CRN Exclusive: CEO Meg Whitman On Everything You Need To Know About HP's Split

Whitman On How HP's Split Will Be Better For You

Hewlett-Packard CEO Meg Whitman held court at this month's Best of Breed Conference with a wide-ranging discussion on stage in front of an audience of 200 solution providers and industry executives. Then she sat down with CRN for an exclusive interview with Channel Company CEO Robert Faletra and Executive Editor of News Steve Burke, where she dug into the ins and outs of HP's forthcoming split. Here are edited excerpts from the no-holds-barred conversation.

What is the key to succeeding as a big company in the current technology market?

I think you have got to have one foot in both worlds right now. You heard me say that 80 percent of the spend is still in traditional IT. So you have to do that really well while you position yourself for the future. I think speed is [vital]. I have never seen anything like this. It is amazing. You have to get your cost structure right. You have to get your go to market right. You have got to get your solutions architects right … You have seen a lot of separations recently: Philips, eBay, Symantec. I think it is because of speed. It is that ability to be quick, be fast to market, spot the trends, jump on them and then make sure you have your cost structure such that you can be competitive.

Do you think we are going to see a lot more splits of big IT companies?

I wouldn't be surprised. I can't tell you who. I can't tell you when. I think there is this pressure for speed and to reconfigure your cost structure, reshape your workforce. I think that is important. I think you will see more of it.

So the big companies are the ones that have to break up?

Well, the big companies have got to figure out how to move fast. There is almost a gravitational pull towards bureaucracy and slowness as you get big. I mean, I saw this at eBay. When I started it was $4 million in revenue. When I left it was $8 billion. Our speed at $4 million was much faster than our speed at $8 billion. So how do you grow big while you stay small? How do you grow big and successful while you remain nimble? Whether you are a $100 million or $500 million [company] the challenge is exactly the same.

Can you remain a big company in the enterprise technology business and be successful?

We will split into two Fortune 50 companies. They are not peanuts. But I think, frankly, two $57 billion companies will be faster than one $114 billion company. So that is part of the reason we are doing it. But we have to be nimble as a $57 billion company on the HP Inc. side as well as the Hewlett-Packard Enterprise side. So, yes, I think it gives us a chance to reshape the cost structure.

Very rarely do you get to re-fashion two Fortune 500 companies -- that is the opportunity that this presents -- and then ignite again the innovation engine. Innovation has to be our point of difference.

Talk about what changes partners and customers will see as a result of the split.

I want to underscore this. All of the progress we have made, you will see it continuing. We will continue to invest in Unison, SmartBuy, DirectBuy, all the things that we have worked on. All the work we are doing around market development funds, deal registration, all of that. We will continue the investments on that. So [you'll see] more of what we have done well the last three or four years.

Will innovation be accelerated with the split?

I think you will see the pace of innovation pick up because it'll just be more focused. [HP Inc. CEO and current HP Executive Vice President] Dion [Weisler] (pictured) will spend even more time on printing and personal systems. When you are part of a big company there is a certain amount of overhead that Dion spends helping me run HP. [HP Enterprise Executive Vice President] Bill Veghte spends a fair amount of time helping run HP. I think Dion may pick up 20 percent of his time to just focus. And then after the split I will be 100 percent focused [on Hewlett-Packard Enterprise] except for being chairman of the board [of HP Inc.].

How do you feel about HP's competitive position after the split?

I am really excited about this separation. This is the right thing for our partners. It is the right thing for our employees. It is the right thing for our investors. I think we are going to be in a really good position. I think we will be in a stronger position than we are today.

Does the split help you get more partners engaged at a strategic level?

You know this community better than I do. Many of them have chosen to focus on either a PC or printing kind of offering or really a solutions data center compute offering. As I said, only 20 percent of our partners actually overlap, which was surprising to me actually.

So I think it will allow us to grow our partner footprint, to be more meaningful to the partners that have chosen which place they want to invest. I think we will be more meaningful and we will be even more focused on those partners who have made the bet on us.

From an organizational standpoint, does the split allow you to engage with partners differently?

It is hard to quantify, but it is [about] focus. It has been very interesting to watch just since the announcement. You can see the organization saying 'Wow, OK, I've got a job to do here.' It is very interesting. Enterprise Group, which is an important part of Hewlett-Packard, is about 25 percent of the revenues. ... It will be half of the revenues of Hewlett-Packard Enterprise. So all of a sudden the Enterprise Group is sitting there saying, 'Wow, OK!' It is just an interesting mindset.

Has the split affected cost strategies around the businesses?

From a cost perspective it is fascinating. We have many, many offices around the world. We started out with about 860 offices. We are down to 660. I think we need to go even smaller. Why do we have five offices in a city?

