Bridging the Digital Divide

(A)

HPS E-INCLUSION

01/2004-5168

This case was written by Sara Foryt, Research Assistant, under the supervision of Daniel Traa, Assistant
Professor of Economics at INSEAD. It is intended to be used as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation. The authors would like to
thank the personnel of the Hewlett Packard Company. In particular, we wish to acknowledge the
contributions of Shari Moore and Anand Tawker, and the help of Bernard Virondeau.
Copyright 2004 INSEAD, Singapore.
N.B. PLEASE NOTE THAT DETAILS OF ORDERING INSEAD CASES ARE FOUND ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT
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Introduction
As the dividing line between rich and poor in the community, Highway 101 in Palo Alto,
California is more than just a transit route. Debra Dunn, Hewlett Packards Senior Vice
President of Strategy and Corporate Affairs reflected on this while traveling down Highway
101 after attending the board meeting of a local not-for-profit organization in East Palo Alto.
She knew that similar divisions existed in numerous cities and countries around the world. In
her mind a key element of this division was access to and use of Information and
Communication Technology (ICT), Hewlett Packards (HP) core business. Dunns thoughts
trailed to HPs groundbreaking efforts to address this problem both in East Palo Alto and
communities internationally, and how these efforts were making a difference. Aimed at
finding new markets for ICT among the underserved, HPs work in East Palo Alto was part of
a forward-looking strategy. The pressures on the company were huge and many believed that
the strategy was risky. Among others these included: Wall Streets expectations, challenges
posed by competitors, and the need to find new profit opportunities in a saturated ICT
industry.

The Digital Divide

There are more telephones in New York City than in all of rural Asia; more
Internet accounts in London than all of Africa. As much as 80% of the worlds
population has never made a phone call.
World Resources Institute

One in two Americans is online, compared with only one in 250 Africans. In
Bangladesh, a computer costs the equivalent of eight years average pay.
The Economist, 10 November 2001

The digital divide refered to the wide gap between those who had real access to ICT and used
it effectively, and those who did not. Many believed that ICT was linked to economic
development, through enhanced productivity and improvements in living standards.1 For one,
with the advent of computer technology, the Internet and cell phones, it became possible to

1 In addition to the divide in the use of ICT, there was also a divide in technology production. In 2003,
OECD countries accounted for more than 80% of global ICT production (US Internet Council) and 15% of
the worlds population held 99% of all new patents - see Cornelius et al., Trade in ICT Products: The
Global Framework and Empirical Evidence in World Economic Forum 2001-2002, Chapter 10. However,
low-skill ICT service sectors like data entry and call centers were increasingly farmed out to places like the
Caribbean, the Philippines and India (www.bridges.org). Although it was perhaps better for poor nations to
invest in low-skill areas in which they had a comparative advantage, it is worth noting that in 1999, trade in
IT products (in excess of US$800 billion) was larger than the combined value of world trade in agriculture
and automobiles. Thus, the ICT industry held the possibility of helping developing nations to grow faster.
Resnick (2001) argued that it was necessary to think of computers like fingerpaint; not just as a tool to
receive information, but as a creative opportunity, which if missed could have economic ramifications.
However, in countries, like India and Malaysia, where government efforts to invest in the production of
technology were strong, the benefits accrued to only by a small, well-educated minority.

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obtain large quantities of information previously unavailable (e.g. how best to grow ones
crops, run a business or access health care). Furthermore, computer technology helped
businesses and individuals do things more efficiently, and at a lower long-run cost. Given
these advantages many feared that those lacking access to or proficiency in using ICT would
suffer slower economic growth.

By an absolute measure, even the poorest had increased their access to and use of ICT.
However, those with better access were increasing their use of technology at such an
exponential rate that, in effect, the digital gap was growing wider. Furthermore, ICT
divisions tended to exacerbate existing income disparities. The poor were caught in a vicious
cycle whereby poverty deprived them of ICT, which, in turn, hindered development and
reinforced poverty. The underlying trend is that privileged groups acquire and use
technology more effectively, and because the technology benefits them, they become more
privileged.2

The divide existed within countries (e.g. among the middle class and the poor) and between
countries (e.g. the US and Europe vs. sub-Saharan Africa). The latter was often referred to as
the International Digital Divide (see Exhibits 1 to 4, for indicators of the digital divide).3

Why the Digital Divide Existed

Pricing and affordability, infrastructure, technical training and human capital (e.g. the
capacity to use the technology) were all factors underlying the divide.

Poverty was undoubtedly the most important impediment both to accessing and using ICT
effectively. In 2001, almost half the worlds 6 billion population survived on less than US$2
a day, and over 1 billion people lived on less than US$1 a day, making fulfiling the most basic
needs, such as food and healthcare a struggle. In terms of accessing ICT, poverty created two
types of constraint. First and most obviously, technology products were unaffordable. Even
the cheapest computer on the market was beyond the reach of the worlds poorest. Second,
the ability of the poor to access credit was hindered by lack of collateral. The poor were often
barred from opening accounts with traditional telephone companies, for example, because it
was assumed they would not be able to make their payments.

The fact that technology was often more expensive in developing countries complicated
matters further. At Internet centers in most developing countries, the high absolute cost of
Internet access put the service out of the reach of most (see Exhibit 5). For nine developing
countries surveyed as part of the World Economic Forums Global IT Report 2001-2002, 20
hours of Internet use per month represented more than 20% of GDP per capita.4 Given too
that the bandwidth in these countries was limited, the data retrieval speed of the Internet was

2 www.bridges.com. The digital divide was often also measured in terms of income, race, gender, age,
disability and location (e.g. urban vs. rural), which all tend to be differentiating factors in terms of ICT
usage.
3 Spanning the Digital Divide: Understanding and Tackling the Issues (www.bridges.org).
4 Geoffrey Kirkman, Carlos Osorio and Jeffrey Sachs, The Networked Readiness Index: Measuring the
Preparedness of Nations for the Networked World chapter 2 in World Economic Forum (2002) The Global
Information Technology Report 2001-2002: Readiness for the Networked World p. 22.

