If you read no further, you should take away this: The reinvention of hp is on track, we are once again capable of delivering balanced revenue and profit growth, and we are back as a competitive force in the industry. But I hope you will read further, because the lessons we’re learning within hp are applicable not only to our business, but to many businesses in an Internet Age. 

## Fueling reinvention: putting the components in harmony 

Our belief is that sustainable reinvention requires a holistic approach. By this I mean we’re working to ensure that the four essential components of a healthy business system are synchronized and in full support of our reinvention goals: 

Strategy. HP has traditionally excelled at developing product strategies and marshaling resources to pursue them. Our highly decentralized structure has enabled us to move quickly. In an Internet Age, it’s clear that we must maintain this speed. At the same time, our value to customers lies not only in individual products—but in delivering total solutions. To achieve this, we are focusing on strategic opportunities that fall between our tradi- tional businesses, or cross the lines of one or more of our businesses. 

Structure and e-processes. To deliver on our strategy, we need to continually raise our performance to higher levels in terms of how we serve customers and how quickly we turn inventive ideas into world-class technology solutions. This year, we began the work of radically restructuring hp into four organizations—two customer-facing (our Business Customer Organization and our Consumer Business Organization) and two focused on product generation (Computing Systems, and Imaging and Printing Systems). The IT Services segment is a component of the Business Customer Organization. 

This organizational structure aligns us to create superior customer experiences, while committing focused resources to developing superior technology solutions. For speed, our customer-facing and product-generation organizations have clear roles and responsibilities for execution. For leverage, they collaborate closely on key areas of product planning, solutions creation and share important operational and financial goals. In addition, in FY00, we began consolidating 83 independent product lines into 17 product categories—allowing us to reduce redundant overhead and channel the savings into R&D and sales. 

At the same time, we began introducing e-services initiatives within the company to streamline processes, make employees more productive and take cost out of our infrastructure. The goal is to allow us to invest in important growth opportunities for the company as well as in more customer-facing resources. 

Performance metrics and rewards. What gets measured is what gets done. To help incent the right actions and behaviors within hp—and to reinforce new ways of collaborating—we’ve reengineered our performance management, compensation and rewards programs. Many elements of these programs went into effect this year, with expansion planned for FY01. For example, our top 200 leaders are now rewarded through a pay-for-results program that requires achieving specific goals in both revenue and profit growth to receive their bonuses. This “double-barrel” approach means that if the company does not meet its threshold performance goals for both revenue and profit growth in a given half, leaders receive no company-wide bonus—which is exactly what hap- pened for the second half of FY00. On the other hand, there is considerable upside potential if targeted aspira- tional goals are met. 

In fiscal year 2001, we will be expanding this pay-for-results program significantly. Indeed, all hp employees will have a portion of their compensation tied to the company’s results. As part of our reinvention of rewards, we have created a Company Performance Bonus to replace hp’s Profit-Sharing Plan. With the new program, employ- ees will receive a bonus—targeted at between 6 and 9 percent of their pay—only if we meet or exceed thresh- old revenue and profit goals. As with the pay-for-results program, there will be considerable upside potential when hp meets its aspirational goals. 

