System Reboot
Hurd's Big Challenge at H-P:
Overhauling Corporate Sales
Years of Acquisitions Led
To a Bloated Bureaucracy;
Improving Client Relations
Mr. Ditucci Gets the Contract
By PUI-WING TAM
April 3, 2006
Just weeks after arriving at Hewlett-Packard Co. as chief executive a year ago, Mark Hurd began hearing the complaints about H-P's corporate sales force.
At an Arizona retreat with 25 top corporate customers, several of them told Mr. Hurd they didn't know whom to call at H-P because of the company's confusing management layers. Others complained they got different price quotes from H-P salespeople in Europe and the U.S.
Mr. Hurd, who had previously run ATM and electronic cash-register maker NCR Corp., heard similar gripes from within H-P. Ann Livermore, head of enterprise, or corporate, technology, told Mr. Hurd it once took her three months to get approval to hire 100 sales specialists. H-P salespeople complained to Mr. Hurd that they spent just a third of their time with customers because they were often burdened with administrative tasks.
Sensing a fundamental problem, Mr. Hurd dug into H-P's sales structure. He found that there were 11 layers of management between him and a customer -- far too many, he thought. In Europe, H-P assigned four people from different departments to chase a sales deal, while rivals such as Dell Inc. and International Business Machines Corp. typically assigned three people. That meant H-P was slower to cut a deal -- and thus lost many bids. And of the 17,000 people working in H-P's corporate sales, only around 10,000 directly sold to customers. The rest were support staff or in management.
Among consumers, H-P has gained a reputation as a top supplier of high technology from personal computers to printers to cameras. But the $87 billion-a-year company had a problem selling to its best customers -- companies, which account for 70% of its revenue. Mr. Hurd concluded that H-P salespeople appeared to expect corporate clients to seek them out. "To win a deal, you have to show up," Mr. Hurd says. "We had to get out of the simplistic mode of just inventing something and expecting people to show up to buy it."
Problems in corporate sales were one reason H-P delivered inconsistent earnings and lackluster growth under Mr. Hurd's predecessor, Carly Fiorina, who was ousted from the company in February last year. While Ms. Fiorina tinkered with the corporate sales structure several times during her tenure, H-P's net income of $3.5 billion at the end of its fiscal 2004 was roughly similar to what the company achieved in 1999. H-P's stock sank more than 50% during her 5 1/2 years in power. A spokeswoman for Ms. Fiorina, who is planning a book tour for her just-completed memoir, said she declined to comment.
Thus began one of Mr. Hurd's biggest management challenges: overhauling H-P's vast corporate sales force. Last July, Mr. Hurd eliminated a sales group that sold a broad portfolio of H-P's products. He divvied up the workers among H-P's PC, printing and corporate-technology businesses to give the salespeople a chance to master the specific products they sell. He cut hundreds of underperforming workers and did away with three layers of sales management. One of his top sales lieutenants pared back meetings to give salespeople more time to spend with customers. And Mr. Hurd is assigning just one salesperson to many top customers so they'll always know whom to contact.
As recently as four years ago, H-P made all of its profits from consumer products such as ink cartridges and essentially used those profits to subsidize its flailing corporate business. Now, a year after Mr. Hurd succeeded Ms. Fiorina, revamping the corporate sales force has become the centerpiece of the 49-year-old CEO's high-stakes effort to revive the lumbering tech giant.
Under Ms. Fiorina, the corporate sales force had gotten unwieldy, particularly after she engineered H-P's purchase of rival Compaq Computer Corp. in 2002, H-P executives have said. Many salespeople felt little sense of urgency to sell, says H-P's senior vice president of enterprise sales in the Americas, Jack Novia.
H-P's predicament is the reverse of what it faced in the 1970s and 1980s, when it was a pro at selling to corporations but was behind the times in selling tech to individual consumers. In the 1990s, H-P struck many deals with big electronics retailers and gained prominent shelf space in consumer stores and online.
Changing H-P's sales culture isn't easy. H-P's earnings have improved during the past few quarters and its shares are up more than 60% since Mr. Hurd's arrival last March. But the CEO has set a modest target for revenue growth of 4% to 6% for H-P's 2007 fiscal year. He says work in transforming sales is in its initial stages. There are still too many internal layers of bureaucracy weighing down salespeople, he says. Once all those hurdles are removed, he says he expects the sales force to be twice as productive as it was.
