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Rebooting Hewlett-Packard
August 25, 2006
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| <b>A Long and Winding Road</b>
A full generation before shaggy-haired collegians in their parents' garages developed what were to become Apple Computer and Microsoft Corp., Bill Hewlett and Dave Packard used the garage motif to their own advantage. With a grubstake of $500, the two Stanford graduates created their startup in a Palo Alto, California, garage in 1939. Bill won a coin toss to determine whose name would go first in the name of the new company; if Dave had won the toss, the company would be known today as Packard-Hewlett. |
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By Chistopher Hosford
Mark Hurd, CEO and president at Hewlett-Packard (HP) for little more than a year, and the one person universally credited, inside and outside the company, with turning around the performance and sales culture at HP, declined to be interviewed for this article. He deferred instead to his sales team, and we were happy to oblige. Sales chief David Booth likewise insisted we spread the wealth of Sales & Marketing Management's attention, both in interviews and in the photos that accompany this story, among myriad other HP sales executives charged with remaking HP in Hurd's image.
And we were happy to oblige in that as well. The fact is, when you have a 67-year-old company that is growing as fast or faster than many smaller companies while carrying a $90 billion run-rate in annual sales, is hiring salespeople as fast as it can for big efforts in new markets, and is a darling of Wall Street, there's plenty of credit to go around.
Hewlett-Packard, founded in a Palo Alto, California, garage in 1939, and synonymous for most consumers, at least, with desktop printing, found itself over the past several years with flat sales, rebellious customers, and a demoralized sales force. Today, the company is riding the results of 18 months' worth of decisions that outside observers say give HP new strength and every sign of getting only stronger in the coming years.
"Hurd was in a tough position," says Leslie Fiering, research vice president with high-tech consulting firm Gartner Inc., in San Jose, of the former CEO and president of NCR Corporation, who took over HP's reins in March 2005, following the firing of the high-profile and controversial Carly Fiorina. "Customers were either hostile to HP, or starting to write them off because of their slowness to respond to the market on so many levels."
Hurd, himself a former salesperson who had risen through the ranks, took over a company that was intensely siloed, in particular in its sales structure. Administrative tasks tended to keep salespeople chained to their desks; only 30 percent of a salesperson's job reportedly was spent in customer-facing situations. And because of a top-heavy decision-making process, the company was slow to respond to competitive threats and customer needs.
"The thing that impresses me about Hurd is he understands the business, and that process is important to let people do their jobs," says Fiering. "In the past, process—what to do when something comes up—was confused with bureaucracy. That's changed now."
The attitude within HP mirrors that of analysts and customers.
"We've made a significant investment in training, in field hiring, we've got more customer-facing resources, and we're bringing in an enhanced compensation program in the fall," says Bill Weaver, vice president of technology solution group sales. "The last thing we want to declare is victory, but we think that Mark more than anything brought the sales culture back to the company."
TOP TO BOTTOM CHANGE
Among the many changes to HP's sales and marketing culture and processes, the following have attracted the most attention:
Prior to Hurd's arrival, the company's sales force, which totals some 17,000 employees, worked essentially for the company as a whole; sales' responsibilities, budget, and activities were at the service of pushing the entire portfolio of HP products. This arrangement had seeming advantages, including the theoretical ability to cross- and up-sell, and to offer clients a single HP contact person. In actuality, the company's huge product lineup was beyond the ken of any single mortal. Further, separate product divisions had little or no control over the process or sales budget. There was no one to blame when things went wrong, and they did.
Over the past year, the sales force has been decentralized and dispersed among HP's three business divisions: the IT needs of large enterprises, printing and printers, and personal computers (including laptops and handheld devices).
Observers say HP's customer base was up in arms over the company's lack of responsiveness. The main culprit seems to have been up to 11 administrative layers that had to be traversed between order and fulfillment. Booth says the layers have been reduced to seven, and he hopes to get it down to six in the near future. Merely by decentralizing the sales force from a company-wide function to a business-division function, the sales-decision processes already have been pushed down closer to the customer. Removing administrative layers can help this even more.
