HP sees EMEA channel as its edge

If HP’s channel partners had not made up for lingering post-merger kinks, it could have lost momentum in Europe during the recent revival of the IT market, a company executive said this week.

“The channel hid the complexity of the merge and kept momentum in a market that moved overnight,” Jos Brenkel, vice president and manager of HP’s commercial channel said in an interview Thursday.

The distribution channel is the last area of HP’s business to be revamped since HP merged with Compaq in 2002, and has proved to be one of the most difficult parts of the business to consolidate and streamline, Brenkel said. The spurt in the IT market last quarter, which saw HP recapture the lead in terms of worldwide PC shipments, could have caught the company unprepared if it had not been for the quantity of inventory already present in its channel, he said.

Brenkel estimated that there was about three weeks worth of inventory available in the channel last quarter, which helped HP meet heightened demand despite industry-wide component and display shortages that hampered other vendors.

While HP’s Europe, Middle East and Africa (EMEA) partners came through in the market turnaround, it hasn’t been easy to be part of the company’s channel since the merger, some partners have said.

Speaking on a panel at an HP channel event in London this week, representatives for major company distributors such as Ingram Micro Inc. and Tech Data Corp. characterized the post-merger channel organization as vague, overly-complex and expensive to implement.

“The size of the HP-Compaq merger was enormous and they had different management styles and programs. It was a lot of work to adhere to their new distribution system and it was not without its bumps,” said Greg Spierkel, president of Ingram Micro in Europe.

Channel partners weren’t in a position to rebel either, given that HP makes up about 60% of their business, they said.

HP is aware of the problems, however, and is introducing a new partner program, effective Feb. 1, which will considerably simplify the way it organizes its EMEA channel. It is reducing the number of distributors it has in the region and changing its compensation plan, as well as offering additional compensation based on performance and customer satisfaction.

While European customers may see some difference in the level of service they received from vendors thanks to the changes, the real aim is to make the channel more efficient, Brenkel said.

Although channel changes do not usually grab headlines, Brenkel believes that it could make all the difference when competing against rivals in the region like Dell, which has become very aggressive in the market.

In fact, Dell came in number-two in terms of both worldwide and EMEA PC shipments last quarter.

However, Brenkel believes that Dell, which prides itself on direct customer relationships and building systems in-house, will only be able to make real substantial gains in the market if it adopts a well-organized channel structure in the region.

“The only way that Dell will make it in this market is to embrace the channel and they’ll never do it, it’s not in their DNA,” Brenkel said.

Dell’s direct model has been a success in the U.S., but the number of countries and languages in the EMEA region makes distribution incredibly complex, he said.

Even as vendors like HP and Dell continue to roll out more online sales, delivery, service and support are still major issues.

“Dell can gain ground online, but how are they going to deliver in 24 hours?” Brenkel said.

In addition to delivery advantages, HP is looking to its channel to quickly roll out, sell and support its new consumer-focused products, which have become a key category for the company.

Although many IT vendors have recently shifted focus to the consumer market, Brenkel believes that HP will be able to gain an advantage in Europe by offering support through its channel. This is especially the case with mobile products, he said, which often combine hardware, software and services and can leave customers scratching their heads, wondering which vendor to turn to when things go wrong.

HP’s EMEA partners are offering support for products like its iPaq handheld computer, for example, which has software from Microsoft and network services from Vodafone Group PLC.

“We are offering guys like Microsoft and Vodafone a channel in their laps,” Brenkel said.

HP’s new channel strategies may also change the way partners like Microsoft package and deliver products. HP has begun a program called “Vanilla” for example, which aims to cut down in the amount of warehouses the company needs by shifting to PC inventory that is appropriate for several countries and can be stored in one central warehouse.

The PCs come with support for multiple languages and the vendor can then choose which language they need, load the operating system from a CD and bundle it with the appropriate keyboard and user manual. HP has piloted the program in the Nordic region and says that it has dramatically reduced the amount of inventory it needs to warehouse to serve the various regional markets.

HP had to negotiate special licensing agreements with Microsoft to implement the program and Brenkel believes that it is the only vendor distributing in this way.

If extended, the distribution program could lead Microsoft to cut out the CDs and have users download the appropriate operating system from the Internet, Brenkel said.

Most of HP’s new channel plans are still in the preliminary stages, however. According to Brenkel, it took 18 months to come up with the plan and it will take even more time to execute it.

Much of this relies on the company and its partners connecting their IT systems, for sales, tracking and management.

“The rest is up to (HP enterprise software provider) SAP (AG),” Brenkel joked.

Even without the changes fully in place, it’s clear that HP sees the channel as its edge.

“These guys have incredible capabilities to roll out and deliver goods,” Brenkel said.