Double Trouble: Whitman And Weisler Lay Out The Plan For A Post-Split HP
Hewlett-Packard CEO Meg Whitman knew what was at stake when she arrived at the company's Palo Alto, Calif., headquarters at 3 a.m. on Oct. 6 with her executive team.
Three years earlier, Whitman, then a member of HP's board of directors, had witnessed firsthand the tailspin the company was thrown into after then-CEO Leo Apotheker revealed the company was considering spinning off its PC business. That news, which was accompanied by the announcement that HP was spending $10.25 billion to buy software maker Autonomy, had wiped out $16 billion in HP's market value and eventually led to Apotheker's ouster.
Now Whitman and her tight-knit executive team were at the company's headquarters in the dead of night to start making phone calls to inform partners about a plan to split the Silicon Valley institution into two new Fortune 50 publicly held companies. It was not lost on Whitman just how critical the next few hours would be to HP's future.
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"The communications had to land really, really well, especially given the history under the previous administration when we said we were maybe thinking about selling the PC business," said Whitman, recalling the early morning rendezvous to "follow the sun" across the globe with the phone calls. "We wanted to make sure that it was communicated well, that partners actually got a personal phone call from somebody, whether that was me or [HP Executive Vice President of Printing and Personal Systems] Dion [Weisler] or someone in the field."
Weisler, who was being named as CEO of HP Inc., the new PC and printing business company, recalls making phone calls, starting with reaching out to partners in Asia. "The communications was operated at military precision," he said. "The team did a fantastic job because we learned from several years prior where I think we figured out exactly what not to do."
By the time Whitman had called Tom Richards, chairman and CEO of CDW, the $11 billion solution behemoth that is one of HP's top partners, Richards had already received two other phone calls. "Better to have three people call you than nobody call you," said Whitman.
When all the calls were completed, the reaction could not have been better from partners, customers and investors to the formal launch of Hewlett-Packard Enterprise, the new $57.6 billion enterprise services, systems, software and infrastructure business; and HP Inc., the new $57.3 billion printing and PC business.
It was a fitting coda to a series of long, collaborative discussions that Whitman had begun with the company's board of directors starting in the late spring. It was by no means, Whitman said, a case of her deciding on the split and attempting to "jam it" through the board.
"It was multiple sessions because this was a big, huge decision," she said of the board meetings. "And so we had to think it through. We had to think of the alternatives. What is the best way to accelerate this transition? So this was a multi-month, very deliberate process where we thought: 'Is this the right thing to do for the company and for customers?' "
The historic split is now shaping up to be what solution provider partners are calling "double trouble" for HP competitors. In fact, partners say the split, which is slated to take effect Nov. 1, is poised to power a new business-outcome-focused channel sales model that puts Hewlett-Packard Enterprise and HP Inc. in prime position to take out those competitors still pushing old-school product-based channel economics.
It's more than just the pure channel economics, though, that has partners looking forward to the split. It is two more agile companies sharply focused on their respective markets that are being remade to deliver more innovative products at a faster clip than ever before.
Whitman and Weisler are pledging stepped-up R&D investments to drive further innovation backed up with a call to action to the channel to start talking business outcomes rather than product speeds and feeds.
Whitman, who will be president and CEO of Hewlett-Packard Enterprise and non-executive chairman of the HP Inc. board of directors, said the split has freed up HP and its partners to drive conversations with customers that are completely transformative. The way Whitman sees it, the new model gets partners out of the perennial product margin-squeeze game and into a high-margin consulting discussion that makes them and HP more relevant to businesses of all sizes.
Hewlett-Packard Enterprise is focusing on four transformation areas: on-demand infrastructure; protecting digital assets; empowering a data-driven enterprise; and enabling productive workspaces. "Increasingly for the partners to be relevant they need to be more of the trusted adviser, the guide on the journey to securing your digital assets or the on-demand IT environment," said Whitman. "And, by the way, this is something the partners have been asking me about for four years."
The HP hardware and software portfolio, combined with the HP Technology Services intellectual property that is being put in the hands of partners, makes HP the only vendor that can make the consulting transformation with partners, said Whitman. "This is a big deal," she said. Hewlett-Packard Enterprise is leading the charge with a new HP Enterprise Partner Ready program that eliminates the existing industry-standard sales certi¬fication model focused on products and replaces it with a single services certification aimed at driving business outcomes.
Not only that, Hewlett-Packard Enterprise is also allowing partners to sell and deliver transformational consulting engagements based on proven HP services methodology, something partners have not had access to in the past. HP is rolling out a pilot program around the transformational consulting sales model effective May 1 with a formal rollout slated for Nov. 1.
As for HP Inc., the company's HP Partner First program, which is slated to roll out Nov. 1, includes a new Value Track, which is aimed at driving more business around managed print, mobility services and "everything-as-a-service." There also is a new Alliance Track for ISVs and systems integrators looking to bring technology such as HP Inc.'s Sprout Immersive computing platform or its yet-to-be-released 3-D printing product to vertical markets.
