HPE CEO 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

Whitman Takes Center Stage

In an interview with Channel Company CEO Bob Faletra on stage at the 2017 Best of Breed Conference in Atlanta Monday, Hewlett Packard Enterprise CEO Meg Whitman tackled questions ranging from the impact of the company's HPE Next restructuring to that state of its relationship with VMware since the Dell acquisition to what her next career move might be after HPE.

"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," Whitman said of the changes coming to field compensation next month.

Whitman also talked about the co-opetition HPE sees in the market now with sometimes-competitors, sometimes-partners such as Microsoft and Dell Technologies/VMware.

"As workloads move to Azure, maybe that hurts us, but as workloads move to Azure Stack, that helps us," Whitman said. "In the end, our relationship with Microsoft and VMware at the core is very strong. It has to be because we have to do what's right for the customers."

The interview, which also included questions from solution providers in the audience, also touched on whether Whitman would consider a presidential run. Edited excerpts of the conversation follow.

There have been a number of changes as a result of the HPE Next restructuring. What was the problem you were trying to solve for, and how will changes you've made affect the channel?

We have driven a turnaround strategy at HPE and HP that's been remarkably successful. That first five-year journey was completed in August of this year when we completed the spinoff of our application software business. HPE Next came about by saying, what's next for the go-forward company, Hewlett-Packard Enterprise, which is a $28 billion company with 65,000 people? Our whole focus is around the channel. You all are so important to the future of Hewlett-Packard Enterprise. I can't underscore that enough. We said what can we do to make HP even nimbler, faster, more cost effective to do business with and a more effective business partner for all of you, and we came to three things. The first is simplification. How do we simplify our business? Complex equals high cost and hard to do business with. Great execution is obviously super important, and then making sure we're doing everything we can to help make you successful.

What does that simplification look like to you, and how has it helped you already?

If you think about simplification, we have 50,000 live configs in server offerings in our catalog today. You can guess that 20 percent of those configs account for 80 percent of the revenue and probably collectively 105 percent of the profit. How do we skinny down the number of offerings in our catalog, which simplifies inventory, simplifies supply chain, simplifies all of our ability to work with our component parts manufacturers. That will speed up the time from order to getting the product your customers require. We thought we had too many layers in go-to-market. We have got to have our partner business managers, our account general managers be able to make decisions close to the customer. We took out a number of layers. Now, between me and your PBM, it's just four layers and it used to be seven. I find out stuff much faster. The communication is much better. It's really all about simplification and execution, and those are two good examples.

One of the downside of restructuring is that some people go, some people stay. For some partners, the people they interact with directly are gone. Are we going to see some stability moving forward, or is this just the new world?

We tried very hard to preserve our frontline sales executives to all of you. While there may be a few of you whose partner business managers have change, about 96 percent of the people you interact with on a daily basis are exactly the same. There are people up the chain of command who may have moved on, but your core connection to Hewlett-Packard Enterprise, we are very conscious about maintaining the stability we've had over the last five years. We live in a world now of constant change. Somebody said to me the other day, 'When do you think the company will stop changing?' and I said, maybe not ever. The pace of technology change is accelerating. Every single one of your customers is undergoing some form of transformation or disruption. The innovation cycles are much faster than they have ever been. The ability to constantly readjust, reinvent and make sure your businesses and our businesses are fit for purpose in the current world order is an important thing.

Does this give you the ability to invest in places you weren't able to invest in to the degree you wanted to before?

The separation of Hewlett-Packard from one into four has made a lot of things simpler and more focused, and we're much faster. If you think about Hewlett-Packard Enterprise and the innovation engine we have reignited over the past six years, it's really quite extraordinary. Instead of having our free cash flow spread across seven business units, it's squarely focused on the strategy behind Hewlett-Packard Enterprise, which is we make hybrid IT simple, we power the intelligent edge and we have the services to make it happen. Beginning, middle and end of story. That's what we're investing in. If you look at our organic innovation, Synergy, blades only better. Composable infrastructure. All-flash, 3-Par all-flash and now Nimble. Apollo high performance compute. Data Center Care, ProActive Care. HPE OneView, the system software that runs all of our infrastructure. IoT, Gen10 Server. Those innovations alone are probably the fastest pace of innovation we've had in many years, and that doesn't include the other acquisitions.

