STRATEGIES - The big brass brand

With resellers vying for the top three distribution slots, it's a wonder an all-out war isn't brewing in the channel. HP is holding steady at number two, hoping its new focus on image may give it leverage.

There are few markets as consistently volatile as the computers a wonder an all-out war isn't brewing in the channel. HP is holding steady at number two, hoping its new focus on image may give it leverage. market.

As soon as one approach to selling is raised up on the shoulders of resellers and lauded the victor, the supporting legs are kicked away by a leaner challenger.

And so, not to be eclipsed by the ever increasing rate of change, Hewlett Packard has completed an 18-month reorganisation of its structure.

It has shifted its sales/marketing base from a product-oriented strategy to a brand strategy.

HP sales staff will no longer sell a PC Wintel-based solution or a Risc-based Precision Architecture solution, but will instead sell an HP solution, irrespective of the underlying architecture. More importantly, HP resellers will need to broaden their skills to cope with the new environment, which could involve considerable expense and retraining of staff.

The company is anxious to preserve its place as number two, behind the mighty IBM, which has adopted a similar, although slower and more limited, strategy to its RS/6000 and AS/400 division. But being the number two player in any industry can be disappointing, especially in the IT industry.

It is this position which HP occupies in the hardware market, having surpassed its rival, Digital, in the early 1990s.

Most major manufacturers recognise that they cannot easily dislodge IBM from the top slot, so naturally target slot number two, as Digital found out to its detriment when it was attacked by HP - among others.

While recognising that IBM is unassailable, top companies like HP and Digital can eat into segments of its market share - in HP's case, the AS/400 and RS/6000 lines. This means IBM goes on the defensive and directs its guns against HP, or whichever firm is deemed the intruder.

Although on the face of it HP is a successful IT company, there are some signs that it is in disarray.

According to some observers, the company is kept afloat in the UK through sales of its profitable laserjet printers. Perhaps in response, the company has followed IBM's lead and taken the consolidation route. Now HP's development, marketing and sales teams are combined in selling its brand rather than its products.

According to one former manager, the move has left some HP staff confused about their roles. John Saw, HP commercial marketing manager, while acknowledging that the process of change has not been easy, plays down the fact that HP direct staff, or its channel partners, are confused by the company's latest moves. 'We have been trying to re-engineer ourselves over the past 18 months. We have had a Unix-focused business and a PC and peripherals-based business in the past, but are now moving towards becoming a server and workstation company, irrespective of the operating system. People expect the commodity style NT server-based products to be architectured in the same way as our Unix servers were.

'As of the first of November, our sales staff are selling anything from palm top systems to mainframe replacement Unix-based servers,' Saw says.

He also claims a new team-based approach to both the channel and users.

'If you were one of our directly served customers you would now have a business manager, a principal consultant and a team to back them up.

They will then go in and fulfil a Unix, NT or Web-style solution,' says Saw.

For the reseller, a channel partner would fill the customer's need once a particular technology has been decided on. But Saw admits there are some problems with this approach, certainly with commodity products. 'The channel problem doesn't only affect HP, it is industry wide, particularly with Wintel solutions. There is no guarantee that a solution will be purchased from a recognised channel partner,' he says.

HP resellers admit there is a temporary loss of direction among the company's employees, but stress that in strategic terms, the company has a clear objective. 'HP has clearly stated where it is going, even though there is a major re-organisation taking place - that has led to some confusion,' says Martin Finn, commercial director of HP reseller Hamilton Rentals.

HP was one of the first companies to adopt both Unix and Risc technologies.

From 1986, its products were based on precision architecture chips and its variant of Unix. But since 1994, it has had agreements with both Microsoft and Intel. It now has two server operating systems, NT and HP/UX, and two chip sets, Intel and PA Risc.

The fact that these two product lines have been merged in sales and support terms should not indicate a move towards a commodity market, according to Saw. 'There's a problem in the channel with commodity products. When you have a four-way, soon to be eight-way product coming out and you combine it with Microsoft's Wolf Pack clustering technology, you are not talking commodity products, but complex systems. Customers have to understand that just because they can go to a dealer or PC World and buy the same hardware, that does not mean they have a complex system.

The challenge for us is to capitalise on the service needed to run these systems,' Saw says.

Robin Bloor, chief executive of consultancy firm Bloor Research, detects a hint of desperation about the HP move. 'I realise there must be some problems with cost of sales, but I have never seen such a powerful company surrender to Micro-soft so easily,' he says.

Bloor believes that HP faces a serious challenge from Compaq and Sun rather than from its old mid-range rivals like Digital. In his opinion, Compaq believes it is capable of challenging IBM, a challenge he thinks will fail. To do so it must remove the opposition - HP.

Both HP and Compaq have agreements with Intel on the deployment of the Merced chip, but Bloor believes that if it comes down to the wire, Compaq will emerge as Intel's strongest partner.

It looks as if HP is doing well. Finn believes the majority of its revenue comes from HP/UX, but signs are that its former PC division is also doing well. In November, HP succeeded in knocking IBM into third place when it came to Computacenter's preferred PC suppliers.

The problem is that if two groups sell server-based systems to the same customer, there will inevitably be financial overheads. While both lines may be successful, HP and its resellers could find themselves competing against one another rather than other vendors. Finn points out it is not unusual to find installations with a Unix server in the middle and an NT cluster acting as the front end.

HP has gone further than IBM in the fusion of its divisions. The latter still has to decide whether to integrate its sales force as well as its AS/400 and RS/6000 development teams.

What the IT world is witnessing is a new marketing process of image rather than product or technology branding - a process that has been taking place in the US for the past two years. Instead of selling a Unix-based PA Risc machine or an NT-based Intel Vectra PC, sales staff will sell the concept of HP as a brand.

Solutions-based systems - the over-used and inaccurate slogan forwarded by manufacturers which lack confidence in their own products and seek a more neutral market game plan - are at hand. HP and IBM are not alone in adopting this brand marketing approach.

In October, Siemens Nixdorf announced it was merging its PC and server divisions into a single unit, which would encompass everything from portable machines up to the Pyramid Unix boxes.

The problem faced by companies which have adopted this approach is that a change in sales force and channel culture is necessary. Most major manufacturers are committed to pushing more products through the channel.

The difficulty the channel has is possessing the necessary skills to meet the different technological sectors.

Dealers that have been content with selling Wintel-based products may now find themselves providing Unix-based applications, training and support.

And long-established Unix vendors may suddenly have to support PC-based systems.

The concept of an HP business manager talking to a client and deciding on the appropriate solution is sound. But it does cause problems for resellers.

Saw admits the channel difficulty lies in convincing the customer that off-the-shelf software should be purchased from the hardware reseller rather than another dealer that can supply the same software at a lower price.

One of the reasons for the consolidation of units is financial. The falling cost of hardware has meant a squeeze on profits, and sustaining two separate sales and support teams for differing server lines no longer makes economic sense.

But Bloor believes the move could spell disaster for HP. With a heavy reliance on Microsoft, it could find itself losing ground. Compaq's takeover of Tandem means it has ceased to be a single-product, PC-based company and has become a powerful corporate figure.

Bloor believes that Compaq has set its sights on becoming the number one player in the market, hoping to displace IBM. Although he suggests that this ambition is unlikely to be fulfilled, he does think the Compaq/Tandem alliance will prove a challenge to HP.

It appears the new HP branded image may come under fire sooner than the company expected.