CRN Interview: Carly Fiorina, HP

HP Chairman and CEO Carly Fiorina spoke with Industry Editor Craig Zarley about the channel's role within the new HP.

CRN: You seem to be on track with most of your integration plans, but the specific terms and conditions for your new PartnerOne channel program aren't yet finalized. Why is this taking so long?

FIORINA: I think it's important to recognize the backdrop against which this merger and our PartnerOne program are taking place. When I say the backdrop, what I mean is the industry is consolidating at multiple levels. Customers are interested in value. There is no question, and we have been very up-front about this, that we need to do more business direct because customers in some instances are not willing to pay for a solutions provider. There is also no question that the channel will continue to be a really important part of our strategy. But the channel and how we interact with the channel and how together we build value is being determined against a backdrop where customers are willing to pay less over time, and therefore value creation has to be real and distinct. And I think that there is a lot people want to put on the merger. Some of it is merger-related, but a lot is related to structural changes in the industry and economic changes in the industry that are going on in part because of the continuation of the slowdown. There is nothing nefarious in why it is taking time, but we have to acknowledge that there are fundamental shifts in the industry at multiple levels in the value chain and the channel is affected by this, as are we. That is consistent with the conversation we had back in February.

CRN: But initially, HP said it would have its channel terms and conditions finalized 90 days after the merger closed, which would have been Aug. 7. Now I hear that the channel may not see final terms and conditions until October.

FIORINA: We certainly understand their sense of urgency. August would have been better than October. There is no denying that.

CRN: You said that you need to do more business direct. Where do you see most of your direct-sales efforts taking place?

FIORINA: The honest answer is we have to do more business direct everywhere, because more competitors are doing it and customers are demanding it. We will do more direct in the enterprise. We will do more direct in the SMB space. We will do more direct in GEM. We will do more direct in consumer. That is not to say that the channels won't continue to be a very important part of our strategy in each of those segments. It is not say that in many of those segments we won't do more of our business through channels than through direct. But it is to say that the direct distribution model is more cost effective for certain customers who do not need or want the additional value that a channel or solution provider gives them. That's just the way it is.

CRN: It seems that many of your direct initiatives are targeted in the SMB space. How do you avoid conflicts with your channel partners who are playing heavily in that market?

FIORINA: Let's turn the question around. How does Dell go out and attract channel partners today, which they are trying to do?

CRN: Dell has had a channel program for years because it doesn't have the face-to-face contact with the customer and it doesn't have the service capabilities that the channel has.

FIORINA: You're right. And the reason I turn the question around is that having an aggressive direct approach to the market, which Dell clearly has, does not mean that there is not a real opportunity for the channel to build business and create value. In the SMB space customers want direct touch and they want a solutions provider. So absolutely we want to work with the channel so that they can provide that to our customer. But when customers want the speed and cost effectiveness of direct fulfillment, we have to be able to provide that as well.

CRN: Why did you ultimately decide to have a dual channel hierarchy--one for enterprise products and one for volume products?

FIORINA: It is not in the channel's interest or in our interest to fight against the fundamental economics of what the customer is willing to pay for. We and our channel partners have to get real about that. That two-tier approach has to reflect what customers are willing to pay for. If they are not willing to pay for additional value then they are not.

CRN: So how, for example, will the channel play in enterprise accounts?

FIORINA: It depends. We have relationships where channels can interact directly with the customers, put the solution together and we fulfill for them directly or vice versa. This isn't about no role for the channel in any of our market segments. The reality is that the channel role will differ in the enterprise segment, in the SMB segment, in the consumer segment, in GEM [government, education, medical. But it is about getting those roles consistent with what customers are willing to pay for.

CRN: What will the channel's role be regarding HP Services? Will you do more subcontracting to the channel for professional services?

FIORINA: Once again, it all comes down to the economics. If a channel partner can provide real value in that space to us and our customer then the answer is yes. There is no policy reason that we wouldn't want to build that business, assuming that a channel partner can add value.

CRN: When do you expect to see a sustained upswing in the technology market?

FIORINA: That's the million-dollar question. For sure not this year. We continue to hope for 2003. Customers continue to have their IT budgets locked down tight. The industry has some continued consolidation and dislocation to go, which is to say there continues to be some excess capacity in the market.

CRN: Now that the merger is behind you, what is your biggest challenge?

FIORINA: We have to execute. That's not a new challenge. Execution is an ongoing requirement. Executing in this business takes two hands on the wheel at all times. We are in a governing mode now. And we are integrating these companies at or ahead of schedule. So we feel good about where we are, but we have to keep executing and we have to keep executing with our partners in an environment that is less and less forgiving over time.