Did compensation in the field change at all?

It will change a bit on November first. The way we think about this business now, there are volume products, value products and there are growth products. Value and growth carry higher margin than the volume products. Collectively we want to make sure we keep our volume business going. It's a super important business. If someone wants to buy 1,000 servers, collectively we should sell them to them, but moving to solutions, moving to that value, that high-margin product and then the growth products that are very high margin, whether it's 3Par, Nimble, HPE OneView, Synergy, SimpliVity. Aruba is a perfect example of a growth-value product. High margin and growing like crazy. 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.

Will you do the same for the channel? Will there be more margin?

Almost endemically there is more margin to these products. You can sell Synergy for higher margin than a Gen 9 server. We will certainly look at any changes we need to make to our PartnerReady program. The PartnerReady program already rewards partners for selling the higher margin products.

Customers want to move more of their spend from Capex to Opex. If there's a movement away from buying a whole lot of infrastructure, where do we find growth?

First let's talk about the data center, and then I'm going to talk about the edge. As much pressure as the data center is under, the edge is not, and I define the edge as everything but the data center in terms of compute and storage and wireless and wired LAN. Within the data center, our view, and I think most of the industry is that the world is going to be hybrid. The key is to help your customers understand their workloads and applications. Have they fully rationalized those workloads and applications? You'd be surprised how many big companies have 10,000-12,000 applications and small companies probably have 500-600 when they probably should have less. Help them decide where those applications should go. What should be locked down in a traditional data center environment on modern architecture? What should be in on-prem private cloud? What should be in a managed service and what should be on public cloud?

What are the economics of that?

Many, many people have said that what they love about the public cloud is not so much multi-tenancy, cloud technology, but the consumption-based pricing model. I only pay for what I need. You can get a consumption-based pricing model through Hewlett-Packard Enterprise for any of your customers. If they want to spend opex to have an on-prem private cloud, we can do that for you as opposed to have them lay out the capex. It's about where do the right workloads go and how do you counsel your customers about when they might head into a cloud cliff. Increasingly we are seeing companies that say this public cloud thing is great on some level, but I'm getting very deep to multiple public cloud providers and I'm feeling locked in and I'm seeing how expensive this can get. We're helping customers take their applications out of the public cloud, back onto on-prem so they have the customization ability, and frankly, it's more cost effective.

You announced a relationship with Microsoft as your preferred public cloud provider. What does that mean in the long term to you and the channel? Does it mean you're not going to have those types of relationships with others?

Our first strategy decision we had to make, when we decided hybrid It would be the future, it would be a multi cloud environment for most of our collective customers. We can cover traditional data center, we can cover private cloud on-prem. Managed services, we work with many of you for managed services. We said who is going to be the best initial partner for public cloud, and we decided to pick Microsoft. We have longstanding relationships with Microsoft. They are a channel-friendly company. We meet in the channel all the time. We know how to sell together with you. Second, we thought their technology was excellent. It's a modern architecture, modern technology, and we knew that Azure Stack was coming. Azure Stack turned out to be a little late, but I have to say Azure Stack is a remarkable piece of technology because it is public cloud functionality that you get on-prem. Think about how hard that is to do.

What's the biggest opportunity you see with Microsoft?

We think there's a big opportunity for not only workloads that are going to public cloud, but for people who want that functionality on-prem. We're super excited about Azure Stack. We aim to be the largest infrastructure provider that Azure Stack runs on on-prem, and collectively we can sell that to our joint customers. The other thing about Microsoft is that they are an enterprise-grade company. They understand what's required to service business with compliance issues, trust and safety issues, security issues, and they know how to respond in enterprise time. They are not afraid of getting on a bridge call. They're not afraid of getting their hands dirty. They're not afraid of going in and really wrestling a really tough technology problem to the ground in the enterprise. That's why we picked them as our first partner.

That's not to say you've ruled out working with AWS or Google?

