On the Mark

Help slay the dragon. That’s Mark Hurd’s rallying cry to solution providers attending Hewlett-Packard Co.’s Americas Partner Conference in Las Vegas recently. But HP solution providers have a big question for Hurd as well: What do I get in return if I make a greater commitment to HP?

After almost three years at the helm, HP’s chairman and CEO has transformed a company in disarray into the world’s largest IT company. In a conference call with reporters following the company’s first-quarter earnings report, Hurd said that based on anticipated cost savings and share gains in key markets, HP was raising its fiscal 2008 revenue estimates to between US$113.5 billion and US$114 billion. HP had originally anticipated fiscal 2008 revenue of US$111.5 billion.

Meanwhile, in a one-on-one interview in the boardroom of HP’s Palo Alto, California headquarters, Hurd minced no words in what he expects from the vendor’s solution provider partners as he chases a bigger share of what analysts expect to be US$1.2 trillion global IT market by 2009.

“We need quality partners,” Hurd said. “If we have partners that can’t get it done, I don’t want them helping us. I don’t need bad partners. I need good ones. I need great ones. I need ones that will help us slay some dragons. I want some that can go help us compete. I want some that are willing to put skin in the game and willing to be just as consistent, just as simple, just as excited, just as fired up as we are. And if they’re not, they should go partner with ‘insert name here,’ some of our competitors, and mess them up.
“And if all they want to do is whine about channel compensation, and they want to do the same thing they did 10 years ago and get paid more for it, go find some other place to partner with,” Hurd continued. “If you want to get on the cutting edge and kick some butt and go get something done, then come hang around with us.”

In return, Hurd said HP is willing to shift more money to its most loyal partners. “We’re taking money away in areas that we don’t think are of value,” he said. “We’re not trying to say all partners are going to always be the same. There are some partners that are willing to
step up. And our point is, OK, if you’re going to make that commitment, we’re going to make that commitment, too.”
But Hurd’s promise of greater commitment comes amid a growing undercurrent of unrest among those very partners that have heeded his call and put more resources behind their HP relationships. Some exclusive partners complain that HP’s flagship PartnerOne rebate program is fraught with sales data reporting errors, making rebate payments unpredictable at best. And with a growing portion of the rebate money tied to hitting aggressive growth goals, some of these partners say their rebate money is declining even as their overall HP business continues to grow.

Moreover, partners that have opted for HP exclusivity say gaps in the vendor’s storage line are putting a damper on their storage business even as Hurd promised to make storage a top priority in 2008.

“We’re going at it hard from a product perspective,” Hurd said of the storage business. “We are going at it hard from a distribution perspective. We have put channel programs in place and we have channel partners with more investments on the line to get more aggressive in HP storage this year.”

Still, bridging this growing gap between his persona as a dynamic, no-nonsense CEO who has turned around HP’s fortunes and his promise to put more money behind those loyal partners may well be Hurd’s biggest challenge for 2008. And solution providers say a good start would be for him to back away from hinting that loyalty equates to exclusivity.

“I’m as loyal to HP as anyone can be,” said Rick Chernick, CEO of Camera Corner/Connecting Point, a US-based HP solution provider. “If he is saying, I want you to be a committed partner, I’m a committed partner. If he’s saying to people, I want you to be 100 percent HP, that’s kind of tough. I have to have choice in certain product lines. I’m not in Chicago or Houston where I could do US$50 million in HP product and make a living. I have to be diversified because my marketplace doesn’t allow me the privilege of just having one line.”

Other partners agreed Hurd has gone a long way in rebuilding HP’s channel relationships, but said exclusivity simply isn’t a reality when solving customers’ business problems.

“HP has a strong channel organisation, and if you go back prior to Mark Hurd and you think about the relationship the channel had with HP back then, it was horrible,” said Brian Deeley, a principal of solution provider Graymar Business Solutions Inc. “Other than this argument about loyalty, I think a lot of the channel conflict has gone away.”

