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The World According to A new team of managers strives for double-digit growth
I
t's been a quiet revolution. In the last few years, a new group of managers has taken over the helm of Hewlett Packard's analytical instrument group. They inherited a group that industry observers describe as "innovative" and "highly respected" but that has also been recently plagued with disappointing economic growth and has found itself in the embarrassing position of shedding some of its products. Several of these new managers, like instrument business head Rick Kniss, come from other parts of Hewlett Packard's vast empire where, during this same period of time, double-digit growth has been the norm (see Figure 1). How significant are the changes being implemented by the venerable instrument manufacturer? In December, Analytical Chemistry ysked that question nf Kniss and other key managers of HP's instrument business at their home base in Palo Alto, CA Here, among rolling hills and farmland, HP's Chemical Analysis Group (CAG; the official title for HPs analytical instrument business) occupies a complex of offices and laboratories. The atmosphere within these facilities is almost stereotypical California—quiet and relaxed, with an impressive collection of gourmet coffees freshly brewed in the cafeteria. But if one listens carefully, the voices and accents of HFs managers and scientists reveal origins from around the world. In fact, Kniss, 56, was born in Akron, OH. He holds an undergraduate degree in physical sciences from Brown University and an MBA from Stanford University. Kniss has been with HP since 1968, working his way up the ranks through the marketing side of the operation. Before taking over CAG in 1995, Kniss had spent 12 years as the general manager of the Optical
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Communications Division, which focuses on fiber-optic data communication and telecommunication. As division head, Kniss ran a very profitable operation—HP won't release specifics but does say that the division's growth was "substantially better" than the corporate average. "It was one of the best-run divisions in all of HP," says Bill Craven, HP vice president and general manager of the components group, and Kniss's boss for about 10 years. "I have the highest respect for him as a manager," he says, adding that Kniss is "very smart" and "very approachable." Kniss takes over CAG from Dieter Hoehn, a well-known and respected manager who began his career as an R&D engineer in HP's Instrument Division in Germany. Some of the changes that Kniss has embraced were begun under Hoehn, but the contrasting backgrounds of the two men had initially worried some observers; they thought that Kniss was too much of an outsider to run CAG effectively. Others, however, argue that an outsider was just what CAG needed. "It's refreshing to bring in someone who is not an expert," said one observer. Kniss admits that in order to run the instrument group he has had to learn about a new set of technologies and customers. But he says he has always had a "big curiosity" about technology. "I've spent a lot of time in labs and manufacturing areas, just to understand those two sides of the business." Craven also cites those qualities in Kniss, pointing out that he led the communications division through major changes in the technology. "He has the ability to grasp new technologies." That ability should serve Kniss and CAG well because, as the group leader, he
HP Instruments has a good deal offreedomto manage the operation. "Basically, I run this as a business within HP. I have targets that get set and measured, and I have an operating budget and a capital budget, but I do not have someone looking over my shoulder every day, telling me what to do." As to why he was chosen to head HP CAG, Kniss says, "When Dieter retired, the idea was let's take somebody who's been successful in a particular business area and bring that person over into CAG and apply some of those best practices." And he is clear as to where he hopes these practices will take the business. "I am working very hard to improve our growth, to get up into double-digit growth rates." Clearly, Kniss and his team of managers have a mandate for change. Nothing halfway
HP has long been one of the cornerstones of the analytical instrument business, getting its big jump into the marketplace with the 1965 purchase of gas chromatograph manufacturer F&M Scientific. Last year, CAG earned an estimated $844 million in net revenue, placing the manufacturer number three after Thermo Instrument Systems and Perkin Elmer among analytical instrument companies. HP's prominence in the market has been built on a carefully selected list of products, most notably the successful line of GC instruments begun more than 30 years ago. Moreover, the company prides itself on producing instruments with an innovative edge. For example, the HP 4500, introduced in 1994, was the first benchtop ICPMS system on the market. "We can't cover a multibillion-dollar analytical market with every technique, and I wouldn't try," says Kniss. "I want to
be number one [in sales] in all the areas we are in." HP currently holds that distinction for its GC and ICPMS instruments and claims a number-two position behind traditional powerhouse Waters in the battle for the HPLC market. In fact CAG, by its very structure, requires that products be successful in the marketplace. 'We have difficulty doing things halfway—it's in our culture—and that costs money," says Kniss, citing investments in instrument design, staff, and service and marketing networks. "That almost demands that you get into markets that are large and that you capture enough
volume so that you can spread the overhead and make money." In 1995 the instrument group found itself in some markets that didn't support those overheads and in quick succession sold off the SFC, ORCA robotic system, and the IR detector businesses. One key component that has worked to the instrument manufacturer's advantage, say business analysts, has been its investment in a renowned worldwide customer service network. The instrument group has also earned a lot of good will over the years as a friend of basic research around the world—for example,
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CAG head Rick Kniss
HP's support of the Rhine Basin Project (Anal. Chem. 1997,69,21A-25 A). A s t r a t e g y for success?
