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CRN Interviews: Juergen Rottler and Ralph Martino

On the services front, solution providers have had much TO be concerned about in recent months as the two biggest IT vendors,IBM and Hewlett-Packard,have grown their services arms exponentially.

On the services front, solution providers have had much TO be concerned about in recent months as the two biggest IT vendors,IBM and Hewlett-Packard,have grown their services arms exponentially.

IBM announced July 30 that it plans to acquire PwC Consulting, which is slated to become part of a new unit at IBM Global Services (IGS). And a couple of months earlier, on May 7, the "new HP" was launched after the successful completion of its merger with Compaq Computer. Both vendors' channel partners await the answers to two key questions: whether the pending PwC Consulting deal will fuel IGS' penchant for competing with solution providers on deals, and how HP will handle Compaq's historical propensity for selling direct.

Ralph Martino, vice president of strategy and marketing at IGS, and Juergen Rottler, vice president of marketing at HP Services, recently shed light on

those and other issues and delineated their companies' competitive outlooks in separate interviews with CRN Washington Bureau Chief Amy Rogers. Here are excerpts of their discussions:

CRN: Before the merger of Hewlett-Packard and Compaq closed, what was your job at HP?


'Partners are a fundamental way to reach customers and markets that you can't rach directly. And they provide choice to our customers.' --Juergen Rottler, HP Services

ROTTLER: I ran HP Services in North America. I was fairly active with our channel partners. At the time, we were pushing our Hard Deck strategy, and I was pretty involved on that side. One of our biggest differentiators in the services industry is our ability to partner. You have your alliance partners at the high end, and you have a very broad distribution channel in which no partner looks the same as another. There's a clear recognition that we must do a better job with our partners, both on the alliances side as well as on the channel side.

We are operating as one services company now, rather than a loose confederation of a lot of different services lines, which you might have seen in the past,for consulting we do this, for managed services we do that and for customer support we do this. These business lines still do exist internally, and they will at times be visible externally. But generally we are operating as one services business.

CRN: So consulting, managed services and customer support were the three business segments under the old HP Services model?

ROTTLER: Yes. We had education before, but premerger we moved that under customer support.

CRN: Which of those segments is the largest in terms of personnel?

ROTTLER: Customer support. In the new HP,and, for that matter, in the old HP and the old Compaq,customer support is really quite different from break-fix. There is a break-fix component in there, but what a lot of people get confused about is what we call customer support because it has a lot of proactive services in there: a lot of small consulting, integration and management activity. That is part of the reason why customer support is so big for both companies. The new HP is the largest customer-support organization in the world, bigger than IBM Global Services.

CRN: Tell me about the consulting unit. How many HP and former Compaq staff are housed in that division?

ROTTLER: I can't give you the specific numbers. It is quite sizable, and it is the second-largest business of the three, although managed services is really quite close. Our consulting biz is significantly above 10,000 employees. Overall, HP Services is 65,000 people, and more than half of it is customer support. When you look at how we're organized in consulting and integration, we have a very strong technology-infrastructure set of capabilities and practices. HP is the No. 1 IT infrastructure services company now.

CRN: And on what basis do you make that claim?

ROTTLER: When you look at distributed computing infrastructures, we have by far the largest number of employees and skill sets dedicated to this space, the broadest networks of alliances and channel partners and the broadest capabilities in terms of multiple platforms. If you go outside the Big Blue space,[i.e. the mainframe or proprietary AS/400 space,HP is the No. 1 player in the IT infrastructure marketplace. You just have to look at who else is out there. The other players are significantly smaller.

CRN: Is HP Services' main competitor IGS? Or would you throw a solution provider not affiliated with a given vendor into that mix?

ROTTLER: When you look at a profile of the companies and the mix between technology capability and services capability, IBM clearly is our prime competitor. We would probably lose a lot of credibility if we said we were going to be bigger than IGS in the next three years. However, it is our set objective to be the premier IT services company in three years. Today, we're busy making sure that the market understands that we are the biggest IT infrastructure services company. That is part of our marketing challenge. We look at that as being defined around who drives the highest level of customer satisfaction, who has the broadest reach into the channel and who's growing the fastest. We can't look at it, unfortunately, from a pure size perspective. If you do the math, IGS' outsourcing business really is fairly sizable to catch up with. But that doesn't mean that three years from now we shouldn't be No. 1 on customers' wish lists.

