Hewlett-Packard in channel clean-up operation

HP is committed to changing its channel model to accommodate the needs of its partners. While most Business Partners welcome the news, others fear its tough-love approach

Most relationships have their highs and lows, but Hewlett-Packard's (HP's) relationship with its channel over the past 25 years has seen more ups and downs than The Big One at Blackpool.

However, celebrating the silver anniversary of its partnership with the channel at its Solution Partners Organisation (SPO) event in Amsterdam earlier this month, the vendor gave attendees the distinct impression that it is finally listening to its partners and is willing to make the necessary changes for the better.

Using the catchphrase, 'Shall We Dance?', the vendor revealed that a number of changes are in the pipeline, which should make some partners pirouette with glee and others frown down at their two left feet. HP also issued a battle-cry to rivals IBM and Dell, which they could ultimately find hard to ignore.

In the same week as its partner conference, HP announced the merger of its two biggest divisions - the Imaging and Printing Group with the Personal Systems Group - a move which the vendor hinted was geared around stealing marketshare from IBM and Dell, as well as gaining a slice of lucrative markets such as digital convergence.

Together, both groups account for 61 per cent of HP's overall business.

Bernard Meric, managing director of HP EMEA, said in his keynote speech: "We have a different strategy to vendors such as Canon, Dell and IBM, but sometimes we compare ourselves too much to other businesses.

"We want to be number one in the multifunction printer and notebook markets, and we are in an excellent position in both the SME and enterprise sectors."

Meric said HP has "a huge opportunity" to use its partner network to attack IBM and block Dell in the mid-market.

"In a commodity industry, what is the role of the channel? Our role as a vendor is to create demand at a customer level; the channel fills the gap by adding value," he said.

United they stand

The merger will ensure both divisions work more closely together before they deal with the channel, thus making partners' lives easier, according to Jos Brenkel, vice-president of SPO EMEA.

"Our PC business is good at pushing channel programmes such as Top Value and Top Config. However, the printer business has not been strong in this area," he said.

"Merging the two will allow everybody to work together and achieve united goals. When you buy a mobile PC and printer from the same vendor, it must be easier than buying from two different vendors."

Following IBM's announcement of its intention to sell its PC division to Chinese manufacturer Lenovo, confusion over the future of the division is spreading among channel partner and customers.

Although Brenkel was reluctant to admit the potential sale presented an opportunity to gain market share, he claimed the vendor is seeing increased demand.

"We are seeing a number of requests from [companies in] the enterprise space that are currently using IBM but want to move. Some are putting out tenders and asking us to tender," he said.

"Lenovo is not a value-add but a commodity company, and it has not been that successful outside China. In the SME space it depends on whether Lenovo is able to keep on IBM staff to manage the channel.

"They are not a threat in the consumer space and are neutral in the SME sector, but we do see some opportunity in the corporate space."

Spring clean

However, despite the potential for increased business, Brenkel admitted that HP is looking to clean up its UK channel, with as many as 2,000 of its current 5,000 Business Partners facing the chop.

"Having highs and lows is normal with partnerships, but consistent change is the key. We need to be able to rely on each other. We will reinvent the channel together with our partners. PartnerOne is all about building an IT channel. We are the largest player in the channel, but now we need a credible channel," Brenkel said.

"There is no such thing as a commodity solution, so this is the kind of attitude we want to work with. There are too many resellers going for margin on the box when the box is the easiest thing to sell. Some resellers don't focus enough on value-add."

Brenkel admitted the vendor had "taken its eye off the ball" and lost its sense of channel loyalty in the past.

"In the UK, we had a lot of issues [with the channel] and have had our own [internal] issues. There is only one thing to blame, and that is us," he said.

"We focused on too few partners and concentrated on putting inventory into the channel, but not on what partners wanted. We have now changed management and are putting a huge amount of effort into our channel programme.

"And we have cause to be optimistic: 70 per cent of our channel is extremely loyal to HP and want us to succeed.

"We want to treat the channel as an extended salesforce. We need partners that are motivated to sell our products and that will aggressively go for Dell accounts and win business for HP. We don't want partners that will annihilate us in the media."

He added that some partners are "opportunistically" selling HP and taking margin away from genuine partners.

"We don't want lots of partners, we want the right partners and we have to be bold and say, 'leave us' to some," Brenkel said.

"We will fix things and we will get the right sales coverage, and get better at integrating VARs that want to work with us. Loyalty doesn't come in market share; loyalty comes in adding value to customers and working to grow your business."

