HP's Hurd Promises Payback For Partners That Commit

Help slay the dragon.

That's Mark Hurd's rallying cry to solution providers attending Hewlett-Packard Co.'s Americas Partner Conference in Las Vegas this week. But HP solution providers have a big question for Hurd as well: What do I get in return if I make a greater commitment to HP?

After almost three years at the helm, HP's chairman and CEO has transformed a company in disarray into the world's largest IT company. In a conference call with reporters last week following the company's first-quarter earnings report, Hurd said that based on anticipated cost savings and share gains in key markets, HP was raising its fiscal 2008 revenue estimates to between $113.5 billion and $114 billion. HP had originally anticipated fiscal 2008 revenue of $111.5 billion.

Meanwhile, in a one-on-one interview in the boardroom of HP's Palo Alto, Calif. headquarters, Hurd minced no words in what he expects from the vendor's solution provider partners as he chases a bigger share of what analysts expect to be $1.2 trillion global IT market by 2009.

"We need quality partners," Hurd said. "If we have partners that can't get it done, I don't want them helping us. 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 the 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," Hurd continued. "If you want to get on the cutting edge and kick some butt and go get something done, then come hang around with us."

In return, Hurd said HP is willing to shift more money to its most loyal partners. "We're taking money away in areas that we don't think are of value," he said. "We're not trying to say all partners are going to always be the same. There are some partners that are willing to step up. And our point is, OK, if you're going to make that commitment, we're going to make that commitment too."

But Hurd's promise of greater commitment comes amid a growing undercurrent of unrest among those very partners that have heeded his call and put more resources behind their HP relationships. Some exclusive partners complain that HP's flagship PartnerOne rebate program is fraught with sales data reporting errors, making rebate payments unpredictable at best. And with a growing portion of the rebate money tied to hitting aggressive growth goals, some of these partners say their rebate money is declining even as their overall HP business grows.

Moreover, partners that have opted for HP exclusivity say gaps in the vendor's storage line are putting a damper on their storage business even as Hurd promised to make storage a top priority in 2008.

"We're going at it hard from a product perspective," Hurd said of the storage business. "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."

Still, bridging this growing gap between his persona as a dynamic, no-nonsense CEO who has turned around HP's fortunes and his promise to put more money behind those loyal partners may well be Hurd's biggest challenge for 2008. And solution providers say a good start would be for him to back away from hinting that loyalty equates to exclusivity.

"I'm as loyal to HP as anyone can be," said Rick Chernick, CEO of Camera Corner/Connecting Point, an HP solution provider in Green Bay, Wis. "If he is saying, I want you to be a committed partner, I'm a committed partner. If he's saying to people, I want you to be 100 percent HP, that's kind of tough. I have to have choice in certain product lines. I'm not in Chicago or Houston where I could do $50 million in HP product and make a living. I have to be diversified because my marketplace doesn't allow me the privilege of just having one line."

Other partners agreed Hurd has gone a long way in rebuilding HP's channel relationships, but said exclusivity simply isn't a reality when solving customers' business problems.

Next: Channel Organization

"HP has a strong channel organization, and if you go back prior to Mark Hurd and you think about the relationship the channel had with HP back then, it was horrible," said Brian Deeley, a principal of Graymar Business Solutions Inc., a solution provider in Timonium, Md. "Other than this argument about loyalty, I think a lot of the channel conflict has gone away."

Deeley says his perception of Hurd's definition of loyalty is that it equates with greater attach rates, but that attach rates aren't the same as exclusivity. "It goes back to following the brand line—if you are going to lead with HP, you lead with HP. With that I agree 100 percent," Deeley said. "But if you say I can only sell the HP brand exclusive of all others, what does that do in relation to my business model when I have government contracts and I get requests for product for which there is no substitute? Do I turn that business away? If I sat down and had that conversation with Mark Hurd, I don't think he would take that exclusivity to the extreme."

For his part, Hurd said he has to think of HP partners no differently than an HP-badged employee. "That's what I keep saying to partners; you're me and I'm you," he said. "It's got to be one integrated relationship. It can't be confrontational."

And Hurd knows that it's vital to get the partnering formula right. He admitted that as HP seeks to continue to grab share in the global IT market, he simply can't hire enough salespeople. While he's added some 2,000 salespeople last year alone, that's not nearly enough to get the job done without the help of HP's channel. But at the same time, he's willing to go to battle with fewer, more loyal channel partners.

However, some small HP VARs say more stringent requirements to maintain authorization, including one that requires HP solution providers to annually sell $10,000 worth of service CarePaqs, seem designed to thin the vendor's channel ranks and is forcing them to take a closer look at Dell Inc.

Mike Golshani, owner of Aamcomp Inc., an Oklahoma City solution provider that does about $500,000 annually in HP products and services, says he may be forced to switch to Round Rock, Texas-based Dell because of the new CarePaq sales requirement. He says that it's difficult to sell CarePaqs with HP systems because of HP's reputation for reliability and because most systems come with a three-year warranty. "I have customers that buy 200 to 300 HP units at a time and they've had less than half a percent defect rate. They ask me why they should they pay for a CarePaq?" he said.

Golshani notes that he currently sells about $1,800 annually in CarePaqs and now fears his HP authorization is in jeopardy. "If we switch to Dell, granted, we're not the largest reseller, but half a million dollars is going to turn over to Dell, and I don't understand it," Golshani said. "You can do either HP or Dell but you can't be both. It's a matter of which one you commit to. We have made commitments to HP, now we have to change our tune and change our stories and change our ways. As far as loyalty, for God's sake we have been selling HP for 22 years. We've done everything they've requested and we've spent a lot of money on education and keeping authorizations."

Still, some solution providers say that Hurd and HP has gone a long way in elevating the status of solution providers relative to HP's growing success in the marketplace. "We are still lucky that HP cares enough about us that they are still sending signals out around the world that we are important to them," Camera Corner/Connecting Point's Chernick said. "I'm not getting that from anybody else."