CSO/AMERICAS 3-YEAR SUCCESS MODEL "WHITE PAPER" PREFACE The following document covering the details of the CSO/Americas 3-Year Success Model is a transcript of a presentation given to the sales management team in September. It is not formatted like a formal "White Paper", nor is it intended to be used externally as a slide presentation to customers. It's purpose on the Hotline is to provide people in the CSO/Americas organization details on the data analysis and philosophy behind the new sales organization structure. CSO/Americas 3-Year Success Model Overview Presentation - September 1992 AMERICAS SALES ORGANIZATION - OBJECTIVES ..pictureA:\3YEAR\3YEAR01.GAL,65535,49151,1,50,15, The CSO/Americas 3-Year Success Model was introduced in FY'92 to move toward more of an account and industry focus within the field organization, while strengthening our channels and partners within the field organization. We started moving in that direction in FY'92, and we really see FY'93 as just a continuation of that -- a continuation of focusing on those concepts, organizing around accounts and industries, and strengthening channels. .PA As we continued to develop our plans for how we wanted to move forward in FY'93, Franz Nawratil asked us to get together with our European counterparts, so Keith Goodwin and Alan Nonennberg got together with Frank Barker and Rudy Lamprecht and shared our ideas and experiences in FY'92; what we thought was working, what we didn't think was working, and it was really interesting because we learned a lot of the same lessons in '92. We actually did a lot of the conceptual development work for this organization together with Europe, and we are really in agreement on all the principles and pretty much everything you are going to see here. So the good news is that this is the organizational model, not just for the Americas, but also for Europe. And that means as we try to look at accounts globally, look at our partner relationships on a global basis, we will be able to have a lot more consistency between what we are doing in the Americas and in Europe. We also shared this organizational model with the team from Asia/Pacific. I think they are buying into a lot of the concepts, but they have some unique considerations, relative to geography and some of the countries they have to deal with. So they're not moving quite as quickly in implementing this model as Europe is, but I think conceptually, over time they're going to move in that direction. FY93 CSO SALES MODEL ..pictureA:\3YEAR\3YEAR02.GAL,65535,49151,1,50,15, Structurally, the sales organization for next year will consist of three major pieces. An ACCOUNT focus, organized by industry; a GEOGRAPHY organization; and a channel PARTNERS organization. And if you think about it, you've got this set of customers out there and the accounts organization will be selling to that customer base; the geography organization will be selling to that customer base; our partner sales team will be selling to partners who will also sell to that customer base; and there are obviously points of intersection where the partners will be selling with the accounts and within the geographies. Conceptually, that is what we are going to talk about today. The presentation I am going to go through is really in three pieces -- the account piece, the geography piece, and the partners piece. I'm going to get into a fair amount of detail in all three of those. To make it easier to discuss the three segments of the sales organization, we have assigned color code names for each segment: RED for the account teams, BLUE for the territory teams and GREEN for the channel partner teams. I am going to start with the accounts piece, and I will probably refer to that quite a bit from here on out as the "Red organization". FY93 CSO SALES MODEL ..pictureA:\3YEAR\3YEAR03.GAL,65535,49151,1,50,15, INDUSTRY ACCOUNTS ("RED") ORGANIZATION Focusing on the Red organization, I'm going to take you through some of the rational behind that organization. Starting off by looking at some of the trends we've observed, not just in the last year, but through the decade of the '80s. We've looked at our customers more and more. Our customers are recognizing that they have a need to compete on a global basis in order to achieve their growth objectives, and with the realities of this new global economy, companies are recognizing that they need to be competitive globally. The Japanese are recognized as being very successful in competing on a global scale, and one of the things the Japanese have done very successfully, is reduce the number of suppliers that they are working with. Not just in IT, but in all facets of their business. And then they've attempted to develop much stronger relationships with those supplier alliances and partnerships. We see a lot of our customers moving in that direction, both from an IT perspective and a non-IT perspective. I think more and more of our customers are recognizing that IT can be a strategic weapon in achieving these goals, trying to become more competitive globally. We see the momentum building as customers think about IT. One of the things we also observe is, in this new open systems world, we are going to need to differentiate ourselves much differently then in the past. We can't continue to differentiate ourselves the way we have in the past with hardware, software, those kinds of things. We need to differentiate ourselves by services, and really adding value to