Since we announced the separation [the attitude is] we don't actually need those offices. It is just a fascinating mindset change around ownership. It is an owner mentality which the partners deeply, deeply understand because most of them are all owners, and they eat what they kill. I think there is going to be a bit more of an 'eat what you kill' mentality.

How are you going to keep the right people focused on the external part of the business with the split?

Virtually no one will have a foot in both camps. We have a separation team and we have a business run team. [Veghte] (pictured) is on the business run team and the same with [Weisler]. And then they have an individual on each of their sides who is running the separations for them. And then I've got a separation management office that will worry about the tax and the legal and all the back office, the three years of financials and things.

What kind of behavior you are seeing, and how you are going to get a competitive advantage on cost and innovation?

This would be hard for people to understand. But I think first and foremost it is an owner mentality. ... Think about how you think about your business. It is the same. All of a sudden I have got a whole lot more people who have an owner mentality. So they think harder about cost, about how much corporate overhead they are willing to take. Less. And the sort of control over their P&L, how they want to invest resources. It is a way to push decision making down in the organization, closer to the customer. I can see it happening already.

What impact will the split have on research and development?

The R&D teams are sort of fired up here. They are like -- 'OK!' People just feel like they have got more control of their destiny, and we are going to be able to align rewards and results much more closely. … Two years ago PCs fell off the face of the earth. The rest of the company was like, 'What was that?' Now PCs are doing really well. And so this will be more accountability and control over their own destiny which, back to this notion of speed, is a really important thing.

Are people underestimating the competitive advantage of the split in the near term?

The proof will be in the pudding, but I think we are going to be a much stronger competitive force by being in two companies. We will retain the benefits. We will retain the continuity of leadership. But I think we are going to be stronger and faster.

Will we see new products green-lighted at a faster clip with a better cost advantage in the short term?

Yes. I think so. You will see some very exciting product announcements coming out over the next three to six months. We are moving faster than we would have otherwise. It is also clearer decision making.
You know big companies. You sort of have to move decisions up the chain. The chain is going to be a lot shorter.

What is the impact on HP Security Business and the future for that business?

I think the future is very bright. For the partners, listen, I don't care whether you are JP Morgan, Chase or a local bank, the security issue is as acute. And every management team and every board of directors is now very concerned.

So I think there is a real opportunity for partners to make sure that their customers have a security health check. If I was a partner I would be building a security health check.

How ridiculous are some of the valuations of the technology sellers?

Well I would say first is we have seen this happen in Silicon Valley a number of times. There was the internet bubble of 2001-2002. When you have a small company that is growing very rapidly that has a chance to fundamentally reshape the industry, those valuations are going to be big. And it has always been true.

A lot of these valuations just don't make sense from a net presence value perspective. You have got to be disciplined. You have got to be thoughtful. And you have to be right.

How about the big tech company stock valuations?

I think a lot of the big cap tech companies I would say are actually undervalued. I think HP is undervalued. Look, our P/E is below many of our peers. One of the things that I think this separation will do is be accretive to shareholders for sure. A lot of these big companies are undervalued. That is because this is the technology business. You have seen this movie before many times.

How does it feel to have the balance sheet you have got going up against some of the competitors?

We feel really well positioned. I think it is important for people to recognize the progress that has been made over the last three years. People forget this company faced pretty difficult times. We are much stronger and have a much better connection to customers, innovation engine, go to market. Look at all the tools that we have put in place for the partners. It is kind of breathtaking when you think about it. We went from, I think, falling behind to perhaps leading the pack.

What is the printing business opportunity?

Ink in the office is a big opportunity [and] managed print services, which is a real opportunity for the partners. There are countries in the world where almost 100 percent of printing is delivered as a service. People don't buy printers and stick them at the end of departments anymore. They basically say to a partner, 'Could you manage my entire printing operations for me? Figure out what printers I should have, where they should be, how to manage the cost?' There are big opportunities there.

How will this Hewlett-Packard Enterprise company stack up against Cisco?

We have a real opportunity with our HP Networking Group. We have gained share every year, and we need to accelerate that share gain whether it is software-defined networking, campus/branch, wired/wireless convergence, the data center, there is a big opportunity here. HP Networking will get more attention I think in Hewlett-Packard Enterprise. And HP Storage will get more attention in Hewlett-Packard Enterprise. I think that will be one of the benefits of the separation. We just need to continue to gain share [in HP Networking]. We have a price advantage. We have a total cost of ownership advantage.

Talk about how HP runs its own infrastructure on HP networking and storage.