Whitman sees the partner transformation to a services-led model as a multiyear journey. "Trust me, as I have learned when you are at this size and scale and then you magnify that size and scale by the partners, this takes time," she said.
"And it takes energy and it takes a little bit of trial and error to see what works. But I am convinced it is totally the right thing to do."
HP partners, for their part, said HP is taking a bold and aggressive step to move the two companies and their partners to a new era of dynamic services growth.
IT Partners, an HP Platinum partner, No. 424 on the CRN 2014 Solution Provider 500, expects the new HP channel dynamics to pave the way for it to double its services business over the next several years with dramatic pull-through on HP hardware and software products, said Mark Dallmeier, vice president and CSO/CMO of IT Partners, Tempe, Ariz.
"Anytime a market-leading technology company and an innovator like HP decides they are going to listen to the customers and the market and transform and change, it is big business not only for HP but also for the channel," said Dallmeier. "This has us doubling down on HP. They are setting the tone in the market. Every channel partner that gets behind HP now has the opportunity to double [its] services business. Because of this strategy, there is a large percentage of the channel that will now have the capability to grow anywhere from 25 [percent to] 50 percent in the next handful of years."
A Thought Leadership Position
Dallmeier said the new channel model puts HP ahead of competitors when it comes to channel thought leadership. "There are organizations that spout and tout numbers and metrics for channel programs," he said. "HP is taking it to another level. They are not only distributing methodology, intellectual property and knowledge transfer. They are transforming the conversations with customers. They are transforming and changing the way they are doing training and enablement. This is a very broad, sweeping initiative. You can't help but think HP is becoming the thought leader in making the channel relevant not only to HP but to the customer."
The split even has IT Partners, which up until now has been only an HP enterprise partner, eyeing HP Inc. offerings. "Meg has created this halo effect around the PPS business that is causing data center VARs to look at it," said Dallmeier. "That's because HP Inc. is absolutely and fundamentally changing the customer engagement and the services and consulting model on that side of the house as well. It makes you think, ’Wow, I can go create an end-to-end solution that has infrastructure, cloud, hybrid, on-demand IT, and a utility-based consumption model. I could also pull in some very innovative device-based technologies that help these vertical industries engage their customers in a more immersive way. Why wouldn't I want to be a part of that?"
As part of HP Inc., Weisler has set up a new Services and Solutions Group that is chartered with bringing "business model innovation" to the channel around a set of as-a-service solution sets. That means more partners selling managed print as a service, desktop as a service, mobility as a service and even everything IT as a service.
The as-a-service business model opens the door for SMB customers to "throttle up and down their computing demands," said Weisler. The managed print services model is already a fast-growing business for customers. Now, said Weisler, "you'll see us do that for PCs. You'll see us do that for mobility." He sees the as-a-service phenomenon catching on quickly even in emerging markets such as Brazil, where contractual IT-as-a-service sales make up 80 percent of the market.
It is more than partner business model innovation that is going to be kicked into high gear when Hewlett-Packard Enterprise and HP Inc. are unleashed later this year. The split sets the table for both companies to make more "new style IT" acquisitions and partnerships.
On the Hewlett-Packard Enterprise side, Whitman has made it clear that the company is going to use its $5.9 billion in net cash to good effect and leverage its Silicon Valley heritage to drive more partnerships. "We have an advantage over IBM, over Dell, over many other competitors because we are right here in the innovation hub of the world," said Whitman. "There may be times where we want to do joint go-to-market and there may be times when we want to make an investment in a company. And there may be times when we actually want to buy a company. So you'll see a lot of that."
Case in point: HP's $3 billion acquisition of wireless networking high-flyer Aruba Networks, which is scheduled to close before Hewlett-Packard Enterprise sets off on its own. Aruba, which has 1,800 employees, grew sales 21 percent in the last fiscal year and is being viewed by partners as just the kind of deal HP needed to make to take share from networking market leader Cisco Systems.
Mark Melillo, CEO of Melillo Consulting, an HP Platinum infrastructure and software partner, No. 293 on the CRN 2014 Solution Provider 500, said he sees the split putting Hewlett-Packard Enterprise in prime position to capture share vs. competitors in a software-dominated market. HP is upping its enterprise software game just as HP competitors are looking at margin pressure on their traditional businesses from the shifting competitive landscape.
"The split is great for enterprise partners," said Melillo. "There has been too much time and energy and confusion of business models with HP trying to design a partner program that works across two very different businesses. Software is going to play a bigger role in [Hewlett-Packard] Enterprise. The future is all about software, whether it is software-defined networks or software-defined data center. The split just means more focus on that. For someone like me, this is a dream come true."
