Confusion still clouds HP’s channel plan

All the seamlessly merged product lines in the world don’t mean anything unless a company has developed a smooth process to bring those products to market. In bringing HP and Compaq together, executives needed to blend HP, a company traditionally strong among channel partners in the enterprise, with Compaq, a company in the middle of a push toward a direct sales structure.

That created much confusion and concern among HP’s channel partners, starting in September 2001, when HP announced its intention to acquire Compaq. Although the level of confusion has diminished, HP still has plenty of work to do to clear the air.

The primary confusion and concern centered on whether HP would continue its partner-focused strategy or head toward Compaq’s more direct approach, said Dino Farfante, North America president of Insight Enterprises Inc., an HP partner and reseller since 1995 that last year had $2.89 billion in revenue.

“We didn’t understand what role we played in the channel. We continue to work through that. It’s still confusing, but much less than a year ago. We’re making significant strides with their team to continue to clarify and go forward,” said Farfante, whose company, based in Tempe, Ariz., also has a strong partner relationship with IBM.

In Compaq, HP inherited a strong direct sales organization that unnerved its traditional channel partners, which feared HP was poised to take over their business in a bid to cut out reseller margins, said Roger Kay, an IDC analyst.

But HP has made it clear it will pursue a hybrid channel strategy, maintaining both a direct and an indirect channel of distribution to remain competitive against Dell and IBM.

“It’s impossible to have just one route to market. You reduce your customer reach with only one route, and we want to be able to supply customers in the way they want to buy,” said Jim McDonnell, vice president for sales and marketing for HP’s personal systems group.

About 75% of HP’s revenue, across all of its product lines, comes through partners, said Mary McDowell, senior vice president and general manager for industry standard servers in HP’s enterprise services group.

“We have a strong interest in maintaining that, but if the customer wants to buy directly, we’ll make that available,” she said.

Insight wishes HP could do all its business through the channel, but recognizes that’s unrealistic, Farfante said.

“We agree with the hybrid strategy only because it’s absolutely necessary (for HP to have one). I’d like to think they don’t need a hybrid strategy and everything goes to the channel, but that’s not reality,” he said.

HP gets high marks for its post-merger work on its channel strategy, but that the work is far from over, according to Gartner analyst Michael Haines.

“There’s still some conflict of where does HP play directly and where do the rules of engagement call for the channel to play,” Haines said. “They still have some work to do before that’s really smooth and clearly understood by all parties, including the end customer.”

Resellers were also hurt by confusion over what products and services would survive the consolidation process, a situation that HP’s competitors — in particular, IBM and Dell — were able to exploit, Farfante said.

Although HP has plenty of work to do to balance its hybrid channel strategy, it is doing well by engaging its partners in the process, said Janet Waxman, an IDC analyst. That’s an assertion Insight’s Farfante backs up.

“We’re giving input and they are listening to that input,” Farfante said.

In November 2002, HP launched its partnerOne program for channel partners, which consolidates 40 previous programs and spans HP’s entire product and services portfolio. The program was launched first for HP’s 20,000 partners in the U.S., for later rollout in other countries.

Insight’s Farfante calls partnerOne “strong” because it groups channel programs from Compaq and HP under one umbrella, but says it could be simplified.

“One of the issues with partnerOne is that it is such a diverse program and it covers so much of an area that it’s hard to really get your arms around it,” Farfante said. “It was a program we had to work really hard at to understand.”

PartnerOne was designed to provide incentives and rewards to channel partners, such as resellers, systems integrators, independent software vendors (ISV) and service providers, HP said. Simultaneously with partnerOne, the company also launched a companion program specifically for ISVs and integrators called the Developer and Solution Partner program, as well as the HP Certified Professional program, which consolidates individual certification programs.

Launching partnerOne was a good move because HP has many partners that sell across its product line, and they now have a single point of entry for HP’s channel programs, Gartner’s Haines said. “It’s a heck of a lot better than it used to be,” he said.

It has also been important for HP Chairman and CEO Carly Fiorina to state the company’s commitment to the channel at various events in recent months, Haines said.

“The reason why that’s so darned important is that one of the worst practices of channel programs is having no top-level commitment and sponsorship (from the vendor),” Haines said. Fiorina has let her company and the industry know that HP doesn’t consider the channel “an afterthought,” but rather a significant part of the company’s business model, he said.

Farfante said it’s hard for him to say whether Insight is better off today than before HP announced its intention to acquire Compaq. Back then, Insight was a partner to both companies and its relationships with them were very clear. But he also realizes that HP and Compaq had to merge in order to remain competitive.

“Are we better off now than before? It’s a hard question to answer. We’re better off now because we have a stronger partner and because they’re better positioned. But we’re not better off now because we’re still dealing with some of the clarity issues and some of the merger issues,” Farfante said. “But long term, the decision to merge was the right one.”

Over the next 12 months, HP must continue to execute on its channel strategy, he said.

“I’m very optimistic about HP’s future,” he added.