our customers and their drive to achieve these other things. ACCOUNT MANAGEMENT ..pictureA:\3YEAR\3YEAR04.GAL,65535,49151,1,50,15, So based on those trends in FY'92 we implemented a pilot program. I think all of you are familiar with the pilot program - the Global Account Program. And in the Global Account Program we tried to apply these principles to address the trends that I have just talked about. In the Global Account Program we can focus on a specific customer, develop an in-depth understanding of that customer's needs, and not just from an IT perspective, but to really get in, to understand what a customer's business objectives are, critical success factors are, and then attempt to differentiate ourselves within that account by adding value to their achievement of these business objectives and critical success factors. The global accounts program really allowed us to look at each account as a "marketplace" to determine what kinds of resources do we need to grow that relationship, and where we need to most effectively deploy those resources. Typically, in the past as we've tried to grow our business by say 20% the tendency was simply to add some more sales reps. With the new account focused organization structure we can look at what our growth objectives are and determine the best mixture of resources. We can stand back and assess whether or not we need more Sales Reps., PSO, or Marketing resources that meet the need. And we have the flexibility to add the right kind of resources, and in the right locations. Not just investments at the account headquarters but also across the Americas, or Europe, or Asia Pacific to grow that account, as a market. Relationship selling is another key within global accounts. If you think back to the trend I presented earlier of moving to fewer suppliers, stronger partnerships, and alliance type relationships, it's really the relationship selling at high levels that needs to be done in order to achieve that objective. And finally, we would like to view our performance in the global accounts as we would in running a business. We will certainly look at our business on a month-to-month, quarter- to-quarter, and yearly basis, but also recognize that we really want to measure ourselves on the long-term growth of that account. To try and put some measures and goals in place, and look at an account not simply from an annual perspective, but also from a three and five year perspective. So that we are growing the business, profitably, as measured by this thing we call the Selling Cost Envelope. We implemented these principles with the Global Account Program. The idea was if we did these things, we believe we could grow these accounts faster then our overall business, and at a lower Selling Cost Envelope. And through the month of August we are at about 42% growth with our eleven globals in the Americas and about a penny and a half under our overall Selling Cost Envelope. It seems to be working, and as we think about the Red organization that I have talked about, the goal for the Red organization is to apply those same principles to an expanded list of named accounts. You really want to focus on accounts, by the principles I just talked about, and then organize those accounts within an industry structure. In fact, the model looks something like this... .PA CSO AMERICAS SALES MODEL - ACCOUNTS ..pictureA:\3YEAR\3YEAR05.GAL,65535,49151,1,50,15, Approximately 800 accounts will fall into the accounts organization. If you look at our business today, and this is based on FY'91 data, about 200 accounts in the Americas represents about 60% of our business. The significant thing however, is that within those 200 accounts, our average market share is less than 7%. Applying the principles that I just talked about on these 200 accounts, if we could double that market share to 15%, you could see the kind of impact that could have on our business. The troubling part of that is if we double our market share within these accounts and get the 15%, I'm not sure we're yet a strategic partner within those accounts. I'm not sure if 15% really earns you that right. The concept here is that we are really trying to focus on significantly increasing our market share within those accounts. The second part of the model is if we are going to be successful in these very large strategic accounts within industries, we want to be able to take and leverage what we've done in those accounts -- our knowledge, our expertise, and our successes to some target set of large companies that are also in those industries. That represents about 600 accounts that we are calling Target Major Accounts -- very large companies. The idea is to significantly increase the size of the market, and overall, by focusing on 800 accounts representing 60 - 70% of CSO's business. We think this kind of a strategy will imply the kind of growth that I talked about earlier - a growth rate in the named accounts that is higher than our overall CSO average. I want to re-emphasize that the idea behind the Red organization is first a focus on accounts, and then an organization by industries. A little bit different than saying we are going to focus totally on industries, and everything within that industry falls into that organization. This is a focus on accounts organized by industry. We have selected certain industries that we have competitive strengths in, then we've organized these industries into three industry groups. The first industry