Q&A: HP's New CEO Tells Partners To Adjust Their Business Models3:05 PM EST Fri. Mar. 25, 2011
New HP CEO and President Leo Apotheker has quickly put together a game-changing strategy that unites HP behind one strategic vision and sets the world's largest IT company on a course to play a major role in cloud computing, connected devices, software and services.
More From CRN's Apotheker Coverage
In an interview in his office at HP's Palo Alto, Calif. headquarters, Apotheker spoke with CRN about a wide range of issues, including his views on the need for channel partners to adopt new business models, cloud computing and direct sales-channel account engagement. Here are excerpts from the interview.
You've been meeting with HP partners. Talk about the data you have collected and how it has formed your opinion of the HP channel?
First of all thank you for the opportunity. I had the pleasure of meeting HP partners all over the world actually, in the U.S., in Europe, in Asia Pacific, actually wherever I went I made a fine point of meeting at least one group of partners or individual partners. And I heard a pretty consistent story: It is no secret to you that our channel partners are a huge asset to HP. And I had the opportunity to reconfirm at every meeting how important the channel business is and how important the channel business will remain for HP.
I heard good feedback from our channel partners. They actually really enjoy working with HP which is good. They enjoy the fact that we provide a good partnership to them, great products. Like in any relationship there is always something you can improve. And that came out as well.
But the general term [feeling] around the world from any type of partner was: it is a very, very good and strong and healthy and important relationship. And the first message I wanted to convey to them and I want to convey to you as well is that for HP the channel partners are a strategic asset and we will do whatever we need to do to make sure that they have a great future with HP.
Looking at your experience from SAP, talk a little about your future vision for HP and offer the channel that is perhaps a little more hardware centric a view on how they can be involved in this evolution.
Let me just point out the following things to you. HP already has a very, very powerful software portfolio. Just take the security portfolio that we have which is extremely relevant. As I pointed out to the partners in our discussions, security is top of mind of everyone on this planet and it is growing exponentially. It goes from government to agencies to private enterprise to individuals in fact. Cybersecurity is, unfortunately, a real issue. I encourage our partners to take the HP security suite that we already have and leverage that for their business.
I also told our partners that I believe that their business model needs to evolve over time and should move more toward providing solutions to their customers so that they can broaden the kind of business relationship they have with their customers. Be it vertical or be it horizontal that is up to each partner to decide what they would like to do.
Next: Bringing Business Transparency To HP's Partners
So what investments do you think they should make: you have hardware, software and services. Are there certain silos they should be making investments in? They are looking to you to help them map where they need to go.
We have a whole process in place where we chat with our partners, and it is not just me by the way, otherwise it would be a whole other situation. I would be the worst bottleneck on the planet. So we have a very well organized structure that deals with our partners around many dimensions whose job it is to provide insight into what it is we are doing and what we are going to do in the future.
I committed to our partners, by the way, that we will reinforce that and give them even more visibility so that they can build their businesses and their business plans accordingly. So I want HP to be as transparent as we can be to our partners.
I can reassure you our partners are very smart people and they know their markets, they know their customers, they know their abilities, they know what they like to do and it should be our partners who kind of figure out what it is they want to do with the capabilities we offer them. I would feel uncomfortable if we would give them too much guidance because they are close to their own markets. They probably know best what it is good for them. We will probably tell them that certain directions, should they consult us, might be in our view, in HP's view, better than others, but it doesn't mean that we are always right.
Talk about HP's enterprise sales account engagement and precisely where you see HP's direct sales force playing and HP's partners playing?
That is a great question on which we could probably have a three day conversation. But let's try to kind of boil it down to the essentials. So HP, like everyone else in this industry, has a direct sales force that looks after the major accounts. Those are the very large global accounts who actually want to have a direct relationship with HP and that is normal. And when I talk to our partners they all not only understand that, they actually support that. They get it. Perfectly logical.
