That’s because Sterling knows the sales rebound has only opened the door for another challenge with even longer-term rewards. Even without any firm promise of IA-64 architecture for the system, CSY under Sterling’s reins has pulled along new sales faster than HP’s corporate experts expected or imagined. That’s enough for now, but not enough for the future, which is why Sterling made a case for migrating the 3000 to its third major architecture. The facts about the 3000 market changed enough to shift Sterling’s stance on 64-bit computing for 3000s. In the summer of 1996 he was convinced 64 bits wouldn’t sell more systems. Now Sterling acknowledges that the market changes show that his customer base needed the assurance for the future, assurance which growth projects like IA-64 can bring. He committed to the project this spring, signalling a new beginning for a system already more than a quarter-century old.

A few months before that decision, Sterling celebrated his twenty-third year in HP by winning the President’s Quality Award for the division he leads. In the glow of customer affection at HP World, we asked Sterling about growth other than that of sales: his own personal growth in digging out of a tough spot, managing the growth of the 3000’s capabilities while keeping up with customer expectations of reliability and better price performance.

Changes in pricing have been the biggest story we’ve seen here for 3000 customers. What was the catalyst in changing all the pricing assumptions?

In my travels during the past year — especially in Europe, where it’s a very different market with low-end and mid-range customers — I heard a lot of complaints from customers about having to re-buy their software licenses. About how they were getting screwed by ISVs and HP when they did an upgrade from one tier to another tier. It helped me understand why the same processor board on the 9000 costs one-third the price it costs on the 3000. And why is the support price on the 9000 for one equivalent box lower than it is for the 3000?

Frankly, I didn’t know a lot of this stuff was the way it was. I knew that our pricing was higher on the hardware. Midrange it was the same, or pretty close, but I knew it was not true on the high end. That kind of just happened over time, when [the 9000 division] went to their V-Class and we didn’t, and we held our prices. They dropped theirs because it was an older box and they were only interested in upgrades. They really wanted people to move to the V-Class. It seemed to be an okay strategy for us to be priced higher because that was our high end, and that’s where we were adding value.

It finally just got to the point where when you sit down in an individual case and a customer would ask you this question, you just couldn’t explain it. It didn’t make sense.

So about four months ago I got our pricing people together and Marisa [Morris, the CSY controller] and Roy [Breslawski, CSY Marketing Manager] and said, “You know, we’re really got to take a look at our pricing structure. We haven’t really rethought our pricing structure in a long time. We’ve just been doing tweaking and minor changes. We need to do a whole revamp.”

I set the goals and objectives — to take the concept that we’re not being fair out of the picture. We’ve got to solve that. We’ve got to work with the support organization to make their prices consistent across the product lines.

Roy took a look at it, and within a couple weeks said, “We should do a pilot. Let’s try something.” So we put [Spring Has Sprung] together in two weeks, the 9x7 upgrade. In the meantime we were working out several pricing scenarios in the background, with the goal of announcing something here at HP World. We just saw that thing take off.

Marisa was very concerned about some of our new pricing. She is a great controller — not your average bean-counter. Roy was convinced there was a lot of business opportunity, and we would make up the revenue in volume. It was the right thing to do for the customer, from my point of view, and so we did it.

We were also very keen on getting our prices in line for new business. If you take a hard look at the pricing you’ll see it is very competitive with the AS/400, for example. We are really serious about getting new business. Those are the combinations of things that drove [our repricing].

What’s truly amazing is that if you would have gone back four years ago and asked us to do that, we would have told you it would take 12 months to do. We started this thing in February, in a very short period of time. If you don’t have any idea what it’s like to do changes on HP’s Corporate price list, it’s a nightmare. We actually said we’ll hire contractors to help us do the data entry.

So there was a lot of data entry just to execute the plan?

There’s a lot in repricing the tiers, going from five tiers to three. We had to change every single product on the price list

I heard that CSY has a very large share of the number of products on HP’s corporate price list — a share far greater than the portion of revenue it generates by percentage.