From 1987 to 1991, the instrument group was a star among HP businesses, chalking up annual revenue growth that ran as high as 28%. That growth has since dropped below 10%, and depending on who you talk to, there are different interpretations of what happened. Some argue that HP was not aggressive enough in the marketplace, while others say that the company developed a reputation for expensive instruments. Kniss cited product developmenttimesof two to three years—too long in a business where being first with a new design feature or technique can be the key to robust sales. Regardless of what the problems were, the HP managers Analytical Chemistry talked with were united on the solution. "Success to me is fulfilling the needs of our customers," says Kniss. "Really listening carefully to our customers and understanding what their problems are—not first inventing it ourselves." It reads like a cliche, but HP believes it has found a way to put that creed into practice. Prior to developing any new product, HP now conducts extensive surveys of what customers need and want. "Early on in the definition of the product, a group in marketing, R&D, and manufacturing work together," says Chris Van Ingen, worldwide sales and marketing manager. "Marketing is not an afterthought when the
product has already been defined, but it is really a critical partner." Business observers have given this customer-first approach, called customer-oriented design, high marks, and there are some early signs that it may be working for HP. According to HP managers, the products that most demonstrate this new philosophy are the HP 1100, the new HPLC instrument introduced in 1995, and the corresponding LC-mass selective detector (LC-MSD) that entered the market last summer. Kniss says that the company talked to hundreds of customers before designing these systems. "This was a very carefully orchestrated instrument." HP claims that the HP 1100 has been well received by customers, generating doubledigit growth in sales. Although the concept of asking customers what they want in an instrument may seem to be an obvious strategy, turning those answers into technical solutions can be tricky. According to Dick Begley, head of HP's California Analytical Group, which handles all the MS products, one of the customer complaints about MS systems involved the difficulty in changing from an electrospray to an atmosphericpressure chemical ionization inlet. "I want to do the switch in a minute," ran the comment. "Our engineers took the comment literally; now you can do the change in 60 seconds," claims Begley. (To stay on the
safe side, HP touts the switchtimeas five minutes.) Begley goes on to cite a list of customer desires that were turned into features on the LC-MSD: smaller, cheaper, quieter, a 10-fold increase in detector sensitivity, autotuning, simple-to-operate MS, and the ability to handle large biomolecules. "These products were designed almost 100% through customer interviews, looking at the [different] geographic and industrial markets, and then trying to abstract the unique features and the common features," he says. In fact, Begley believes that as a result of the survey, they designed almost everything about the MS detector differently. Like a LaserJet
Talk to anyone at HP long enough and eventually they will mention the LaserJet—the parent company's very successful printer that has sold more than a million units. "Generation after generation, the machine is better, it does more, and the doggone thing costs less," says Kniss. Succeeding generations of the LaserJet have, in a sense, evolved. It's a powerful model for a successful product, and Kniss appreciates that. "We'll never sell a million GCs, but the principles are the same," he says, "focusing on our core competencies, giving customers a better product, and picking up market share."