Not in the long term. I'm a big believer in focus. When industries are changing at lightning speed, which they are right now, it's better to do a small number of things really well as opposed to trying to solve world hunger and spreading yourself too thin. I wanted to get one very deep, highly successful public cloud partnership that we could weave into our hybrid IT strategy; get that done, get it optimized, work out all the kinks, and then we can move on to another public cloud provider. We're really pleased with the partnership between HPE and Microsoft.

You're an obvious alternative, and they to you, to Dell EMC, and Cisco. When you rally the troops, who else do you look at and say, we can beat these guys?

Depending on what your strategy is, you'll have different competitors and different ways of thinking about them. Our strategy is clear as a bell. It's all about making hybrid IT simple, powering the intelligent edge and making sure we collectively have the services to make it happen. Services are becoming increasingly important because lots of your customers don't quite know what to do at the edge. A lot of your customers might not know what to do around the software-defined data center. Certainly we see Dell EMC, and we see Cisco, but I keep my eye very closely on the start-ups that are coming into being every single week in Silicon Valley. It is like a renaissance going on in Silicon Valley. The first phase of that renaissance was largely business to consumer with companies like eBay and others. Now, it's a B-to-B renaissance.

Is Pure Storage a competitor?

They are a competitor. We see them some. From a storage perspective, we see EMC a lot more, and to some degree NetApp now that NetApp has an all-flash offering. But we're super pleased with the progress of 3Par all-flash and then Nimble, which is uniquely suited to small business and medium-size business. They also have what I call AI for storage. It looks at all the arrays that are out in the field and is constantly bringing you that data, doing machine learning and artificial intelligence on that data so you can do predictive analytics about maintenance, about what might fail, and what might not. In some ways we've got a very focused strategy around storage. We compete with everyone every day, but I feel really good about our position in storage.

Competitors such as Cisco say they want to be a software company and are decoupling software from hardware. Do you think about whether you should do that too to drive recurring revenue?

Our view right now is that the infrastructure, the hardware, actually matters here. We have to pivot to software-defined infrastructure, but the infrastructure that the software runs on is really important. Let me give you a perfect example: HPE OneView. This is the system software that runs Synergy ... [which] is composable infrastructure that is the biggest enabler to running on-prem private clouds at public cloud economics. So what Synergy does, and it does this through the software, is let's say you're running an application that is using a certain amount server, storage, networking within Synergy, and then that application doesn't need those resources, it returns those resources to a fluid pool, and those resources can be used to run another application, so it is a fantastic piece of technology, but you have to have the hardware and software coupled together for it to work at its very best. Someone said to me the other day, 'Well would you ever sell OneView so it could run on a competitor's infrastructure?' I never say never, but my view is having the software tuned to the infrastructure and that infrastructure tuned to that software gives us a competitive point of difference.

What's the 30-second pitch you give to customers about the value of the Cloud Technology Partners acquisition and what should partners take from that acquisition as far as where you're going?

It's a dead-on acquisition for how do we help our customers make hybrid IT simple. And the 30-second pitch is, 'Mr. Customer, you have to go through a transformation. You have to make your IT infrastructure more nimble and agile and you have to reduce cost. The best way to do that is start with where your applications: how many should you have and then where should those applications reside, and then how do you migrate those applications to where they ought to go. And this is effectively what CTP does, and then they will do that workload migration for you. Part of the CTP practice is Docker. Put your applications in Docker, they can move easily and you can get a 40 percent reduction in your VMware cost. So this is I think part of the solution sell in the future. It's part of what we must do collectively in the future for our customers ... So we're super-excited about Cloud Technology Partners. We want to make sure that you all have the ability to understand what CTP does, possibly white-label what CTP does until you have a chance to build your own practice if you want to.

Should partners be concerned about potential conflict with CTP?

One thing I want to say is we never want to get between you and a customer on services. If you're on first and you've got all the services that you need to make that customer successful, we never want to get in between that, but if there are gaps in your service offering, we're happy to white-label those service offerings to you, [and] we're happy to get your service offerings to where they need to be, so that's the whole point of CTP. We're excited about them.

How is HPE's relationship with VMware now that VMware is part of Dell Technologies?