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often significantly slower. Thus overall, those in developing countries received significantly
less information and got less value for the price of Internet access than in developed nations.
On the supply side, costs were also higher for technology companies in developing nations.
For one, distribution costs were higher; often, a high portion of the population resided in rural
villages, urban slums or shantytowns, which were difficult to reach. Distribution networks
thus could be disjointed and disorganized.5 Also, given the low number of middle to high-
income consumers, companies often could not sell enough of their products/service to achieve
lower cost curves. University of Michigan professor, C.K. Prahalad, a long-time advocate of
selling to the poor in developing nations, said:

Its true that some services simply cannot be offered at a low-enough cost to be
profitable, at least not with traditional technologies or business models. Most
mobile telecommunications providers, for example, cannot yet profitably operate
their networks at affordable prices in the developing world.6

The lack of basic infrastructure in developing countries was also a big challenge. Obviously,
without electricity the use of electrical devices would be limited. Where it existed, frequent
power outages were often a recurring problem. Poor infrastructure also meant that fewer
paved roads, especially in rural areas, generated greater amounts of dust. This negatively
impacted the functionality of traditionally-engineered technology products.

Moreover, simply having computers and connections was not enough. People also needed to
understand the technology. Here, poor education levels were a prime factor in limiting ICT
usage. Roughly 40% of adults living in the developing world were illiterate, with great
disparities between men and women.7 Beyond that, many more had only a basic level of
primary education. Furthermore, lacking training on how to use a technology or product,
fundamental apprehension regarding anything modern and/or a distrust of difficult-to-
understand foreign products prevailed. As one expert commented: in the first few months,
they view it [a technology product] more as an object of curiosity or as a machine for the
educated and/or urban people.8

Language barriers also existed. English dominated the Internet since it was first developed.
While just over 50% of all Internet users were native English speakers, 78% of all websites in
2003 were in English, and 96% of e-commerce sites were in English.9 Seventy percent of all
websites originated in the US, and the vast majority of these were in English. The dominance

5 C.K. Prahalad and Stuart Hart, Strategies for the Bottom of the Pyramid: Creating Sustainable
Development. mimeo, WRI's 4th Annual Sustainable Enterprise Summit (www.wri.org/meb/wrisummit).
6 C.K. Prahalad and Allen Hammond, (2002) Serving the Worlds Poor, Profitably, Harvard Business
Review, September.
7 UNDP Human Development Report 2002, p. 36.
8 Ved Prakash Sharma, head of information technology and computers and communications specialist in the
National Agricultural Technology Projects of the National Institute of Agricultural Extension Management
in Hyderabad. Source: India Split by I-divide, IDGNET 20 May 2002.
9 US Internet Council.

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of English and especially US content made the Internet less useful to other countries on a
national or local level.10

What Could or Should Be Done

Much attention focused on the digital divide, and a wide variety of initiatives were underway
to address it. These included efforts by governments, non-governmental organizations
(NGOs) and corporations within the technology industry. These efforts were not
uncontroversial and many argued that the basic needs of citizens took priority over closing the
digital divide. These advocates instead, called for debt relief and greater levels of
philanthropic action, especially in basic areas like food, clothing, shelter and healthcare.
Once these basic needs were met, they believed that the poors access to technology would
naturally increase with their wealth.

Perhaps the biggest skeptic of efforts to address the digital divide (especially the international
divide) was Bill Gates, a leader in technology development (and leading sponsor of
immunization efforts worldwide). He questioned: what good is a cell phone to someone who
is starving or dying from a disease?I mean do people have a clear view of what it means to
live on US$1 a day? There are things those people need at that level other than
technology.11 In fact, a UN study found that use of the Internet and e-commerce in the
developing world would yield only a fraction of the gains to GDP of the developed world
(GDP would be just 1.7% higher in Africa, 1.2% higher in Asia, and 1% higher in Latin
America and Eastern Europe).12

On the other hand, there were many who viewed greater access to ICT as a key component of
development. They argued that a large group of have-nots could not participate in ICT jobs,
e-government, ICT-improved healthcare and ICT-enhanced education, which were
increasingly important ingredients to raising standards of living. Technology then, was a
catalyst to improving the quality of life of many. Some initial, small-scale examples of ICT-
enabled development existed: a project in Bolivia increased the poors access to credit and
other financial transactions through smart cards;13 and a number of small e-commerce
projects allowed small entrepreneurs in rural parts of the developing world to sell their
products over the web, thus providing an added source of income.14 There were also

10 http://www.bridges.org/digitaldivide/index.html

11 Quotes amalgamated from: Bill Gates, Red Herring, 31 January 2001 and Sam Howe Verhovek, Bill Gates
Turns Sceptical on Digital Solutions Scope, The New York Times, 3 November 2000.
12 United Nations Conference on Trade and Development (UNCTAD) World Economic Forum 2001-2002,
chapter 9, p. 94.
13 PRODEM, a micro-finance organization in Bolivia, used multilingual smart-card ATMs to reduce the
marginal cost of using technology for each customer. The cards stored a customers personal details,
account numbers, transaction records and a fingerprint, allowing cash dispensers to operate without
permanent network connections, which was key in remote areas (Prahalad and Hammond, 2002).
14 http://www.bridges.org/digitaldivide/index.html, chapters 1.1, 3, and 2.

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instances in which improved access to information through ICT benefited the daily economic
and social activities of the poor. 15

Actually, not enough was known about the quantitative link between technology and
development, and to what degree technology would foster economic growth in developing
nations if adapted for those conditions.16 Nevertheless, Prahalad and Hammond argued that:
ICT can grant access to otherwise isolated communities, provide marketing and distribution
channels, bypass [traditional] intermediaries, drive down transaction costs and help aggregate
demand and buying power. And if ICT could promote economic development, then adapting
technology for developing countries promised enormous potential for value creationa share
of which those providing the technology might captureprovided that other constraints
working on the poor (like credit) were simultaneously addressed.

