CRN Exclusive: Whitman On Her Vision For HPE, Private Equity's Impact, And How Long She Will Stay On Board
Whitman On The Record Before GPC
When Hewlett Packard Enterprise CEO Meg Whitman takes center stage at the company's Global Partner Conference this week in Boston, it will be the culmination of what partners are calling a turnaround for the ages.
Five years ago, HP was considered a Silicon Valley dinosaur on shaky financial ground with me-too products and a demoralized partner network. Today, HPE, which had $12.5 billion in debt on the balance sheet when Whitman took the helm, has $5.5 billion in cash, an innovation engine firing on all cylinders and a charged-up partner network.
Whitman spoke with CRN about the turnaround, the new, more agile HPE, the recent sales restructuring, the differences between Dell-EMC, Cisco, IBM and HPE, and her plans for the future.
What is the vision for HPE for the next five years?
I think it really is about creating a company that is focused on really three major areas.The first is the data center. We still love the data center. There is a lot of business in the traditional data center that we should get with our partners.
Then there is the software-defined data center. What is the next-generation data center? What is the new stack that we can help our partners bring to their customers?
The next complementary focus is going to be around campus, branch and edge and IoT. And we and the partners have, I think, a right to win on compute at the edge. We are the company that should win compute at the edge.
Think about autonomous driving vehicles, sensors in hospital beds, sensors in jet engines, we can see compute moving to the edge. We and our partners have earned the right to win there.
With wireless LAN and Aruba and ClearPass, that is another really important part of campus, branch and edge.
The data center in all its glory. Campus, branch and edge and IoT. And then, of course, our software portfolio. [Editor's Note: HPE inked a deal last week to spin off and merge its non-core software assets with Micro Focus.]
You are doubling down on hardware. How does software fit into the future of HPE?
Let me break software down into pieces.
As you know, infrastructure does not run without system software. The genius of our HC 380 is actually software. Increasingly, Gen10 [servers] will be even more advanced software with OneView.
Think about Synergy. The core of Synergy is software. Aruba is actually a software company more than it is a hardware company. But it is totally symbiotic with the infrastructure.
The way I would say it is we are doubling down on infrastructure, but increasingly infrastructure is being powered by system software that is unique and makes these products work better, more cost-effectively and more nimbly for our customers. That is the genius of Synergy.
Then there is the applications side of software, which I would call our IT operations management suite, ArcSight, Fortify, Vertica. That is our applications software. And we think that is actually an interesting business – complementary to what we do.
When people say we are doubling down on infrastructure, we are -- but don't forget about the system software, which is the differentiating element for our infrastructure.
Contrast the approach Dell has embarked on taking on debt with private equity versus the HPE approach.
You've heard me contrast the strategies. It is interesting.These companies have taken entirely different strategies. We chose to get smaller. They chose to get bigger.
The reason we chose to get smaller is I wanted to be more nimble and more agile and have the ability to respond to trends in the marketplace faster.
We chose to de-lever the company – from $12.5 billion of net debt on the operating company to $5.5 billion in net cash. They have chosen to lever up. I think by the time they are done they will have $60 billion to $70 billion of debt on the company. And you have to pay to service that debt. That, to me, is a relatively risky proposition given what's happening in the environment.
And then we are leaning in dramatically to new technology, whether it is all-flash storage array, whether it is Synergy.
So we are leaning hard into new technology. I'm certain they'll bring some new technology to the fore, but their major play is a cost take-out play because they are running a private equity play.
What kind of role is Silver Lake going to have on Dell-EMC?
Silver Lake owns 25 percent of that company. Sliver Lake is going to get their money out of this thing. The way you justify a deal of this magnitude is you have to sell off assets to pay down the debt and you've got to rip costs out.
So it is just a different strategy. Strategy always has to be looked at against what is the environment. The market is moving at lightning speed -- agility, the ability to develop new products in five months is, I think, going to be a really important factor in degree of success. And we are not distracted by all the integration of a big company.
We see them out in the field trying to make decisions -- as they pick the person who is going to be in charge of CDW, who is that? Is that the EMC person? Is that the Dell person? There is a lot of churn. So I think we have got a good year and a half of running room to demonstrate stability and consistency in front of the partners.
What's the influence of private equity on the IT industry and what impact it is having?
I think private equity more broadly has been doing more and more deals over the last decade. They are very active. Every company is trying to figure out how to get more efficient. Listen, I think you are going to see private equity continue to do deals. We just have to run our company with a very clear eye on the customer and the partner. What is right for them? Because that, in the end, will be what is right for us, but we have to do it efficiently.
What is some of the turmoil in the market with competitors versus HPE?
I think we are a couple of years ahead of some of our competitors on efficiency and how we run our company.
You saw Cisco's results [which included a major restructuring with plans to eliminate 5,500 positions, about 7 percent of the workforce]. They are doing some of the work we did almost four or five years ago. So I think we have got a head start.
I often say this about IBM: IBM is actually having to do what we did three or four years ago. I don't want to say it's because we are geniuses. It is because we had to.