We have a very large go-to-market partner with VMware, and if [VMware CEO] Pat Gelsinger were here, I think he'd we're an incredibly important VMware partner, we do an incredible amount of business together. I think relationship is quite strong. There are geopolitical movements when acquisitions are made, or divestitures are made. Things realign. We want to make sure that we do everything we can to support VMware. We do a lot of business together. But we also do a lot of business with Docker. I think [Docker CEO] Steve [Singh] and his team are onto something really special with Docker. I talked about where applications reside. The key to that, in the end, is containerization and moving your applications across these various instantiations while you reduce the overall cost of It infrastructure.

So in the end it's all about the customer?

The great thing about this industry that everyone has come around to over time is co-opetition. We are great competitors some time, but we are also partners. You can say the same thing about Microsoft. As workloads move to Azure, maybe that hurts us, but as workloads move to Azure Stack, that helps us. In the end, our relationship with Microsoft and VMware at the core is very strong. It has to be because we have to do what's right for the customers. Forget our little squabbles back and forth, or who's doing what to whom. In the end, our focus needs to be our joint customers. What do they need? What is their cost structure? Where are they headed? How do we enable their digital transformation? How do we enable their ability to transform their own internal operations and the experience of their own internal employees.

There are a lot of areas, as a strategic service provider, that I can engage with HPE. Are there areas in particular that they should pay more attention to?

We are super pleased with the business in the channel today. We're seeing great growth across the board. Where there's real opportunity, remember I said the data center is under pressure? The edge is not. I would really be thinking hard about what's going to happen in branch, the office, the areas where compute and storage is not happening in the data center. Compute and storage is going to move the edge. The edge can be a hospital bed. The edge can be a jet engine. It can also be a factory floor. Real-time decisions are going to need to be made at the edge. You can't tolerate the latency that it takes for the data to go back to a data center and then come back to a factory floor or a jet engine. You need those decisions being made in real-time. Autonomous driving vehicles is the best example. There's no way that data can go back to a data center, because the car is making real-time decisions.

How do strategic solution providers begin moving in that direction?

This notion about being able to move compute and storage to the edge is all about small form factors and very low energy-pulling devices. We're making investments in that area. Our edge line offering of compute and storage with analytics built in is doing incredibly well. Aruba is an incredibly important part of that. Everything is connected, and the way these devices talk to each other is over the wireless network. I would encourage people to really think about IoT. Maybe four or five years ago, customers only wanted to talk about the data center. Today it's about 50 percent on the data center and 50 percent on the edge and what they're going to do with IoT to revolutionize their own business. We're getting lots of credit for our IoT strategy and we're getting lots of credit for Aruba, and I would really encourage this audience to really think about how you make your data center business great and how you latch on to what I think is going to be the growth vehicle for the next ten years.

Whether you like it or not, you're a celebrity CEO that people are always watching. How much time do you spend thinking about life after HP?

Not very much. These jobs are hard jobs. Every one of you. This is a tough industry, and it's all-consuming. What I will say is the way you all can use me, and it's been quite effective: Our industry needs to move from being farmers to being hunters. What's interesting about buying Nimble, or 3Par, or SimpliVity is because there is no installed base for these companies, they are by definition hunters. Because we have a huge installed base, almost by definition we are farmers. We need to flip that model to become hunters. I'm now spending about 75 percent of my time with partners and customers. I will do partner roundtables, I'll do customer roundtables. We will host you and our customers in Palo Alto. I will do greenfields, introductions for you. Think of a city where we do not collectively have a footprint, and I'll spend a day in San Antonio, in Oklahoma City, somebody asked to me come to Green Bay today. I told him I'd go to Green Bay.

You're willing to meet not only with a partner, but to go to a customer with that partner?

Absolutely. Or a customer they would like to have. There are plenty of customers that do not have HP gear in those sites. They don't have the next generation of software-defined architecture. They may not have Aruba. So, pick out some customers and I can make a call, I can send an email, I can show up and we'll do some hunting together. It's actually great fun, and it works pretty well.

We’re about a year from having to make a decision about jumping into the presidential race. Would you ever consider running for president?