Yes. The way our pricing system works is that every different option combination is different products. It’s a huge data entry problem when you do something like this. We eliminated a lot of products. In some of the product lines we don’t carry the odd-number of processors, for example. We simplified the pricing structures, because we have to pay a corporate tax on the number of products on the price list. We did a lot of hard work in the last three months. It was a big deal inside to make this happen.

One of the more remarkable things about the pricing changes was the concessions from the support organization. Was that the hardest part?

Actually not. I started the process by sitting down with the support channel manager, Mike Rigadonzo, general manager of the Support Services Division. Mark Solle now has hardware support. Mike is from Geneva, where he had the support operation in Europe before coming to the US. He was brand new. I arrived at his office the day after he arrived from Europe. I basically told him what we were trying to accomplish in time for HP World, and pointed out to him some of the examples of the same hardware price but two different support prices.

I said, “You know, sometimes I think we get in our tunnel vision for a particular product line — we forget that customers have these things sitting side by side in the same room. They get this bill. Help me explain how this box can cost two different prices.”

He said, “Yeah, that doesn’t seem right, does it?” He committed to work with us to fix it. He’s worked very well with us.

Is the 3000’s biggest challenge now to get applications? Everyone here is focused on Kriss Rant’s work in this.

I’ve had a number of people come up to me at this conference — someone came up to me from ORBiT — and said, “We’ve tried moving into the Unix world and we’re just not making it, and we’re convinced the 3000 is here to stay. We’re going to refocus all of our attention on the 3000.” I think it’s gonna really help attract some new ISVs completely, and get some that have drifted away recommitted and refreshing their applications. It’s going to be great for us.

Do you think the HP 3000 can make a comeback at new customer sites without some big-name applications?

I think we can. I think that we actually have some very strong vertical markets where we have better solutions, in some cases. One of the things that’s really great about the 3000 is its simplicity and ease of installation — and some of these other very large applications, because they are so complex, might actually hurt us. We don’t take hordes of people to support the 3000, but some of these applications do. SAP in particular is just a nightmare to support.

Sure — we’ve heard some Baan people bragging that the system only took 17 weeks to install. Even that seems too long for an HP 3000 customer to abide.

I think we have many more thousands of customers out there where we can really target the solutions for their environments where they don’t have large IT staffs. They want to focus on their businesses and not build huge IT organizations. That’s where we’re a really good fit. That’s what we’re seeing in the airline business. They’re saying, “We don’t want an IT organization — we want to buy that service from you, and we just want to run our airline.” Most of these people are ex-pilots, or still pilots, and they just want to fly. They don’t want to deal with all this other stuff.

That sounds a lot like the smaller software companies, started by programmers who don’t want to do a lot of marketing or build a sales organization.

Exactly. That’s why partnering with some systems integrators is really a good model for them. We’re seeing that start to happen, too.

Yes, we spoke with Bill Laflamme of Forsythe Solutions, and he said their job was to get in and out of a customer site as fast as they could during the installation and configuration.

Client Systems has been doing a really good job of bringing these partners together and creating solution vendors. I’m really glad to see that happen. Pat Malley from Client Systems had exchanged a few words a couple years ago. Basically I said, “Pat, you’ve either got to get off the fence or I’m going to stop giving you the support that I’m giving you. You’ve either got to commit or not.” He was unsure whether that was the right answer, finally thought about it and decided he’d give it a try. When he did, his business just took off. He’s doing phenomenal this year. He was kidding me last night, saying “You taught me my lesson. Focus really does work.”

One of the things we covered with Bill Russell was a way to motivate some of these ISVs to port products to the 3000. What are your ideas on how to motivate more application developers toward MPE?

I just think that continuing what we’re doing, making the business successes more visible, making our new customers more visible — which I think you’re beginning to see us do — is going to cause some of the ISVs to consider being on the 3000. I’ve learned that dragging them kicking and screaming just does not work. From my side I can’t carry their business and make it work for them. They have to be committed and want it to work. So I would rather get a few really committed partners than go after some that are really not that interested.