Deeley said his perception of Hurd’s definition of loyalty is that it equates with greater attach rates, but that attach rates aren’t the same as exclusivity. “It goes back to following the brand line – if you are going to lead with HP, you lead with HP. With that I agree 100 percent,” Deeley said. “But if you say I can only sell the HP brand exclusive of all others, what does that do in relation to my business model when I have government contracts and I get requests for product for which there is no substitute? Do I turn that business away? If I sat down and had that conversation with Mark Hurd, I don’t think he would take that exclusivity to the extreme.”

For his part, Hurd said he has to think of HP partners no differently than an HP-badged employee. “That’s what I keep saying to partners; you’re me and I’m you,” he said. “It’s got to be one integrated relationship. It can’t be confrontational.”

And Hurd knows that it’s vital to get the partnering formula right. He admitted that as HP seeks to continue to grab share in the global IT market, he simply can’t hire enough salespeople. While he’s added some 2000 salespeople last year alone, that’s not nearly enough to get the job done without the help of HP’s channel. But at the same time, he’s willing to go to battle with fewer, more loyal channel partners.

However, some small HP VARs say more stringent requirements to maintain authorisation, including one that requires HP solution providers to annually sell US$10,000 worth of service CarePaqs, seem designed to thin the vendor’s channel ranks and is forcing them to take a closer look at Dell Inc.

Mike Golshani, owner of Aamcomp Inc., a US solution provider that does about US$500,000 annually in HP products and services, said he may be forced to switch to US-based rival vendor Dell because of the new CarePaq sales requirement. He says that it’s difficult to sell CarePaqs with HP systems because of HP’s reputation for reliability and because most systems come with a three-year warranty. “I have customers that buy 200 to 300 HP units at a time and they’ve had less than half a percent defect rate. They ask me why they should they pay for a CarePaq?” he said.

Golshani noted that he currently sells about US$1800 annually in CarePaqs and now fears his HP authorisation is in jeopardy. “If we switch to Dell, granted, we’re not the largest reseller, but half a million dollars is going to turn over to Dell, and I don’t understand it,” Golshani said. “You can do either HP or Dell but you can’t be both. It’s a matter of which one you commit to. We have made commitments to HP, now we have to change our tune and change our stories and change our ways. As far as loyalty, for God’s sake we have been selling HP for 22 years. We’ve done everything they’ve requested and we’ve spent a lot of money on education and
keeping authorisations.”

Still, some solution providers say that Hurd and HP has gone a long way in elevating the status of solution providers relative to HP’s growing success in the marketplace. “We are still lucky that HP cares enough about us that they are still sending signals out around the world that we are important to them,” Camera Corner/Connecting Point’s Chernick said. “I’m not getting that from anybody else.”

CMP channel industry editor Craig Zarley sat down with Hewlett-Packard Co. chairman and CEO Mark Hurd at HP’s California headquarters to discuss Hurd’s view of the channel and how solution providers fit into the vendor’s plan to grab a bigger slice of the global IT market. Excerpts follow.

CRN: Now that you are the industry leader in terms of revenue, is your goal to be merely competitive with other vendors in terms of profitability or do you intend to lead the industry?

Hurd: We are in different segments than other IT companies. It would be improper for us to say we are going to be the industry leader in profitability. That’s not our objective. If you want to be the leader, there are lots of definitions to leadership. It isn’t just financial benefits. We want to be the best partner; we want to be the best from what we call a total customer experience and partner experience perspective. The only way on a sustained basis that we will lead, especially from a channel perspective, is if our partners are happy. Happy doesn’t mean that I just give you lots of money for not doing a lot of work. There has to be a balance. There are two arguments here. I want to do the things I’ve always done, I just want to make more money doing it. That’s one discussion. We’re all under economic pressures here. Nobody calls me up and says, ‘Here’s an extra bag of money for doing the same thing you’ve always done.’ What we’re looking for are partners that want to come up with new, innovative, exciting things to go do – investments where we take some risks together. We’re anxious to help get partners more profitable when there are some exciting opportunities for us to go pursue together.

CRN: But are there any specific benefits HP-exclusive partners receive from HP that help them be more profitable?