No. We should be glad that anyone wants to run for public office. This is one brutal game. It was in 2010 when ran, and I think it's worse today. It's a full-on combat sport. Why are there so many litigators who are politicians? Because they're used to that full-on combat sport. Probably that was my experimentation with running for public office. But I do think longer-term, people like us do need to go into government, whether that's in an appointed position or at an agency. The next step may be something in public service. We'll see what happens. I'm on the board at Teach for America, and really think that organization is great, and I'm on the board of the TNC, the Nature Conservancy. There are a few things I try to give back on.

So if there was a 'draft Meg Whitman' campaign, you might think about it?

No, I would not. I definitely would not think about it. I am not thinking about running for president.

A number of cloud providers are buying a lot of white box gear. Are they risking their infrastructure? Why don't they buy more HPE?

Part of this is philosophical and part of this is raw scale. They have tremendous engineering capability. I would say I think we have as good an engineering capability, and we have a lot of logistics capability, but you have to remember, a lot of what these big service providers are doing is they are buying compute and storage and networking for one gigantic scale-out application, so they are tuning that box for one application and only one application, and they are buying at such scale now that they can actually buy quite cost-effectively from the OEMs.

So listen, do I wish it were different? Of course I wish it were different. Do I think it will be different? I do not. But the good news is very few companies, very few of your customers, can do that because the logistics, the engineering, the quality assurance, the firmware quality assurance, the innovation required for most enterprises is quite different from scale-out architecture for one individual application. So I don't think it's actually an existential threat to our industry ... I don't think [many other] companies are going to be able to operate like that.

With the evolution cloud is bringing into the workplace and so much business going through service provider, and after the split of Hewlett-Packard, is HPE potentially losing visibility to corporate IT decision makers?

So interestingly, I would argue first of all that HP broadly is a 75-year-old company, and to have been around that long, we've had to reinvent ourselves numerous times over those 75 years ... I would say what we did in splitting Hewlett-Packard primarily into two actually made both these companies much stronger. If you look at what has happened to HP Inc., the printing and PC company took over the No. 1 spot from Lenovo after seven years. Winning in the PC business, winning in the printer business, and now winning in A3, which is a new element of the copy/printer business, and now the leader in 3D print. That would not have happened in my view, had we stayed together because the resources were too constrained to be able to make those necessary investments.

What's been the impact for HPE?

You look at HPE: while we have scaled back the company, in the last seven months we have made seven acquisitions. Acquisitions are absolutely an essential part of the innovation strategy of these big companies and are frankly making us now even more relevant to end users, both CIOs as well as line-of-business buyers. I think all of you are seeing that switch from just the office of the CIO to line-of-business buyers to business development buyers. We collectively have to cover that waterfront to people who are making the technology decisions. So shrinking down and now adding through acquisition -- SimpliVity, Niara, SGI, Aruba -- we've made some highly relevant acquisitions to the C-suite of the CIO. So I don't feel like that is our issue at the moment. I'm trying to make sure we're marketing effectively to the VP of marketing, to the line-of-business heads. That's where I worry about our relevance, because they don't think of HP first. The head of marketing does not think of HPE first. The CIO, we're still on the radar screen there, but it's the other decision-makers that I want to make sure we collectively are in front of.

Some of your acquisitions have seen you buy a company but then you turn over the keys and let them run it. What have you learned about speed of execution and business processes from those acquisitions?

Every acquisition we make we have to think hard about how we want to integrate it -- or not -- into big Hewlett Packard Enterprise. Because I have grown up in Silicon Valley, I deeply understand what makes these small companies as successful as they are. One is they're incredibly focused. Two is, by definition, these companies are hunters, not farmers, because when came into being there was no installed base and their life depended on hunting. And they're very fast in their innovation cycle. So we want to preserve that in the context of HPE, but we want to bring what HPE can be, which is reach of our channel and also a validation to take a bet on a new technology.

So let me give you an example: Aruba used to win on technology before they became part of HPE, but often they wouldn't get PO because companies were uncertain if they wanted to take a bet on a small independent company. Now as part of HPE with our imprimatur and our ability to stand behind, they win almost all of those contests.

How has the Aruba business benefitted from that strategy?