John Crary, vice president of information technology at automotive-parts supplier Lear Corp., says he hasn't seen much change in H-P's sales so far. He says his H-P salesperson was reassigned last year, and he hasn't yet found out who his main sales representative will be. While H-P has told him big changes will be coming this month, "they haven't manifested themselves yet," he says.
Other customers say they see improvement. James E. Farris, a senior technology executive at Staples Inc., says H-P has freed up his salesman to drop by Staples at least twice a month instead of about once a month before. The extra face time enabled the H-P salesman to create more valuable collaborations, such as arranging a workshop recently for Staples to explain H-P's technology to the retailer's executives. As a result, Mr. Farris says he is planning to send more business H-P's way.
Mr. Hurd spent 25 years at NCR, working up from a sales job in Texas to CEO. In his first 60 days at H-P, he says he talked to 400 corporate customers and got an earful about how difficult it was for many of them to deal with the company. Mr. Hurd also heard firsthand from salespeople about their frustrations. Simply getting a price quote or a sample product to a customer had become a lengthy ordeal, he found. Some wags had renamed the sales process, known internally as the "soar process" -- for solution, opportunity, approval and review -- as the "sore process."
Over lunch with Mr. Hurd at the Cincinnati Bankers Club last May, Bill Weaver, an H-P vice president of enterprise sales, said that his team of 700 salespeople typically spent 33% to 36% of its time with customers. The rest of the time was spent negotiating internal H-P bureaucracy, he told Mr. Hurd, making his team less productive than he wanted. "The customer focus was lacking," Mr. Weaver says. "Trying to navigate inside H-P was difficult. It was unacceptable."
Late last May, Mr. Hurd took Memorial Day weekend to mull what to do about sales. He returned to Dayton, Ohio, where his family was still living at the time. Inside his study, the CEO holed up with his spreadsheets and slide presentations, eventually deciding to duplicate the sales structure he had overseen at NCR.
H-P's corporate salespeople were responsible for hawking a broad portfolio of products and typically didn't specialize in any one product area. They reported to a group that operated independently of H-P's product-based business units. As a result, the three units also had little control of the sales process -- even though a big part of their budget went to the sales group. And after years of acquisitions, the corporate sales team had grown inefficient. One example: Salespeople used 30 different types of software, left over from the various acquisitions, to track pending sales deals.
At NCR, the sales force had once been organized by country, which prevented one salesman from dealing with all the needs of a multinational customer. In the late 1990s, like many other companies, NCR reorganized the sales team, breaking it up and placing the salespeople under the business units. Mr. Hurd wanted to do the same thing now at H-P. The move would make the business units king, reclaiming control of the sales process, he figured. Each salesperson would also be responsible for selling a smaller selection of products, and so could develop an expertise in a particular product area.
In mid-July, Mr. Hurd publicly announced the restructuring, including the layoffs of more than 14,500 employees, or around 10% of H-P's work force. The switch gives the business units direct control of 70% of their budgeted costs, up from 30%. With the layoffs, H-P has cut to eight from 11 the layers of management between Mr. Hurd and the corporate customer.
Other changes quickly followed. H-P narrowed the number of sales accounts that each salesperson was tied to, with the goal that each person would call on three or fewer accounts. H-P is now reshuffling its ranks to repopulate its top 2,000 corporate accounts with just one salesperson to act as the single contact for each customer.
In November, Mr. Hurd changed how H-P salespeople are compensated. Sales commissions were linked to how much revenue the sales teams generated. But, with his eye on the bottom line, Mr. Hurd also linked commissions to the profitability of the products sold. At the same time, H-P directed salespeople to use just one type of software from Oracle Corp. to track the sales pipeline. That move enabled Mr. Hurd and other executives to get an uncluttered view into the sales deals being chased at any one time.
Mr. Novia, the senior vice president of enterprise sales in the Americas, soon organized what had been a haphazard policy on conference calls with the sales staff. Mr. Novia asked that they occur every Monday, so salespeople could be on the road meeting customers the rest of the week. H-P also began rolling out new laptop computers and other technology to the sales force for the first time in several years.