Figure 1. Revenue growth for CAG lags behind HP overall.
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ticular medicine. Elements of this concept terms of technology, "it's not a slam Buzzwords for the 21st Century? are already being implemented, but HP dunk," he says, but it is something HP Today's analytical instruments are expects it will grow as a standard feature. engineers are thinking about. cheaper, smaller, faster, smarter, and Multivendor, multi-instrument software: Micromachined: "It turns out that easier to use than their predecessors. You can get it for your personal computby and large they're more reliable," But what buzzwords will describe the er—why not for your analytical instrusays Willis, referring to instruments instruments of the future? Here's a ment?—software from any vendor that fabricated on computer chip-like strucglossary of some of the ideas that HP runs on any device. "Increasingly, the sotures. Nevertheless, Willis warns that scientists and engineers envision could lutions that customers put in place are it will take some time before they show be defining features, multi-instrument, multitechnique," says up in commercial instruments. Still to Distributtd measurements: Why not Bob Emerson, general manager of the be worked out are issues over detecmove instruments closer to the samChemical Analysis Solutions Division. It tors of high-enough sensitivity to meaple—either as portable instruments or should lead to more vendors providing sure the low levels of analytes that run as large sensors spread over big fields? larger selections of application software. through these devices, as well the ba"Place the measurement where it's Also, look for simpler-to-use software sic understanding of the properties of needed, and send the information to that can be easily customized. HP is althe micromachined world. For examwhere the decisions are made," says ready working on these kinds of prople, in shrinking an LC device to miBarry Willis, who heads HFs Labs and grams. In technical terms, it's objectcromachine dimensions, the surfacethe Analytical Medical Laboratory, oriented architecture software scaled to to-volume ratio of solutions goes up where the basic research on new types work for high-end users with lots of samdramatically. 'What does that mean in of instruments and techniques takes ples and instruments, as well as for lowterms of the fundamental performance place. end users with modest needs. of the device?" Willis asks. The ultimate vision is that the person Modular: Dick Begley asks, how far More customer service: "Ou" whole receiving the measurement may not can you push the modular concept? Can support business is in the midst of even know how the measurement was you start with one instrument and offer change," says Begley. "More and more, made. For example, running a producfeatures that once would have meant when a service person calls or visits a tion line with a gas chromatograph that more than one system? Begley cites the lab, that person will become a consultautomatically monitors the manufacturexample of one instrument that could mix ant and adviser, as well as someone who ing process or a medical sensor that and match quadrupole and ion-trap MS helps with the maintenance, calibration, tells the patients ifs timetotake a pardetectors through a modular design. In and uptime of the instrument''
A key element of that formula, says Kniss, is "to give customers more product for less money" rather than more costly machines with more bells and whistles. Business analysts say that they have already seen this trend. "HP has become aggressive about lowering prices," says one observer. "Glocalization" HP has also rethought the way ii approaches marketing and customer service. According to Van Ingen, marketing in the 1980s was through each of CAG's seven internal divisions, structured around product lines or services. HP llkes this structure because, says Kniss, "each division operates like a small, nimble business." However, when it came time to market through the divisions, something more was needed. "For someone here in California to understand the needs of a customer in Norway is virtually impossible," says Van Ingen. It's particularly important
because more than half of CAG's business is now outside the United States. About seven years ago, the instrument group began establishing four regional marketing centers to cover the Americas, Europe, Asia/Pacific, and Japan. CAG was among the first groups in HP to experiment with the centers. "Now you have local people who understand the language, understand the customers, and translate the customers' requirements back to the product divisions," adds Van Ingen. Thus the regional centers also support the new vision of using customer feedback to define a product. As part of this concept of speaking the local language, CAG has commiited itself to providing documentation and software for new instruments in eight languages (Chinese, Japanese, German, French, Italian, Spanish, English, and, ironically, American). 'We are trying to expand that concept; if you do 14 or 15 languages you cover around 90% of the world," says Van Ingenn
These marketing approaches encompass a philosophy HP calls "glocalization"—thinking globally but acting locally. "If you look around the world, there are only two large homogenous markets—the United States and Japan. For the rest of the world, it is all individual countries," Van Ingen argues. For example, in China, Ph.D. scientists prefer brochures and software in English, but the technicians read only Chinese. Thus HP in China provides manuals and software in both languages. The glocalization concept is now taking another step. Within the marketing centers, CAG is establishing call centers around the world. These centers are expected to handle technical queries as well as sales. "Someone in Italy can pick up the phone and be transferred to Singapore, where someone who speaks Italian answers the question," says Van Ingen. As a result, calls can be handled at any time of the day, and the whole system is transparent to the caller.