Now HP has a pretty large footprint. That doesn't mean that HP knows how to do everything. So let's take a domain where our channel partners in particular have a role to play in certain type of services. Even though we have a very large services organization, that doesn't mean that we have a granularity everywhere, all the time, for every type of possible service that a large enterprise could need or would need. That is obviously complimentary [area] that we have with our channel partners. It could be a geo [geographic] play. Some of our channel partners actually create additional specific [value] on top of our solutions that we could actually provide to these large accounts as well. A traditional view would say that our partners are a channel for us. In some cases, it is conceivable that we could be a channel for our partners. Why wouldn't that be the case as long as it makes sense for everyone?
The point of this is: it is like everything else in life if you have an open dialogue and if people are pretty clear on what is happening and what the intent is of all parties concerned it works really, really well. As I said to some of our channel partners, at the end of the day, we should never let an occasional friction, that might be happening somewhere in the field because someone did something that someone else didn't like, [deter us]. That is why we talk. That is why we communicate. We should not take an occasional isolated event and extrapolate a change in strategy or something. We should never go there. That is why we talk. That is why we engage. That is why we communicate. And even in very large accounts, where there is a pretty massive presence of the HP direct salesforce, there is space for our channel partners.
Next: Bringing Pay For Performance To HP
Your predecessor added a lot of direct salespeople. Will you continue doing that?
We will continue doing that. But they are targeted to a very specific segment of the market. And by the way, that is not where our channel partners [play].
You re-instituted employee pay increases. Talk about the direct sales compensation, the channel compensation and how they are aligned. Will you make some changes there in terms of go to market?
That is a great question. But to really have a detailed discussion of this you need a lot of granularity. What I did when I came to HP, I actually felt it was really important to give people that raise that they were expecting, if only because, I believe in performance and pay for performance in a performance-driven company. Now we had a pretty good year. So there was no reason [not to give employees raises]. On the contrary. If we really believe in performance, then we should walk the talk and give people pay for performance which is exactly what we did.
The compensation of the direct sales force is basically geared towards incentivizing our direct sales force to sell the entire portfolio of HP ranging from outsourcing services to converged infrastructure, PCs, printers and managed print services and what have you. It is always done in such a way that the pricing structure of how they get compensated on this doesn't discriminate against the channel. So at the end of the day, it is very hard to align compensation for one or the other because they really don't sell the same stuff. And they shouldn't actually be measured in the same way. If I am a fulfillment partner and I ship printers or supplies to an HP large account I will probably be compensated differently than the large account manager of that account by definition, and that is perfectly logical. And that is how we drive it. But we do make sure that there is no disadvantage when it comes to pricing and anything else to our channel partners.
Talk about the services account engagement strategy. Partners want to know where they are going to play and where the HP Services organization is going to play. Can you provide some guidance there?
We had some really deep conversations with some partners on that topic. But what is for sure is that I made it very clear to our partners that in the world of tomorrow, the cloud world, there will be a really great opportunity for our channel partners, provided that they actually adjust a little bit of their business model as well. If they have an on-premise business model that is only based on servicing yesterday's world, they are going to have a problem. Not because I want to cause them a problem, but because the market is going to move away from them.
I am more than happy to make sure that they have a great opportunity in that world as well. But as I said to our channel partners: If we discuss cloud, if we all believe in cloud, if we see cloud as one of the main market-moving things in the future, well then you are going to have to adjust your business model to the cloud as well.
Next: Cloud Computing Call To Action
Talk about your message to partners around cloud.
Cloud is not something that is binary. Cloud is a bit of a catch word for a whole bunch of stuff. I happen to believe and I have said this many, many times that cloud is different for everyone and the pervasive business model of the future for the cloud is going to be hybrid clouds, some private clouds, some public clouds and whatever.
What is going to change is the engagement model that people will have when they are going to have to deal with the cloud. That means they need to have a more service-based business model. My advice for channel partners [that I have met] was: guys, look at your business model, look at the value-add that you provide, see how you can scale this, with the help of the cloud. Because if you don't then you are going to end up doing maintenance and not future business. It might take ten years. It might take five years. It might take three years. It is a different discussion. I don't know when. But for sure if we spend an hour and a half discussing cloud then we have to make sure that the business models that we are going to embrace are cloud centric.
