A Conversation With Vikram Metha, US Marketing Manager for the Enterprise Systems Group

Minimize risk. Maximize potential. That's the solution for any successfulventure, isn't it? But how do you accomplish it? If you're smart, enterprise networkmanagement technologies are part of the sweat and financial equity you've invested in tominimize risk and maximize the potential of your network. HP OpenView, as one of the"Big Three" (Computer Associates TNG and IBM/Tivoli NetView being the others) isone of the leaders in the enterprise network management market. And no wonder, OpenView(and related services) actually accounted for $1 billion of HP's over $40 billion inrevenues last year. That's about 2.5%, if you're doing the math.

However, HP doesn't get all the credit -- or even all the revenue. If you're familiarwith OpenView software then you've likely become acquainted with an OpenView reseller(more than 50% of HP's OpenView revenues goes through the reseller channel). Bycomparison, CA's and Tivoli's reseller sales are pegged at less than 30%.

In light of OpenView's success (HP's OpenView business grew about 40% in 1998),Editor-in-Chief, George A. Thompson spoke with Karl Chen, HP OpenView Channels MarketingManager. Chen believes that systems and network management technology is a stabilizingforce against the sea changes that many IT managers have already been experiencing; namelyglobalization, the Internet and Y2K. He also notes that OpenView Network Node Manager hasa 50% market share and that HP has taken the lead in NT management.

This channel. And that channel. There's been a lot of chatter in the channel about HP'schannel strategy. HP's distributors and resellers have been restless the past few yearswith what they feel is often a byzantine process for getting the goods from HP. So, what'shappening with HP's channel?

Well, "We're starting with a clean slate," says Vikram Metha, HP's newchannel chief for HP's Enterprise System Group (ESG). Just prior to replacing VinceCavell, who has since defected to Client Systems, a HP 3000 distributor, you could havefound Metha performing similar duties as Marketing Manager for HP's Asia-Pacific region.Metha is the man behind HP's new "All Channels Strategy."

In order to keep the competition from cleaning HP channel's clock, Metha is startingwith a couple of brutally honest observations about HP's org chart and policies: "Upuntil now, the direct sales force was headed up by one VP and the indirect sales force washeaded up by one VP. Every time you have those kind of 'siloed organizations,' it allbecomes an internal battle about having all the business in one area."

Metha also admits that, until recently, HP's "channel-friendly" label wasjust that -- a label. "We never let the resellers into the HP firewall. Never gavethem the same training we've given to our sales force, never shared non-disclosureinformation with them. Now, we're saying that there's no difference between the direct andindirect sales forces."

Besides the direct and indirect sales channel (Metha uses the terms on-payroll andoff-payroll respectively), he has added what he calls the "cyberchannel.com" andthe "utility computing channels" (see the diagram on page 28). Not surprisingly,the cyberchannel uses the Internet "to effectively communicate key messages out tothe marketplace," whereas the utility computing channel depends on the concept of"companies setting up timesharing compute facilities over the Internet, so thatsmall- and mid-size enterprises don't have to worry about purchasing and maintaining theircomputation infrastructure." Metha is proud of the fact that on the demand creationside, "we've lowered our sales and general admin costs by enough to reinvest in 100more additions to the direct sales force (which now stands at 670 people)."

Demand fulfillment, which over the years has been a persistent problem for HP, hasn'tescaped Metha's attention or imagination either. Now he says, he's replacing a web ofcomplexity that strained HP's balance sheet as well as their resellers' and customers'patience with a streamlined process that uses another kind of Web. "What we're tryingto do now is set up a virtual factory which allows us to fulfill demand regardless ofwhere it takes place."

And, he adds, "We surround this virtual factory with a consistent Internet OrderManagement Interface. Why can't we have just one system [that provides] the highestvelocity, highest amount of inventory turns, the least amount of wasted inventory andquickest availability to the customer." Metha also notes that he has identifiedsignificant savings for "our demand fulfillment machine."

Metha expects the entire solution to be "very modular, so that we can make changesquickly." If Dell Computer springs to mind, there's good reason. "We're tryingto achieve with mission-critical, complex systems what Dell has achieved with commodityproducts. We want to ensure that the customer has a delightful experience in transactingbusiness with HP."

HP Pro: How many HP resellers are there?
V.M.: [In North America], we have 1,100 and some odd resellers. About 100 account for90 some percent of our business.

HP Pro: Worldwide?
V.M.: About 400 in Asia-Pacific. And about 550 in Europe. That does not include oursoftware sales force, which is separate. That includes another 400 to 500 people.

HP Pro: How much business goes through the off-payroll channel?
V.M.: Worldwide, on average, it's about half-and-half. In North America, it's about 54percent.

HP Pro: How is the "All Channels Strategy" different than the two-tier model?
V.M.: This is a non-linear model. Instead of having the distributor as the go-betweenHP and the resellers, we're now saying "Hey, Mr. Distributor why don't you come siton the same side of the table as us and help us solve our demand creation model for theentire market space?" And it's similar in all geographies.

