Separation or consolidation?

Both Dell and HP have undergone restructures recently. How are these working out?

Michael Dell, Dell Technologies
In the modern IT landscape, Dell and HP are two tech industry names that have stood the test of time. Both have recently undertaken major restructuring strategies to ensure their futures. However, their strategies are polar opposites. Dell’s acquisition of EMC brought together two complementary businesses, creating the largest privately owned technology company. In contrast, HP split its business into two – Hewlett Packard Enterprise (HPE) focuses on the ‘core’ of the network, while HP Inc. is centred around PCs and printers.

Now that the dust has settled, The Margin takes a look at how things have changed, what their strategies are, and what that means for the channel.

Dell swells

Dell officially completed the $67 billion acquisition of EMC and its federation of companies in September 2016. Jonas Bogoshi, channel director for Dell EMC, SADC, says a key reason behind the acquisition is to meet market demands. “Gone are the days when customers are buying point solutions; they now require a comprehensive solution. Today, we have solutions all the way from the edge, to the core, to the cloud.”

Regarding the acquisition, Forrester’s VP and research director, Glenn O'Donnell, says his company’s position is pretty positive. “At the time, everyone knew something was going to happen with EMC, and of the various scenarios, the Dell acquisition was one of the softer landings. Customers were generally pretty positive about it. Indeed, a lot of Dell customers were EMC customers too, so they had this stuff together anyway,” he says.

Peter Hemsley, sales manager, AdvanceNet, adds: “Dell used to have an agreement with EMC, so it wasn't such a foreign merger. Then Dell went on its own trying to do high-end storage, which didn't work out. The merger has made a much bigger market player.”

From a channel perspective, Hemsley says the acquisition has been positive. “As a Dell partner, we used to do a lot of EMC business and then when they split, we lost some of those accounts. Now they're back together, we're starting to see some traction as those accounts come back to us as a partner. We're also seeing opportunities with companies that are using EMC and another competitor hardware vendor, but they now want to standardise with Dell.”

This point ties into a key strategic focus for Dell EMC. “Something that's started happening this year, earlier than expected, is that we can cross sell, so legacy EMC customers are buying legacy Dell products and vice versa,” says Bogoshi.

Patrick Reeves, managing executive, client computing, Axiz, believes the acquisition has resulted in a more focused sales approach.

“Dell can now speak about the whole ecosystem. Since the delisting, it’s become far more aggressive, there are no worries about shareholder return; market share and units are the new focus.”

Nick Dhaya, COO, Aptronics seconds this: “The organisation seems to be more aggressive and hungry for business.”

Channel growth

Historically, of course, Dell wasn’t a channel business, and the EMC acquisition brought strong channel expertise. Currently, says Bogoshi, 55% of Dell EMC’s global revenues are invoiced indirectly, while the figure is 70% in South Africa. These figures compare to approximately 90% indirect revenues for HP Inc. globally and 95% locally.

Bogoshi says a key focus for Dell EMC is growing the channel business. “Going forward, maybe we'll be on the other side of 80% (indirect revenues),” he says. “We have about 34 ‘metal’ partners today, but I'm looking for a minimum of 45.”

Dell EMC is also introducing its new partner programme to ‘non-metal’ partners. Says Bogoshi: “The legacy Dell programme was quarterly and slightly cumbersome, but it paid good rebates. The legacy EMC programme was very easy, but didn't have such good rebates, so we’ve now created a programme with the best of both worlds.”

Enter the enterprise

With different sales cycles – one requiring a more intensive, complicated technical approach, the other focusing on transactional sales of commoditised products – HP decided in 2014 to separate, forming two new focused entities. The official separation formalised a situation that previously existed, with separate teams operating within HP.

HPE has reshaped itself with a couple of strategic disposals, including the sale of its enterprise services and software businesses, as well as a series of corporate purchases.

“Thanks to acquisitions like SimpliVity, Nimble and Aruba, the offering is now an end-to-end datacentre play,” says Jim Holland, HPE executive, Advanced Technologies, Axiz.

Leon Erasmus, country manager for channel and territory sales, HPE South Africa, says the company is now more agile and has a new focused strategy. “We firmly believe the world will be hybrid, so a key focus is on the datacentre itself. We’re also focused on empowering the edge, and IoT is very important for us.”

“The freedom of the split has been fantastic for HPE,” says Jamie Scott, business development manager, Datacentrix. “Because it’s no longer burdened by the other side of the business, it’s going to keep buying products and smaller companies.”

Forrester’s O’Donnell agrees there will be acquisitions ahead. “They won't be huge, as HPE doesn't have deep enough pockets.

