CRN Exclusive: HP CEO Meg Whitman On Splitting The Company, Impact On Competitors And A Thirst For Acquisitions

On the market-shaking impact of the split

HP CEO Meg Whitman spoke with CRN at this week's Global Partner Conference about a wide range of issues from the impact the split is going to have on competitors and the likelihood of more acquisitions for Hewlett-Packard Enterprise.

Why should competitors be concerned about the impact the split will have?

I think it is the same reason partners should be pleased. It is that we are going to be faster; we are going to be on the market trends faster. The R&D engine will move more aggressively, and we will be out there shaping trends as opposed to reacting to trends.

And that is who this company is. If you look at what we are doing in Network Functions Virtualization for the telcos, we are miles ahead of [competitors on] this. We are actually shaping the market. And that is what we have to do. So I think that is going to stand us in really good stead.

How big an advantage is being first with innovative technology?

If you are the first one to get to hybrid cloud or you are the first one to get to virtualization or you are the first one to get to the big HP Apollo water-cooled servers, there is first-mover advantage to this.

And the R&D investments will no longer be peanut-buttered. When you have a huge company, everyone gets a little. This way 3-D printing will get much more under [HP Inc. CEO] Dion [Weisler's] leadership than it probably would have gotten in the bigger company.

Are more acquisitions out of the question?

No. I would say it is in the mix for sure. And that is in part now because we have repaired our balance sheet from $12.6 billion of net debt on the operating company to roughly $5.9 billion of net cash on the operating company. And then we are also getting back to our Silicon Valley roots of making sure that we are out there in the community, seeing what's going on very early.

What kind of an advantage does the Silicon Valley roots give HP?

We have an advantage over IBM, over Dell, over many other competitors because we are right here in the innovation hub of the world. Yes, there's innovation going on in India, and there's innovation going on everywhere -- we need to be part of the mix here. And 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, particularly on the Hewlett-Packard Enterprise side.

Will the separation drive more breakthroughs with regard to product innovation?

Absolutely. More focused R&D.

Is R&D spending going to go up as a percentage?

It will. We won't talk about that now. We have to go on a road show. It is almost like an IPO road show. These two companies have to go on a road show. And so we actually will give financials at that road show, which will probably be September or October.

Talk about how HP Labs will work vs. R&D in the business units.

HP Labs is sort of five- to six- to seven-year investment of products. I mean, The Machine, we think, will come to market probably in 2020 or thereabouts plus or minus a year. I don't think we've got a firm date on it.

But the engineering organization in [HP Enterprise Senior Vice President] Antonio [Neri's] (pictured) group or [HP Software Executive Vice President] Robert [Youngjohn's] group is actually focused on the next year and then years two, three and four. So we have near-term R&D, and then what we call advanced development that lives in the business units, and then you have HP Labs. So it is actually increasing the R&D investment across all three of those areas of R&D.

Talk about hyper-converged and HP's approach to that market.

We have our own hyper-converged solution, as you probably know. And we had a choice to buy or to build organically and we felt like we had such great internal technology that we are actually building organically. And our hyper-converged solution is fantastic. The question always is, do you build or do you buy? And the question then becomes, what's the time frame? And then do you have a better solution than the market actually has? And then can you afford to wait? So that's the calculation that we make every time.

How much work has gone into making this work since the split was announced?

We now have about 450 people who are working on the separation full time. They are some of our best people.

There are three separation management organizations [SMOs]: There is the corporate SMO, then Hewlett-Packard Enterprise SMO and HP Inc. SMO.

But they work together incredibly closely. It is everything from tax and legal separation to three years of audited financials to the separation of the IT to the Partner Navigator program to make sure that all of our partners' systems can handle the change.

How are you going to drive more innovation with the two companies?

I think it is speed and focus. Each company will have a smaller patch to focus on. I will tell you, as a CEO it is challenging to go from inkjet printers to Superdome Integrity X Servers. I mean the waterfront here is so enormous. So Dion and I will have patches that are different and that we will be deeply focused on.

Part of what you saw here is a focus on solutions-selling. I mean, how long have people been asking HP to switch to solutions-selling? It happened in part because I got a chance to focus on it. So this focus on driving innovation, resolving problems faster -- I just think we are going to be more nimble and more agile.