In the next couple of years, particularly as we make visible the customers who have recommitted — like HP, who’s come out of the closet and admitted we’re using 3000s inside HP — I think a lot of this is going to cause people to reconsider. We’re going to keep on that track and keep information flowing. We work very well in mixed environments, we work very well with partners.

I want to have some really strong, happy resellers that I can point people to, so they can ask them about their relationship with HP. I think they’ll eventually discover there’s a better opportunity working in a smaller pond where you get a lot of attention, a lot of active participation from HP that you don’t get when you’re out in this huge ocean with no direction and no relationship with your vendor.

I told you last year that one of the things we’re trying to do is to expand what we’ve learned in customer focus and take it to the channel. This is just the next step.

Bill Russell talked about you like you were HP’s King of Customer Focus. Some people in HP talk about you like you know this stuff cold.

I don’t know — I still learn something every day.

You started at HP in the 3000 group, didn’t you?

I’ve worked with the 3000 the whole time CSY’s been in existence. The 3000 existed before I joined HP, because I didn’t join HP until 1975. It was originally part of the Data Systems Division, the old 1000, and then it split off into GSD, when Ed McCracken came aboard. Then it split again and became CSY about 1980.

I actually started in the manufacturing organization, working on the Materials Management MFG/3000 product. In 1980 they split the General Systems Division and took the terminals to Roseville and split off the HP 250. It retained the GSD name when we created the Commercial Systems Division. Then I went away for a while with manufacturing systems and was in the Materials and Productivity Division for three years, and then I returned to CSY. So I haven’t been there the whole time.

You’ve been so successful in the last year that people are beginning to whisper about how much longer you can stay with the 3000 division. Do you want to see the transition to IA-64 completed before you leave?

I’ve challenged my engineers that I want to see it happen before I retire, and I’m planning on doing that probably at 62. That’s when all my plans would be ready. Five more years is about what it will take for us to get completely to [IA-64].

What about duplicating efforts with CSY resources? Bill Russell tells us that it’s your call — is CSY willing to duplicate HP’s development efforts to make sure things like the HP-UX FoundationWare gets onto the HP 3000?

The answer is yes. We have different businesses, and you can only go down so far and have common leverage. The hardware level, even there sometimes it’s questionable. And you’ve seen cases where we haven’t necessarily supported all the different platforms that HPSD [the 9000 group] has supported. We created some intermediate price points with our products that they haven’t done with theirs, because it’s a different market. There’s a different set of needs, a different set of customers and different sizes of the businesses. There’s a certain level where you can leverage the investment, and above that level there are unique investments. In those cases, the applications you need to be on top of are going to have duplicated effort.

The same thing is true of [HP’s] workstations. You look at the workstation business and you’ll see there’s duplication on their side on some of the things they’re doing versus what IASD [the Internet software group] is doing. At some point you have to become unique to your business aspect. But just consider the leverage we get from HP that IBM is not getting for their AS/400 versus their mainframe. They’ve got complete parallel investment levels all the way down to the chip.

We have moved that up a level. I’m not convinced you can get it all the way to the end, where it’s just a repackaging thing. I don’t think you can get quite that level of customization without some duplication. Even HP has some duplication in terms of functional staffs. Would it be more functional to throw it all together, and have one controller instead of two? Probably, but we’d lose focus that way.

Is there anything you can do to convince Oracle to move Oracle8 across to the 3000?

If and when we need to, we can certainly do that. It will probably require that we do a lot of the porting work, as we have in the past. That’s all being done in Bangalore, India, where Oracle has their porting center. We have three engineers who work at Oracle’s site for MPE. That’s an ongoing commitment that we have to Oracle and they have to us.

The reality is that we do not have a lot of customers using Oracle. It’s a very small number. We’ve not been successful in that. You know what happened when we tried to push customers to relational databases. We learned our lesson there. We basically leave it up to the customers to choose what’s the best solution for them. We want to give them the maximum flexibility.

The reality is that a lot of the reasons for doing Oracle was to have new applications available on the 3000. Frankly, Oracle’s not been been real successful with their applications suite. So that’s kind of been a failure, from our perspective.