Efforts to Bridge the Digital Divide by 2003

Some of the most innovative efforts to address the divide had been undertaken by NGOs
(examples are included in Exhibit 6). Many businesses also responded to the call, including
OmniGlobal with its OmniAccess programme, AOL Peace Packs and AfricaONE. A
number of major technology firms instituted philanthropic programs to address the divide,
including Ciscos Networking Academies, and Suns Open Gateways Program.
Unfortunately, not all initiatives worked; sometimes donated computers sat unused, or call
centers shut down for lack of funding, etc. In many cases, donations and philanthropic
programs failed to produce sustainable, widely replicable models.

Governments also had a role to play in bridging the divide. While there appeared to be a
correlation between the income level of a country and its level of networked readiness
(defined as the degree to which a community is prepared to participate in the networked
world),17 some countries nonetheless bucked the trend, proving that certain enabling
factors, including government policy, could make a difference. For example, Estonia was
comparable in networked readiness to the likes of Japan, France and Spain, while China,
despite its impressive levels of economic growth, ranked fairly poorly (see Exhibit 4).
Besides supporting information infrastructure projects, educating its citizens, and deregulating
monopolies (such as telecommunications), governments could develop special policies to
support ICT. These included building conducive business and economic environments, e-

15 The Womens Information Resource Electronic Service (WIRES) in Uganda provided female entrepreneurs
with information on markets and prices, as well as credit and trade support services, packaged in local
language formats. Another example was ITC, one of Indias largest companies. ITCs agribusiness
division set up 970 kiosks serving 600,000 farmers, disseminating the latest information on weather and
best practices in farming and using an e-procurement system for supplies. Similar types of systems could
provide farmers with access to higher-priced markets for their products (Prahalad and Hammond, 2002).
16 In a notable exception, a study showed that one of the most basic ICT devices the telephone could have
a positive impact on economic development, in large part because of increased pricing transparency. Better
access to current information tended to give villages with telephones lower prices for commodities and
lower price variability. See Karen Eggleston, Robert Jensen and Richard Zeckhauser, Information and
Communication Technologies, Markets, and Economic Development in World Economic Forum 2001-
2002, chapter 7, pp. 66-69.
17 Geoffrey Kirkman, Carlos Osorio and Jeffrey Sachs, The Networked Readiness Index: Measuring the
Preparedness of Nations for the Networked World chapter 2 in World Economic Forum 2001-2002.

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commerce, and e-government programs.18 Socio-cultural factors also came into play such as
the local economic framework, political will, macro-economic framework, and trust in the
ability to conduct business transactions (electronic signatures, consumer protection, etc).

The Hewlett-Packard Company

Background

HP was founded in 1939, by Stanford University classmates Bill Hewlett and Dave Packard.
The company's first product, built in a Palo Alto garage, was an audio oscillator: an electronic
test instrument used by sound engineers.

In 2003, still headquartered in Palo Alto, HP continued the tradition of technology and
innovative leadership. With sales in 2002 of almost US$80 billion, HP ranked among the
worlds largest multinationals. The companys principal businesses included imaging and
printing systems, computing systems and IT services.19 HPs four core business groups are
set out in Exhibit 7.

The Company in 2000

In 2000, with over 88,000 employees, HP was the market leader for printers and the second
largest supplier of branded consumer desktop PCs worldwide. The company reported net
revenue growth of 15% in 2000, following growth of 7% in 1999 (see Exhibit 8). Its
international revenue in 2000 grew 16% overall to US$27.2 billion.20

Despite its growth, HP was under tremendous economic pressure. In 2000 the technology
bubble burst and the worldwide economy began to slide; technology companies everywhere
were beginning to suffer (see Exhibit 9, for the evolution of HPs stock price).21

Also in 2000, HP was struggling to maintain its leadership position. Competitive pressures
were immense; HP was not able to respond adequately to Dells model of direct selling. It
looked with envy at rival IBMs emergence as the leading IT services company. All the
while, it was becoming harder to meet quarterly sales targets as the company continued to
lose market share. HP also faced structural problems. In describing what went wrong, Debra
Dunn reflected that: I think that as the Internet became a critical and prominent feature of the
information technology environment, HP lost its leadership position. One reason for this was
our decentralized approach that didnt help us drive an integrated strategy.22 In July 1999,

18 World Economic Forum 2001-2002, chapter 2, p. 12 and p. 21.

19 www.hp.com

20 HP Annual Report 2000.

21 According to the companys 2000 Annual Report: Growth was partially offset bysoftening demand in
the business desktop PC and business printer markets, and unfavorable foreign currency effects. Dollar
revenue and gross margin growth were also constrained by lower average selling prices and a shift to the
low end in many product categories.
22 Technology Should Become Less Visible, Business Today, 31 March 2002.

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Carly Fiorina, a stellar sales executive from AT&T/Lucent, was brought in as HPs new Chief
Executive Officer. Fiorina, with her strong sales background, set out to put more emphasis on
the customer, making it easier to do business with HP.23

The Development of e-inclusion

HPs History of Corporate Social Responsibility

From its start in 1939, Packard and Hewlett stressed their obligations to society in terms of
corporate citizenship and philanthropy. Dave Packard first claimed that, the Hewlett-
Packard Company should be managed first and foremost to make a contribution to society.
Under pressure from external sources (including several fellow CEOs declaring that he was
crazy and the company was doomed), Packard later qualified that profit was also essential as a
means to enable the companys social goals.24 In its first year, HP made a contribution to the
Salvation Army.25 Later, Bill Hewlett championed and financed environmental protection
efforts in the Lake Tahoe Basin, and Packard founded a substantial medical foundation and
childrens hospital at Stanford University.26

As the company grew, HP encouraged employees to contribute to their communities through

volunteering, paying US employees four hours per month to work in local schools or
community non-profit organizations.27 In 1997, then CEO Lew Platt said, doing right and
doing well are not mutually exclusive. In factdoing right may be the best way to make
money.

