As Hewlett-Packard struggles to get back on track, there are a number of scenarios it could pursue. Some are obvious and involve adherence to basic business practices. Others will require HP to go back to the drawing board to come up with different approaches to doing business than it has used in the past. Still others will require HP to make major investments in people and technology.
Through interviews with HP executives and solution providers, CRN analyzed steps HP is making -- and could make in the future -- to streamline its business and get channel partners back on board with its turnaround plan.
1. COMMUNICATE BETTER
One of HP CEO Meg Whitman's goals for the coming year is to foster better communication, both internally to partners and externally in the marketplace.
Last year, HP discovered that its internal systems were woefully outdated. Now it's investing in upgrades that Whitman says will enable the freer flow of information between HP and the channel. The biggest area of investment is in Salesforce.com for partner relationship management.
"We have the ability to put partners on Salesforce.com if they would like to be there," Whitman told CRN in a mid-January interview at HP's Palo Alto, Calif.-based headquarters. "We think over time, this is a very interesting way to 'loop in' our partners so they have the same information and data that we do."
The investment in new systems is also helping HP function more efficiently overall. "We really have made it easier to do business with us," Whitman said. "Our quote-to-cash systems is a hundred times better ... and DocuSign [the eSignature solution HP implemented in May] has cut the time involved in getting a contract signed from five weeks to five days."
While upgraded technology will help, HP also needs to get better at connecting with partners on a human level. All too often, partners told CRN, HP's channel reps don't listen when it comes to communicating with partners.
"In HP's worldview, partners are a commodity who serve them, and partners listen while HP talks. They really need to work on their listening skills," said one longtime HP partner, who asked not to be named to avoid damaging his relationship with the company.
2. HIRE MORE FROM WITHIN
Not long after Whitman took over as HP CEO in September 2011, she noticed HP had fallen into the habit of hiring candidates from outside the company to fill key management positions. Whitman herself was a controversial choice for CEO given the abundance of qualified internal candidates, including Dave Donatelli, executive vice president and general manager of the Enterprise Group, and Todd Bradley, who runs HP's Printers and Personal Systems (PPS) division.
Whitman says she has been increasingly looking to fill key roles from within HP. "When I got here, at the director level and above, we were hiring the majority from outside the company. That has completely flipped on its head, and I think that's a really good thing for HP," Whitman told CRN.
When HP formed its Mobility Business Unit last September, it brought in Alberto Torres, who previously ran the MeeGo business at Nokia, as senior vice president. However, Whitman said HP is populating the mobility team with plenty of in-house talent. And she's not afraid of appointing people to challenging positions who may not have had such roles in the past.
"My first choice when I am beefing up an area at HP is to go find the talent inside HP. And let me tell you, there is immense talent at HP, talent that may have been overlooked before," Whitman said. "I like to bet on people for whom it may be a stretch job because they rarely let you down."
An executive from one multinational HP partner told CRN HP is looking to strike the right balance between internal hires and external hires.
"The benefits of hiring more internally is that employees at HP feel like they have a career path and provides further loyalty to the company," said the source, who requested anonymity because he is not authorized to comment on HP's internal matters. "The other benefit is that they typically hit the ground running faster, as they do not have to 'learn' HP -- they just have to learn their new role."
3. TELL A STRONGER PRIVATE CLOUD STORY
Cloud is already a "multibillion-dollar business" for HP and has "incredible momentum," with more than 850 CloudSystem private cloud customers worldwide, Donatelli, head of HP's Enterprise Group, told CRN in an interview last month. Yet despite having technology regarded as top-notch, HP hasn't done a great job of marketing its cloud capabilities to the masses, partners told CRN. "HP has a tremendous technology with CloudSystem. But to some degree, no one knows about it," one executive from a multinational HP partner told CRN. "HP isn't the first company that comes to mind in cloud, and they have to market themselves better in order to make it easier for the channel to sell."