group is Discrete Manufacturing, headed up by Bob Sudkamp; the second industry group is Process/Financial Services run by Jerry Tartaglia; and the third group is the Telecom Industry Group run by Bob Stringer. Account focus, organized by industry. Hopefully those of you that have had an industry focus this year will recognize the value of being organized by industry. We think there are some definite benefits to doing that. Going back to the concept that we want to differentiate ourselves by adding value -- one way you can add value is through knowledge and expertise, which you gain through industry focus. In this kind of organization, we think we can much more efficiently direct a product focus, our marketing resources, understand what our partner requirements are, and what our training needs are. The other thing an industry organization allows us to do is better focus on the development of target accounts, which really has been an area of focus over the year. We all have been in that position, I think, where we've got this target opportunity, but we can't really get all the resources we need; people are on us for quotas for this month -- how can I worry about quota this month and develop this target account, when it may take two years to develop? In this new organizational structure we are not going to have any more money to invest in these target opportunities, but we think we can better FOCUS on fewer opportunities that are strategic so that the dollars can have a greater impact. So rather than having a small amount of dollars spread out over the entire organization, we can focus those dollars on a smaller number of accounts, target opportunities, and really have an impact on these accounts. As a final benefit, this industry organization structure eliminates the geographical bias, at least within the U.S.. It is a national program across the U.S., with no Region boundaries to impede the appropriate deployment of resources. Those are the major benefits of the industry organization. If we think about the Red organization again, what we are really trying to do is first of all maximize the sale of HP products and services to these defined 800 accounts using all of the available channels and partners. We are going to spend a fair amount of time talking about the interplay of the channels, as this somewhat of a new concept. If we really want to move toward an all channel strategy, you think of an account sales rep -- their objective is to move as much product into that account as they possibly can. We think they're going to do most of that business direct, approximately 80%, but more and more, over time, this is just going to move into the indirect channels. So we want to make sure those people are compensated in a way that makes them channel neutral -- not totally channel neutral, but as close as we can get. The Red organization industry groups will be managed on Selling Cost Envelope. The idea is to really focus on market share. We are going to continue to use the Account Management Process (AMP) that many of you have some experience with. Relationship selling, creating demand. What I'd like to spend a little time on is to give you kind of a feeling for the analysis that has gone into the selection of the industries, the selection of the accounts, and the kind of information you can derive from that type of analysis, and then how you can apply that information to product focuses, market focus, and the deployment of our sales resources. Rocky Gunderson and his industry marketing team really deserve a lot of credit for the detailed analysis they have done. They spent a tremendous amount of time putting this information together, and I think you will see the value of it. We started by taking a look at worldwide IT spending by industry, trying to characterize the different industries -- what kind of IT spending they have, both today and where it is going in the future. Breaking that down by our field operations, breaking that down by specific industries, and accounts within those organizations. Segmenting, actually, those industries and accounts into segments that make sense, and trying to understand how they leverage, and then doing the analysis of overlaying product focus, marketing focus, and sales resources. What I would like to do is walk you through an example of one industry to show you the process that was used for all of the industries. This next set of slides you are going to see focus on the Automotive/Heavy Equipment industry, but we have the same analysis and same data for all the industries that I showed you earlier. .PA AUTOMOTIVE/HEAVY EQUIPMENT INDUSTRY - CSO AMERICAS ORDERS ..pictureA:\3YEAR\3YEAR06.GAL,65535,49151,1,50,15, The first thing we did was try to take a look at who are the big companies within the Automotive/Heavy Equipment industry. So you can see, these are the 17 largest companies as characterized by their IT budget - an estimate of HP's market share within that overall budget. This is a capital expenditure budget not a whole IT budget. Then we tried to map that on how we classify accounts this year. A+ accounts are globals; A's are majors; Alphas are target majors; and then the B are other assigned accounts. This is just kind of a snapshot, this started six months or so ago to try and take a look at where we are at today. OVERVIEW - AUTOMOTIVE/HEAVY EQUIPMENT INDUSTRY ..picturea:\3year\3year07.GAL,65535,49151,1,49,15, The next step was to go and segment that