Over the years, HP contributed millions of dollars, HP products and staff time to a vast array
of worthy endeavors. In 2001, HP was ranked 14th in total worldwide giving,28 and second
among US companies in percentage of total giving outside the USand this was at a time
when corporate philanthropy in general was declining.29 In 2001, overall charitable

23 Before Fiorina, HP had hundreds of autonomous divisions, organized along product lines. This was
beneficial in terms of fostering accountability and innovation in individual divisions, but it made sales
efforts more complex. It was difficult, for example, for the company to bundle a PC and a printer. As one
employee put it: meetings with Intel were embarrassing; 30 HP people [from different divisions] would
go. After Fiorina, HP went from having 83 independent businesses to just 18 business categories selling in
an integrated way.
24 http://www.amazon.com/exec/obidos/ASIN/0887308171/103-8825836-5382201

25 http://www.hp.com/hpinfo/newsroom/feature_stories/2001/digitalvillage01.html

26 Debra Dunn Speech, BSR Conference, 8 November 2001.

27 Ibid.

28 The Conference Board, from the HP Social and Environmental Responsibility Report 2001,
http://www.hp.com/hpinfo/globalcitizenship/csr/csrreport02/
29 The Chronicle of Philanthropy, http://www.hp.com/hpinfo/globalcitizenship/csr/csrreport02/

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contributions by US companies fell 14.5% in real terms, and over the previous 15 years, as a
percentage of profits, corporate giving dropped by 50%.30

HPs dedication to corporate social responsibility was not limited to philanthropy, however.
The company included in its core values a commitment to responsible business practices such
as giving preference to suppliers that proactively addressed the environmental impact of their
products, striving to create an inclusive work environment, and creating fair value for our
shareowners in ways that are transparent and ethical while conducting our business with
uncompromising integrity.31 In addition, the company strove to honor our obligations to
society by being an economic, intellectual and social asset to each nation and each community
in which we operate. See Exhibit 10 for HPs core principles of global citizenship.

Perhaps as a direct result of these practices, while other large multinationals faced increasing
pressure from the anti-globalization movement, HP remained solidly above the fray. In 2001,
it was ranked fifth among top-rated companies for social responsibility.32 Traditionally part
of Fortune Magazines list of the Top 100 companies to Work For, HP developed a
reputation for empowering its employees and rewarding initiatives.33

Early Efforts: The Digital Divide

Prior to developing a formal program, grassroots initiatives within the firm emerged to
address the digital divide. Those at the ground level working on these initiatives (like Barbara
Waugh, a long-time advocate of CSR issues within the company) wondered if their efforts
could be more sustainable than past philanthropic efforts, and if, in the long run, these could
even be beneficial for HP itself.34 For Waugh in particular, the Grameen Banks success in
Bangladesh in offering micro-loans to the poor while being both profitable and helping to end
poverty was a source of inspiration. On learning about Grameen, she began asking whether
HP could partner with an organization like Grameen (which it later did). At the same time,
HP Labs engineer, Jim Sheats, began to experiment with technology projects and business
models that were not only beneficial to users, but also environmentally and economically
sustainable. These early efforts according to Waugh, were, a combination of the formal and
the informal, the hierarchy and the internal network.35

By early 2000, a number of digital divide projects were already underway. HP experimented
outside of the US with the MIT Media Lab and an organization led by the former president of
Costa Rica, Jose Maria Figueres, on a small project that it hoped could potentially be used as
a new business model. The LINCOS project (LIttle INtelligent COmmunitieS) was really an

30 Michael Porter and Mark Kramer, The Competitive Advantage of Corporate Philanthropy, Harvard
Business School Review, December 2002.
31 www.hp.com

32 Harris Interactive/Reputation Institute survey, http://www.hp.com/hpinfo/globalcitizenship/csr/csrreport02/

33 In 2002, HP missed Fortune Magazines ranking, due to the restructuring caused by the merger with
Compaq.
34 Waugh, Soul in the Computer. At the time, Waugh was worldwide personnel manager for HP Labs.

35 Interview with Barbara Waugh, 26 November 2002.

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experiment with shipping containers fitted with PCs and a satellite dish that were turned into
Internet access and education centers. While the impact of this project was not large, HP
began looking at emerging markets for possible growth opportunities.

Changing Fortunes

As HPs economic fortunes began to wane in 2000, there were questions as to whether these
initial projects could be sustained. Waugh herself thought that early efforts would die out
with cost-cutting measures.

However, when Fiorina learned about the projects, she wanted to know more.36 She shared
her predecessors views that it was possible to do well by doing good, and thought these
first projects might even be an impetus for the companys future growth. Debra Dunn was
Fiorinas choice to expand the projects further.

HP began by undertaking a philantropic project called Digital Villages, the goal of which
was to harness technology to develop sustainable solutions that address social and economic
needs of a few technologically underserved communities in the US.37 These were chosen
from proposals submitted by communities describing how HP funding and products could be
used to generate sustainable improvements in terms of quality of life, employment, education,
etc. A senior HP executive oversaw each part of the total US$5 million investment in low-
income communities in East Baltimore, Maryland, East Palo Alto, California and with Indian
Tribes in southern California. Among other activities, Digital Villages in the US extended
connectivity, provided laptops to schools and assisted local firms to use the web to manage
and market their businesses. While the project was not expected to be profitable, executives
hoped to learn how to provide better long-term impact for communities through technology.

e-inclusion

The e-inclusion program was launched on 16 October 2000.38 Through it, HP would target
both HP and partner products and services and sell, lease or donate them around the world,
with the dual objectives of bridging the digital divide and helping the company economically
over the long term.

Though the program had a philanthropic component, its goals extended well beyond the
companys traditional philanthropic practices. Projects would consider long-term
sustainability in target communities. The program also embodied a new strategic
commitment to underserved communities as a prospective growth market for HP products and
services, while still retaining the companys credentials of social responsibility. It was a new
vision of doing well by doing good.

