HPE President Neri On Dell EMC's Server-Storage Trade-Off, Cisco's AI Strategy, Compensation Changes, And The 'Massive' Partner Opportunity Ahead

Time To 'Double Down' On HPE

Hewlett Packard Enterprise President Antonio Neri says the dramatic sales changes prompted by the Next restructuring initiative make it the perfect time for partners to "double down" on the $28 billion company.

"This is a great time for partners to double down on HPE," said Neri in an interview with CRN after he detailed the Next plan, along with a stepped-up charge into Intelligent Edge and hybrid IT markets, during a meeting with securities analysts. "We are a much more focused company. We have been and continue to be a channel-led company. We are extending the ability for partners to increase their coverage because of a geographic coverage focus [shift that moves HPE's direct sales reps out of 84 countries in favor of a channel-led model]."

Neri's comments came after HPE said it was dramatically revamping its internal compensation by reducing the number of sales plans from 400 to 25; launching a channel-only sales strategy in a number of global markets; and eliminating 40,000 product configurations in its volume and value server businesses.

What does the Next restructuring mean to HPE partners?

I am really, really excited about this. HPE Next is about three things: simplification, execution and innovation.

From the coverage perspective, we are really focused on segmentation and the number of geographies we are in. What we decided to do is focus Hewlett Packard Enterprise on 76 countries, which is obviously us and the channel, and then the remaining countries we are going to go channel-only, which means the channel has 100 percent ability to go sell where they feel it is appropriate with full autonomy. We are actually expanding dramatically the ability for the channel to go monetize those opportunities.

We are simplifying the number of [sales] offers, making it simpler for them to go sell, training them on fewer things, and then giving them the chance to really pivot between volume and value growth. I think that is massive. It is a massive opportunity to drive better outcomes and for them to sell solutions that have a higher margin.

What are the improvements to business operations?

On the business operations side, we are still a little bit too complex to do business with. When I talk to customers and partners they always say, 'Antonio, I wish you were a little faster. Your price turnaround time could be better. Your supply chain cycle times could be better.' So that is why I am really, really focused on the execution side of the house, taking the number of processes down for partners, and empowering the front-line sellers and the people that work with the channel to give pricing faster. And then, ultimately, to streamline the logistics network on the manufacturing side. Ultimately, it is all about delivering in real time. This is about improving the partner experience with high-margin growth and giving them more greenfield opportunities they can go after.

How will the change in internal compensation plans from 400 to 25 impact partner margins?

We had too much complexity. That complexity cost us money. It was a bad experience. Ultimately, we had to process all those [400 sales plan] claims.

Going forward, we have 25 core sales plans aligned to where we want to drive the business going forward, which means it is going to be easier to do business for the channel.

One of the key benefits of PartnerOne is the loyalty we drive with channel partners. This is only going to make it eaiser for them to drive better sales and margins, and now it is easier to measure how they go do that.

What does the new comp plan, which goes into effect Nov. 1, mean to internal sales reps and partners?

It means they will understand how they are going to be paid. And those plans are aligned so we can drive better ROI for both of us focused on where the customers are moving to. In the end, we are focusing on fewer things – the things that matter for our customers -- that will drive better profitability both for our partners and Hewlett Packard Enterprise.

How big an impact will there be from HPE's move to reduce the amount of server configurations from 50,000 to 10,000?

Part of the complexity is because we have way too many platforms that were built over a number of years with the combination of commodities and options for those platforms. Our process and IT systems were not as flexible as needed. So every time we created a SKU, it was because we couldn't create a SKU with multiple options. When you are a partner and you are looking at what you are going to sell to customers, you have to navigate through all that complexity.

So we are simplifying by 5X that complexity. We are going to pivot partners to those active configurations that we think drive 95 percent of the revenue so we can fill that demand together. And then, ultimately, that will simplify dramatically our pricing quote time. We are simplifying our offerings and empowering partners.

We are going to make it simpler with modern IT systems to accelerate that quoting time and overall experience.

What have you seen with Dell EMC focusing on server share at the expense of storage sales?

We saw this in the last few quarters where Dell definitely wanted to gain momentum in the server space to grow that share of revenue. We are focused on profitable share to begin with.

What I think happened is because of that focus they lost sight of the fact that they had a large storage business. What it ended up with, and you can see it in the public [financial] results, is their storage business declined, their margins declined and it had a huge impact on cash flow. From that perspective, they traded storage margin for server margins. I think eventually some rational [storage margin behavior] has to come into play.

Why did HPE move to put Nimble on 3Par?

I am excited about the opportunity we have with 3Par and Nimble with Infosight [artificial intelligence predictive analytics to automatically resolve storage issues] and the shift to all-flash. I think we have a phenomenal portfolio. I think we are going to take advantage of that opportunity and empower the partners to go get that business [with a 100 percent channel model]. The partners are all excited about our portfolio with SimpliVity [also a 100 percent channel model] in the hyper-converged space for storage, and Nimble and 3Par in the traditional external SAN space. The strategy is very clear and that is why we have segmented this market for value growth.

