Is It Too Late For HP's Whitman To Mend Channel Fences?

Last year at Hewlett-Packard's Global Partner Conference, CEO Meg Whitman talked of bringing the "swagger" back to HP. As it turned out, "stagger" would have been a more apt description. There's no sugarcoating the fact that HP had a disastrous 2012, with layoffs and brain drain; disappointing performance in core businesses; two massive write-downs totaling nearly $17 billion; the Autonomy accounting scandal; and Wall Street's call for a breakup all contributing to the drama.

Whitman now claims the worst is over-for real this time. She says morale is on the rise within HP and claims to have won the hearts and minds of HP employees. And at the Global Partner Conference this year, she's calling on partners to get out and start counteracting the incessant drumbeat of negative sentiment. The way Whitman sees it, who better to stem the tide of negativity than a legion of knowledgeable, highly trained extensions to HP's sales force?

"We've been through a lot, we're coming back strong, but we need partners to invest with us, and to believe," Whitman told CRN in a mid-January interview at HP's Palo Alto, Calif., headquarters. "I recently told a group of channel CEOs, 'If people are not speaking highly of HP, you need to defend us. Because you know what our strategy is, you know how good our product line is, you know our commitment to these businesses, and we need you to evangelize.' "

[Related: 7 Bold HP Proclamations That Don't Tell The Whole Story ]

To that end, HP is investing in programs and infrastructure to make it easier to do business with the company. It plans to spend $500 million in the U.S. channel around MDF and $1.5 billion worldwide.

Still, HP-bashing has become something of a sport in IT industry circles. And after 16 months at the helm, Whitman is getting tired of the negativity. Despite all the good things happening at HP-a healthy networking business, a budding cloud portfolio and a solid lineup of new products-she seems puzzled as to why popular opinion remains stubbornly focused on past missteps.

However, Whitman's channel call to arms could fall on deaf ears with some partners who've been cut out of deals and had customers snatched away by over-aggressive HP sales reps. That's been happening with regularity in the past few years, as HP salespeople have taken advantage of the CEO changes, and the leadership vacuum they've created, to run roughshod over the channel. This is causing an erosion of trust among partners, which is problematic for HP because without the channel, Whitman's plan to turn around HP has little chance of succeeding.

"We recognize that things weren't perfect in 2012 and, maybe even in 2011, and we are working hard to make things right," said Whitman.

However, consensus opinion that emerged during the course of discussions CRN had recently with more than 20 HP partners—including some of its largest in the U.S.-is that Whitman must move quickly to stem the erosion of trust and loyalty in the HP channel. Partners that just a few years ago were selling and evangelizing HP's entire product line, from PCs and printers to enterprise hardware and services, told CRN HP is not as strategic to their business as it once was.

And some of those partners are cutting their HP investments and hooking up with other vendors that are coming on strong with their own channel programs and incentives.

"When you have large partners that were previously exclusive to HP but are now selling Cisco, Oracle, Dell and NetApp, you don't have loyalty anymore," one HP partner told CRN.

The sentiment about HP becoming less strategic is not limited to the channel. In Piper Jaffray's fourth-quarter 2012 survey of 135 CIOs of large and midsize companies, just 3 percent of respondents said HP is a "critical and indispensable" part of their IT environment, compared with 45 percent for Microsoft and 16 percent for Oracle, the top two companies in the survey. HP tied for seventh place in the survey. "HP has made little progress in convincing CIOs that they should embrace HP's technology portfolio in a strategic manner," Piper Jaffray said in a research note accompanying the survey.

HP's first step toward mending fences with the channel at the Global Partner Conference will come in the form of revised rules of engagement for its salespeople, but the damage that's been done won't be repaired overnight. While trust and loyalty are tough things to measure, the past couple of Global Partner conferences have lacked the collective enthusiasm that used to be a hallmark of the event. One top HP partner described it this way:

"At HP's partner conference three years ago, I remember Stephen DeWitt [senior vice president of global marketing for HP's Enterprise Group] firing people up with an inspirational address. Partners were excited, they were feeling the channel love, and they were staying the whole week. People were drinking the HP Kool-Aid. It was a 'Band Of Brothers' kind of thing. But there's a different energy now. Now it's just business; it's no longer about partnership with HP," said the source.

NEXT: New Rules To Change Old Behaviors

In her inaugural address to HP partners last February, Whitman pledged to stabilize the company as a first order of business. "I want to be a steady hand on the tiller for this company," she told partners at the event. "We're going to return to being the reliable, trusted partner you can count on to build your businesses."

