CRN Interview: Kevin Gilroy and Dan Vertrees, Hewlett-Packard

Gilroy, HP's vice president and general manager of North America commercial channels, and Vertrees, HP's vice president and general manager of North America enterprise channels, outlined the $87 billion IT giant's post-merger channel strategy in an interview with CRN Industry Editor Craig Zarley. Last week, HP was officially relaunched under the new HPQ symbol on the New York Stock Exchange. The company closed the Compaq merger deal on May 3.

CRN: Why did HP choose to go with a channel hierarchy for the enterprise group and a separate one for access products?

VERTREES: The executive committee really wanted to support partners and have an infrastructure and an organization that best aligns with the mix of their businesses. The partners that we have today will be aligned with either the enterprise side, which I have responsibility for, or the commercial side, which is Kevin. They will have a single point of contact and accountability. It's one throat to choke, but also there's empowerment from one individual who can be one face to the partner overall.

CRN: On the enterprise side, which products are each of you responsible for?

VERTREES: I have accountability for all storage products, all servers--including Wintel through Unix and up to the fault-tolerant Himalaya or Superdome products--and all the software and solutions. By solutions, I mean all the ISVs, SIs, consultants and xSPs.

GILROY: I'm going to have all the access products, which are all the desktops, the iPaq products and all the handhelds coming out of [Executive Vice President of Personal Systems Group Duane Zitzner's organization and the entire IPG product line: printers, scanners and copiers.

CRN: Will there be any central control to avoid confusion between the two channel organizations?

GILROY: It's absolutely critical that we need one go-to channel process through channel marketing. Nomenclature needs to be the same; programs need to have similarity. They don't need to be homogenous across all product lines, but they need to have some structure and architecture that makes it easy to do business with HP. What we don't want is a blended partner selling industry-standard servers, Unix [servers and a boatload of printers and desktops to be dealing with multiple channel programs. There will be one channel program. Channel marketing is the link, or the glue, that holds the whole channel together. I'll manage it, but Dan will be right there to make sure that his needs or product sets and partners are met.

CRN: If I'm a solution provider selling the entire HP product line, will I have two channel reps calling me?

GILROY: We have triggers that we are still working on that look at the product mix and the direction of the VAR to determine which channel team is most appropriate for them and will optimize their business model. Once we've decided which channel team a partner is aligned with, that team will have responsibility for managing the entire HP portfolio.

CRN: So, conceivably, an enterprise channel team would deal with access product-related issues?

GILROY: Correct.

VERTREES: Over the next 90 days, we will put the muscle on the bone. We're not declaring anything today. Over the next 90 days, we will be seeking [solution provider input and asking a lot of questions.

CRN: What version of HP's Hard Deck channel strategy survived the merger?

VERTREES: I drank blue Kool Aid this morning. Hard Deck is alive and kicking. Hard Deck will live as the philosophy across the vast majority of the product line. In this 90-day window--when we'll get more and more input from solution providers--we'll take into account the business units, look at the economies of scale and take into account what the competition is doing. Everything has to be reinvented and kept up to date, but as a philosophy we will give consistent guidance to the partners. So Hard Deck will stay intact.

CRN: In its current form, Hard Deck has about 900 named accounts that will be served directly. Will that number remain the same?

VERTREES: The next 90 days is when we will figure out all of those details.

CRN: So are you re-evaluating accounts currently above the Hard Deck?

VERTREES: When take the pre-merger HP product line and the pre-merger Compaq product line and marry them, we have now from end to end an expanded suite of products. We want to look at that. We want to look at the different models. We want to fine-tune this.

CRN: Will the Hard Deck rules of engagement stay the same in that HP will serve the named accounts directly and other accounts will remain the exclusive domain of the channel?

VERTREES: That's the philosophy, but until we put it in black and white those are the fundamental foundations that we will work with. The key is being extremely predictable and consistent and taking into account where that program was and where it needs to go to get to the next level.

