Q&A: Mark Hurd, HP Chairman and CEO

CMP Channel Industry Editor Craig Zarley sat down with Hewlett-Packard Co. Chairman and CEO Mark Hurd at HP's Palo Alto, Calif. 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. Here are edited excerpts:

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?

Mark 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 that 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.

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 the bottom of 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.

Many of your exclusive and loyal partners say their HP storage business is sluggish and it's difficult to compete against EMC and NetApp. This is important on many levels. It screws up their rebate numbers, which are a big hit on gross margins. What is 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.

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, visualized and printed. There will be more things stored in the next five years than in the history of the planet.

An import 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 Organization] has to make sure we are lined up with our channel partners and the role we want them to play. Second, the HP sales organization has to understand those roles and execute on them. We are partner-friendly at every turn. There is no economic advantage or difference to us. And in my view, this is channel-favorable. 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. We have one story. And that's the fact—that we want more of this $1.2 trillion market [global IT market projections for 2009]. That means for us we need quality partners. I want to make sure you're clear on this. If we have partners that can't get it done, I don't want them helping us. I don't need them. 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 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. If you want to get on the cutting edge and kick some butt and go get something done, then come hang around with us. So that's what I'm looking for.

Next: Partner Motivation

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

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 at the right cost. To get that done, then we have to get the best partners in the world doing it.

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

Hurd: We've more [salespeople] people 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 $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, I have to have friends of HP. 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. I'm a big believer that when you get a relationship, it's got to be a great one. For me to go around and have a gazillion channel resellers, that gets you an answer, but does it get you the optimal answer? Are you better off with fewer great ones than less average ones? The bad stuff is that we have some causal resellers that have some relationships with customers that prefer HP and were one of many products that they carry, and one of the reasons they don't like where we are headed, is because we're saying it's not that great a relationship for us. What we are telling channel partners is listen, here's where we're trying to go. We're trying to go in certain geographies. We want to after specific target markets, they could be of an industry, they could be a segment, or they could be of a mixed product set—an integrated portfolio of solutions that we are bringing to market. And then we want you to attack that market with us. Just for you to sign up with us and say you're another guy that carries ProLiants is semi-interesting to us but certainly not fascinating to us.

But what do your most loyal partners get in return?

Hurd: It depends on the plan. We are sitting down with partners and saying, 'Let's talk about a plan.' We are willing to invest in those plans. We've made investments in channel. We've make investments in services plays. We've made investments in solution segments. We're not afraid to invest. Just to be frank, we're taking money away in areas that we don't think are of any value. We're not trying to say that all partners are going to always be the same. There are some partners that are willing to step up and say we are going to go at this target market and we're willing to put some extra skin [in the game for] the partner to make sure something happens. And our point is, 'OK, if you're going to make that commitment, we're going to make that commitment too.' We have partners that love to take our brand and sell a unit, hollow out our unit put a whole other set of stuff around the unit, and say they are an HP partner and come back to us and collect channel compensation dollars. We're not that interested in low-value-add channel activities.

You have this ideal vision of a loyal HP channel partner. Do you have more or fewer of those partners than you had 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.