CloudSystem, HP's private cloud offering, is a comprehensive solution that includes integrated cloud orchestration and automation components. Many of HP's competitors in the cloud space have yet to add these features. As a result, CloudSystem is a complex sale, Steve Bishop, CTO at VeriStor, an Atlanta-based HP partner, told CRN.
"For some time, HP's private cloud capabilities have actually been beyond what the rest of the industry has been positioning as private cloud, which really has just been integrated virtual infrastructure," Bishop said.
That said, HP hasn't taken advantage of its technology head start through effective marketing. This is true not just for CloudSystem, but for the VirtualSystem offerings, which are more similar to the other solutions on the market, according to Bishop.
In the meantime, Cisco, EMC and NetApp have come up with more effective marketing plans for their own integrated infrastructure offerings. "Those players have done a better job of simplifying the messaging into productized ideas that customers can more easily understand in terms of features, benefits and adoption," Bishop said.
HP deserves credit for being first to market with a complete private cloud stack, but the messaging around CloudSystem was a little "too much too soon" for most customers -- and not always effectively delivered by the HP sales and marketing teams, or the HP channel, Bishop said.
"HP has a solid and competitive enterprise cloud computing portfolio and strategy, which includes a variety of integrated private, public and hybrid cloud solutions. They just need to do a better job of telling the world that," Bishop said.
4. ATTACK THE PUBLIC CLOUD WITH CHANNEL PARTNERS
Public cloud service providers are grappling with the challenge of how to tie private cloud infrastructure to the public cloud. This is no simple undertaking, as there are many moving parts and significant work involved in testing and integrating third-party components.
Public cloud players are largely unfamiliar with putting together channel programs to address this need in the marketplace. In the opinion of some partners, this is an opportunity for HP to leverage its deep expertise in channel relationships. "There is more work to be done, but we believe the HP Cloud Services team is on the right track with how they're planning to take cloud offerings to market through the channel," VeriStor's Bishop told CRN.
HP is getting third parties to add functionality to its cloud, a strategy that is similar to Salesforce.com's approach with AppExchange, said Justin Moore, CEO of San Francisco-based Axcient, an HP partner and cloud provider.
"HP is thinking not just about providing compute, storage and IaaS, it's also building an ecosystem around it that allows people to buy different capabilities on that cloud, like bursting, data protection and business continuity," Moore told CRN.
While HP's channel could be an advantage, Microsoft's Azure overlaps with many of the same partners, said Travis Fisher, executive vice president at Inacom Information Systems, a Salisbury, Md.-based HP partner.
"I think the channel would prefer to see great infrastructure available for use via a white-label program, and pricing that creates a win-win-win relationship for everybody involved in the transaction," Fisher said. "Any provider who gets this right is going to have no problem building up their own channel."
5. SELL EDS
HP spent $13.9 billion to acquire EDS in 2008 as part of then-CEO Mark Hurd's quest to take on IBM in services. While nowhere near as much of a disaster as HP's Autonomy acquisition, EDS has never managed to deliver on that goal, and with IT outsourcing on the decline industrywide, HP could look to shed itself of a unit that no longer fits with its strategic direction.
According to research firm Information Services Group (ISG), the annual contract value of IT outsourcing contracts during the fourth quarter of 2012 was $2.9 billion, down 37 percent from the year-ago quarter and 18 percent compared with the previous quarter. For all of 2012, the annual contract value of IT outsourcing contracts was $13.3 billion, down 11 percent year over year, according to ISG.
EDS represents the majority piece of HP's Enterprise Services unit, which is expected to see revenue drop 11 percent to 13 percent, with an operating margin of 0 percent to 3 percent, in fiscal 2013. Whitman wants HP to focus on higher-margin services in areas such as analytics, cloud computing and security, but EDS provides lower-margin IT outsourcing and applications and business services.
HP wrote down $8 billion from the EDS deal last year, and Wall Street analysts estimate HP could fetch in the neighborhood of $5 billion for the unit. Last September, CRN reported that HP was looking for a buyer for EDS and had held talks with interested parties, but HP flatly denied this. Last month, The Wall Street Journal reported that HP had fielded offers from suitors for EDS and Autonomy, likely for much less than what HP would be willing to accept for two companies that represent a combined investment of $25 billion.