CRN: The public-sector/government space has been a bright spot. Do you plan to boost the number of HP Services staff serving that market?

ROTTLER: Yes. We have a more formal government business unit and approach than we've had before. In the old HP [in North America, while I had resources focused on the public sector, that structure was more formalized on the product side than it was on the services side. In the new structure, we're really very focused on the solution side as well.

Our overall [services approach is generally a lot more around collaboration than dictation. The competitor you mentioned earlier [IGS generally has more of an attitude that 'Your IT environment is so scary and so complex, and you are too stupid to manage it yourself. You can give it to us, and we will run it for you.' Of course, the advertising campaign wouldn't say it exactly like that.

Customers would like to see HP step up to the plate more and provide more leadership for end-to-end solutions. There is an acknowledgement that we partner well, but to the customer, it is still a little bit scary whenever you have multiple players at the table, [in terms of who points the finger at whom when something goes wrong.

CRN: How will HP Services work with solution providers? Should partners be concerned about all of the new Compaq services staff coming on board?

ROTTLER: I'm sure you're expecting me to say that our partners and our solution providers are more important than ever. That is truly the case. Some of the capabilities that the two companies brought are more complementary than overlapping, and they fill gaps that one side might have had. Compaq has brought a lot more Microsoft capability [to the merged company, and HP has brought a lot of high-end enterprise and Unix capabilities. We both have pretty decent Linux capabilities. Partners are a fundamental way to reach customers and markets that you can't reach directly. And they provide choice to our customers.

Within HP Services, we support all of those alliance partners, but we have drilled it down to [the ones that we are really going to focus on at a higher level. These would be the top five ISPs, your top few systems integrators and your top few other technology companies that we might need to complement HP's strengths. Say you have a complex deployment with one of those partners and something goes wrong. The rules of engagement need to be so clear that, to the customer, the partnership looks stronger [as a solution than if they would just go with a single-source provider such as IBM, for example. A lot of our work here is around how you counter IBM being a one-stop shop, which has its disadvantages. How do you harness best-of-breed but bring it together in a tight-knit partnership that really allows you to operate as an integrated force?

CRN: Which partners, specifically, does HP Services plan to give the most focus?

ROTTLER: The only caveat I want to give you is they are not exclusive. So if someone is not on that list but is on HP's overall partner list, it doesn't mean we don't partner with them or run programs with them. It's just that from a services perspective, we have singled out [partners where we are making an over-and-above investment. On the systems integrator side, those are Accenture and Deloitte Consulting. On the technology side, it is Cisco Systems. On the ISV side, it is Microsoft, Oracle, Siebel Systems, SAP and BEA Systems.

CRN: Will IBM's proposed acquisition of PwC Consulting push HP Services to alter its business strategy in any way?

ROTTLER: IBM's [planned acquisition of PwC Consulting does not change the fact that customers want an alternative to IBM, and that move may actually make companies even more anxious to source an alternative partner. HP Services is the obvious alternative, and we are already the leader in the IT infrastructure services space.

CRN: Some solution providers said they're really freaked out about IBM's acquisition of PwC Consulting.

>> 'In many cases, the primary way to get coverage into these small and midsize customers is through partners that have relationships with them-not us.' --Ralph Martino, IBM Global Services


CRN: They're concerned that the 30,000 PwC Consulting staff being added to IBM Global Services will mean even more competition for them in the field.

MARTINO: First of all, this [deal is not about combining two consulting businesses. It is more about creating a really powerful, new capability to help our clients solve their business issues with enabling world-class technologies. It is about adding good thought leadership, good process expertise and insight to help our customers and using the rest of IGS and IBM's capabilities to deliver value to our customers.

CRN: Plans call for PwC Consulting to be combined with IGS' Business Innovation Services [BIS group, which is the consulting arm of IGS. That seems to go against your statement that the acquisition isn't just about two consulting entities coming together.

