Fiorina: HP's Future All About Execution

Speaking at the HP Security Analyst Meeting in Boston, Fiorina said the transformation of HP, which began with its merger with Compaq Computer in September 2001 and was followed by a string of acquisitions, has been completed. The formation in May of HP's Customer Solutions Group, and the combining of HP's global operations, in terms of "systems, processes and people," made the transformation final, she said. All that's left now is for HP to be able to perform with "consistency and discipline going forward," Fiorina said.

"Fundamentally, we now have completed the transformation of our operating model and our operating structure. We now have arrived at the place where we wanted to be," she said. "It's really now all about leveraging the portfolio we built for leadership in each of the markets we serve. To truly leverage the potential of this firm, it comes down to execution."

In general, the gradual but inevitable trend toward all content being transformed into some form of digital media presents the market opportunity for HP, Fiorina said.

"Our role is to accelerate this trend, and our role as well is to help integrate the physical and the digital world. That is why we have made the choices we have made around our portfolio. That's why we participate in the consumer market, in the public sector market, in the small and medium[-size] business market, as well as in business to business. It's why we believe it's important to lead in imaging and printing, and computing, and services and software."

Fiorina said HP faced three key goals: improving current business, growing current business and growing new business.

Growth in existing customer accounts represented a particular challenge for HP, she said. "Within the existing customer relationships we already have, in most cases on average we only have 10 percent of their total spend, so there is a big opportunity to leverage existing relationships," said Fiorina.

Fiorina said HP would continue to improve its cost structure. "What that translates into is that we will always be looking at our workforce and thinking about how to improve the productivity of our workforce, which includes reskilling, retraining [and] in some cases hiring from the outside. It means making sure we have the right work in the right places, which means in some case taking jobs out of certain locations and adding them in other locations. You'll see us eliminate some jobs and add people in other jobs," Fiorina said.

The fourth-quarter 2004 turnaround in profitability of HP's Enterprise Servers and Storage unit from a third-quarter loss showed that the company had the discipline to execute on its future plans, Fiorina said.

"It is now no longer about our potential. Our potential is clear," she said. "It is all about leveraging that potential and executing."

On the channel front, Mike Winkler, executive vice president of HP's Customer Solutions Group, said the company will grow sales through its partners as well as its direct-sales force. He pointed to HP's new enterprise engagement model, which redraws the company's line in the sand for enterprise accounts and hands over 250 accounts to the channel, representing a $5 billion sales opportunity.

The new model is part of a "more carefully partitioned" direct-sales and channel structure, Winkler said. HP also has refined its sales model and compensation to incent its sales force to sell higher-margin products and solutions, he said.

In fact, in the current fiscal year, HP tripled its number of sales reps and managers with margin-based compensation and incentives, according to Winkler. He said 15,000 salespeople and managers, or two-thirds of HP's sales personnel, are now compensated on margin rather than on revenue. As part of that effort, HP also is increasing the number of software specialists worldwide by 20 percent in the first half of its fiscal year, which comes on top of a 25 percent increase in U.S. storage specialists in the last quarter. HP, too, aims to reduce its selling costs as a percentage of revenue by 15 percent, he said.

For the direct volume PC business, HP is providing new tools for its outbound and telesales force, Winkler said. The company also is implementing a new "hunter/farmer" sales model that should yield a four-point gross margin benefit in that business, he said.

And as evidence of HP's success in partnering with systems integrators, Winkler said that last year the company saw 51 percent year-over-year growth with its top four global integrators: Accenture, BearingPoint, Capgemini and Deloitte. He said HP's market share growth with integrators has come to some degree at the expense of IBM, which was leading partner with all four of those integration firms before it acquired PWC Consulting. Now HP is the leading partner in three of those integrators, Winkler said.