Commenting on HPs effort to seek new markets in underserved areas, Fiorina said:

36 Ibid.

37 http://www.hp.com/hpinfo/globalcitizenship/csr/csrreport02/

38 Creating Digital Dividends conference in Seattle.

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I honestly believe that the winning companies of this century will be those who
prove with their actions that they can be profitable and increase social value;
companies that both do well and do good. In fact, business leaders will no longer
view doing well and doing good as separate pursuits, but one unified pursuit. And
increasingly, shareowners, customers, partners and employees are going to vote
with their feet, rewarding those companies that fuel social change through
businessThis is simply the new reality of business, one that we should and must
embrace.39

Dunn's vision was that corporate social responsibility went beyond public relations. Public
relations is the wrong angle. It means that you're not really committed[HP's efforts at
citizenship] are within the DNA of the organization. Large corporations like HP could lead
in a broader way: not just because it is the right thing to do, but also because it is essential
for future business success.40 This was a radical departure from the vision of social
responsibility in most MNCs.

Most of these viewed CSR as a public relations exercise to manage both global image and the
perceptions of stakeholders in home countries. e-inclusion shifted the emphasis to the local
impact of socially-responsible business. Its key stakeholders were thus the local communities
and governments. In fact, their acceptance of HP's actions and programs would ultimately
determine the success of the companys new vision of corporate responsibility.41 Hence, the
public relations repercussions were only a side benefit of the program. Dunn argued that this
new vision was necessary, pointing to September 11 and the war in Iraq and noting, anti-US
sentiment is running high around the world. Without a stable context [in local environments],
our long term success is limited. 42

The e-inclusion Mission

The new e-inclusion mission was thus to provide people access to greater social and economic
opportunities by closing the gap between technology-empowered and technology-excluded
communities, focusing on sustainability for both the communities and HP.

In the fall of 2001, Digital Villages went international, expanding into three underserved
communities in Africa and Europe. At the same time, HP launched the Joko project in
Senegal (joko means link in the Wolof language) primarily to provide affordable Internet
access and to foster money-transfer e-businesses.43 The Joko project was expected to yield a
financial return for HP, and project success was measured both in terms of economic and
social wealth creation. Finally, in conjunction with the restaurant chain McDonalds,

39 Asia Pacific Economic Cooperation CEO Summit, Shanghai, China,

www.hp.com/hpinfo/globalcitizenship/csr/csrreport02/
40 Interview with Debra Dunn, 10 December 2002.

41 This new vision of the local impact of corporate responsibility was also distinct from the traditional focus
on managing the political risk of investment projects.
42 Interview with Debra Dunn, 10 December 2002.

43 http://www.hp.com/hpinfo/newsroom/press/25jan01a.htm

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McInternet was launched in Brazil to provide information via the Internet about jobs,
health, and marketing and finance at over 50 McDonalds restaurants.44

Research and Development for the Underserved

The i-communities

Following on these early experiments, HP began investigating developing new technology

solutions to address the expressed needs and desires of the poor themselves, as well as
developing business models that would be appropriate for developing countries and emerging
markets.

At the time e-inclusion was created however, the idea of selling to the Bottom of the
Pyramid was still in its infancy, finding inspiration in the academic work of C.K. Prahalad.45
Early experiences included Unilevers Hindustan Lever, which made selling to the poor a key
component of its business strategy.46 As one HP employee put it though, there wasnt a
clear idea of how to serve the poor profitably with ICT.47

According to Maureen Conway, Vice President of e-inclusion and Emerging Market

Solutions: HP wanted to do something to create jobs and improve peoples lives. Computers
alone cant do that.48 Hence, much research would be needed to understand what would.

The concept of an Inclusive Community, or i-community, was born (see Exhibit 11). An i-
community was: 1) a community in which ICT was strategically deployed for sustainable
socio-economic development; and 2) an experimental platform for testing and developing
emerging market solutions and business models. The key objectives for HP were to build
brand value, business value and social value. The i-communities represented the zenith of
HPs doing good/doing well paradigm, i.e. developing new and appropriate solutions in
underserved areas that could be replicated and sold on a broad scale.

An HP i-community is a community where ICT infrastructure is strategically

deployed to ensure the participation and inclusion of all appropriate parties in the

44 http://www.hp.com/e-inclusion/en/project/mcinternet1.html

45 C.K. Prahalad argued that selling affordable products to the extreme low-income consumer (e.g. the
Bottom of the Pyramid) could translate into big business in developing countries. Although the margins
of selling to the poor were likely to be smaller, the huge customer base would ensure profitability. Close to
3 billion people in the world in 2003 lived on less than US$2 per day (UNDP Human Development Report
2002). See: C.K. Prahalad and Stuart Hart, Strategies for the Bottom of the Pyramid: Creating Sustainable
Development. mimeo, WRI's 4th Annual Sustainable Enterprise Summit (www.wri.org/meb/wrisummit).
46 Hindustan Lever was successful in India in selling smaller portions of soap products in affordable single-
use packages. By 2002, the company had annual sales of these portions of 4.5 billion. See: The Hunt for
Globalization that Works: Can companies make money while bridging the digital divide? Fortune,
28 October 2002.
47 Interview with Anand Tawker, October 2002.