We have a few customers who are using Oracle, and we’re certainly going to make sure that we continue their success. I’m just not sure I’m going to spend a whole lot of money in getting something to the platform that we may not need. This is a perfect example of one that we’re going to drive based on customer need, not necessarily based on any perceptions.

Those customers that are already on Oracle would try to point out that an investment in Oracle could well win you some new business.

But we know that’s not true. It has not happened. It would be an investment strictly to satisfy the needs of a few current customers, not for new business.

Where do you think you’re at with Customer Funded Enhancements? Does Oracle8’s port have a potential to be one of these CFEs?

From a cost-benefit point of view, we could do it pretty economically in Bangalore. It’s not so much the porting expense as it’s the ongoing support expense that’s the issue. I think that we could probably get some assistance from Oracle. If we do actually move to the next release, it’s less of a support problem for them. Then they’re not supporting an older release and a newer release. They have committed to supporting the current release for as long as we need them to support it.

We’ve got some options and some things we can do. But it’s going to be an investment, and I’d rather not use engineers for that if it’s not really necessary. So I’m going to drive it from a customer need. You’re right, I might ask the customers to pay for some of it.

What if you could leverage another manufacturing application for the HP 3000 out of the Oracle8 port? Would you feel differently about it then?

If there’s a good business case to do it, then I’ll do it. It’s just that right now, looking at the number of customers we’ve got, it doesn’t make a lot of sense to do.

One of the things that surprised us last year was hearing you admit that you don’t know what all the models of the 3000 look like — but you know the customers. That’s quite an admission from a former head of 3000 R&D. How’d you make the transition?

One of the things that really excites me is learning something new. I still am thrilled about learning software. I’m currently teaching myself Visual C++, because I like to stay in the bits and bytes every now and then. But from a career point of view, I really like to be challenged and learning something new.

I was an R&D manager for a number of years, and it got to the point where I really wasn’t learning a lot of new things. When I made the shift into the customer-focused kind of activities [as R&D manager], it really broadened my horizon and my opportunity to learn new things. It became a new challenge and it gradually shifted away from the technology. I still go back to the technology as a comfort, a fun thing to do.

It’s your Ben and Jerry’s?

Exactly. That’s what I spend time doing. I have a little vacation coming up, and I’m actually planning on staying home and twiddling on my PC, probably upgrading it. I built my own PC last Christmas.

Yes, the 3000 faithful spotted you coming out of Fry’s Electronics last year, didn’t they?

I know. See, I’m still basically a techie underneath all of it. But from the job point of view, I really wasn’t being challenged as much. In my new role, it’s the relationship kind of thing that’s become the new challenge. And I’m seeing all kinds of benefits, not just in the business side with the customer relationships, but even in the relationships within the organization, with my people and now with other general managers.

I’ve been asked to come and speak to other [HP] organizations. I was in Fort Collins and spoke to two different HP entities there about customer focus. I’ve created a whole interesting little pitch that I do with customer focus. In Bangalore, India there’s a technical seminar series they run every month. There were people there from Motorola, Oracle, IBM and all the major companies, and they asked me to come and speak about customer focus. As always, it’s targeted for an hour, and then there’s Q&A. After a half hour of questions they had to cut off the Q&A. People are so interested in the topic.

Is the fundamental draw to customer focus that people believe you care what they think and feel?

Yes, but it’s had all kinds of benefits. I thought it was just for the business, but it’s helped me in creating a higher level of morale in the organization. Because the bottom line is when you take the time to have those kinds of discussions with people, they feel that you care about what their problems are and needs are. They same thing is true for people who work for you. If you take the time to listen to them, then they feel you really do care about them as individuals, you really do want to make their environment better. That’s what I strive for.

People just coming to this topic still want to know how CSY does anything new when it seems like you’re primarily responding to what people want.