Automotive/Heavy Equipment industry into three segments. Automotive, heavy equipment and suppliers, and then classify them in the appropriate classification. The purpose of doing this is you really can get some leverage between these different segments. For example, what you do in the Automotive companies has tremendous leverage to the suppliers for the automotive industry, and visa versa. What you do successfully with the suppliers many times can leverage back to the Automotive industry. So that is very valuable data. We have taken those segments, those accounts, tried to characterize this and that from a revenue standpoint, from an IT standpoint, both what it actually was in '91 and what it is projected to be in '94. Then an estimate of what we think CSO's cut of that is today, and what it could be in FY'94. FUNCTIONAL DETAIL - AUTOMOTIVE SEGMENT ..pictureA:\3YEAR\3YEAR08.GAL,65535,49151,1,50,15, We've broken it down by segment, I'm going to take one of those segments, Automotive, and the next step is to break it down by application. So we have the Automotive segment broken down into R&D, Manufacturing, Logistics, Marketing, Sales and Support. You can really do some interesting things with this information. First of all you could take a look at R&D type applications of this Automotive segment and ask, "Who are the partners that we need to be successful in that segment?". The "U" in this case indicates that those are partners that run under UNIX, or their solutions run under UNIX. You will see some that run under MPE, denoted by an "M". What this matrix shows is a list of the key solution partners that are required for success in the Automotive segment, broken out by functional application area. Then it shows the product emphasis (or potential) by Platform. For example, you see that the HP 3000 really has low overall potential within this Automotive segment. But now if we take a look at the supplier segment, and perform the same kind of an analysis, we can see, for example, that the HP 3000 has high potential in Logistics within this segment. Now if you look at the major solution providers that we have today in the Logistics segment; but they are all under UNIX. So if we are really going to go after this segment and deploy resources here we are going to need to potentially recruit HP 3000 solution providers. For each of the industries, we went through this kind of an analysis. The benefit of all of this is that, as we start to move into this new organization, the industry group sales managers and marketing managers can work with this to allow them to better deploy the sales resources and tie our marketing efforts and sales efforts together -- something we haven't done so well in the past. This will be a tremendous advantage as we move forward. These industry matrices can also be used to analyze product platform fit, marketing program impact, and channel partner requirements by industry -- an extremely valuable tool for the sales and marketing teams. This data was also very useful as we began to make decisions on which accounts to focus on within each industry group. As a rough rule of thumb, we really felt that for most of the industries we should probably start by looking at companies that are a billion dollars in revenue and above. Because if you analyze it, it's really about the billion dollar mark that they tend to generate the size of IT budget to generate the kind of potential for us to feel like we want to put it in this organization to get a million dollars a year plus, on a sustained basis. CSO/AMERICAS ACCOUNT SEGMENTS ..pictureA:\3YEAR\3YEAR09.GAL,49151,65535,1,32,17, Thus, the starting point was the billion dollar companies within those industries, and we built it from there. In fact, when we were putting the organization or putting the account structure together, we tried to characterize what each of the industries might look like from a number of accounts standpoint, and dollar/revenue standpoint. These are the industries you can see for example, Automotive and Heavy Equipment that accounts for about $128 million sales dollars and that Electronics Aerospace is $234 million, based on FY'91 sales figures. The total of 718 accounts across our focused industries account for approximately $907 million in sales. Then we tried to break it down by looking at companies with revenues greater than a billion dollars, HP sales greater than $100K -- these tend to be our established major accounts, global accounts. Greater than a billion dollars revenue, less than $100K sales -- these would be more the target type opportunities. We then recognized that there are accounts that may not be quite a billion dollars, but clearly belong in this organization. So we tried to identify those. Then this final column on the far right of the slide represents the international accounts international major accounts headquartered outside the U.S. So by definition if an account is identified by Europe as a major account, we classify them as a major account over here and put them into this organization. First we looked at the data for FY'91, then we actually projected out sales in the same set of 718 accounts for FY'93. And this is the basis with which we are working to set the quota for this organization. It's really going to be based on how much business we do. By defining it as 800 accounts, how much business could we do with those 800 accounts in '91, where do we think we are going to finish in '92, and then assigning