48 Interview with Maureen Conway, December 2002.

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enhanced economic and social development of the community as measured by

tangible improvements in relevant indices such as literacy, job creation, income
generation, access to government services, education, healthcare, etc.49 (See
Exhibit 12)

According to Conway, i-communities differ from other e-inclusion projects by introducing

the business intent loud and clear. While the Joko project helped the company understand
how HPs brand would have a business impact on developing country markets, i-communities
were more solution-oriented, and more of a potential profit-maker. They also presented a
new approach to determining those solutions that would allow HP to understand a
community and how technology can affect it, and ultimately experiment with a business
model.50

Janine Firpo, Director of Multi-Sector Initiatives at HP, argued that it was critical to have a
solid understanding of the market. Because technology made for the West would not work in
developing nations, it was thus necessary to reinvent technology.51 Debra Dunn concurred:
HP sees an opportunity, but the market is so far from [the companys] reality, that theres no
way we can sit in Palo Alto and come up with appropriate solutions.52 Spelling out the
challenges, Barbara Waugh went even further: we cant begin to co-invent appropriate
solutions for the [underserved] until we live with them, sleeping on the mud floor, walking 10
miles for water with our hostess who trudges along with a child on her back, a child in her
belly, and a third child tugging at her leg.53

Any solution developed for this market had to be simple and easy to use: it is important that
the technology becomes less visible, less onerous, less cumbersome.54 Solutions also had to
adjust to consumer needs and aspirations, which even in developing countries varied from
region to region with culture, climate and geographyamong other factors. Waugh was
precise: the products and services offered must be based on both advanced technology and
local knowledge and practices. Also, low-cost, high-quality decentralized distribution
systems must be devised.55

HP Labs India: Developing Solutions for Emerging Markets

In conjunction with the i-communities, a key element of the companys strategy to develop
ICT solutions for the poor was its renowned HP Labs. With 7% of HPs US$4 billion annual
research budget, HP Labs conducted research internationally in projects not specifically

49 HP Presentation.

50 Interview with Maureen Conway, December 2002.

51 Conference call with Janine Firpo, 28 August 2002.

52 Interview with Debra Dunn, 10 December 2002.

53 Waugh, Soul in the Computer, p. 172.

54 Debra Dunn Technology Should Become Less Visible, Business Today, 31 March 2002.

55 For additional information on HPs initial efforts to develop solutions from the Kuppam i-community
project, see Case B.

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earmarked for immediate business returns, but with the goal of fueling long-term growth
through technological innovation. They were, according to Dr. Ramani, Research Director of
HP Labs India, ideas that create change.56

In April 2001, Carly Fiorina announced that HP Labs India would develop applications for
emerging markets thereby taking advantage of the local engineering talent and furthering the
long-term research strategy of the Labs.57

The Lab in India, based in Bangalore, was charged with developing products exclusively for
developing nations. Department Director Warren Greving believed that the India Labs local
talent base gave it a distinct advantage. Local engineers would design for India, based on
their experience there, and products could be leveraged in other countries where conditions
were similar.

Results and Challenges by 2003

According to Dunn, e-inclusion had already helped the company build its brand and grow its
business both directly and indirectly. Indirectly, as the company engaged with communities,
it created near-term business opportunities and improved the companys image.

Thus, the true test of HPs efforts was its positive image in such places as South Africa and
Southern India where e-inclusion projects had been implemented. The perception of HP [by
locals] is different than the view of other companies [located there]. That is precisely the kind
of publicity we like to have. Furthermore, country managers like e-inclusion; the leverage
is tremendous. It accelerates the flow that we wouldnt have otherwiseOther companies
have to run ads to tell people about their performance [in terms of corporate social
responsibility]. HP doesnt have to do that.58 This was clear in South Africa when President
Mbeki chose to inaugurate HPs e-inclusion project there.

Also, e-inclusion gave the company a broader footprint in markets in which we are leading
and where we are looking for growth.59 This helped HPs aspiration to be the leading
technology company in the world. These early successes caused more internal resources to
be devoted to e-inclusion:

Philanthropy at HP is not allocated a lot of company assets. If it is a growth

industry, however, it is thought of differently. For instance, using HP Labs [with

56 For example, the Labs were responsible for having invented pocket scientific calculators and the first
handheld scanner. Prior to 2001, HP Labs employed over 800 people in labs located in the US, the UK,
France, Israel and Japan. For more information, see: www.hp.com.
57 The Hindu, India: Hewlett Packard to Strengthen Presence, 25 April 2001.

58 Interview with Debra Dunn, 10 December 2002.

59 Ibid.

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e-inclusion]would never happen in a purely philanthropic pursuitwe would

never get the kinds of breakthroughs that smart engineers could come up with.60

But, it was through the direct contributions to business growth over the long term that the
company would develop new products and new solutions to be marketed in places like
India.61 Then such products and solutions could be replicated in HPs more traditional
markets.

I think as you expand the user base further, you start reaching more people who
dont care about the technology. They just want solutions that make their lives
better. The solutions become visible and prominent to the user, and I think this is
one reason why inventions targeting these markets [e.g. low-income consumer]
can be used in all our markets.62

Thus, by aligning the business and citizenship objective, a company can engage in a more
meaningful and deeper way, bringing assets to bear on complicated problems, hopefully
achieving breakthroughs, and accelerating progress. Thats a lofty goal, but lofty goals help
you get out of bed in the morning. This had a direct effect on employee motivation: passion
can propel people to do things that are apparently impossible.63

Going forward, would HP succeed in bringing the doing well by doing good paradigm to
life with its i-communities, thereby making the poor a profitable business proposition for the
ICT industry? One thing was certain: HP saw the i-communities as key to its sustainable
competitive advantage. By being inside of these markets, immersing ourselves in this
workwe can marry the intimate knowledge of these markets with HPs core competencies
in technology and business model innovation. HP is the only player to develop this in this
way.64 Certainly, Debra Dunn was wildly optimistic that there were wins to be had.

Barbara Waugh encapsulated the long-term optimism within the company with a metaphor:

Theres this Chinese bamboo: you plant the seed, you wait. Nothing seems to
happen. You wait some more. Still nothing seems to happen. This goes on for
four years. In the fifth year, the thing shoots up 80 feet! We have to believe that
we are the bamboo under the ground, and we are going to shoot up 80 feet one
day and the barren desert will become a bamboo forest.65

Or at least, it would become a vast market of low-income consumers using HPs products
and services and having a better life because of it.

60 Ibid.

61 Ibid.

62 Debra Dunn Technology Should Become Less Visible, Business Today, 31 March 2002.

63 Interview with Debra Dunn, 10 December 2002.

64 Interview with Anand Tawker, October 2002.

65 Waugh, Soul in the Computer, p. 187.

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Needless to say, skeptics were not lacking. Microsofts Bill Gates openly questioned HPs
ability to capitalize on the low-income market. What percentage of HPs growth in the
future will come from customers who live on less than US$1 a day?66 Even if it could
overcome the incredible difficulties of developing the technology, the challenges that lay
before HP were great.