As a large, mature company, and with several recent acquisitions under its belt (most notably, of Compaq in 2002), HP deployed numerous sales-enablement packages. To date, the company has winnowed its own sales technology from some 30 different kinds of sales force automation packages to focus on a single product company-wide (Oracle's Siebel CRM). Gaining analytic control over the sales pipeline also is expected to aid profitability. For example, sales compensation can more easily be altered, rewarding salespeople for closing deals on HP's most profitable products.
Also part of the new HP is an emphasis on customer satisfaction—a hoary and elusive goal, but one the company is attacking through processes as well as enthusiasm. At an Orlando symposium sponsored last October by Gartner, Hurd introduced HP's Total Customer Experience program, which attempts to measure promise fulfillment, adequate follow-up, customer support, and more. Again and again, Hurd stressed the need for HP to become more "customer-centric."
"We're going to take a four- or five-year run at building the best sales organization we possibly can," Hurd said at the Gartner seminar, in response to probing questions concerning HP's troubled account-management practices. "And it's going to be filled with milestones on deployment, training, capability, and customer feedback, and I think we know how to do it. We've got to go do it."
How well is HP doing? One, the company is more profitable, with income up 51 percent in the most recent quarter. Much of this performance can be attributed to a more efficient company benefiting from layoffs since the Compaq acquisition, and an additional round of cuts following Hurd's arrival. More telling, sales are up dramatically—8 percent higher in the second quarter (reported in May 2006) to $22.6 billion, from $21.6 billion in last year's quarter, impressive for a company that already ranks 11th on the Fortune 500 list. The company expects to grow by a similar percentage for its fiscal year 2006.
HP expects to ship more than 50 million printers this year, and more than 30 million PCs.
SALES IN MOTION
Reforming the sales process at HP, according to Weaver, also revolves around what he calls "sales motions." One is a "volume motion," a self-evident virtue that entails selling more to HP's largest customers. In addition, the company's "solutions motion" offers a one-stop process enabling the company to solve IT and operational needs across a broad horizontal plane.
This may sound like a contradiction, following the decentralization of sales that aligns teams within three separate business divisions. But HP feels that customer needs also are pretty siloed—that printer requirements are fairly distinct from the IT needs of large companies, and so forth. Thus, the company is striving to assign one salesperson to one customer, backed up by a "virtual" team of on-call specialists in particular areas, such as software, servers, storage, etc.
Training—and lots of it—is key to any sales-transformation effort, and at HP it's epitomized by a program called Sales Excellence, focusing on developing salespeople with particular skills. For example, HP's enterprise account managers are trained to develop C-level relationships. "If you're truly going to be effective with global accounts, you have to understand the industry and have the ability to talk to executives in both the business and IT lines," observes Don Robertson, HP's head of global sales learning and development. "Your trusted relationships come from the business side, where you're less sensitive to competitive pressures."
Sales Excellence includes individual development, and gap and skills analysis targeted to a salesperson's role and business group.
According to Booth, the company's job cuts are over for now, and HP is hiring salespeople by the hundreds to help realize its new directives. He adds that he is in monthly face-to-face contact with Hurd, and has carte blanche to call him when the situation requires.
The company's R&D and manufacturing apparently are keeping pace with sales and marketing. HP introduced new storage products just after Hurd's arrival in the spring of 2005, made a couple of revisions to its printer lineup, and introduced a number of new PCs and notebooks. Its printers remain the market leader with some 47 percent market share.
NEW DIRECTIONS
While the company's array of products is significant enough, HP wants to put greater emphasis on its service and consultancy business, partnering where it has to (in non-technological fields, like call-center operation) to bring a greater range of solutions to its customers.