MARTINO: Well, BIS today is much more than just consulting. It is where we have our industry insight, our process expertise, our systems integration, our transformational activities, etc. Already, we were on a model that was much more than just consulting.

The second piece is we are taking what you know as the current BIS organization and putting that in with PwC [Consulting and building a new unit within IGS. Its goals will be to drive good business values to customers, provide industry insight and process expertise, and then [execute the integration capability with our enabling technologies so the customer will have an end-to-end solution.

CRN: IGS gains a lot of Microsoft know-how with this acquisition.

MARTINO: Right. And we had a large Microsoft practice already in IGS. Also what comes is terrific leadership in CRM, supply chain, human capital and financial markets. [PwC Consulting is the leader in SAP around the world. They are strong in CRM with Siebel and PeopleSoft. They are the No. 2 e-business services provider behind IBM.

CRN: How many BIS people are utilized in engagements now?

MARTINO: What I would really rather talk about is, do we continue to balance our resources to the market demand? Absolutely. Do we think that there is demand for the 30,000 people that are being added to the BIS team? Yes. We think the market demand is there. We are not concerned that we will be creating a surplus of people here that will be on the bench. We feel very confident that, with the right solution and industry focus, we will have our people gainfully employed and working with our customers.

CRN: Since the beginning of the year, there have been at least two major head-count reductions in IGS. How does that square with the addition of 30,000 people under the proposed PwC Consulting deal?

MARTINO: The balancing of resources with the opportunity in a professional services business is an ongoing requirement. You just have to understand that when you live in this world,where intellectual capital and people [are your assets,that fundamentally you are going to be constantly balancing your resources with the opportunity. The challenge is to make sure those people are relevant, skilled in the areas where customers are demanding expertise.

CRN: Are there many staff redundancies in terms of integrating PwC Consulting with IGS? Do a lot of PwC Consulting staff serve on the administrative side?

MARTINO: No, the majority of them would be business consultants or solution specialists with solution or process expertise. Some of them, by the way, have IT services, outsourcing or information management expertise. They are going to move into the other similar units in businesses that we have within IGS. The ones that we have that are deep in business process [expertise will get merged with our BIS team to create this unit. The redundancies would be staff functions, back-office functions and non-customer-facing functions where we will find opportunities for efficiency.

CRN: At the IBM PartnerWorld 2002 conference in February, you said IGS would let partners take the lead in accounts with $100 million or less in annual

revenue. Will that remain IGS' stance going forward, in light of the PwC Consulting deal?

MARTINO: Yes, it will. This move doesn't change in any way what we have told our partners and what we have committed to them in terms of that decision.

CRN: Would you consider raising that threshold to $150 million, for example?

MARTINO: Not now. Not at this time. I think we have it at the right place for now. We will always look at it. We changed it before, and I think that has demonstrated our desire to stay tied to the market and what our partners' needs are.

CRN: IBM's recent moves, including the proposed PwC Consulting acquisition and rollout of the Manage It for Me offering, might make its partners serving the SMB space think that IGS is starting to zero in on their market.

MARTINO: All right, let me ask you a question. Do you think we have a lot of people covering small and midsize companies today at IBM?

CRN: I honestly don't know.

MARTINO: The answer is, not very many.

CRN: WebSphere initially was a product set tailored to companies of all sizes.

MARTINO: And partners embrace WebSphere big time. My point to you is that we have to get away from this fear that whenever we announce [a new capability to serve the midmarket, it's a threat. We need the capability to take the market. And in many cases, the primary way to get coverage into these small and midsize customers is through partners that have relationships with them,not us.

We are the largest services company in the world, with 9 percent market share. That means 91 percent of the market is up for grabs. So we have a tendency to talk about where we compete as opposed to talking about the other 91 percent of the opportunity that is not being served by IGS or any of our partners together.

Secondly, we have less share in this [SMB market than we have in the large enterprise space. We need partners to serve the midmarket space,period. We can't get there alone. We don't have the coverage to get there. Our track record suggests that we need help there.

These are the right questions. The inflection in my voice is not aggression, it's enthusiasm.

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