Long-Term Commitment

Those within the company admitted that developing solutions for low-income, developing
country markets would be a long, involved process, with a horizon of five to 10 years.67 It
would be a launch pad for a longer term business strategy.68

But this long-term focus presented unique challenges. Funds would be needed, first to sustain
development efforts, and then later on to turn the prototypes into real solutions and to promote
and distribute the products and services. It was unclear whether the necessary funding would
materialize. Under Wall Streets short-term pressures, it is also unclear whether HPs
business units would be able to focus on the long-term goals sufficiently to lend them their
expertise and to benefit from the solutions developed. These challenges existed against a
background of a difficult market for technology products that meant tough measures like
cutting staff. Dunn however, was confident that the short-term indirect payback provided by
e-inclusion projects would help to sustain focus for a longer period.69

Bottom Line Implications

Could the companys traditional focus on philanthropy in any way negatively impact its
ability to be a successful business? As Fiorina said: our commitment to bridging the digital
divide is a key driver of our emerging markets and philanthropic activities and an extension of
our long-standing commitment to making technology accessible to all. But was the
companys desire to improve the world the best driver of its business model? It was this
commitment, for example, that drove HP to target the extreme low-income consumer. Was
the company foregoing higher margin opportunities in its preference for helping the needy?
Would its do good philosophy help when it came to developing highly unusual solutions or
convincing others of the business grounds for increased commitments? Or, would it be a
hindrance?

Partnering

HP was in the business of information technology. Thus, to bring products to the underserved
many other ancillary industries had to be involved. These included local and state
governments, for example, who provided the upstream information included in e-government
solutions, and all of the downstream aspects of distribution. Access to and knowledge of
markets in which HP was not accustomed to operating were hence imperative. Partners were

66 Hiawatha Bray, The Wiring of a Continent, The Boston Globe, 22 July 2001.

67 Interview with Warren Greving, 22 October 2002.

68 Debra Dunn, Technology Should Become Less Visible, Business Today, 31 March 2002.

69 Interview with Debra Dunn, 10 December 2002.

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needed! Technology, according to Fiorina, had to operate in conjunction with business,

economic, political and social systems. With e-inclusion however, it also had to operate in
unique geographic regions and types of environments, including rural areas.

HP had significant experience in partnerships. As Dunn said, normally, when we look at

bringing a solution, HP only brings part of the solution. In the search for partners, none were
lacking and the company had been approached by numerous candidates. These were also a
source of investment. The company, jointly with its partners, planned to invest at least US$1
million per year (cash, equipment and expertise) for three years in the i-communities. For
long-term sustainability though, additional partners would be needed.

Internal Challenges

While e-inclusion had strong internal support at the highest levels of HP, additional internal
stakeholders were involved. Those making investment decisions would confront many
competing business options and perhaps would be less familiar with the intended product
markets. Indeed, the potential prototypes might be unlike anything the company had ever
developed. Even Prahalad admited that: the traditional workforce [of major corporations] is
so rigidly conditioned to operate in higher-margin markets that, without formal training it is
unlikely to see the vast potential of this marketunless business leaders confront their own
preconceptions, companies are unlikely to master the challenges.70

Moreover, HP had a longstanding tradition of standardizing its products for cost efficiencies,
and a product was localized only if a particular business unit could prove that a bottom line
justification for doing so existed. The only country in which localization occurred on a large
scale (almost systematically) was Japan.71 It could therefore be difficult to gain acceptance of
the idea of introducing a product for just one developing country. Along the same lines, HP
was considering targeting its products to small entrepreneurs or shopkeepers assistants.72
This was not the traditional US consumer. Changing focus in both geographic region and
product type was one thing, but changing the type of target consumer constituted a major
reorientation.

70 Prahalad and Hammond, 2002.

71 Interview with Warren Geving, October 2002.

72 Interview with Warren Greving, October 2002.

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Exhibit 1
Internet Usage over Time and by Region

Latin Asia/Pac
Africa
America ific
Canada 1%
4% 26%
& USA
40%

Middle Europe
East 28%
1%

Source: http://www.nua.com/surveys/how_many_online/index.html; Spanning the Digital Divide:

Understanding and Tackling the Issues, www.bridges.com

Exhibit 2
Penetration of Different Types of Technology

Source: Digital Opportunity Task Force.

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Exhibit 3
Leading Internet Countries
Growth in Internet Users per 100 Inhabitants from 1996-2000

Upper high income Lower high income

U.S 48 Korea (Rep, of) 38
Sweden 47 New Zealand 31
Iceland 45 Un.Arab Emirates 30
Norway 43 Taiwan 25
Denmark 41 Portugal 20
Emerging Countries Developing Countries
Estoria 22 Latvia 6
Malaysia 15 Yugoslavia 4
Chile 11 Romania 3
Solvak. Rep 10 Bulgaria 3
Uruguay 9 Suriname 3
Source: World Economic Forum The Global IT Report 2001-2002.