How is the split affecting business processes in HP?

Frankly, the business processes are so interesting as we split the company. We are finding business processes that aren't suited for purpose. Like, why are we doing it this way? It is crazy. So we are getting a chance to fix that as we separate.

Can you point to any skill set partners should be trying to acquire?

I think both the partners and HP if we are going to continue to grow profitably together we have to be able to pivot to those four transformation areas [on-demand infrastructure; protecting digital assets; empowering a data-driven enterprise; and enabling productive workspaces].

The key is how do we really focus on the key questions that our joint customers are trying to answer. And, by the way, that skill set of ’Let me tell you why my server is faster than the other guy's server' or ’Why my storage is better than their storage' is a very different skill set than ’Let's have a discussion about the business outcomes you are trying to drive.'

How does that discussion play out in the field?

It's having a slightly longer view of what the customer is trying to accomplish. How do you want to pay for your technology: Do you want opex or do you want capex? Let's talk about what you are going to do with your traditional IT and what workloads you want to move to the cloud. Let's talk about how we're going to embed security in everything you do or run security as a managed service. That's a different skill set. Frankly, a more consultative selling skill set and one of the things we did today, which you saw, is we are positioning TS [Technology Services] to be that advise and transform unit within HP. By the way, we are opening that up to all the partners.

How will the TS methodology transfer to partners' work in the field?

So I had a partner here this morning who was saying, ’How am I going to get these skills?' And I said, ’if I were you I'd call up -- He's in Germany -- I'd call up TS in Germany and get a SWOT team to come help you for six months and teach your guys how to do this. And then once you know how to do it -- love that. It's all good. Because then you are more reach for HP.

Will there be internal training around solutions-selling in HP?

There will be. With those four transformation areas, we have to train our own salespeople to sell that way and we have to help our partners to the extent they want help also to train their organizations. Think about it, this is different than calling up and saying, 'How many servers do you want and how do you want them configured vs. what business outcome are you trying to drive?' And how do we help you more holistically do that.

How will this affect the volume business?

There will be always a volume business out there. Someone just knows they need 1,000 servers or they need 1,000 servers with a top-of-the-rack switch. But 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. And, by the way, this is something the partners have been asking me about for four years.

We can continue to sell point products and there will be a good business there. But we are getting squeezed on margin on those point products.

So part of this transformation is how do the partners become more relevant to their customers and just don't get marginalized into selling 1,000 DL380s.

Talk about the solutions-selling journey for HP and its partners.

It's a multiyear journey. This is not going to be perfect by [HP] Discover (June 2-4 in Las Vegas). 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. 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.

If the partners stay only in the traditional IT [market] there will be margin compression over time. So they have got to continue to do that because it is great business, but they have got to be able to build capacity on the other side.

What are you seeing that has surprised you with the separation?

I'll give you an example on sales operations, which has been combined between EG and PPS. Now sales ops will split. And that splitting has been very interesting because what we found was there were pockets of sales ops. No one had end-to-end accountability for all those people and all the steps and processes.

So what we are going to do is make sure that we've got an end-to-end process that is simpler for partners, easier for us to administer and oh, by the way, it is going to take less people. And a more rewarding experience, frankly, for the people who work here because you can imagine if you've got three groups of people all crunching around on sales ops, there is duplicate work.

Are there other business processes you are looking at?

Almost every business process we are trying to get an end-to-end ownership of. For example in finance, [HP CFO] Cathie Lesjak (pictured) has accountability for the finance people up until it hits global business services and then that was run as a pool. Now the global business services that support finance will report to Cathie. They will still be in India. They will still be in low-cost locations. But then Cathie now has an incentive to figure out, ’OK, how do I take that end-to-end cost of delivery of finance and how do I make sure that it is as efficient as it can be?'

And now, by the way, she can go upstream to the business units and say, ’Listen, if you would stop asking for 27 reports cut 16 ways to Sunday that no one ever looks at, I can reduce my cost to service you.'

How is looking at business processes impacting the business units?

There is now this empowerment of crawling all the way upstream and saying, 'Hey, I know [HP Enterprise Group Senior Vice President] Antonio Neri, you do not like your allocation for finance. OK, if you just want me to keep on doing what I am doing, that is your allocation. Now if we can have another conversation about what I am doing to support your business, we love that.