I think we have got a head start with a cost structure that will allow us to compete more effectively.
What kind of impact is Aruba having in the market against Cisco?
Aruba signals to the market that we are serious about networking. It has actually been helpful in the data center networking business as well. There is a lot of interest in Aruba. It is like the perfect time [for Aruba] with 802.11ac. Everyone has employees on premise who want to be on a wireless connection. So we are seeing a lot of activity in retailers. You probably read about The Home Depot deal where we are doing a refresh on 2,000 of their U.S. stores with Aruba. Best Buy is another one.
There is a lot of interest from hotels, restaurants, retailers and then companies trying to take their whole campus and make the campus wireless. Stadiums. Airports. We were in Rio. There is a lot of demand for this product. I encourage the partners to get involved here. It makes you really relevant to your customers. It is fun to talk about. Everyone understands it. We have a clearly differentiated and better product in this space. I think we are nine to 12 months ahead of the competition and it has nice margins on it with actually pretty good services attach.
What is the sales restructuring and what impact will it have on partners' ability to accelerate sales growth?
I think this is a very tangible benefit of being a smaller company. What we know is that we basically have Enterprise Group plus Software and our Financial Services business. So how do you optimize for the new-world-order Enterprise Group? It became very clear to us that actually having a worldwide leader of sales was going to allow us to harmonize across the world.
We hear from partners every day, could we please figure out how to get pricing across four or five countries in less time than six weeks? Finally, I think [HPE Executive Vice President] Antonio [Neri] and I came to the realization that actually putting someone of [new HPE Chief Sales Officer] Peter Ryan's capability into worldwide sales is going to be fantastic.
And then Jim Merritt, who you may have known from his Dell days, we are moving him back from Asia where he just did a bang-up job and he is going to run North America. So he is going to run United States and Canada, which still today is far and away our biggest region. I think he is going to be a fantastic addition to partners in the United States and Canada.
What is the partner sales coverage model going forward?
We are tweaking the coverage model. We recognize we have got to hunt more for partners. We have got to make sure we are doing everything we can to be easy to work with. That was the main reason for the change. So we are excited about it. The sales guys are excited about it. And I think it is going to make a big difference. This is a very dynamic industry. We have to be like a shark – not being mean -- but sharks if they stop swimming they drown. So you've got to keep swimming. You have got to keep changing. You have got to keep saying, how do I get more relevant? How do I become a better partner? How do I become faster? How do I become the easiest to deal with? I think we have a ways to go, but I think we have come a long way in terms of ease of doing business from where we were five years ago.
What are differences between the HP of five years ago when you became CEO and the HPE of today?
Obviously, I came at a very difficult time for this company. There was a lot of strategic churn regarding what was the direction of HP. I remember people asking, what is the strategy of this company? That's because there were so many CEOs with different strategies. So people were confused.
I think the employees were very concerned about what was going to happen to the company. I think we had sent more than mixed signals to the partners. I think we kind of told the partners you are actually not that important and we are more of a direct company.
Our innovation engine, while not dead by any stretch of the imagination, we had failed to have the right cadence of commercialization of products for partners. And we had a cost structure that we could no longer afford.
Talk about your first partner conference experience.
At that very first partner conference I said we are a partner company. You might recall at that very first partner meeting CRN had done a survey where we were like 10 out of 10 in partnering.
I remember calling a meeting of all the salespeople attending the GPC and I told them – 'This is unacceptable. The results of this survey are unacceptable. We are just not going to run the ship this way.' I kind of really read them the riot act to some degree.
And really that pivot hard back to the channel made a big partner turnaround at this company. Five years later, we are at the top of the partner surveys.
How has the investment in innovation changed since you took the helm?
We reignited the innovation engine. You are seeing the results of that now.
We bought Aruba, which is a big opportunity for the the partners. We just bought SGI for high-performance computing.
We have now gone from a defensive crouch to the front of our feet and really leaning into new technology and helping partners find the pockets of growth in our market while, generally speaking, the data center is under pressure.
How is your life different as the CEO of HPE versus five years ago?
My life is better.
Talk about the financial difference between the HP of five years ago and the HPE of today.
The company had a very heavy debt load on it because of the Autonomy acquisition. So we had about $12.5 billion of debt on the operating company. Today we have about $5.5 billion in cash on the operating company. So about a $17 billion swing in the assets on the balance sheet.
That gives you a marked degree of freedom. If you are not carrying a big debt load, you have investment opportunities. You can ride out downturns in the market. It just gives you, I think, degrees of freedom that are going to be very helpful in this new environment.
We have become a more focused company. Actually, with the HPE and HP split and with ES moving out [of HPE] we are a more focused, more nimble, more agile company.
How has the sharper focus on HPE impacted partners?
I think that focus to double down on the things that we do really well is good for the channel and is going to make a big difference here. It is fascinating to see the value of that focus. I am spending all my time [now] on servers, storage, networking, software, converged infrastructure and technology services.
We all have a smaller degree of focus and that pays big dividends because you just get to peel the onion and you have more customer and partner intimacy than you did before.
