New HP CEO Enrique Lores On The 'Big Change' Coming To The Print Business Model

Lores, who took the reins as HP Inc. CEO on Friday, also discussed his priorities in personal systems, 3-D printing and services in an interview with CRN.

As Enrique Lores takes charge of HP Inc. today, he's overseeing a massive wave of change from the get-go as the PC and print giant rolls out a new commercial organization and restructuring.

The moves will make HP more efficient, enabling closer dealings with channel partners and customers, while also supporting greater investment in product innovation and services, HP executives have said.

[Related: HP To Launch New Organizational Structure, Appoint First-Ever Chief Commercial Officer]

"We are starting a new chapter," Lores said in an interview with CRN. "And the key elements of the chapter are our ambition to advance our leadership in personal systems and print, and the opportunity that we have to disrupt some key industries."

As part of this, "we need to transform how we work internally, and how we work with our partners to deliver better experiences to our customers," Lores said.

The new commercial organization will see the company shifting from a three-region organizational structure to a set of 10 geographic markets, while the restructuring will involve a staff reduction of as much as 16 percent by 2022—with between 7,000 and 9,000 employees affected.

Both initiatives begin today, as Lores takes over as HP CEO for Dion Weisler, who stepped down due to a family health matter. Lores had previously served as president of HP’s printing business since 2015, when HP split with Hewlett Packard Enterprise.

And there's much more change yet to come at HP. Last month, executives disclosed plans to overhaul the company’s longtime print business model. The move is partly a response to HP’s declining print supplies business.

Lores spoke with CRN about the upcoming print model change, efforts around moving to contractual services and what partners should expect as part of HP's new chapter.

How does the new commercial organization help you move faster to contractual services?

What we have created as part of the new structure is one group that will be responsible for the contractual business end to end. So they are responsible for driving the portfolio of products and services that we will fulfill contractually. They're responsible for building the infrastructure. And they're also responsible for defining the sales programs and the sales activities related to contractual. We've seen that when we are creating a new business, this end-to-end connection is very, very important.

On top of that, what the commercial organization brings is consistency—consistency of processes, tools. So as we evolve the model into contractual, with a new commercial organization, we can ensure that we do that in a consistent way across our countries and across all regions. In many cases, as we start establishing contractual relationships with our customers, this is really critical. Because they want to get the same type of service experience in all the countries where we operate with them, and the new organization will really facilitate and allow us to have a much more consistent approach, country to country.

How important is it to you that HP accelerates services in both PC in print?

The transition to as-a-service model is critical for us going forward. Both because we think that this is the way customers want to buy, but also because this will enable us to deliver a better value proposition to our customers. And this is why we think that this actually needs to be so important—because we think we will be able to deliver better value than what we are doing now.

Do you feel like channel partners and HP’s growth strategy are in alignment currently?

The response we have been getting these lasts weeks has been very positive. I had the opportunity to participate in Canalys in Barcelona and share this strategy with our partners there. And then we had a partner advisory board event where we invited some of the top partners across the world here to California to have a strategic discussion with them. And in both events, it was very clear that this strategy resonates with them.

We also had a very frank conversation about how their models will have to evolve. Because in a similar way that we have been clear that HP will have to change, the business of our partners will also have to change. But I think we have very strong alignment on where we want to go, and the direction and the changes that will have to happen from both sides.

You've spoken about how the new commercial organization should help HP to get closer to partners -- how will that help to support partners through these coming changes?

I think consistency is going to be very important. This will allow us to invest more and change faster. So I think that will also be a big benefit for our partners. And also with this model, we have removed one layer—the regional layer. So partners are now going to be much closer to where new portfolios will be designed, to where new services will be designed--which also should be seen as a big advantage for them.

Since you've been running the print business for several years, how does that position you to steer the ship in a different direction on print as CEO?

I think that's one of the key strengths I will have as CEO. Print is probably the area where we need to drive more change. And the fact that I know that business extremely well, because I have been driving that for the last three or four years, I think gives me the right knowledge but also gives me the confidence that we really have a very solid plan for what needs to be done.