There’s a difference between customer focus and customer advocacy. We started out with a term called “customer-driven” when we started this whole program. We realized that implied you would go to a customer, they would tell you their top — the customer always has a list of 10 things they want you to do. At least 10. Sometimes they’ll start with three, and then you take them off and there’s three more, and then there’s another three. There’s always something that‘s on their list. Because most people are problem solvers, they give you the answer — they don’t tell you the problem they’re trying to solve. They say “if you will do this, this, and this, I’ll be very happy.”

Well, we were concerned that our engineers would go out, the customers would give them a list of the three things they wanted, and everybody would come back and churn those things. That really wasn’t what we were after. What we really after was understanding the problems across a large set of customers, and then coming up with a solution to meet the needs to this. That’s where you continue to provide the innovation and creativity because you’re still solving problems.

When you see this — a trend across many customers — you can solve it in many different ways. Then you’re more creative about a way to solve it, to satisfy the needs of the majority. That’s why we then realized customer-driven implied the wrong thing. Customer focus was what we were really after — customer’s environment, customer’s problem, the customer’s business. From that understanding develops solutions to meet their needs.

You mentioned the phrase “customer advocate.” Is that where you go after customer focus?

No, customer advocate is equivalent to customer-driven. We didn’t want our engineer to become a customer advocate. That was the point. They would come back, be really connected to that customer, and they would become an advocate for that customer. Whatever that customer wanted, they would want to drive to do. We made it very clear to our engineers that was not what we wanted.

The whole thing behind this is change management, and creating change. That’s a very interesting topic for me that I’ve put into this talk. Changing your organization and changing your people: They’re entrenched doing things they way they’ve always done them. There’s an attitude sometimes in HP in particular that goes, “Well it doesn’t matter. If the business tanks, HP will take care of me.” We say, “No, no, no.” I’ve seen some people with this attitude in some of the other organizations they’ve asked me to come visit. They say, “Why should we change? This is the way we’ve always done things before.” It’s a real hard thing to create that change.

It’s been an interesting evolution of the idea. One of the things that’s happening now is that because other entities in HP are paying attention to us — I’ve been on this circuit now for about six months — it’s really helping other entities who realize they need to do this to jump-start it and avoid some of the things that we went off in some roundabout way.

One of the things we’ve created in CSY is this whole value of being very flexible, being very reactive. The reality of it is that we’re an organization of change.

I can remember just four years ago, as an R&D manager, complaining to Olivier [Helleboid, then marketing manager], “Why can’t you come up with a plan that lasts 12 months, so we at least have time to execute it?” The model then was that marketing told R&D what to do. I would be so frustrated with it. We’d put these plans in place and three months later they’d come back and change the priorities. It was constant flux, and we would always be reactive.

The reality now is that this is exactly what we’re still doing, but we’re doing it with a positive knowledge that we have to do it. This is the way the world is, and we have to react this way to stay competitive — and our whole organization is behind it now. So there isn’t this in-fighting going on, the way there used to be.

Does it mean that since customers are leading the HP 3000 parade, then CSY engineering has to be a lot more nimble?

Absolutely. It’s also a lot more fun. You can talk to Winston [Prather, R&D manager for CSY] about that, but he tells me he’s having fun.

How does it feel to be where you’re at? You’ve got a boss above you who thinks you’re grand, and you’ve got people below you who think that. And even some people who weren’t sure you’d make good GM material believe in you now. Does it feel like you thought it would — when you were a kid, did you imagine you’d ever work for such a huge organization and be the fair-haired boy?

No. I’m basically an introvert, and I like to be by myself. I like to go walk in the woods alone, and doing this kind of stuff in front of people, the talks, is not something I ever believed I would do. But it’s been challenging and it’s been fun. I’ve learned a whole lot about myself, and people and about the business. It’s a fun time.

What about your family? Has it changed your personal relationships with them?

I don’t even think they understand what I do. My youngest son does because he’s into computers, and he has his own business in Los Angeles. He’s a struggling screenwriter, but he makes his living with his own computer business, doing customized databases for small companies. My parents never did. I still have to take the trash out on Wednesday mornings.

General Manager

HP Commercial
Systems Division