It all sounded great to turmoil-weary partners, who greeted Whitman's first conference keynote with thunderous applause. And then the rest of 2012 happened, and distraction after distraction muddied the waters, diluting the impact of Whitman's message and leaving partners wondering if it was all just lip service from a seasoned campaigner.

When Whitman gives her state of the union address this year, she'll likely be facing a more skeptical audience. But unlike last year, Whitman is coming to the table with a much deeper understanding of the HP channel. She clearly has spent a lot of time familiarizing herself with its needs and pain points. While many of HP's broader problems are beyond Whitman's control, she is making it a priority to fix those that exist within the HP channel.

Whitman's first big step toward rebuilding trust in the channel comes in the form of revised rules of engagement for HP salespeople, which will be unveiled formally at the conference. Under the new rules, HP said it won't move a customer from an indirect sales model to a direct model on registered deals without informing the channel partner serving the account. HP also said it will only take a customer direct if the customer asks for that type of relationship.

HP partners that run into problems with HP salespeople will be able to escalate issues to HP executives. Most important, HP salespeople that ignore the rules and try to poach deals and customers belonging to the channel will find themselves looking for new jobs, according to Whitman. "If you are scooping a partner deal that you have no business having your fingers in, at all, then we will take care of that. It's not appropriate," she told CRN.

Whitman hopes the stronger rules of engagement will send a clear message to HP's salespeople, who've grown increasingly brazen with the channel, perhaps due to the lack of clear direction that comes from having three CEOs in as many years. Partners told CRN this aggressive behavior is seen most frequently in HP's Enterprise Group, particularly in the commercial and global accounts customer segments, where the role of that channel has not been well-defined.

In HP's commercial accounts, the Enterprise Group channel strategy has been sorely lacking, sources said. "HP sales reps won't bring partners into deals, and that's a problem," one large enterprise partner told CRN. "They're happy when you as a partner close a million-dollar deal, but you won't even get a thank-you card. When you're working side-by-side with them on deals, they're your best friends. But if you're a multivendor VAR, they will do everything in their power to create problems for you," the partner said.

"We've had cases where we were brought into opportunities by another vendor, and when HP's [Enterprise Group] sales reps found out we were in there, they went in and offered a heavily discounted price," said the source. "HP's reps knew they weren't going to win the deal; they just wanted to damage our profitability."

A number of partners that once sold the entire HP product line used to get higher back-end rebates for their commitment, they said. Despite being considered among HP's most loyal partners, some have lost customer accounts to HP's Enterprise Group sales reps, who have been known to play the "customer asked for a direct relationship" card to justify their actions.

It's this sort of behavior that HP trying to stamp out with the revised rules of engagement. Sixty percent of the Enterprise Group's revenue currently goes through the channel, and Dave Donatelli, head of the Enterprise Group, said that figure has increased since he was appointed to run the unit in March. Like Whitman, Donatelli is vowing to deal harshly with HP sales reps that violate the new rules. "If we see anybody not acting on that goal, we weed them out quickly, in terms of our own people," Donatelli told CRN. "If they don't follow our rules of engagement, we take that very seriously."

However, HP may be leaving itself a loophole in the new rules by saying it will accommodate customers that want to work directly with HP, said an executive from a multinational partner. "The minute the customer says they want to buy direct, that's where HP is going to get into trouble," said the source. "Instead of saying yes, HP needs to defend the channel and explain why partners need to be involved in the deal."

HP did not respond to a question from CRN about whether the new rules account for such a scenario, nor could it provide a figure for how many of its salespeople have ever been fired over channel conflict.

None of the partners who've lost customers to the actions of HP salespeople would speak on the record with CRN for this story due to fear of retaliation from HP. But their stories are well-known throughout the HP channel. Even HP partners that have good relationships with the company will grumble privately about the impact that overaggressive HP salespeople have had on channel harmony.

Partners that have moved business away from HP told CRN they're getting better rebates and incentives from Cisco, Dell, EMC, NetApp and Juniper, among other vendors. One VAR executive told CRN his HP business has declined from 85 percent to 40 percent over the past three years, during which time he has diversified into Cisco with UCS and EMC with storage.

An executive from a national HP partner told CRN he has diversified his portfolio due to conflict and turmoil in HP's channel and has not regretted the decision. "Our Cisco business is exploding, with triple-growth last year, and that growth has come at the expense of our HP relationship," said the executive.