It's a lot easier company to run. The financial health of the company is a lot better. I would say it is pristine.
We now have longevity in some key roles. I have been here for five years, that actually is helpful.
The whole thing feels just a whole lot more stable and a whole lot more on our front feet.
How has being more agile and nimble impacted product development?
From a product perspective the HC 380 – the hyper-converged offering – from idea to great product in the market took just five months. That never happened before at Hewlett Packard.
We just introduced a new low-end storage product – again, more rapid product development.
From a product perspective in addition to having some great innovations -- the cycle time on products is much more compressed than it has been in the past.
We are just faster to respond to customers.
If a customer or a partner has a challenge, we are all over it.
From the big partners like CDW or Tech Data to the VARs, I think they feel the focus and attention that we couldn't give them when we were a $110 billion company.
How long would it have taken to develop the HC 380 when you first came to HP?
It would have been 24 months.
How critical is that short development cycle in the current fast-moving IT product environment?
It is really important.
But for some breakthrough products it takes longer. Synergy – I don't care how fast we are moving, we could not have done that in five months, no matter how good we are.
But quick updates – fast follower – where someone has a good idea that we need to jump on – we can do those in four to five months. That's a much faster refresh cycle.
Gen10 Server development is not five months.
You have got to segment the market and for the big breakthrough take a slightly longer development cycle. That's OK. But when we need to be fast followers and we have got a big idea, we want to get into the market quickly [and] we now have the ability to do that.
That's important for the partners because they will have the most up-to-date offerings on a more rapid cycle than they have in the past.
What's the message to partners at this year's partner conference?
With the divestiture of [Enterprise Services] we are a 100 percent partner-focused company. We have no businesses where the partners are not deeply involved -- even HPE Financial Services. There is more and more work we are doing with partners to help them provide their customers with a consumption-based pricing model. We are helping their customers finance their purchases in a way that is right for their customers.
So every business is partner-focused. We want to lean in with our best partners and really help them drive sales in a somewhat difficult market.
Talk about the macroeconomic environment and the pressure on IT budgets today versus five years ago?
What is not terribly different than five years ago is that it is still quite a difficult market, whether that is from a macroeconomic point of view or from some of the trends that are affecting our industry.
The macroeconomic environment and the trends have not gotten any easier. So the ability to be fast and smart, smaller and unleveraged is a real advantage.
When I came in 2011 we were just coming off the 2008-2009 major reset. The recovery has been long, really long. I am sure your customers will tell you that too.
Things were doing great in Britain, and then Brexit. You think Russia is coming along, and Putin invades the Ukraine. If it is not one thing it is another.
What kind of impact has Brexit had on IT spending?
If you are a British partner right now it is pretty tough. After Brexit the spigot of spending kind of took a pause.
If it is not one thing it is another. In that environment where you can't count on the wind at your back either from the trends in the industry or the macroeconomic environment – great product, great customer service, great pricing, consumption-based pricing models, flexibility is really important for the partners and for us.
What is your five-year plan and the target points on that plan?
That original plan was born out of my experience doing turnarounds. Most people know in business -- I don't care whether it is retail, technology, fast food or Caterpillar Tractor -- most big complex turnarounds take five years. They just do.
It’s so big and you are trying to fix a number of different things while doubling down on your strengths. By the way, things we are doing today are going to show up three years from now.
Part of why we had a good second quarter and this year is very good for Hewlett Packard Enterprise and, by the way, getting better for HP Inc., is a lot of the spade work that was done two or three years ago.
You can do a quick fix. You can fix anything for a year or a quarter. If you are going to actually set something up to be enduring, it just takes five years.
Did the five-year plan develop as you expected?
When I was mapping that [five-year plan] out, I basically said let's think about this: Year one we are going to diagnose and fix, year two we are going to lay some pipes, year three you are going to start to see some acceleration, and by the end of it you are going to have a world-class company again.
I feel like plus or minus it was just about right on. And it's just because I have done it before. If you talk to anyone who has done it, this is what it takes.
And now we have a chance to continue to redefine the company. It's going to be really fun to see what Hewlett Packard Enterprise can do as a smaller company without Enterprise Services. And it's not that I didn't love Enterprise Services. It's a very good business.
The remaining company business is more focused with higher growth rates, higher margins, better free-cash flow, which allows us to make more investments into the business. And ES is going to be better off as a pure- play with another ITO/BPO company like CSC.
How has the HP Inc. and Hewlett Packard Enterprise separation impacted both companies?
The separation of HPI from HPE was really, really the right thing to have done because of what happened to the PC market and print market. I can tell you if we had stayed together the profit pools over here that we are now reinvesting in server, storage and networking if we remained just one company there would have been a cross-subsidization, which would have been bad for the EG.
What are your plans for the future and are you committed to staying at HPE?
So, listen, particularly as we have made this company smaller it is way more fun. I may be the only CEO in America who thinks it is actually fun to have a smaller company as opposed to a bigger company. And I feel like we are making real progress. So I don't have any near-term plans. We'll see what happens over the next couple of years. I originally told the board I would stay five years. Obviously I will stay longer than that.