What are the main things to know about your plans to change your print business model?

In our current print model, we lose money any time we sell a printer, and we make money on supplies. We are going to be pivoting this model into three complementary directions. One is what we were discussing before, about shifting into services—whether contractual for services for business customers or subscriptions for consumers, we are going to be really shifting our model and accelerating the changes that we have been driving during the last years. The second change, and this is mostly focused on emerging countries, is the evolution that we are going to have into printers that will [come with] a significant amount of ink and toner—which in most cases will mean that those customers will not have to buy supplies because they are getting the supplies when they get the printer.

And then third, we have announced that we are going to be adopting for printing a similar model to what cell phone companies and carriers have in the cell phone space. For every print model, we are going to be offering two configurations. We will be offering what we call our flexible model, where customers will pay a slightly higher price for the printer, but they will have choice in terms of what supplies to use. And then we'll offer an end-to-end model, where the printer will be subsidized—the price of the printer will be lower—but that printer will only work with HP supplies. And we think that this choice we are going to be making available to customers will help us to grow overall—because customers will have more choice. But it also will help us to offer better value propositions to the customers that have higher usage. Because when you know they will only be using HP supplies, we will be able to target them in a more specific way. So it's a big change from where we have been. We think this is the right time to drive this change, based on the dynamics in the market that we see. And as the leaders of the category, we think we are the right company to drive that change.

For the printers that only use HP supplies—the term "locked" printers has been thrown around—can you say anything about the timing of when we will start seeing these printers?

The term we use is actually end-to-end systems, because really they will be working both with HP hardware and HP supplies. Our current plan is we will start rolling the new portfolio at the end of next year—so at the end of fiscal year 2020 [which ends in October 2020]. It will take us some time to roll out the full portfolio—because as you know we have a very broad portfolio. So starting [at the end of fiscal] 2020, every printer we introduce will be with a new configuration. It will take us some time until we completely replace the full portfolio.

What are the implications for channel partners in this change?

I think, similar to customers, they will have more choice because they can decide which of the two configurations will fit their model better. But also the fact that for customers that will be buying the end-to-end system, we will know what supplies they will be using—[so that] also gives them an opportunity to participate in the supplies business that in many cases they will not participate in now. So I think it is a good potential expansion of their business. We also have announced this with enough time so we can work with them to build specific plans and programs for the new model. We have a year to plan how we want to manage this business going forward. This change will mostly impact the transactional model. So, with the exception of subscriptions, it should not impact the growth that we're going to see in the contractual space.

Will this print model change lead to an improvement in your supplies business over time?

Today we make most of our money on supplies, because we are very aggressive in the pricing that we have with printers. And this is going to re-balance that. So going forward, our profit will not have the same level of dependency that it has with supplies today—it will be more balanced between supplies, hardware and services. And this is really our goal—to remove our dependency on supplies from a profit perspective and rely on the other components of the system, especially in those areas like hardware, where we have a strong competitive advantage. We think that this will help us to really show customers the value that hardware has, that the printers themselves have.

As you begin as CEO, what's on your mind with the other business areas we haven't discussed—A3, personal systems, 3-D printing?

Already at the end of last quarter we were very close to 10 percent share worldwide in the A3 space. And when we started this a few years ago, our share was three points. So we have significantly increased our share. We have reached what we call critical mass. Of course we're going to continue growing that, but we have made very good progress in the last years.

We are also very optimistic about the future of our personal systems business. As you know, we have had a lot of momentum during the last quarters. And we think that that momentum is going to continue. And what we really have as a company is an opportunity to continue to advance our leadership both in print and personal systems. And you will see us driving that very aggressively, changing the model, delivering better value propositions to our customers.

But also, we have the opportunity of disrupting how many industries work. And this is what we are doing with our graphics business, and with our 3-D and digital manufacturing business. And the combination of what we can do in print and personal systems, and the growth that we can get by disrupting new industries, is what really makes the new chapter that we are starting very, very exciting.