Type casting

Mike Kontowtt, chief executive of distributor OpenPSL, said a vendor often works with several types of partner and has to know how to manage them all differently.

"In reality, there are three types of reseller. First there are the infrastructure resellers, and many of those are vendor-dedicated. But you also get the likes of corporate resellers, such as Morse, Computacenter and SCC," he said.

"Second there are the box-shifter/fringe players, whose business model is perhaps a bit weak and built on a tenuous relationship with the customer, where they are mostly selling on price. These types of partner can be disruptive for the market and can drag the value out of deals."

Kontowtt added that there are also large systems integrators, which are a real challenge to any vendor. "These tend to be vendor-agnostic and don't sell on price, therefore they aren't any threat to the channel," he said.

"Vendors need to embrace the different types of reseller, but the weaker ones need to be properly policed and accredited to ensure they deliver what they say they can deliver, and not just work on very low-cost structures."

In terms of policing the channel, Brenkel announced a further attack on grey market activity, which takes business away from legitimate channel players. "We are cracking down on grey marketing and making huge progress," he said.

"HP has 126,000 Business Partners across EMEA and if VARs want to continue being a Business Partner, they have to sign a contract with HP. This means they will get customised pricing, but it also means they can be audited to make sure they are not abusing that pricing to sell to other customers.

"We need to ensure is that customer pricing is not being used to generate the grey market."

Brenkel added that HP will be take no-nonsense approach to partners who break the rules.

"We don't want partners to buy from brokers. If they do they will be de-authorised. It is as simple as that," he said.

However, despite the activities of a few rogue partners, HP is looking to push the benefits of the channel to end-users.

To this end the vendor unveiled an $8m marketing investment in EMEA to raise customer awareness of the channel. It also announced the creation of two new partner advisory boards for corporate and enterprise-focused partners. Each board will consist of 10 partners who will meet regularly to review the effectiveness of HP's strategy.

The vendor already operates a board for SME-focused partners.

"We are proud of our partners and will continue to reinvent and invest in the channel. It is our intention to bring the channel to our customers and put partners in front of end-users to create joint demand-generation. The key to differentiation is to invest, and that is what we intend to do," Brenkel said.

All change please

Another initiative announced at the event was a pay-per-use model, which HP hopes, that by working with the right partners, will present new business opportunities in sectors such as finance, manufacturing and telecoms.

Kontowtt said accepting change is the best way to succeed with HP.

"It has been interesting to see how some partners have evolved their business. This highlights the fact that if you accept change and invest in it, you can evolve and remain successful, irrespective of the economic environment. If people don't want to change, they will struggle," he said.

Joe Hemani, chief executive of distributor Westcoast, agreed. He said his company is poised for 30 per cent growth over the coming year.

"We want to ensure we continue to change and adapt. People who say the industry is mature are wrong. It is not because we have to keep reinventing our companies and providing the best quality to customers. Maturity doesn't exist in my book, and commodity is a horrible English word," Hemani said.

Rebuilding bridges

However, Jeremy Davies, senior partner at analyst firm Context, said although HP is making progress it still has a way to go.

"HP has had a tough two years since the Compaq merger. The way the channel used to work cannot go on in the face of today's new cost structure. Instead of the old-fashioned way, it must be based on a pay-for-results strategy," he said.

Davies added that it is a difficult undertaking to persuade the channel to change its model. "Some partners have been very successful; some have not," he said.

"HP has a lot of bridges to mend but anything it can do to prove renewed commitment to the channel will be welcomed.

"It has to allay channel fears by saying it will not pinch customers by going direct. HP's channel strategy has to be crystal clear, with no room for misunderstanding or lack of clarity. There will be cases where HP wants to go direct and also cases where the channel is best-placed to serve the customer.

"Providing this is laid out beforehand, it will not be a problem."

Davies agreed that some partners will have to be dropped.

"HP has got to have a channel that is happy to work with it. There is not enough room in the industry for HP to allow partners to use it as a foil against another vendor. The channel is an army which has to be marshalled, incentivised and directed, and that is a lot of hard work," he said.

The overall message that came out of the Amsterdam event was that HP is attempting to put in the time and investment needed over the coming years to ensure that both it and its channel partners end up dancing to the same tune.

CONTACTS

Hewlett-Packard (01344) 360 000
www.hp.com/country/uk

OpenPSL (01706) 222 180
www.openpsl.com

Westcoast (0118) 912 6000
www.westcoast.co.uk