HP Pro: It's my understanding that resellers are moving "upstream" in thechannel to take on the role, if not become de facto, system integrators. Is that happeningwith HP resellers?
V.M.: Yes. In some spaces. Many of the true value-added resellers are forging allianceswith many system integrators. Price Waterhouse does a lot of work in data warehousing andthey always have more work on their hands than the number of engineers available. Sothey're always looking for areas of expertise that they can contract out to VARs. I thinkthere's a model of co-optition between the resellers and SIs.

HP Pro: Value-added is ultimately subjective. When it comes to added value how do youjudge who is adding it and who isn't?
V.M.: It depends on how we define the metrics, whether its on-payroll or off-payroll.What percentage is coming from new accounts? Customer satisfaction surveys that we do. Howare they being able to hold up the margins and profitability of the product?

If you have a reseller that does all business in the installed base, he's always doingthe margin and high discount. And you have a poor customer satisfaction rating, its prettymuch telling you that they are coming in at the last minute competing only on price andnot an indication that they are not in the account; unless there is a transaction. Sothat's the kind of metrics that we're setting up for our resellers. And our on-payrollchannel as well. Because it's just another channel.

HP Pro: What about the issue of reseller exclusivity?
V.M.: I think we just presumed that if we just signed up more resellers that wouldautomatically increase our business. But as the UNIX business moved onto Main Street, thattheory proved to be wrong. So, we felt we were just signing up many resellers [thatweren't adding value], but just cannibalizing the business of other resellers. Many of ourexclusive resellers started to feel that they were not being recognized.

Now, we're saying value add is very important. Because we're going to pay you for thevalue you add in the process of creating demand. And we're placing very little value onthe mundane task of entering a bill of materials into a system. We're telling ourresellers: Value. Value. Value.

You have to be value-added. If you're just going to come in and compete at the lowestprice with no value-add and slip in at the 11th hour and 59th minute with the lowestquotation, there is no room for you in this program.

If you're in this program and adding value and on top of that -- are HP exclusive -- wewant to do something to recognize you for that. It's only fair. Some of the other partnersmay still be successful even if HP doesn't win. And we've had some early wins. Many of ourexclusive resellers that have actually walked away from us have started to come backexclusive to HP.

HP Pro: You mentioned that reseller and distribution compensation is changing. How?
V.M.: Up until now, we compensated our resellers for getting the purchase order fromthe customer. We want to shift away from that and say we want to compensate them forcreating demand for our products -- doing pre-sales, demos, benchmarks, proof-of-concepts,proposals, doing pilots, giving performance guarantees, and doing [things like] capacityplanning studies. We're going to compensate our resellers on the work they've done upfront and not just on that process of order/entering the bill of materials. And we'regoing to set up service level agreements with our distributors. For example, we may want[them] to ship from stock or be responsible for final assembly and custom configuration.Or even manage the Internet Order Management interface.

HP Pro: The utility computing or ISP channel as you described it sounds similar tooutsourcing.
V.M.: It's different than what CSC or EDS do, which is very large-scale customoutsourcing for big corporations. This is for servicing small and medium enterprise spaceor niche applications within companies. It's like setting up an electric or telephoneutility -- you're concerned about that instrument and the functions that that instrumentperforms.

HP Pro: Can you explain what you mean by the Internet Order Management Interface?
V.M.: Well, why should we have so many different flavors of order management systems?One for Ingram. One for Avnet-HallMark. One for Gates/SBM and for Client Systems. And onefor HP.

Whether it's one person searching the net or an on-payroll person that's doing thecustomer interaction and hence looking after the procurement of the products for thecustomer or an off-payroll person or an ISP procuring 20 tons of equipment from HP to setup a huge computing facility. We could run the Internet Management Order Interfaceourselves; or we can outsource it to one of our distributors who can be paid, for example,a certain number of cents on every dollar that's transacted through that interface.

HP Pro: Similar to the utility model?
V.M.: Exactly. Sort of applying that utility model to our demand fulfillment engine.

HP Pro: What stage of development are you in?
V.M.: We've been in implementation since November. We're working though the integrationof on payroll and off-payroll and utility computing channel into one integrated team.

HP Pro: Do customers have the option of the cyberchannel today?
V.M.: We're setting that up.

HP Pro: As complex configurations become the norm, doesn't training and certificationbecomes extremely important?
V.M.: It's of paramount importance.

HP Pro: From a channel's perspective, which company keeps you up at night?
V.M.: The work that Compaq has done in the NT space with their value-added channel issomething that I worry about on the demand creation side. And I think, overall, in termsof demand fulfillment side, some of the things that Dell Computer has been able to do. ButI think of that as more of a healthy benchmark.

HP Pro: How does your strategy fare against your competitors' programs?
V.M.: Many of our competitors, in many respects, are still following the old channelsmodel: direct vs. indirect. And we think that what we're trying to do is significantlyshift the paradigm and make these discussions about indirect and direct [go away]. We wantto get all channel types to work in harmony to get us ahead of the competition. That willreally break us away from the pack.