Exhibit 4
Indicators of ICT Readiness in 2000, Selected Countries

Teledensity PC Penetration Internet Penetration Public Internet Access

Main Telephone Personal Estimated Internet Through telecenters,
Countries
rank

rank

rank

rank
Lines per 100 Computers per users per 100 libraries, post offices, etc;
inhabitants 100 inhabitants inhabitants 1 limited; 7 pervasive
United States 59.97 1 58.52 1 59.75 1 5.4 4
Sweden 58.20 3 50.67 2 56.30 2 5.9 2
Singapore 48.44 6 48.81 3 46.05 3 5.7 3
Finland 54.59 5 39.61 4 37.23 4 6.3 1
Japan 58.47 2 31.52 5 30.44 6 4.1 7
France 58.01 4 30.48 6 14.46 9 3.9 10
Italy 47.38 7 13.94 7 33.42 5 3.4 14
Estonia 36.32 9 13.55 8 25.47 7 5.3 5
Czech Republic 37.79 8 12.20 9 9.75 11 4.0 8
Malaysia 19.93 14 10.31 10 15.90 8 3.4 15
Chile 22.12 13 9.55 11 11.55 10 3.4 16
South Africa 11.35 17 6.18 12 5.49 14 3.1 20
Argentina 31.31 11 5.13 13 6.75 12 4.9 6
Brazil 18.17 15 4.41 14 5.78 13 3.1 19
Turkey 27.99 12 3.81 15 3.04 15 3.9 11
Colombia 16.91 16 3.31 16 2.07 17 3.6 13
Bulgaria 35.03 10 2.67 17 2.83 16 3.7 12
Egypt 6.63 19 2.21 18 0.71 19 3.2 18
China 11.11 18 1.59 19 1.74 18 2.8 21
Indonesia 3.14 23 0.99 20 0.58 20 3.4 17
Honduras 4.50 20 0.93 21 0.52 21 2.3 23
Vietnam 3.18 22 0.88 22 0.13 23 2.6 22
India 3.20 21 0.45 23 0.49 22 4.0 9
Bangladesh 0.34 24 0.09 24 0.04 24 1.9 24
Source: World Economic Forum The Global IT Report 2001-2002.

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Exhibit 5
The Exorbitant Cost of Internet Access as a
Widespread Obstacle to Network Use

Annual ISP Cost for 20 Hours of Monthly Use and Internet Users
per 100 Inhabitants (log), controlling for GDP (log).
Various countries (abbreviated names) and regression
line

Source: World Economic Forum The Global IT Report 2001-2002).

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Exhibit 6
NGO Digital Divide Projects

TARAhaat: a business enterprise of a development NGO based in the US that used a franchise-based
business model to bring computer and Internet technology to rural regions in India. It and its franchisees
planned on becoming financially self-sustaining. TARAhaat aspired to provide a "gateway" that larger
corporations could use to access rural customers.73
ViaSebrae: an e-commerce platform in Brazil developed through a joint venture between a for-profit
software company and a non-profit organization.74
Infocentros Association: a non-profit organization run like a business that had a chain of 100 telecenters in
El Salvador, and was working to create useful and educational Internet programming in Spanish.75
Development Space: a business dedicated to developing a web platform accessible worldwide. See
www.developmentspace.com.
www.drishtee.com: an e-governance project in India working to create a commercially viable IT enterprise
delivering economic development services to rural India.
www.isapindia.org: an organization aimed at using IT to enhance rural farm incomes in India through
setting up an agri-knowledge network and agri-clinics (in other words, to better connect technical
assistance to those who need it)
www.sitaa.org: an organization creating a model "e-cooperative" designed to expand computer-based
learning/earning opportunities for women, children and seniors citizens.

Exhibit 7
Four Core Business Groups of the New HP

Enterprise ESG focused on providing the key technology components of enterprise

Systems Group IT infrastructure to enhance business agility, including enterprise storage,
(ESG) servers, management software and a variety of solutions.
Imaging and HP was the leading provider of printing and imaging solutions for both
Printing Group business and consumer use. IPG included printer hardware, all-in-ones,
(IPG) digital imaging devices such as cameras and scanners, and associated
supplies and accessories. It was also expanding into the commercial
printing market.
HP Services HP Services was a premier global IT services team. It offered guidance,
(HPS) know-how and a comprehensive portfolio of services to help customers
realize measurable business value from their IT investments.
Personal Systems PSG focused on supplying simple, reliable and affordable personal-
Group (PSG) computing solutions and devices for home and business use, including
desktop PCs, notebooks, workstations, thin clients, smart handhelds and
personal devices
Source: http://www.hp.com

73 http://www.digitaldividend.org/action_agenda/action_agenda_01_tarahaat.htm

74 http://www.digitaldividend.org/action_agenda/action_agenda_01_viasebrae.htm

75 http://www.digitaldividend.org/action_agenda/action_agenda_01_infocentros.htm

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Exhibit 8
HP Financial Highlights

FINANCIAL YEAR (end Oct. 31) 2001 2000 1999

Net Revenue (millions US$) $ 45,226 $ 48,870 $ 42,371
Imaging and Printing Systems 42.4% 41.1% 42.6%
Computing Systems 38.8% 41.4% 40.0%
IT Services 16.6% 14.3% 14.5%
Other 2.2% 3.1% 2.9%
Financial Indicators (% of Net Revenue)
Gross Margin 26.0 23.3 29.5
Research and Development 5.9 5.4 5.8
Selling General and Administrative 16.1 14.5 14.7
Restructuring Charges 0.8 0.2 n.a.
Earnings from Operations 3.2 8.2 9.0
Source: Hewlett Packard Annual Report 2001.

Exhibit 9
HP Stock Price Over Time

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Exhibit 10
Corporate Responsibility at HP

Global Citizenship: Good citizenship is good business. We live up to our responsibility to

society by being an economic, intellectual and social asset to each country and community in which
we do business.
The highest standards of honesty and
integrity are critical to developing
customer and stakeholder loyalty.
The betterment of our society is not a job
Underlying beliefs supporting this objective:
to be left to a few; it is a responsibility to
be shared by all.
This objective is essential to delivering
on the brand promise.
Source: http://www.hp.com.

Exhibit 11
The Evolution of e-inclusion

evolution of communities
eInclusion

digital villages iCommunities

philanthropic partnerships
hp develops governance shared accountability
structures
brand value, business
hp is primary driver for value, social value
progress
build capacity
hp dependent for sustainability

time
we are here

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Exhibit 12
An i-community Defined

iCommunity is a targeted
location (platform) that
supports development of
iCommunity relationships between
defined government, business and
HP to:
enable ICT infrastructure
development

build capacity within

the community
create new job and income
opportunities
provide access to new
markets
focus on self-sustainability,
scaleability and replicability

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