CRN Interview: HP CEO Mark Hurd On His Plans For the Channel

Faletra: From an attach-rate issue, the argument out there has always been that you have to be competitive. I can put the HP peripherals or anything I want to attach to it, but if it puts me in a position where I'm trying to deliver a solution and it's not price-competitive…

Hurd: Then shame on us. Because our job is to have our products competitive as point products and competitive as bundles. And frankly we want to put more energy behind that attach. Let's say we're going to put this economic hook in place so that you represent these poorly positioned products to the marketplace. Our objective is to say, "We think we've got great products, and we want to put incentives for aligning those products together to put a better configuration, a better basket of goods if you will, in front of the end customer.

Faletra: Can you talk a little bit about when you first came in here, and you were looking at the direct vs. the indirect. What were the metrics you were looking at? And I'll just give you an example: A number of years ago, IBM did a very in-depth analysis on direct vs. indirect, just in the PC space, because everyone said direct was absolutely more profitable. And they went out and did little things like, OK, if that ad in that newspaper is really driven to get somebody to buy direct, then we'd better assign that cost to the direct side of the business. So when they did all of that, in the PC space, they found it was less than one percentage point difference. Obviously, you did this over a much larger product set. Are there places where you say, as you really look at the data, that the channel is more profitable for us and are there places where direct is more profitable?

Hurd: You can find data to support any thesis. You've got to be careful to normalize the data. For example, it would be unfair for us to say our cost of an order direct is more expensive than the cost of an order indirect if we didn't normalize the volume. Today, the cost of an order for us indirect is actually less expensive than the cost of an order direct. But the bulk of our business is not direct. So you have to go normalize it and say, listen, in a normalized state what would the two look like?

So for example we get tremendous cash-flow turns by dealing with our partners. It's different when you go direct because you actually have to have more people shipping and packing more orders. So when I sell you a PC one at a time, I have to go collect for that PC. When I sell you a thousand PCs and then you sell them one at a time, I'm going to send you one bill for a thousand PCs. I've lowered my administrative overhead. So you've got to get through all that process and understand what is the true infrastructure overhead that you've got to go serve that customer or that partner.

We somehow had ourselves convinced that a person deployed in the marketplace had to sell direct as opposed to creating demand for Hewlett-Packard. We want people in the marketplace creating demand for Hewlett-Packard. Then we can decide what the appropriate route is to get that demand fulfilled. But in the end, we need to make sure we've got the marketplace covered, so that the buying points on the planet that make sense for HP have some sort of demand-creation expertise.

NEXT: Direct vs. indirect