NEXT: Whitman's Plan To Rebuild Channel Trust

In addition to laying down new rules of engagement, Whitman is driving efforts to make HP simpler and easier to work with. The first steps came last March when HP combined its PC and printer businesses and formed the Enterprise Group, an amalgamation of Enterprise Severs, Storage and Networking (ESSN), Technology Services and the global accounts sales organization. Then HP found that its internal systems were woefully outdated and starting using Salesforce.com to manage partners.

Now HP is splitting its channel into separate divisions for the Printing and Personal Systems (PPS) division and the Enterprise Group, each with its own sales executives and partner business managers. The new model replaces HP's Solution Partners Organization (SPO), which debuted in 2004 as a group that unified HP business units but was quietly disbanded last year after the formation of PPS and the Enterprise Group.

HP said it is switching to a bifurcated channel so partner management can be handled directly by the PPS and Enterprise Group units. Greater efficiency is the goal: Without the SPO acting as an intermediary between the business units and the partner selling to the customer, the thinking is that HP will be more nimble and quicker to respond to business opportunities.

"If you are both a PPS and Enterprise Group partner—and a lot of partners are=you will have two partner leads to coordinate with," Whitman told CRN. "But this is going to make it easier to do business with us than it was when we had five different business units [working under the SPO], each with their own different set of strategies and products."

Many partners are anxious to see if someone will step up and stand out as the channel's fiery advocate within the organization.

HP said Sue Barsamian, senior vice president and general manager of global sales and operations for HP's Enterprise Group, and Jos Brenkel, senior vice president of worldwide sales strategy and the Project Management Office of HP's PPS unit, are responsible for the channel as part of their broad global sales roles. Serving as the de facto channel chiefs are Dan Tindall, vice president of worldwide PPS channel sales, and Jesse Chavez, vice president of worldwide Enterprise Group channel sales.

NEXT: Light At The End Of The Tunnel?

Meanwhile, Whitman sees product quality as crucial to regaining the channel's trust. She believes HP has a stronger lineup of new products than it did a year ago, including the 3Par StoreServ 7000 series, which is priced in the $25,000 range and aimed at midmarket customers. HP's Proliant Gen 8 servers, Moonshot servers, ElitePad 900 tablet, Ultrabooks and multifunction printers are other areas of product strength, according to Whitman.

Whitman believes better products will go a long way toward improving channel morale. "We understand that not only do we have to make great products; you as a partner have to make equal to or more money with us than you do with our competitors," she said. "And if we can combine that with products that customers want, then we will have a home run on our hands."

While it remains to be seen whether Whitman's plan for rebuilding trust will work, early returns are promising.

"We're more aligned with HP right now than we've been in a long time. We have executive relationships up and down the company, across the business units," Bill Loupakos, senior vice president of professional services at American Digital, an Arlington Heights, Ill.-based partner, told CRN.

American Digital's HP business grew 8 percent last year, and Loupakos expects it to double in 2013. "The whole message of being partner-friendly is now embedded, and Meg is leading the charge. The difference from last year is like night and day," he said.

HP for the past few months has been getting the word out to its sales force, on a country-by-country basis, emphasizing that violations of the new rules of engagement won't be tolerated. "In reaction to some of the noise that we heard, we've been going out and seriously re-educating people that need to be re-educated," Barsamian said.

HP already has shown an increased willingness to work with partners on midsize commercial accounts, which were previously a gray area. Several HP partners credited Aaron Mills, U.S. vice president of sales for midsize enterprise in HP's ESSN division, for setting a channel-friendly tone. In the eyes of partners, Mills is a model for how the rest of the Enterprise Group should treat partners.

"We are engaged with his team, and they are pretty much 100 percent through the channel," Michael Haley, president of Edge Solutions, an HP Elite partner in Alpharetta, Ga., told CRN. Haley said his HP business was roughly flat last year, but profitability grew due to fewer agent deals and more transactions going through distributors.

In the end, Whitman still believes she can get the company back on track.

"Listen, I was the third CEO in three years. If I'd been an employee, I'm not sure I would have believed," Whitman said. "I think we have created a vision that people believe in. You can just feel it in the hallways-people are pretty energized. Someone said to me the other day, 'I feel more excited about HP with the stock price at $17 than when it was at $40,' as ironic as that is."

PUBLISHED FEB. 15, 2013