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When HP shocked Wall Street with news that its server and storage business was tanking as rivals were on the rise, one executive clearly in the hot seat was Ann Livermore, executive vice president for the company's technology solutions group. TSG includes HP's high-margin enterprise storage and systems, software and services business. The shortfall, capped by a 15 percent overall decline in its server and storage business led to the dismissal of three high-ranking executives: Peter Blackmore, Jim Milton and Bernard Meric. At this week's HP World show in Chicago, Livermore had some explaining to do. In an interview with senior executive editor T.C. Doyle and senior editor Jeffrey Schwartz, Livermore discussed HP's missteps and remedies moving forward.
VB: You let go three people who served the company with distinction. Why was it necessary to fire the executives in such a public manner?
Livermore: The message that [chairman and CEO] Carly [Fiorina] has for both inside and outside HP, is that our top leaders are accountable for our business results, and it's fundamental to HP and all well-run companies that you hold people accountable for results at every level of the organization.
VB: What's your perspective on what went wrong?
Livermore: There were really three things that were the core issues for us: that we were implementing a new order-processing and manufacturing system in the United States, we had some business process changes that we didn't manage as well as we should have, so that delayed some customer shipments and some activities in the Americas. In EMEA, we had some channel-management issues where we had some concerns both with our channel-compensation programs and the management of our rebate programs in Europe. We had aggressive discounting in EMEA, and then we broadly had performance lower than we had anticipated in terms of our storage growth. We feel good about our product portfolio. Back in April, we introduced a new suite of storage products. We have a strong product offering; we just have some sales-execution issues in terms of hitting the number of storage specialists and resources available that we needed to be able to sell some of our storage products.
VB: Touch on the software rollout. Is that something that will be fixed?
Livermore: All of the issues associated with that will be taken care of this quarter, and we don't expect it to have any significant impact on HP's performance this quarter.
VB: Is that tied to the problems you are having with eHIP?
Livermore: It was tied to the availability and shipment to some of our server products during the quarter.
VB: We've talked to some partners who said it has taken up to a week or two and have waited as long as 60 to 90 days to get product shipped.
Livermore: That was at the core of the issue during the third quarter, and that is something where during this quarter we are back to our normal value of shipment levels both in terms of the processing orders as well as the shipments.
VB: Do you want to change some of the underlying policies that supported that rollout? In other words, do you want to revisit how you're going to market through the distribution partners--do you put more back into their basket, which seemed to work effectively for many many years--or do you continue with the current thinking?
Livermore: We are going to continue with our current strategy and programs, and our channel partners were an important business ally. During the last quarter, many of our channel partners helped us ship additional volumes of products and worked with us to be able to take on and meet some of the customer commitments that HP has. We feel very positive about the performance of our channel partners in the Americas during the last quarter.
VB: You don't think there was a level of tumult, upheaval and dissatisfaction that has raised it to a new level as a result of some of the issues?
Livermore: I don't think so. We are in very close discussion and communication with our partners. In this business, partners are always concerned when you have constraints on supply, and so I think they did have some concerns over the course of the quarter, but we worked with them. They understood what the situation was.
VB: Where do you think the portfolio is strongest? Services, software or storage?
Livermore: Let's start with the services perspective. As you know, in the last quarter our services business grew 12 percent, which is a very healthy growth rate. The managed services business was up 42 percent, the customer-support business was up 7 percent, and our consulting and integration business is up 6 percent. That's very healthy revenue growth, which we think is a good reflection of the strength of our business. We were very pleased with the progress we've made with our channel partners around the services business in terms of working our channel partners, based on their business model and their business strategy, having them decide where they want to sell, manage and deliver services, and we feel like we've got a great program there in terms of being able to extend our reach, extend our capabilities and team with our partners no matter what their business strategy is. As we look at the services business, we clearly have had some great results around the growth in our managed services.
VB: What's the upside of this part of the business?
Livermore: It's the single, fastest-growing part of our company. From a services perspective, there's tremendous market demand and tremendous market interest. We think that the outsourcing business is still in its very early formative stages.
VB: How is that impacting your partners?
Livermore: From our partners' perspective, I think most of them see it as a positive opportunity. When we are winning the large managed services deals where we're the prime contractors, in many cases we use our services partners to deliver part of the value to our customers. So that's an opportunity for them.
VB: How many services partners have you brought in for the Procter & Gamble engagement or the recent BT contract?
Livermore: I don't know the exact amount, but we have partners that range in size helping us with various aspects of it. We use our partners extensively in the delivery of our help-desk services and desk-side support services, and as part of the P&G deal, we are managing their entire desktop environment. Similarly with the Ericsson deal, we are managing their entire desktop environment and our partners do a lot of the delivery of that work on a global basis for us.
VB: What percentage of your [direct]-services business is being delivered through partners?
Livermore: I don't know the exact percentage. In general, HP has between 25 to 30 percent of its delivery through partners. So we supplement our own resources by an additional 25 to 30 percent with partners.