And I think I got my message across really well to our channel partners, at least those that I met. I hope. And I will give it another shot when I go out to Vegas and have a chance to give a keynote. I will stress that point again and again and again. Our channel partners have a great franchise. They deal with a great company that will support them as much as we just can with great products, great services. Actually we will create space for them. They just need to go grab it. The one thing I can't do for our channel partners is actually do it for them. Otherwise they shouldn't be channel partners they should all be direct.
So how do partners have to change their business model to make sure they are going to work with the HP of the future, the HP that you are building?
Actually can I say this slightly differently if I may: they should change their business model so they work with the customer of the future, not with the HP of the future. Both HP and the channel partner would like to service the customer. At the end of the day it is a customer centric world out there, not an HP centric world out there. And I think they have to adjust to that. So what are the major things happening: talk about mobility, talk about the cloud, talk about all of these various intersection points. That is where the future for our channel partners needs to slowly and gradually move towards too. Because at the end of the day that is what the world will want from them. They should sell what customers want to buy.
Now on that continuum you can find various shades of gray and various gradations of what people really want to buy, and that is up to each particular channel partner, what their strengths are and what they really want to do. Some of the models are more capital intensive than others. Some of them are more service centric. Some of them are more reselling centric. But more and more they [solution providers] should start to really figure out how can they support the cloud strategies of their customers. And it doesn't matter if you are an SMB or a large enterprise or whatever else.
Next: Taking Aim At The VCE Coalition
How will you position HP against the VCE coalition?
We will make the positioning very, very clear. Our channel partners will have a very clear understanding of what the strengths of our positioning is. So that will be made totally transparent to them. I think there will be a certain number of programs that we will build to support them.
I will give you one example. We haven't talked about this yet. But just pick something that is usually not top of mind when we talk about these things. I happen to believe it is a huge opportunity. So we announced what we are doing with WebOS on February 9. And if you listened carefully to the presentation we talked a lot about ecosystems. An ecosystem is not just consumer driven or fun apps, an ecosystem can also be enterprise or business apps. I would be delighted to see channel partners of HP who have some logical expertise or whatever bring some of their knowledge and create vertical mobile apps for WebOS. That would be really cool!
There is a whole program that is structured for that. People know what it is we are going to do for them. And that is just one example. Usually we don't think about that because we are still mentally in the client/server world. Now one shouldn't generalize. You see when you talk about the channel of HP it is such a broad channel that one has to be careful in qualifying them in broad categories.
One of the things you could say is for those partners that have an interest in that instead of servicing a small number of customers with some particular business knowledge, turn that into an ISV [Independent Software Vendor] or small ISV and if you do this you might as well embrace the latest, greatest technology which is WebOS and enable it for the mobile world. That would be really smart. And as I said early on that would be the kind of a situation where actually HP would not only be asking our channel partners to resell our stuff. In this case with the WebOS ecosystem we would be selling their stuff so to speak.
The call to action for partners then is a call for innovation from the partners. What is your channel vision?
My channel vision is to turn the partners into a proactive force that innovates business models, go to market models, service models, where we all share the overriding objective to make the channel and HP to truly delight our customers.
Next: Transforming Partner Business Models
Talk about professional services enablement and innovation enablement that you might do with partners.
When you start talking about these things and, again, it doesn't apply to all partners in the same way. So I have to make this caveat over and over and over again because it is not binary. I believe our channel partners are actually doing some of this already. They understand by themselves that the old transactional model is still there but they need to do more than that. They need to be viewed by their customers as full-fledged partners and by the way some of our partners have already put up clouds for their own ecosystem and that is a great thing. I think it is a fantastic idea and maybe we can aggregate some of those and create an even larger ecosystem and HP would support that.
So we need to encourage our partners to think around a number of dimensions: We already discussed business model innovation which I think is something that everyone has to do as a matter of hygiene on a regular basis. I think for some of the more transactional based partners it is probably something they want to look at sharply because I do want them all to be successful.
Secondly I think they probably need to look at how they can transform some of the service models. So if I am a more services based channel partner do I still want to continue doing it the traditional way? Is there technology that I can get maybe from HP that would enable me to do a more leveraged service model or an IP [intellectual property] richer, or an IC [intellectual capital] richer, venture capital richer service model which I think would be interesting for the channel as well. And then I would try to broaden my portfolio as a partner. There is no reason why I should only be a partner for X or Y, why wouldn't I want to embrace the security software portfolio of HP and add the security element to everything I would do for my customers, which by the way, customers would really appreciate.