some growth on top of that. So that is the analysis we are going through in Q4. Let me talk a bit about sales rep assignments. If we have enough critical mass to dedicate a sales rep to an account that is clearly the way to go. Sales reps could also be industry "bound" so if we can't dedicate a rep to one account, we will want to dedicate him/her to multiple accounts within a single industry. If there is still insufficient critical mass within one industry, we will assign them by an industry group. But the industry group lines are hard lines, just like the regions used to be. So, within the Red organization, we will not have sales reps that have some Telecom Industry accounts and some Financial Industry accounts, for example. Within the accounts or industries, or industry groups, we want to maintain system and workstation focus, when and where it makes sense. We think that there is definite value in many situations to have people focused on workstations or have people focused on systems. There are also situations where we want a sales rep to carry both. The accounts organization will also have partner sales reps. The concept here is, that the account is the key driver. We are looking at the account as a market. We want to move as much product and service into that account and through that account as we can from the sales team. So, for example, AT&T is very much a direct customer, but they are also an OEM, they are also a VAR, they may be an ISV. The team that handles AT&T as part of the Red organization, will handle AT&T for all parts of the business. So even though AT&T is acting as partner, those reps will be part of the Red organization. TeleSales will also play an important role. Although Telesales Reps won't necessarily report directly to the Red organization, they will be paid for by the Red organization and dedicated to accounts within the Red organization, and of course measured on their performance within those accounts. They'll actually be managed within the TeleSales Center that reports into the Blue organization. Another position we are introducing this year is the Business Development Rep. This Rep will be available not only in the Red organization, but also in the Blue and the Green organizations. The idea here is to take some of our senior, high power, high level sales reps, if you will, and start to move towards this idea of a dual career path. We don't want the only career option to be moving into a district sales manager position - we want to be able to take these really top notch sales reps that have the ability to sell strategically, sell at high levels, work on large, complex, long term opportunities, and have a position for them, and scope that position accordingly. GEOGRAPHY ("Blue") SALES ORGANIZATION FY93 CSO SALES MODEL ..pictureA:\3YEAR\3YEAR10.GAL,65535,49151,1,50,15, .PA TRENDS ..picturea:\3year\3year11.GAL,65535,47914,1,50,15, There is a need to Reduce the cost of selling to our traditional horizontal customer. Last year we assumed that they would either become major accounts or that the channel partners would take over, and that's how we would achieve our financial objective. I think conceptually that over time we may get to that point, but we really recognize that we're nowhere near ready for that today. The concept was we'll just turn them over to the partners and they can do the job much more cost effectively. So that was clearly a trend. The thing that we really learned was a recognition that our partners, the channels, really weren't ready for us to turn that business over to them. We were very naive to think that we could just do that and they would be there, and that was the market they wanted to focus on, etc. The problem in this process is that we forgot about our installed base that wasn't located in our major accounts. In some cases they felt abandoned. For those of you that went to Interex, that was the theme of Manual's pitch. We've just had a number of phone calls and letters that aren't the kind of phone calls and letters that we like to get. We really want to go back and recognize the installed base customers. We can't abandon our installed base, they represent a significant revenue opportunity, and also from a customer satisfaction standpoint, we need to have a plan here. .PA GEOGRAPHY/TERRITORY MANAGEMENT ..pictureA:\3YEAR\3YEAR12.GAL,65535,49151,1,50,15, So the requirement is a strong territory program that takes care of our customers and grows our business, maximizing the use of indirect channels. That is the overriding principle behind the territory program. In fact, what we are really trying to do, similar to an account, is move as much products and services into that territory as we can, through all available channels. It is the same concept as the Red organization only with a defined geography. You have this defined piece of geography you want to move as much products and services as you can, but the key difference here is that we think that the Blue organization will be characterized, over time, it might not get there in '93 -- 80% partner, 20% non-partner. Recognize here, a good part of the business is going to continue to be direct and we need to look at that as an opportunity and have the right programs to support that. But over time we do want to continue to move it to the indirect channels. We want to also measure this geography organization on profitable sales as measured by Selling Cost Envelope and market share, but instead of