The New HP: Marching Forward With Government VARs

HP merged with Houston-based Compaq on May 3, combining more than $81 billion in overall revenue. Annually, the companies' combined public-sector business is worth $5 billion, with an estimated $2 billion of that derived from federal customers. While that figure already qualifies HP as a leading heavyweight among government vendors, industry insiders predict the outlook will only improve for the vendor and its resellers.

To get a better sense of these and other developments, VARBusiness recently spoke with Bruce Klein, HP's vice president of federal sales, who leads the combined team in providing the merged companies' technology solutions to government customers. The solutions embrace palmtops, laptops, PCs, Intel-based servers, Unix and Linux servers, high-performance technical computing, software, storage, networking, consulting and support services. With 19 years of experience at HP, Klein has tackled a variety of assignments. He has recruited and promoted channel partners, managed target and global-account teams on the commercial side (Marriott, Nasdaq, Mobil Oil) and has come up through the ranks as federal district sales manager, general manager of premerger HP Federal and now vice president of the new HP Federal Organization. Klein has grown HP's federal business by 34 percent in the process. In a conversation with contributing editor Dennis McCafferty, Klein talked about the need to maintain a focus on the fundamentals amid widespread corporate change.

GV: It seems the controversy about the merger has settled down, and now it's time to move forward. How large a role are VARs playing in the postmerger transition?
Klein: They play a huge role. We go to the market through our reseller groups and integrator efforts. We're going to continue to pursue these partnerships to better serve our federal-government customers. It was important before the merger, and it's important now. Before the merger, our key resellers included GTSI, GovConnection, CDW-G, Comark, Westwood and PlanetGov. Our integrators included Lockheed Martin, CSC, SAIC, Northrop Grumman and others. We also drive a lot of business through VARs that buy through distributors, such as Ingram [Micro and Tech Data. All of these companies are still very much in the mix. They're still doing business with us. It's just that the degree at which they're doing it now is varying. Some were doing more with Compaq and some were doing more with HP. At this point, GTSI and GovConnection are the biggest VARs for us, from a dollar standpoint. Combined with what they did with both Compaq and HP, they're the biggest. And CDW-G will be large as well. We will also work with new players like MicroWarehouse.

GV: Mergers can be complicated matters, though. How do you streamline the transition process and reduce confusion for the channel partners?
Klein: What has helped is that we have a deep history of relationships with all of them. It's now just a matter of combining what we're doing with the programs so they can look at the two companies as one. We need to make sure they're up to speed on product road maps and programs so they can best get the products out there to the agencies that need them. So, right after the merger, we made sure we had our product road maps out there for them to see,from handheld computers to supercomputers. We did road-map presentations for them. We've been reviewing all the contracts and making sure they're the right contracts for the products and solutions we now have.

GV: What about the cultural adjustments?
Klein: Well, what really counts for our channel partners is the VAR sales focus. Premerger, HP was 100 percent VAR-sales driven for our Intel-based and printer products to federal customers. We had no direct-sales effort in this solution space. But Compaq had the ability to sell both through the channel and direct. So, at this point, we had to step back and say, "Which way do we go?" We're working to develop our direct vs. indirect strategy and will communicate that strategy to our channel partners.

GV: Do you have a model you can share with us now, a breakdown of what VARs can expect?
Klein: Not yet. But we expect to soon, and we plan to articulate that to our channel partners, so they know how to work with the new HP.

GV: We do know that the company is going to place a heavier emphasis on services, boosting its sales presence, right?
Klein: Yes. We have more sales and services resources to serve the federal customer. Our focus now will be on dedicating teams to understand what the mission is within each specific account. Their job will be to provide solutions and the business case to help the agency meet its mission objectives. The more you live with a customer, the more you know its business. For this, we need the VARs more than ever. We're not going to be all things to everybody. There are things we can't do that our VARs can do much better. Our challenge is to take a look at what they can do and help complement it,to make both of our propositions stronger and [fill our customers' needs.

GV: Of the industry hot-button growth areas, which do you perceive as the most promising?
Klein: Homeland security and electronic government, of course, are what everybody's talking about. HP is packaging a variety of solutions for these initiatives, and we are looking at teaming with our channel partners to provide total end-to-end solutions for our government customers.

GV: How about wireless? Overall, HP is investing $4 billion into the R and D,wireless is a key initiative,and signed a $100 million contract this year with Starbucks to offer wireless Internet access to its customers. Will government customers also be part of this growth initiative?

Klein: Absolutely. Wireless is getting really big, especially post-9/11. This is the solution they need now. Transportation is looking at wireless for its air marshals. The IRS is looking into this for its auditors. The [U.S. Census [Bureau is looking at wireless. The Navy is looking at wireless for its sailors on ships.

GV: Auditors? Really? Somehow, they don't spring foremost into mind when considering who'd need wireless the most.
Klein: Which is why it's such a growth-solution prospect. Throughout the government, it's all about real-time access to data. The auditors are no different. They need to input the data to a handheld and upload it to the database in real time. It's no longer good enough to go off-site, do the auditing job and then come back to the office to input that data to the PC and server. The government wants access to information quickly now. The VARs are on the front lines, working with the customers to demonstrate the handhelds, develop wireless applications and show them how effective they can be.

GV: Will the training needs of your government-sales VARs change postmerger?
Klein: No. But we've always placed a great deal of emphasis on training, and that won't change. It's pretty intensive. For the high-end servers and storage products, they have to invest the time and pass the tests to get certified. If they're going to represent our products to the customer, we want to make sure they understand how to sell them, how to configure them and [how to support the products. Those products are a reflection of us. When something goes wrong, the government customer doesn't necessarily see it as a reflection of the VAR. They see it as a reflection of us. If it's a success, everybody wins. If it's not, HP loses.

GV: Once the VAR qualifies for certification and gets through the maze of contracting steps to land a government customer, how much of a ripple effect of additional sales opportunities can they expect?
Klein: A lot. Past performance is more critical than ever. Once you perform well, it leads to more and more opportunity. It's a good news/bad news thing. The bad news is that now it's harder than ever for new entrants to connect with a government customer. It takes a lot of investment to get into this market. So, it's much easier if you have relationships built on past performance. The government customer can't afford to work with someone they don't know now.

GV: What kind of growth in HP government sales can VARs expect who are in on the ground floor of this merger?
Klein: At both companies, we were always strong with the channel. Now, the government customer can look at us and see an entirely new solution resource because of our combined strengths. Look at the numbers from the combined companies: They have access to the No. 1 server company,Intel and Unix,overall in IT industry sales. They get the No. 1 storage company. They get the No. 1 printing company. They get the No. 1 in PCs. We're also the third-largest services company, and a key player in software, with HP OpenView. We now have our greatest depth and breadth with solutions. As the federal budget for IT grows, we expect at least double-digit growth. After all,on the HP side,we grew 36 percent in sales in the first half of 2002, compared with the first half of 2001. Compaq saw double-digit growth as well.

Dennis McCafferty, is Washington, D.C.-based freelance writer. He can be reached at [email protected].