However, there will likely be plenty more along the lines of its recent acquisitions, such as SimpliVity,” he says, adding these acquisitions need to be made to bolster HPE’s ambitions.

“There have been mixed perceptions in the market about HPE,” he says. “While it has become more focused, and gotten better at delivering what it does deliver, some customers believe becoming smaller isn’t a good thing. It also hasn't been making its numbers.”

The way out of this, he believes, is, “to develop its software in a stronger way and become the dominant player in software defined infrastructure.”

Part of the DNA

The channel will continue to play a key part of HPE’s go-to-market, says Erasmus. “Going forward, partners will play a more strategic role, and there will be greater opportunities that go beyond the traditional solutions we provide.”

The disposal of HPE’s enterprise services business is an indication of its commitment to future reliance on the channel. “It provides us with new opportunities for closer working relationships with the systems integrators, because in the past, we were competing with them, which caused conflict in the ecosystem,” Erasmus says.

“We've also structured the organisation so that our sales people are ambassadors, selling and engaging with our partners and resellers into the customer base. We're also expanding and partnering with new partners, such as General Electric Digital.”

The role of distributors will also be enhanced. “If you look at the distribution landscape, it provides more opportunity for them as we’ll involve them in the new partner engagements. Distributors still have their defined role, but there will also be opportunity for them to expand," says Erasmus.

Reintroducing the ‘invent’

The enhanced role of distributors is something that’s also central to HP Inc.’s go-to-market strategy. As a devices company, HP Inc. is in a competitive volume-based business. To differentiate itself, it has focused on increasing and improving products and innovation, creating efficiencies, and an enhanced reliance on distribution and the channel.

“The split (from HPE) has freed up more research and development money, which means HP Inc. is bringing more products, more often,” says Elmari Keyser, end-user computing specialist, Datacentrix. The company is also innovating in go-to-market offerings, such as its Device-a- a-Service proposition, she adds.

“They’re putting the ‘invent’ back into their ethos,” adds Axiz’ Reeves.

As with its former stablemate, HP Inc. has made a significant acquisition to solidify its portfolio, buying Samsung’s printer arm in 2016 for just over $1 billion.

Following the separation, HP Inc. underwent a restructuring to create efficiencies. At a local level, HP Inc. has expanded the territory from South Africa to cover southern Africa, and the MD’s remit has also been expanded to cover Africa, but the headcount hasn’t grown. “The same people are doing much more,” says Reeves.

Says HP Inc.’s local channel manager Yesh Surjoodeen: “We believe we're as lean as we need to be, and not too thin, but we're never going to be heavy on the side of HP resources. Every day we're challenging our partners to get more to our customers.”

There’s now a flatter, less complicated structure in place at HP Inc., Surjoodeen says. This is complemented by a digitised, omnichannel sales experience including apps and the use of modern collaboration platforms, he adds.

“We intended to use the split to make us more efficient, more capable and less reliant on big brother. That's the same habits we want the channel to have.

Certification is now paramount, as are capability and understanding of the HP systems and workings. The account manager relationships don't exist in the way they used to, and partners hopefully become more self-reliant and independent.”

The opposite side of that is the disruption experienced by partners during the change management process. Some channel partners The Margin spoke to felt that there was a lack of communication around this shift in approach, and they were being left to find their own way, relying more heavily on
distributors than on HP Inc. itself.

Surjooden was honest in his response: “It can be initially tough to work with, as there are fewer people on the ground, but in many ways, it’s more empowering for the partners and distributors.”

Where to next?

HP’s separation and Dell’s acquisitive growth have certainly kept a lot of people on their toes. It should be remembered both companies were at different stages and in different spaces, and had different reasons for choosing their paths. Teething problems during the various changeovers were inevitable, and included issues with partner portals, quoting systems and logistics through to confusion among partners based on a lack of communications and slow executive appointments.

Dell has historically had a strong salesforce on the ground locally, and the change in direct versus indirect revenues will need to be balanced carefully. By selling directly, Dell has been more profitable by not having to give away margin to channel partners. Now with a wider ecosystem offering, Dell EMC will need to avoid following the path that led HP to the point it reached in 2014, where it needed to split due to a lack of focus on core specialisations.

Dell EMC, HPE and HP Inc. are all looking at growth strategies and the channel is an important part of that focus. Each is looking to grow its reliance on the channel, and opportunities exist for distributors and partners to take on more responsibility. And what of the future? O’Donnell concludes: “It would be premature to declare either path a success just yet. None of the companies is going anywhere, they’re big powerful players in this market. We may see declines, but don't count anyone out just yet.”

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