We actually reverse-integrated our networking business into Aruba. You might know we had a wired networking business for campus and branch -- we integrated that into Aruba and then had the Aruba leadership team run all of our networking business, and it's been a home run. But yet our enterprise group sales teams sell together, they are part of one team, and I think the Aruba team would say that imprimatur, that ability to leverage the channel for Aruba has been a total accelerator.

Where else will channel partners see you utilize that approach?

Nimble is going to still retain a lot of its own sales teams, but we made a decision for our go-forward storage sales team in North America, the person who's going to run that is the head of Nimble sales, a guy named Keegan [Riley.] So we need to make sure we're picking the right people in the right job when we integrate those. Now we are putting more of that storage R&D together so we have more critical mass in the next generation of storage R&D, but we're improving the innovation cycles based on what we learn from Nimble. But we're improving innovation cycles based on what we learned from Nimble ... Every acquisition is a little bit different but you want to preserve what's great about that acquisition, as opposed to what I like to say, having the mother tiger roll over on the baby tiger and that's the end of the baby tiger.

Like many other companies in Silicon Valley, HPE has a lot of money parked overseas. If the federal government enacted tax reform to bring that cash back at a reasonable discount, would that spark another round of acquisitions? What would you do with that money?

We have about $9 billion overseas. So yes, I think virtually any American company would tell you that kind of tax reform and the ability to bring back that overseas cash at a discounted rate would be great for the economy and great for our companies. I think it would potentially spur acquisitions, although we have not been constrained by that. In other words if we want to make an acquisition we can bring cash back, and under the right set of circumstances we will. If it's a low rate, like less than 3 percent, I think you'd see cash come back and I think you'd see investment in the United States. I think [Amercian companies] have been lobbying for this for 10 years, so I'm a little bit more jaded about this because it's very difficult to get things done in Washington. That might be an understatement. But we'd be enthusiastic about that, and frankly I think it would be good for the U.S. economy.

Where do you see managed service providers fitting in the HPE ecosystem in the next three to five years?

Managed service providers are growing like crazy. And let me make sure that you and I have exactly the right definition of managed service providers ... First of all there is the public cloud, and virtually all of that activity is AWS, Google and Microsoft. Then there are service providers who host applications for big companies and small companies, and this started, you might recall, with telcos, but now partners have gotten into the managed service provider business ... and at least for the next four to five years, maybe even more, they'll continue to grow. But it comes back to where should each of the workloads at your customers reside, and it depends on the economics ... My view is that these applications are ultimately going to need to be able to move ... First and foremost I'd design for flexibility because this market is moving at lightening speed, and if you want to be able to move your applications seamlessly between an on-prem private cloud and a managed services, it's a good idea to design for that up front.

What's the opportunity for HP to make infrastructure more secure, and who should the channel be selling it to? Is it a board-level discussion?

Every single decision maker at big, small and medium size companies is worried about this. I haven't seen a big increase in the number of attacks, but I have seen a big increase in the anxiety level that our customers and your customers have. It starts at the board, and goes right through the CEO, the CIO. It's very top-of-mind. We're attacking this in a couple of ways. First, how do we build security into our infrastructure so it's not a bolt-in on top, it's not a perimeter monitor. It's built in to the infrastructure. Our first offering is the Gen10 server that is being sold right now. This is the ProLiant server. We have a 75 percent market share in servers in the United States. It's one of the things we do best as a company. Four or five years ago, I said to the server team, could we actually build security into the server in such a way that we have the most secure server in the world, and the answer is we have that today.

How do you achieve that?

It is built into the silicon. When there are people who are booting up this machine, and there are things that are happening that are not in its normal course, it will shut down. I would encourage each of you to get your security executives in your company to look at Gen10 because it is a real point of difference. My advice to you is not to sell this as a volume product. You want to sell this as a value product. If all you want to do is put Gen10 as secured word of trust into a reverse auction at a company, I think that's underselling what you have. This is your opportunity to differentiate servers on the most important thing you can differentiate on, which is security. Think about Aruba. Aruba is the most secure wireless network in the world. ClearPath and Niara are two things we have built into our offering. Niara, the way you should think about Niara, is basically AI for security in the wireless network, looking for anomalous patterns in the wireless network. We spend a lot of time thinking about how we can embed security into our offerings.