GILROY: The 900 accounts will be evaluated. But there is no need to be pejorative in your thinking. There is no devil there. We are going to look at it and do what's right for HP and what's right for our partners. It doesn't mean we are going up or down. It just means that we are looking at it. It is what it is. I hate to get into granular details on Hard Deck. There may be a tweak here or there, but the philosophy of Hard Deck--predictability, consistency, no ambiguity--is here to stay. There is nothing for partners to be fearful of here.

CRN: What about the statements from top HP management that Compaq's direct PC sales model will be the prevalent business model going forward? Is HP going to increase its percentage of direct PC sales? And if so, what would that mean for the channel?

GILROY: We are going to build a solid go-to-market strategy that will have a solid indirect component and, to be candid, in the PC business particularly a profound direct component. If customers want to buy through a direct model they can buy direct. If they want to buy through an indirect model, they can buy indirect. Once those machineries are built, we will be agnostic about where partners and customers want to buy. The economics of the PC business are different from the economics of the Unix business or the hard-copy business. The strategy of the hard-copy business will continue to be primarily an indirect play, with the vast majority of the business going through the channel. In Dan's [enterprise business, I don't think you are going to see any material change there. We cannot homogenize all business units in an all-channel strategy. The marketplace is going to determine what the mix is between direct and indirect.

CRN: As you meld the HP and Compaq channel-support organizations, will there be any layoffs?

VERTREES: In the next 90 days is when we are asking those questions. The mapping--as far as the geographies and account-specific aspect--that's the rationalization that we will be going through during this three-month period.

CRN: Will there be more or less support funding for the channel now that the merger has closed?

GILROY: For the next 90 days, there will be no change. The channel budgets are set for both companies. They will be combined into one company, and partners won't see any change. Moving forward, we will see the budgets be a function of the performance of our partners. We will drive for pay-per-performance. We will drive for results, not activities. If those [partner sales continue to build, we'll continue to pour in as much--and even more--gasoline than we've [already been putting in.

VERTREES: We will include accelerators [in the partner contracts. If they continue to perform, we will continue to perform and get our checkbooks out. And a lot of this will come from expansion of the product portfolio. Certifications and training can move them into new product venues where they did not have the capability of selling before.

CRN: How will HP's relationships with two-tier distributors change in light of the changing PC economics and more direct PC distribution?

GILROY: On the distributor side, in the near future, we will still continue to operate in a traditional model. We are reasonably happy with that model. But having said that, as the world becomes more competitive, we will work very aggressively with distributors to take costs out of our supply chain and inventory-driven costs out of the system. We are also working with distributors on making investments in their marketing organizations that are quite formidable. We'd like to make deeper investments in them on the demand-generation side. But we are looking for alternative models to take costs out of the system. On the PC and industry-standard server side and on the printer side, we need to look at moving from a monolithic model to a more dynamic model. The economics are the driver here. Direct shipping might be an example. Moving them upstream in the supply chain, and moving them downstream in the supply chain. Fee for services. There are all sorts of things that we are in deep discussions about with our distribution partners. Again, the economics are the driver.

CRN: Going forward, will there more or less HP business going through the channel post-merger?

GILROY: It's difficult to answer that question. We have some pretty hot products coming out of the printer division. That, again, is a very channel-centric business unit. You have to balance out a business unit vs. a business unit. I'm not prepared to give you those answers until I've thought them through a little bit. If one business goes a little bit more direct and if the printer business grows at the percentage we expect, then indirect business could grow.

CRN: What opportunity will there be for service-oriented solution providers to partner with HP Services?

GILROY: One of the things we need to do a better job of is integrating our services strategy into our partner strategy. Our service providers play at different levels. Services channel marketing will be hosted in channel marketing, under me. We have a huge opportunity to build a loyal partner base and build a mile-deep rather than a mile-wide relationship with our partners by integrating our services strategy with our partner strategy.