This has enabled us because you are now dealing with two companies that have a more manageable footprint and oh, by the way, quite different needs.

What are you doing that keeps the workload across the two companies so it is better for partners?

So, first of all, supply chain. Partners have said, and I think our competitors are saying, that we will lose leverage with the supply chain. That is absolutely, patently false. That is ridiculous if you think about it for more than a minute. That is not true. Because we will go to those suppliers as one. Think of it as a buying agreement. So we will go to all of the memory suppliers and all of the screen suppliers and plastics suppliers and utilize our weight in the marketplace as we always have. So I think that won't be an issue.

What about partners who are selling servers and PCs together?

If there are partners who want to quote servers and PCs together for a deal, we are each other's best friends, and we will certainly come together to provide that quote as we do today.

I am going to say it is less than 5 percent of quotes that our partners do actually have PCs and servers together. Of course, now that we are separating, all of the competition is saying, 'There are thousands of quotes where servers and PCs are together.' OK, in my three and half years here I haven't seen that many, but to the extent there is an explosion of quotes that want PCs and servers together, we are going to be great at doing that.

Talk about how those quotes on PC and enterprise products will work in the field

The PBMs [Partner Business Managers] will be joined at the hip. This will start from Dion (pictured) and I. And we do that today.

When ES [Enterprise Services], for example, bids on a big services agreement we come together as HP because they are doing a transformation of some big company. They have got to have servers. They have got to have printing. So we know how to do that. We shouldn't miss a beat here on that.

You have lowered the time it takes to generate a price quote to 2.3 hours. What's the next step?

We want it even lower than that. We have gone from, I think, 79 percent of all quotes that were touched and now we are down to 19 percent of quotes that are touched. So we have really moved from a high-touch to a low-touch model, which speeds things up.

Do you think partners need twice as many customers to get to the new style IT model?

I actually wouldn't say it is twice the amount of customers. I would say take your current installed base, and figure out which half of those you are going to have a deeper relationship with. Let's say I am a VAR and you are a customer and we have done a lot of business over the years, but it has been transactional. Now I want to engage you in this concept of this journey to the on-demand IT environment. I am going to sell you more in the end because I am going to be more relevant to you.

My first thing would not be to get more customers over and above what I do today, my first would be to pick which one of my top several hundred customers I can pilot this solutions-selling with.

Why is that the better route than trying to get to new customers?

It's the old adage, do you want to sell your next Bible to someone that has already bought a Bible or do you want to sell Bibles to someone who has never bought a Bible? Actually, it's always easier to sell a second Bible to someone who is a Bible buyer. So my view is go find your best customers and see if you can transition to a relationship that is at a more strategic level to that customer.

Why does moving to the recurring revenue model with HP make sense?

First of all, we have a portfolio that allows you to do this. We have the services. We have the hardware and we have the software that allows you to be highly relevant in these four areas. I would say to partners, you have got to focus. You cannot be all things to all people. I would not recommend you go out and have 10 practices. I mean, we can barely cope with four. So let's do four together with our full portfolio with almost a handbook on how to get this done. And I think we are the only one, if I am not mistaken, who can do this top to bottom.

How important is the move to allow partners to sell Technology Services?

We have never really opened up Technology Services to the partners. Yes, we have in terms of Data Center Care and a few other things, but we never opened that advise and transform capability to the partners. That is a big deal. Because at least they can cut their teeth with us.

Why should competitors be worried at this point?

Listen, one of the things we have tried to instill is a culture of modesty at this company. Actually I was sitting with Tech Data today, who said one of the biggest things they have seen is a culture of modesty.

Is there anything wrong with identifying the competition?

You know, I was trained on this very early on at P&G. My first assignment at P&G was Crest. And we were taught never to talk about Colgate. Because when you talked about Colgate, Colgate got PR. And so early on in my career every time you mentioned the competition, that was brand advertising for them. You should just talk about yourself and what you do really well and by extension what you do better than the competition. So that is probably a little bit of what I bring to this.

I will say that is probably a little different from this market. Remember, I am new to enterprise selling. This is a new thing for me and there is more of an ’out there' sort of rhetoric among the companies. I have just chosen not to do it. I think our products and our solutions speak for themselves.