H-P salesman Richard Ditucci began noticing some of the changes late last year. At the time, Mr. Ditucci was trying to sell computer servers to Staples. As part of the process, Staples had asked Mr. Ditucci to provide a sample server for the company to evaluate. In the past, such requests typically took two to three weeks to fulfill because of H-P's bureaucracy.
This time, Mr. Ditucci got the server he needed within three days. The quick turnaround helped him win the contract, valued at several million dollars. (H-P and Staples's Mr. Farris declined to specify the amount.)
Now H-P is installing the 1,000 servers that will run critical information and data for the retailer 24 hours a day, seven days a week. The new H-P servers replace Staples' previous servers from IBM.
Keith Morrow, chief information officer of convenience-store chain 7-Eleven Inc., says his H-P sales representative is now "here all the time," and has been pitching more products tailored to his business. Last October, 7-Eleven began deploying in its U.S. stores 10,000 H-P pen pads -- a mobile device that helps 7-Eleven workers on the sales floor.
Top H-P executives say they are also able to make speedier decisions because of the new sales structure. Earlier this year, Ms. Livermore, H-P's head of enterprise technology, decided to add 50 salespeople specializing in data storage to H-P's corporate sales force. While it had once taken her three months to get the approval and funding for such a task, she says it took her 30 minutes this time because she now has direct control over the sales process.
But the gains are incremental. H-P says salespeople now spend slightly more than 40% of their time in front of customers, up from around 30% a year ago, but the majority of time is still taken up dealing with others at H-P. H-P also says it is winning 10% more corporate sales deals than before, but declined to elaborate on underlying numbers. Mr. Hurd says the company faces "more work ahead."
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The Wall Street Journal Weekly Review
Title: / Hurd's Big Challenge at H-P: Overhauling Corporate SalesReporter: / Pui-Wing Tam
Date: / 04/03/2006
Print Page: / A1
Link: /
Discipline: / Introduction To Business
Reviewed By: / Ann Hackert, IdahoStateUniversity
Topics: / Organizational Structure
Keywords: / Hewlett-Packard
Summary: / What if 70% of your company's revenue came from customers who had to slog through 11 layers of management to do business? The new CEO of H-P, Mark Hurd, listened to concerns that it was difficult for H-P salespeople to spend time with customers because they spent 2/3 of their time negotiating the company's internal bureaucracy. Hurd researched the problem and decided to make significant changes. Hurd understood how important it is to find the best way to position sales within the organizational structure. Before he was at H-P, Hurd worked at NCR. That company also struggled with the issue of how to organize the sales force. NCR organized its sales force by country but that wasn't the best way to serve multinational corporate customers. NCR made a major change and placed the salespeople with business units. Hurd adopted the same model at H-P beginning last July.
Business units now have more control over the sales process. The change will also help salespeople develop expertise in a particular area so they can better serve customers of tech products. H-P made additional changes that should improve customer relationships and sales. Over time the H-P sales force adopted and used incompatible software. Now the company requires the sales force to use Oracle to track the sales pipeline. H-P also made changes in the way salespeople are compensated. In the past commissions were based solely on revenues. Now both revenues and the profitability of the product sold are used to determine compensation. Management layers were reduced from 11 to 8 in order to streamline the bureaucracy. Another change involved scheduling. Conference calls with the sales staff now occur every Monday instead of haphazardly. This means salespeople can be on the road meeting with customers the rest of the week.
Question 1: / Evaluate the complaints corporate customers and salespeople shared with Mark Hurd, the new CEO of H-P.
Question 2: / Why are corporate sales so important to the company? Was this always the case? Why do you think corporate sales became more significant over time
Question 3: / Is the sales culture the same as the overall corporate culture at a company like H-P? Explain.
Question 4: / Review the problems NCR faced organizing its sales force. What changes were made at NCR? Were they successful?
Question 5: / What are the advantages of the NCR model? Do you think it will work at H-P? You might want to think about similarities and differences between H-P and NCR that might provide insight into the future success of the reorganization.
Question 6: / Describe the changes H-P made at the company to help improve sales in addition to restructuring the sales force.