What did you think of Cisco's AI-based services announcement as compared to Nimble Infosight?

I am not sure what their technology is or what their objective is. We have been talking about AI in the data center for some time with machine learning, and we have been building machine learning and AI into all our products and services.

Obviously, [Hewlett Packard Enterprise Aruba Networks co-founder] Keerti [Melkote] has done a phenomenal job with a mobile-first, cloud-first approach with Aruba, which plays in a $22 billion campus and branch business. Keerti and the team have done an excellent job in capturing that growth and taking share from Cisco and others. Our portfolio and differentiation is mobile-first.

We recently introduced Aruba 360 Secure Fabric with [Aruba] IntroSpect -- the technology we bought with Niara -- and we already had a fantastic solution for security with Clearpass. So we are already delivering on that AI capability at the edge. And then when you think about the hardware IT space, we are already building security and AI inside our infrastructure and we are extending Infosight to 3Par and the rest of the hybrid IT infrastructure.

What is the vision for AI-based dynamic IT automation?

Our biggest opportunity is to connect the edge to the core to the cloud. Think about the future of creating an intelligent dynamic backplane for data management. That is vision and innovation. That is something you are going to see soon and I am excited about that possibility.

We have HPE Operations Analytics built into HPE OneView and we are building AI into our Project New Stack. These platforms -- HPE OneView and Project New Stack -- are built with APIs [application programming interfaces] so all that data will be able to move back and forward and ultimately will be presented to the customer – the end customer or the DevOps side of the house or line of business – so they can see where the data is, how to build and implement the apps, and how much they are consuming. All of this can be adjusted dynamically. That is why I am excited about Project New Stack.

What is the potential revenue growth opportunity with hybrid IT compute?

We see opportunities for hybrid IT in both value and volume segments. In the value segment we see opportunities for growth with HPC [high-performance compute]. We have significant momentum on high-performance compute and hyper-converged. Last quarter we grew in excess of 200 percent [in hyper-converged]. All-flash is growing. All of these are growth opportunities for us with very good margins. This is good for our partners.

What is the Aruba sales growth opportunity for partners?

Aruba has been growing at two to three times the market and they have been growing in traditional LAN switching, which is a market that is flat to declining. The opportunity going forward is how we harness the power of that Intelligent Edge with analytics and making secure connections and ultimately manage that data at the edge with the right tools, like computer storage and connectivity. For me, when I think about the future, the edge is a very important opportunity. I keep talking to partners about that. They should invest with us there.

Partners need to look at the value growth opportunity and then continue to shift to the services-led model because customers are looking for business outcomes.

What is the cost savings impact of the Next restructuring?

The gross savings that we communicated is $1.5 billion that we are driving over the length of the program and we said that two-thirds of that is to optimize the workforce. And, remember, the optimization of the workforce is where we do work and how we simplify how we do work. And, mind you, part of this is to make sure we are making the right investment in specialized sales while at the same time we are removing layers that make it difficult to do work.

This is about how we do work inside Hewlett Packard Enterprise, how we streamline the operating model and how do we empower people with the accountability and decision-making closer to the customer.

This is also all about improving employee productivity. I know employees are looking forward to this business and IT transformation because for them it is all about making a contribution. And you feel really proud when you make a contribution with a partner or a customer.

What are the sales metrics that will be positively impacted by the Next restructuring?

Obviously, this is all about making more money for us and for the partners. What they are going to see is better metrics on order turnaround time, quoting turnaround time.The transacational business is still a very large part of our business with our partners.

If you are an inside sales rep for a partner, you have a few minutes to make a decision. They can't wait for pricing for hours or maybe even days. HPE Next is all about simplifying the way we do work with customers and partners, streamlining, accountability and improving the [sales] metrics, whether it is quoting time, shipping turnaround time and the ability to configure solutions that are relevant to the specific business outcome the customer wants. That will translate absolutely into a better experience for partners and ultimately for them to make more money -- growing revenue and making more margins with us.

How does this change the dynamics in terms of capturing partner investment from competitors?

This is a great time for partners to double down on HPE. We are a much more focused company. We have been and continue to be a channel-led company. We are extending the ability for partners to increase their coverage because of a geographic coverage focus [shift that moves HPE's direct sales reps out of 84 countries in favor of a channel-led model].

We are making investments to improve the ease of doing business with us. Obviously, we already have phenomenal innovation and are more excited about the future than ever before. We are going where the market is going and to where the customer needs us. Ultimately, we wanted to really simplify the way we do work and improve our execution. All of that will translate into a better return for partners, and we will be there with our partners all the way, all the way for the journey.