Based on the split and HP's move to open up its Technology Services portfolio to partners, Melillo expects his HP business to increase 35 percent annually over the next three years.
HP Inc. In Action
Weisler, meanwhile, is upping the R&D investment in HP Inc. and promising that investments in 3-D printing and immersive computing will turn up the heat on competitors. "I think both of us [HP Inc. and Hewlett-Packard Enterprise] get much stronger, much more clarity of thought, more exible, more agile," he said. HP Inc. is making the big innovation investments that will set the company up to be successful for the next 20 to 30 years, said Weisler.
That includes a big investment in Multi Jet Fusion 3-D printing technology. HP is focusing on the commercial market, where it is leveraging its PageWide Array technology to bring to market in 2016 10 times faster 3-D printing speeds at higher levels of part quality and reliability. "The hype is in consumer," said Weisler. "The real market making is in commercial."
Ultimately, said Weisler, the 3-D market will be as big as HP Inc. can make it. "This is not a one-year journey," he said. "This is not a two-year journey. It is a 10- to 20-year journey. The technology is breakthrough."
Kris Rogers, senior vice president of partner and product management at PCM, a $1.5 billion El Segundo, Calif.-based solution provider that counts HP as its largest vendor partner, said she sees Weisler as a "rock star" CEO who is set to drive an unprecedented level of innovation in the printing and PC markets. "Look at the products that he has already brought to the market, like Sprout," she said. "I think the PC and printing business is doing some really cool things. This enables Dion to really drive it further."
Ultimately, Rogers said she sees the split as a net positive that will drive innovation and agility across both companies. That's a big plus for PCM, which does business with both sides of HP, counting HP servers and storage as its No. 1 sellers in those markets. "Both companies have very different motions with very different agendas," she said. "This allows them both to be much more nimble."
What's more, Rogers said the stable leadership team as the companies split is a big advantage. "They have very talented management teams," she said. "This just makes their jobs a little bit easier. That tells me they are better positioned than they were before."
Executing On A Five-Year Plan
Partners say they see the split as the culmination of Whitman's five-year plan to restore HP's legacy as a Silicon Valley innovator. They say the creation of two new companies marks the start of a new era for one of Silicon Valley's crown jewels, a company whose birthplace—a garage several miles from HP's headquarters—is now a museum that is listed on the National Register of Historic Places.
Al Chien, who spent nearly 20 years at HP before taking a job seven years ago as executive vice president of Dasher Technologies, a Campbell, Calif.-based HP Platinum partner, said Whitman has re-energized HP and its partner base. "There's a great sense of urgency," he said. "Everybody realizes there is a tremendous opportunity and that speed and ef¬ficiency matters. HP is more dynamic now with a higher level of accountability."
The overwhelmingly upbeat response to the split is a testament to Whitman's leadership, said Chien. "How often does a chief executive lay down a plan for ¬ ve years and execute perfectly against it?" he asked. "We are now in year four and it feels like clockwork. It can't be easy to split a company like HP into two new Fortune 50 companies, but we haven't felt a thing. And I don't think there are going to be any hiccups or disruptions. That's because it has been so well conceived with an unmatched level of orchestration and collaboration. Meg has brought everyone behind her vision for HP."
Before Whitman took the helm, Dasher made a number of investments to hedge its bets. Now, Chien said, he couldn't be more bullish about HP's future. "Before Meg, there was a period of time when it was pretty dark," he said. "We weren't sure what was going to happen to the relationship with Dasher. Today, our business continues to mature and the partnership is stronger than ever. We are extremely bullish about our partnership with HP and our ability to serve customers together."
Melillo Consulting's Melillo said Whitman's channel passion is a big HP differentiator. Whitman has stepped in to help Melillo Consulting close deals with customers a number of times, he said. "Meg is very willing to get involved," he said. "I don't know if HP really had someone that did that well before Meg. She genuinely wants to do it. That is the magic of Meg. She is not hiding from problems and conflicts. She is willing to get in there and help partners fight to win deals. Some manufacturers look at the channel as a necessary evil. I think Meg looks at it as a competitive advantage."
Cyndi Privett, who has been analyzing the channel's twists and turns for 22 years as the principal at Viewpoint Research, Scotts Valley, Calif., said that she sees Whitman's move to a services-led channel model as a landmark moment for HP and its partners. "This is really brave on Meg's part," she said. "HP has this tremendous technology services war chest to protect and a huge furnace to feed with HP services. Instead of going into protection mode, she is changing the channel landscape."
IT Partners' Dallmeier, for his part, said he sees the split setting up both companies to be successful over the course of the next 15 years. "Meg's legacy is going to be that she not only helped turn around and transform the largest technology company in the world, but she successfully split the company and established two separate companies on a path for long-term growth and long-term shareholder value. And that is a monster legacy that is going to be difficult to follow."