The company's effort to expand its business-service wing is something Hurd feels positive about. Last April, at an IT forum in Las Vegas sponsored by Forrester Research, Hurd posited that HP's technology is ideally oriented for the new push: "…the opportunity to align technology directly to the service delivery process is a key competitive advantage. Hopefully we'll be good enough to lead in all that."
The company plans to focus here on what it calls business-process outsourcing, where rather than just sell hardware, it also will offer implementation services, consulting, and complete IT outsourcing, depending on a customer's needs. The company also offers a kind of cradle-to-grave sales model. Its finance wing offers extremely modest interest rates to business customers to purchase HP equipment, and the company stands by to buy that equipment back at the end of the depreciation cycle (swapping it with modern goods), and re-sell it in Third World countries.
"To be successful here, what you need are customers who feel a little overwhelmed by the technology and underserved by suppliers," says Jack W. Plunkett, CEO of Plunkett Research, in Houston. "If you're HP, why not offer turnkey deals that replace not just PCs, but also network gear, printers, servers, storage, delivery, installation, and start-up? Dell figured that out about 24 months ago, and frankly HP doesn't have any choice but to compete on that side."
The subtext of this commitment to business solutions also clarifies what had been a question mark for the company: to what extent it remained committed to its sales-channel partners. Some analysts had predicted that the company would severely curtail its sales-channel relationships—in which more than 60 percent of its sales derive—in favor of the greater margins of direct sales. But the company's decision to emphasize the SMB market and business solutions, onlookers say, serves notice that sales-channel partnerships will remain integral to HP's future.
"An enterprise customer sometimes wants to buy directly from the manufacturer, but with smaller businesses, many want to go to a reseller for their servers, printers, training, and support," says Bill Fearnley Jr., Cleveland-based senior analyst with FTN Midwest Securities, headquartered in Boston. "HP's renewed commitment to the reseller is a very good move. HP's own sales force and a committed reseller sales force are both fighting against Dell. It's a two-fisted approach."
HP's sales-channel partners will be happy to hear of its renewed commitment to them. But Hurd has put them on notice that he expects rigorous loyalty, and that they sell a fuller range of HP solutions, rather than mixing in solutions from competitors.
KEEPING THE BALL ROLLING
Despite the gains made to date, the company's intent to better address the small to midsize market is fraught with customer-support and economy-of-scale perils. HP's major competitor, Dell, has tried to centralized many of its processes directed at this segment, "but the high-touch stuff, which is what the midsize business really needs, nobody is doing that well," notes Gartner analyst Fiering. "The key is HP's partnering with its sales channel."
Another challenge to the SMB market: It's much more price-sensitive than are large companies, which tend to rely more on brand reputation. But HP recently has introduced a fuller lineup of lower-end printers, and it hopes to compete strongly with the likes of Brother, Lexmark, Samsung, and Minolta.
Further, HP's desire to become a greater force in business solutions may come face-to-face with the challenge of what to take on oneself versus what tasks to outsource and still make money, given the lower margins in working with partners.
Perhaps the greatest challenge overall, however, is the intensely competitive field HP plays in. Besides printers, HP computers, servers, and storage devices go up against the likes of such low-ballers as Acer, Lenovo, and Dell. HP's advantages must be perceived in the totality of what it brings to the market, observers say.
And, while HP's new emphasis on business solutions, and its aggressive posture toward the SMB and enterprise markets, are well-poised, it may find it much harder to compete in the consumer and direct-sales market, where Dell is so aggressive and the margins are so thin.
Today, the picture—despite the caveats—is bright for HP.
"The essence of this story, really, is about how you constantly refresh a 70-year-old company," says Engelina Jaspers, HP's vice president of corporate marketing for the Americas, based in Cupertino,California, "how to keep yourself relevant to customers and the market, and enable yourself to be a sustaining company for generations to come."
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Sales & Marketing Management Magazine
This article is brought to you by Sales & Marketing Management, the leading authority for executives in the sales and marketing field.
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