HP plans to focus EDS in the coming year around lower-risk, higher-margin deals. HP said last October that its 2013 Enterprise Services outlook was dented by four major customers renegotiating contracts and taking some operations in-house.
While most HP partners don't have much interaction with EDS, they would like to see HP bring stability to the unit. "HP needs to explain what its strategy is for EDS, as they seem to be sweeping through accounts and deciding whether to keep them or let them go," one partner told CRN, speaking on condition he not be named.
6. GET THE CHANNEL INVOLVED IN BIG DATA
HP has big plans for Autonomy and Vertica, two of the pillars of its big data strategy. Problem is, HP is embroiled in what promises to be a drama-filled legal battle with former Autonomy CEO Mike Lynch over accounting improprieties. Whitman, however, insists the turmoil won't impede HP's plan to become a big data powerhouse.
"We are still very optimistic about Autonomy as a business; it just happens to be smaller and less profitable than we originally had been led to believe," Whitman told CRN. "But we like big data analytics, we like [the] meaning-based compute products they have. So we just have to build that out. It is like taking a startup to a grown up, as I have said before."
Autonomy IDOL (Intelligent Data Operating Layer), the centerpiece technology from the $11.1 billion acquisition, is generating lots of interest from customers. The challenge for HP has been getting certified engineers, let alone channel resources, capable of doing deployments and project proof-of-concepts, one HP partner told CRN.
"I don't get the impression from the Autonomy guys that IDOL is easy to set up," said the source, who requested anonymity to protect his relationship with HP. "HP is also concerned that if it does release IDOL to the channel, it will be overwhelmed with requests for demos, proof-of-concepts, etc., without enough internal resources to support it."
HP in January rolled out a certification program for Vertica, its high-performance database analytics offering. It has yet to do the same for Autonomy, but that seems a likely eventuality given the growth potential Whitman sees in its component businesses.
"With Autonomy, we have a legal and compliance business that I don't think is anywhere near saturation. We have a marketing business, which is at the earliest stages. I'm not sure we need to move beyond the businesses we're in -- I think there's a lot of growth left in them," Whitman said.
7. REBUILD TRUST IN THE CHANNEL
HP spent close to $500 million on the channel in fiscal 2012, on items such as market development funds and go-to-market activities, and Whitman said HP will spend at least that much, if not more, in 2013. Yet there is a strong sense in the HP channel that HP has been cutting back on things such as MDF and incentive-based funding.
HP insists it is not pulling back on its investment in the channel, just changing the way it spends this money. HP also claims it's doing so in a way that will help partners make more money.
"We don't believe that our spending overall is dropping; we believe that we need to govern how and where [we're going to spend it]," Sue Barsamian, senior vice president and general manager of global sales and operations for HP's Enterprise Group, told CRN in an interview in January. "Doing this will help the channel. Because you can spend money that ultimately ends up dropping to the bottom line in terms of a price, as opposed to benefiting the profitability of a partner."
HP also is splitting management of the PPS and Enterprise Group channels, assigning separate management teams to each group so that they'll be closer to the actual businesses. From an operations standpoint, HP says this will enable the freer flow of information from the vendor to the channel.
"We want to make sure we have one pipe to the partner, so the data flows from an Enterprise Group or PPS point of view," Jos Brenkel, senior vice president of worldwide sales strategy and the Project Management Office (PMO) of HP's PPS group, told CRN. "Whether it's special deal pricing or deal management, those pipes will now be one. Before, we had three or four different ways of managing that."
HP's introduction of revised -- and strengthened -- rules of engagement for salespeople could help win back partners who've grown disillusioned by overaggressive HP sales reps. HP says it will fire anyone who breaks these rules, but partners have heard this kind of assertion from HP before, and several told CRN they'll believe it when they see results.
PUBLISHED FEB. 19, 2013