August 13, 2002 1:05 PM PDT

HP alters course on direct sales rule

As part of its acquisition of Compaq Computer, Hewlett-Packard is scaling back a policy that helped quell conflicts between its direct sales force and its resellers.

The company's "hard deck" policy, implemented early last year by HP CEO Carly Fiorina, mandated that HP's sales force would pursue only certain large Fortune 1000 customers, leaving the remainder of the corporate world to the territory of resellers.

The program improved the company's strained relations with resellers and stabilized HP's Unix sales. (The term "hard deck" stems from the aviation world, where it refers to an altitude below which planes are not allowed for their own safety.)

Now, under a combined reseller program known as Partner One, the new HP will directly sell products such as Intel servers, notebook PCs, desktop PCs and printers to all customers, although it will refrain from selling some gear--such as storage systems and Unix servers--to small and midsized customers. The program is set to start Nov. 1.

"The economics of the PC industry have changed," said HP spokeswoman Elizabeth Gillan, who said that HP's absolute "hard deck" was not feasible in the PC and Intel-based server sector where the company has been losing money. HP needs to grow its market share, and to do that it must be able to sell directly. Fiorina has said that returning profitability to the PC business is a key goal for the merger.

Although direct sales could add to the bottom line, the danger in abandoning the hard deck policy is that HP could be flying right into the same turbulence it sought to avoid when it established the program more than a year ago.

"You knew your rules of engagement going in," said John Sheaffer, CEO of Illinois-based reseller Sysix. "That's always a good thing to know."

Sheaffer, though, said that change is inevitable, but he credited HP with doing a good job of introducing the new company to resellers.

"The concern I think all of us have as resellers is, 'What does the hard deck mean anymore?' At this point, I don't know what it means," Sheaffer said. "If the hard deck is in place for enterprise storage and servers, which is the bread and butter of my business, that is certainly good news."

Indeed, Fiorina credited the hard deck program with helping restore HP's dealer relationships in a quarterly earnings statement in August 2001. "In the enterprise channel we're receiving positive customer and partner feedback to our 'hard deck' sales engagement program," Fiorina said at the time. "While we have more work to do, we are without question seeing a higher level of channel interest and engagement with HP."

HP will make clear rules of engagement a key part of the new program, Gillan said. In particular, Gillan said that HP's direct sales force will not target customers who are already buying HP products through a partner, a key criticism levied by HP resellers before HP established the hard deck policy.

Eliminating the program also tries to take advantage of some of the contracts the company acquired with Compaq. Premerger Compaq had a much broader direct sales force targeting small and midsized business.

HP is still finalizing many details of the program, such as how to price its products so resellers can compete on an even footing with HP. The company is also meeting with resellers in the coming weeks to get their feedback and make any necessary changes to the program.

Although it is hard to embrace increased direct competition, many HP resellers say the move was inevitable as PCs and low-end servers become more of a commodity.

"Is it the best thing for a business such as ours? Probably not," said Jim Kleeman, a longtime HP reseller who manages the Phoenix office of Expanets. "But that's the way the industry has been going for a long time."

Elena Bostock, who manages HP's small and midsized business sales in the west region, said that those resellers who are serving their customers well won't be hurt by the new policy.

"If the customer loves buying from you, they are going to stick with you," Bostock said. She said that customers can purchase whichever way they want, including a combination of direct and indirect sales, and there are procedures in place for a reseller to get credit for referring customers that ultimately purchase their products direct from HP.

In general, resellers have been receptive to HP's plans, Bostock said.

"There are always going to be a couple that aren't so happy, but we will get through that," she said.

 

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