HPE Reduces Internal Comp Plans From 400 To 25 As Part Of Sweeping 'Next' Overhaul

Hewlett Packard Enterprise is dramatically revamping its internal compensation, reducing the number of sales plans from 400 to 25 as part of its Next restructuring initiative.

The sales compensation change also reduces the number of HPE internal sales reps that can be compensated on a deal from as many as 30 on a single deal to a maximum of three reps comped on a deal.

HPE President Antonio Neri, who is leading the Next restructuring initiative, announced the changes – which include reducing management layers from as many as seven to four – at HPE's securities analysts meeting Wednesday.

"We have redesigned our [profit and loss] accountability structure and reduced a significant amount of overhead," said Neri. "By doing this, we are empowering our front-line coverage with accountability and [moving] decision making closer to our customers."

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[Related: HPE's Meg Whitman On Upcoming Changes To Field Compensation, The Impact Of Dell On HPE's VMware Relationship And Why Hardware Still Matters In The Software-Defined Era]

HPE CEO Meg Whitman alluded to the changes last week at The Channel Company's Best of Breed (BoB) Conference, where she foreshadowed the new strategy.

"We're going to reward, from a compensation perspective, we're going to incentivize our team to be more about value and more about growth," she said at BoB.

The sales compensation change unveiled Wednesday was one of a number of strategy shifts HPE executives introduced during the securtiy analysts meeting, including a retreat from selling commodity custom servers to Tier One service providers, the launch of a channel-only sales strategy in a number of global markets, the elimination of 40,000 active product configurations in HPE's volume and value business and a revamping of internal IT systems.

The CEO for one of HPE's top enterprise partners, who did not want to be identified, said the sales compensation plan simplification will be a boost for both partners and customers.

"Taking the sales layers out between [Whitman] and [Neri] and the sales teams is the greatest thing that HPE could have done," said the solution provider CEO. "Meg and Antonio are buffered from a lot of problems that get lost in the 'he said, she said.' The fewer layers, the better it is for the channel."

The solution provider CEO said that the number of HPE internal reps paid on deals was out of control. "There were some HPE sales people paid on deals that never did a thing," the CEO said."This is going to save a ton of margin. The fewer people paid on a deal, the better. This had to be done. I applaud HPE for making this move. This is a problem for many other vendors."

The HPE Next initiative, announced earlier this year, is aimed at re-architecting and simplifying the structure of the company, with plans to reduce costs by as much as $200 million to $300 million in the current fiscal year. HPE is aiming for $1.5 billion in cost savings over a three-year period.

HPE also said it will cease selling volume, custom-designed, commodity servers to the Tier One service providers like Amazon Web Services and Microsoft Azure and instead focus on driving higher-margin compute products.

"The reality is this [volume market] is a challenging, declining market," said Whitman during the analysts meeting. "We are competing with public cloud, white box and [Software-as-a-Service] providers, so we have to think differently about how we design, build and sell those products."

The Tier One commodity custom server retreat will be accompanied by "low-touch" volume server approaches like e-commerce and inside sales teams so "customers can buy on their own terms and our sales teams – our direct sales teams and the teams that manage the channel – can spend more of their time on higher margin opportunities," said Whitman.

The sales compensation change is one of a wide range of Next restructuring sales initiatives aimed at driving higher margins and sales growth.

"We have implemented a new operating model for a new Hewlett Packard Enterprise that reduces the number of layers between the CEO and our country sales manager from six to seven layers down to three to four layers, while protecting our front-line sales coverage," said Neri.

As part of the Next restructuring, HPE is reducing the number of markets it is directly serving through internal sales reps from 160 countries to 76 countries. Those 76 countries produce 99.5 percent of HPE's sales and 100 percent of profits, said Neri. The countries HPE is pulling its own employees out of will be served by a "channel-only" model, said Neri.

"This will allow us to be even more focused and to shift our resources toward the areas where we see the most significant returns for our company and shareholders without the distraction of markets that don’t move the needle," he said.

HPE is also dramatically simplifying the number of configurations in its volume and value server business from 50,000 active configurations to 10,000, said Neri.

That change in active configurations will be accompanied by a reduction in the number of volume server platforms from 26 to 10 and the number of value compute platforms from 27 to 7, said Neri.

"These upstream changes in our offerings will dramatically streamline and simplify our operations, while reducing the cost to serve our customers and partners," he said.

HPE is also shifting the number of manufacturing locations from 17 to seven, said Neri. "This will greatly simplify where we build our products, consolidate our volumes, streamline our logistic network and improve cycle times," he said. "This will translate into lower cost and an improved customer and partner experience."

HPE is also reducing the number of workforce locations from over 100 decentralized locations into eight central hubs, said Neri. "By consolidating our support resources into these hubs we expect to improve our efficiency, while improving top quality service to our customers," he said.

Finally, HPE is dramatically revamping its internal IT systems and business processes, moving from 1,000 business processes supported by 10 ERP systems and more than 950 applications to just 100 business processes with a single global ERP system with 350 applications, said Neri.

"This business and IT transformation will position us much better for the future, make us much more customer-centric and will increase speed and agility as well as improve our cost structure," said Neri.

All of the changes strike at the heart of the complaints of partners and customers that say doing business with HPE is too complex, said Neri. "Their feedback has been consistent," he said. "We have too many organizational layers, no clear accountability and our customer-facing employees don't have the empowerment and tools needed to meet their needs. Our execution is simply uneven in a market that is shifting quickly."

Whitman, for her part, said HPE is "doubling down" on the channel and partner ecosystem. "That means doing more with system integrators like Accenture and Wipro that we didn't do much business with when we owned [HPE] Enterprise Services [which was sold to CSC to create DXC]," she said. "They saw Enterprise Services as competitive to them. We have an opportunity to do a tremendous amount more business with those [system integrators.]"