Hewlett-Packard -- this $114 billion company -- runs our entire IT infrastructure on HP storage and HP Networking. And John Hinshaw, [executive vice president of technology and operations at HP] -- who has been the CIO at Verizon, the CIO at Boeing -- he will tell you that the total cost of ownership, the uptime, is better on HP Networking than it is on Cisco. That is a story we have to continue to get out and tell, particularly for state and local government. That is a sector we probably have the highest share of HP Networking, because they are very price-sensitive.

Who do you see as the biggest competitor now for HP Inc.?

The brilliant thing is we have segmented the competition. We were fighting a lot of wars on a lot of fronts. So the HP Inc. business, for the printing side, obviously it is Lexmark. It is Brother. It is Epson. Xerox. That is a pretty big competitive set, but now will just have the focus of HP Inc. Obviously on the PC side it is Dell, Lenovo, etc.

How about the biggest competitors for Hewlett-Packard Enterprise?

Over here [at Hewlett-Packard Enterprise] it is the upstarts. It is IBM on the services side. We are the No. 2 services business in the world, so the services business will get more focus. It is Cisco. It is EMC. It is VMware. But it is a more focused competitive set. I think that will be one of the benefits. You'll just have more focus.

Is the EDS acquisition, which became HP Services, a deal you wish was never done?

No. I think for the company owning a services business is an important thing. HP Enterprise Services has a small number of very big customers. We have basically 270 huge customers. I mean they are Fortune 50 customers around the globe. The P&Gs of the world. The U.S. Navy. But that is an important segment for us because we run their entire IT backbone. We have dialogue at the highest level of those companies. We see the trends emerging at these big companies. So it is a very important part of our overall business.

How big was the integration challenge with the EDS services business?

It had obviously a tough integration into HP. I think it had more CEOs than HP had CEOs. So we have had continuity of leadership with [HP Executive Vice President Enterprise Services] Mike Nefkens (pictured). And they are on their turnaround plan -- more work to do. That is a longer lead time business than PCs or servers. There is a transaction element to the business that your partners do with us. This is a long lead time contract business. We are doing proposals today that will be decided in 2016.

How long was the HP separation being planned?

So we have in fact been thinking about this for a while. You have to think hard about this. It is at such a scale: 275,000 employees, 150,000 partners, 166 countries, and the server sales rep in Kazakhstan, actually needs to know the story. It is a military precision [operation].

You have to have the package, the talking points. You have to be able to equip the partner sales reps with what to say on the phone. It is a big operation. I am really proud of how we did this.

When was the 'aha moment' when you decided to separate?

There isn't actually an aha moment. You think about it. You do the analysis. You weigh the pros and cons. Obviously it's a board-level decision. I mean the board was deeply, deeply involved in this. And then ultimately someone has to make a decision based on all the input. It was obvious to the board and to me and to the senior leadership team -- the senior leadership team was involved from day one -- that this was the right thing to do for customers, the right thing to do for partners, the right thing to do to get ahead of the curve here.

You are going to be chairman of HP Inc. and CEO of Hewlett-Packard Enterprise. What do you think is going to be your greatest asset?

I would think No. 1 -- and you know this from your business. Everyone sitting in that audience knows this -- it is all about the team. The right people in the right job at the right time with the right attitude. If you don't have the team, you will not be successful. I think we have built a really good team here. I think the partners actually see the team: Stephen DiFranco, Scott Dunsire, Sue Barsamian, Jos Brenkel and then all of their lieutenants. I mean this is a really good team globally.

Talk a little bit about how much more money you think partners will be able to make with HP Inc. and Hewlett-Packard Enterprise two years from now?

Partners make money in three ways. Are they growing their business? So are they getting new customers or are they selling more to existing customers? I hope we will be able to accelerate that, so new customers and being more meaningful to the customers that they have. And then we want to be the most profitable financial arrangement that any of the partners have. Do they make margin on us and is the volume there? Because remember, it is margin percentage, but it is also margin dollars.

Does that mean as you become more profitable you want to share more of that with the channel?

We do. I mean, we want to be the partner of choice. So if you are a partner that is interested in printing and PCs, we want to be your very best choice. If you are interested in the data center and the future of compute and software, we want to be your very best partner.

Are you concerned that as you go through the split you are going to be harder to do business with?

We are going to try real hard not to have that happen. This needs to be invisible to partners. They need to be like 'Wow that was easy!' Remember the Staples tagline: 'That was Easy!' The button. We need this to be invisible.

Remember their Unison portal will be the same. So a lot of this will stay exactly the same.

What is the commitment on channel spend and channel commitment going forward as you go through the split?

Channel commitment: the same. I don't think it can get any stronger than the commitment that we have to the channel. We have demonstrated over the past three years that we are incredibly committed to the channel. That will not change one iota.

In terms of how the partners benefit from this, there is the R&D dollars, which is an operating expense, that will continue to increase. That has to be our edge. That has to be what we bring to the table. And then marketing dollars.