Hurd: If you take a unit and strip it, our gross margins are down here. [Hurd points to a chart he’s drawn showing how profitability increases as the complexity of the HP solution increases.] As you go up in attach and portfolio, our gross profit goes up. Partner profitability has to mirror ours. The arguments I get into are, ‘Hey listen, I moved a bunch of shelved PCs last month.’ If you took memory out and didn’t sell CarePaqs, I have no money to give you. You can ask me for more money, but I don’t have the money.

CRN: What’s HP’s strategy to jump-start storage in 2008?

Hurd: We’re going at it hard from a product perspective. We are going at it hard from a distribution perspective. We have put channel programs in place and we have channel partners with more investments on the line to get more aggressive in HP storage this year. We’re working hard on product rollouts. This is an area that is very important and strategic to us and we’re on it. This is a big deal to us.

CRN: Dell made a recent storage acquisition with EqualLogic. Could we see HP make a storage acquisition in 2008?

Hurd: You could see us do some more. I’m not trying to make any predictions. But HP’s bought about 24 companies in the last three years, and we’ll continue to look at things that make sense. Storage is one of those areas. When you look at digital content, it all has to be processed, stored, visualised and printed. There will be more things stored in the next five years than in the history of the planet.

CRN: An important aspect of a successful channel strategy is getting your message out to partners, but the tougher part is getting that message down internally through HP. What message do you give HP people regarding the channel’s role and how HP should work with solution providers?

Hurd: SPO and Adrian Jones [vice president and general manager, Americas Solution Partners Organisation] has to make sure we are lined up with our channel partners and the role we want them to play. Second, the HP sales organisation has to understand those roles and execute on them. We’re partner-friendly at every turn. There’s no economic advantage or difference to us. And in my view, this is channel-favourable. Any time you say to the sales force you can partner or go direct, they always want to partner because it’s easier. They get more help. We are very much of that mode. Our channel business is growing at least as fast, if not faster, than the company is growing. We don’t have a super-secret strategy to move everything direct. There is no super-secret compensation scheme. There is no behind-the-walls meeting where we say, ‘Hey, we said this publicly but internally let’s go do it this way.’ We have one story. The reason we have one story is so that we can all remember it. We’re too big to have three stories or four stories or five stories.

CRN: How did you come to the conclusion that channel partners are vital to HP and how do you motivate them?

Hurd: I have to think of the partners no differently than [an HP-badged person]. That’s what I keep saying to partners; you’re me and I’m you. It’s got to be one integrated relationship. It can’t be confrontational. It’s nothing more than a decision of where I’m going to put my resources. If I’m going to put it with you, you’d better darn well be as good as me or I’m not going to win. So when I show up with partners, I want consistency, predictability and simplicity. That’s the same thing our employees want. I’m coming to you channel partners saying, ‘I want you to be as loyal to me as I am to you. I want to have that relationship where I can bank on you, and the more you do with me, the more I can bank on you.’ I want partner loyalty. This is all one ecosystem – to get the right people in front of the right buyers at the right time and with the right capabilities.

CRN: What are some specific channel accomplishments during your tenure that have benefited HP and partners?

Hurd: We’ve more [salespeople] out there. For our loyal partners, we want to create demand. Our people are creating demand for HP products; they are not out there trying to determine channel preference. We tell our partners all the time, if you can close that business and get it done right, we’d rather have you have the business than we have the business. Here’s the economic problem: I’ve got to get that number [HP’s share of the 2009 US$1.2 trillion global IT market] as high as I possibly can get it and we can’t do it alone. I can’t hire enough humans. The only way I can get there is that I have to have friends. What I’m looking for is to have the best friends I can get. Casual acquaintances don’t help me near as well as friends.

CRN: You have this ideal vision of a loyal HP partner. Do you have more or fewer of those partners than a year ago?

Hurd: I think we have more this year than last. This is not a thing where we get more logos. We need quality partners. Sometimes getting one, two, three, four or five is not a worse thing than getting 10 or 15. There are a lot of quality partners that could do more with HP.

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