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Ifs an ambitious project, but the pay-off in the long run is technical support over the phone that is far cheaper than a lab visit HP is also setting up remote diagnostic capabilities in call centers that would allow a technician to "diagnose" an instrument problem through a modem connection. The electronics to support these functions are already found in products like the 6890 GC. HP expects to have complete worldwide remote diagnostic coverage in about a year. Where next?
Regardless of what changes HP implements, it faces a major challenge in achieving double-digit growth in an overall instrument market that analysts say is growing at only 6-8% per year. "You can make a market larger, and you can take away market share [from competitors]," observes Kniss. New products are key for this type of growth, and the recent introductions of new HPLC, GC, and MS instruments could help in those battles. Kniss, as well as other instrument manufacturers, cite Asia and the Pacific region as major growth markets for new instrumentation, HP would also like to tap into the fastgrowing biotechnology market and is making significant research and development investments in this arena. The company sells products in these markets but is not yet perceived as a major force. "They haven't pulled off the 'big one'," points out one critic. In 1994 HP formed a partnership with Affymetrix to turn that company's innovative gene array technology (Anal. Chem. 1995,67,201A-204 A) into a commercial product. (Another alliance announced last year combines Bruker Instruments and HP expertise for the development of MS products.) The gene array product is expected soon, but some experts argue that HP needs to make an acquisition to really become a presence in these markets. "It is very hard for HP to catch up through internal developments; they need biotech alliance" says an expert Kniss, when asked, doesn't rule out an acquisition, but he points out that HP doesn't lightly acquire companies. "We would want the two cultures to fit, because when we acquire somebody, it is a marriage." Nevertheless, he promises that HP wiil be a "larger and larger player" in this market.
American The gentle revolution
Whether the changes being introduced in CAG will generate the double-digit growth HP desires is not yet clear. The net revenue growth for 1996 was 4.7%. HP instruments is not alone in facing the dilemma of growing in a difficult and changing marketplace. Throughout the analytical business, companies are being taken apart, sold off, or restructured to face this challenge. Indeed, for years some industry analysts have suggested that the parent HP sell CAG and let it fend for itself. HP is after all, a $38-billion-ayear company right now, and the revenue from the instrument group is often jokingly referred to as "round-up error" by these pundits "Having the analytical group makes HP more competitive and interesting as a company," Kniss argues. The company likes the "cultural diversity" that comes with developing products that range from computers to medical devices to analytical instruments, he adds. That vision is reflected in HP's current slogan of MC2 measurement, computation, communication—which articulates the company's various businesses. CAG also harbors a technical expertise that benefits other groups in HP says Kniss "There is crosspollination I think it is a real strength of the company " Thus, with a long-term commitment from HP, the changes taking place within CAG are in a real sense gentler than what is now happening within many other analytical companies. Glocalization and customer-oriented design are new ways of marketing and producing products, but CAG personnel say that the company's commitment to innovative analytical instruments is being preserved. As Kniss argues, "Profit and growth are the end result of doing a good job." What is emerging is a more aggressive and focused company. "You have to be relentless," Kniss argues. "The time you relax and say 'I'm number one', that's when some little company will blindside you. You better listen carefully to what's going on and what your customers need, because even in the slowest, most conservative business our customers' needs are changing daily. We must be there for them." Alan Newman
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