Will there be new incentives for partners
You mean more money? Help me understand so if we educate someone to do more business and make more money we have to pay them even more money to do that?
Well maybe incentives to get partners carry the full portfolio. How about attach rate incentives?
I wonder what attach is worth these days. So if you talk about business model change it basically means what drives what. So attach might be a two-edged word. What drives what becomes in the future a more dynamic situation. I think that what we need to do is, A), provide all the channel incentives that we need to provide to encourage people to open their minds. That is way more important because I do count on the entrepreneurial spirit of many of our partners, to give them the chance and the opportunity to look [at the opportunity].
At the end of the day it is their decision and then we will help them be successful. But where I come from at the end of the day it is the customer need that should drive behavior. If we all agree, just to hammer on this point of security, because it is an obvious one, security is such a huge issue, help me understand why a partner would not want to do security, because he doesn't want to do business?
Well they might be doing security with another vendor.
But the point is I think we have a very unique offering. Our job is to make sure that people understand that our offering is better.
Next:Capturing Share In Fast Growth Markets
You have talked a lot about being a global citizen.
The press talks about it. I am just who I am.
What are your plans with growing, emerging markets?
As I have said on numberous occasions, personally I have a real issue with the term emerging markets. I will tell you why. It is hard to qualify a country that has a 4,000-year history as emerging. It is not like they kind of popped out of the ocean, 'Hello I am here'. It is the one country where people who are literate can read the original text of the first written text in Chinese in the original version. They might not understand every Kanji character, but they they can still read it. That is pretty impressive. That is why I have an issue with it.
So fast growth markets are top of mind of course. That is an area where HP is already pretty active, but wants to be way more active, which is why, by the way, when I go there and I do go out there on a rather frequent basis to the delight of my body, suffering from jet-lag, I never miss the opportunity to at least meet once with a group of partners. I went to India recently and spent two meetings with groups of partners, a cross-selection of all types of partners -- large, small, printer [partners]. I try to reach out to them all because they have a very important role to play in helping us be a much better company in these markets. And just to be sure that you understand what I mean by that it is not just being a reseller of something. That, of course, is very important and we love them for that. And they do a great job. But the other element of this is they have first-hand knowledge of what is going on in the market and they know customers and all kinds of things.
So it is also a feedback mechanism back to HP, telling us what we should do better and how we should align better so that we can actually cover these markets in a stronger way. I pick up a lot of things in these meetings. And so did the people engaged with them directly. We will be working with our channel partners to make them an even more integral part of our strategy in building up these fast-growth markets.
What do you think is the biggest misconception of you and what do you want your legacy to be here at HP
Let me put it this way. I just started so it is a little bit hard to talk about legacy except I really have the desire to make sure that HP is the world's best company. As I said to the senior leadership team the other day, the kind of company where you would want your children to work at.
How about the biggest misconception?
I know that many people in the channel were afraid that I was known to be direct sales [advocate], proprietary, get out of my way kind of a person. That is actually totally not true. Even at SAP where I did build the world's probably best direct sales force, it was hugely leveraged by channel partners, hugely leveraged. Without the channel partners SAP would have never become what it became. Not even close. So I have always worked with channel partners and if I could use this opportunity as I am talking to you, I want to convey the message again and again and again, I embrace channel partners in any language you would choose.
One of the big things partners are concerned about is will you be involved in account engagement like your predecessor was doing the CIO roundtables with partners and doing the e-mails to help them sell?
Yes. I am a sales guy at heart. I carried a [sales] bag. So I sympathize with these people. So they can call. And I told them that in all of our meetings. Here is my number. Here is my e-mail. If you need help call. So we will do whatever we need to do to help these guys sell.
What is the ideal culture you want for HP and its channel partners?
Customer centricity. It all boils down to customer centricity.
Any final thoughts for partners.
If they have any concern about what the message is just let me know. They should sleep soundly knowing that HP is committed [to them]. I will measure them though on performance.