. Some of those investments take a long-term view; we can't begin making investments in education and expect a payback next year. It is a long-term commitment, and we have in the U.S. unfortunately, a much too short attention span. Not everything worth doing is obvious in the first three months.

And I think we have to really think about what is it that we can do here that no one else can do? What is it that can be done here that is worth the difference in price? What I don't think we can do is confidently assume that we have been the wellspring of all the innovation in the technology industry to date, and therefore it will always be so.

I don't think it is something we should be afraid of, I don't think it is something that we should be panicked about, but I think it is something we should be clear eyed about and deliberate about and conscious and thoughtful about.

Louise Kehoe
There are some more encouraging questions of things about minorities working at HP and what specifically does HP do to encourage people of race or gender to excel? The question, I think if we generalize that a little, I mean you've clearly spoken about how this is a high priority to you personally and to HP - can you perhaps give one or two practical points on how other companies and other business leaders can encourage greater diversity in the work place?

Carly Fiorina
Well, I think it starts by deciding that building diverse teams is a necessary business objective, and making expectations clear that a team is going to have to be diverse to be truly effective. And candidly, one of the things that we recently concluded inside HP is that we've made a lot of progress. I think HP has been in many ways a very laudatory meritocracy long before I arrived in terms of building diversity and promoting women and minorities. And yet, it was also true as we looked at our numbers relatively recently, that we hadn't made enough progress. And so one of the things we decided to do back to what gets measured, is we have to track this, we have to inspect it. Not so that we were sacrificing our standards, because you don't need to sacrifice your standards to have a diverse workforce. But we had to inspect it so that people understood the requirement was real. We were serious about this.

We have employee groups that bring our different populations together for support. We have a lot of mentoring programs. We have opportunities for our women and minorities, as well as more broadly, but we have opportunities for people to take leadership development courses. So, all of those things are important. But this I think also is a place where a long-term commitment is a requirement. It isn't something that you can turn on and turn off. It has to be built into the fabric of the business, that diversity is a business objective with real payoff, not a nice-to-do. As soon as people get it into their heads that diversity is nice-to-do, I think it's the kiss of death. By the way, it's the right thing to do, but it is a business imperative for businesses that intend to be successful over the long-term. So you do it because it's a have-to-do.

Louise Kehoe
What's the most difficult decision that you've made as a CEO, and similarly, when you are in a situation in which you don't' know what to do, what do you do?

Carly Fiorina
I think for me, the most difficult decision I've had to make was the most momentous, the most public - and that was to actually do the Compaq merger…to recommend that with the full force of my conviction, after a long process of evaluation, to the Board. And, as I mentioned earlier, each one of our Board members had to make their own choices based on the deliberative process, but I also had to make my own decision and I thought about those four questions. Does it make strategic sense? Does it make financial sense? Can we execute, and is it more change than we can handle, or is it the catalyst we need to make the changes we have to finish making anyway?

And, one of the reasons it was a difficult decision is because all of those things - particularly the last, are a judgment call. You can't look at the perfect business case, in most tough decisions the answers don't jump out at you. Most tough decisions are a combination of data, and judgment, and experience and gut. And I think it was also tough because I knew it was going to be very difficult and I knew it was going to be highly controversial. I didn't know we would have a proxy contest. I mean, I couldn't predict exactly how that controversy would play out, but in fact, I told my own Board and the Board of pre-merger Compaq that I thought our stock would drop 20% the day we announced the deal. It dropped a little more, 23 - then all hell broke loose. But a 20% drop in your stock - that's a tough call.

So I think that was clearly the toughest. And what do you do when you don't know? You keep trying to figure it out. If you don't know, you keep - at least I do - I keep looking for data, insight, judgment. And then of course, after you look for more data, more insight, more judgment, more wisdom from others, more lessons from others, then you come to that moment when you have to decide I know enough and I have to decide. And no important decision, whether it's a decision of life or it's a decision of business, no important decision is ever made with 100% knowledge, or 100% certainty. Which is when that internal compass, you've got to have it and you've got to know where it's pointing.

Louise Kehoe
We're coming to the end of our time, but I think I would be remise if I didn't talk on the number of questions concerning the proxy battle. Have any fences been mended, is there any way that you can go back in and restore that relationship at this point?

Carly Fiorina
Certainly we have a very good relationship with the Packard's and the Packard Foundation. In fact, I just met with Susan Packard Orr today, and I don't know. On the Hewlett side, I just don't know, time will tell. It would be great if that was possible.

Louise Kehoe
So let's have one final question and I'll take one of these from the audience. How does studying medieval philosophy prepare you for the corporate world?

Carly Fiorina
Well let's see, I could tell you that the study of the Byzantine Empire prepared me for the complex corporate world. I could tell you that Machiavelli was a great corporate leader dressed as an Italian Prince. I could tell you that, but you know I'd be reaching.

I mean the truth is, I just found it really interesting and mentally stimulating. But it is also true that philosophy - well there are lots of parallels in history, I actually think, to what we're going through as a technology industry today. One could compare the Internet to the printing press. Others have done that, but it's a fairly apt comparison. One could compare the renaissance leader to the type of leadership that more and more we need today, people in both business and maybe broadly to your question of politics before, who have a broad view, not a narrow view.

I do think there are lessons one can learn from history and insight from history, whether it's recent history or history of longer ago. But philosophy to me was all about learning how to think…learning about a process of ideas and distilling ideas down to their essence. Understanding what is wheat and what is chaff. What is essential and what is just a lot of data. So the thing I guess I learned most from philosophy, other than just being interested in it, is how to think.

Louise Kehoe
Thank you very much indeed.