looking at market share from an account standpoint we are looking at it from a piece of geography standpoint. We want to develop instead of account plans, territory plans. Again we are trying to create the customer "pull" within that geography, and then even more so than in the accounts, leverage from the partners. Create the demand, bring the partners in and maximize the leverage of those partners. .PA TERRITORY SALES REP SPECIALIZATION ..pictureA:\3YEAR\3YEAR13.GAL,65535,49151,1,50,15, Let's look at how Sales Reps will be specialized, or assigned, within the territory sales organization. Some sales reps within a territory may be focused on industries. You still can have industries within a geographic area, for example, go back to my automotive example. A lot of the suppliers in the automotive industry are not big enough companies to be part of the accounts organization, but clearly could be a market that a territory sales rep could focus on. Other Sales Reps might be focused on applications, system or workstation, or even account bound, for large companies within the territory that don't fall into the Red organization because they're not in one of the strategic industries. Sales reps could be installed base focused sales reps, or new business focus sales reps. Again, the idea here is for you as sales managers to determine, given the demographics of that geography, how to deploy and focus our sales reps to maximize the business and geography. We will clearly have a place for TeleSales within the geography. We want to have a close linkage between TeleSales and what the territory reps are doing. TeleSales reps may also be focused on installed base and/or new business. It is up to the Sales Manager to determine what is the right mix and how to deploy these resources. Let me address the issue that some people have raised regarding the movement of accounts from the territory (Blue) organization to the account (Red) organization. The question is, will there be incentives for Sales Reps in the territory teams to grow their account into the Red organization? Yes, we definitely want to have incentives. We feel strongly that if a sales rep develops an account to the point where we want to move it into the Red organization, that clearly we want to give that sales rep an opportunity to move with that account. This will ensure that the Sales Rep feels rewarded for his/her efforts. But we also want to reward their sales management -- Sales DM, whatever, for moving accounts up. We haven't fully defined that program yet, but work is underway. We want to make people feel good about moving the accounts up. CHANNEL PARTNER ("GREEN") SALES ORGANIZATION That is it for the Blue organization. Now I want to switch gears again and focus in on the partner organization, and then I'm going to tie it all together at the end and talk about how they will interact. TRENDS ..picturea:\3year\3year14.GAL,65535,47913,1,50,15, Back to trends -- there is a strong recognition that partners are critical. Partners are required to assist us in providing total solutions. Going back to this idea of differentiating ourselves by adding value, partners can really help us in doing that, and they are a critical element of our strategy in doing that. Customers want flexibility in choosing where to obtain low-end products. I think we have all seen this -- it is the trend. It started with PCs, and we are seeing it more and more. Customers expect low-end products to be available through dealer channels. So, we could take one of two approaches: we could take the approach of ignoring these trends and hope it goes away; or try to fight it and force all our business through the direct channel, but we don't think that is the right thing to do. Instead, we are going to embrace this trend and try to make it a competitive advantage, but recognize that it is complex to implement an all channel strategy. Because the margins are typically lower for products moving through indirect channels, we can afford less co-selling, which means less sales resources. We recognize however, that for most CSO products, demand pull that is created by HP territory and account Sales Reps is absolutely necessary for the channel partners to succeed. LaserJets have their own market pull. PCs, workstations, and systems do not, so it is the direct sales force that creates that pull. We want to make sure we have a financial model that allows us to continue to have enough direct sales reps out there to create that pull. What we want in the Green organization is a strong partners program that is complimentary to our direct channel, (both the Blue and the Red) which will result in a true all channel strategy. What an all channel strategy means, from a sales rep standpoint, is that a sales rep from either the Blue or the Red team gets 100% credit, whether it comes through the reps, a VAR, or a systems integrator. This is the essence of a "channel neutral" sales strategy. PARTNER MANAGAEMENT ..pictureA:\3YEAR\3YEAR15.GAL,65535,49151,1,50,15, Although the CSO/Americas channel strategy continues to evolve in a rapidly changing marketplace, the main focus is to identify, recruit and develop all types of partners to maximize HP sales in the accounts (the Red organization), and the geographies (the Blue organization). That is it, in a nut shell. We want the business to be profitable for HP and for the partner. It is important that the partner is profitable, ultimately, because we need them to be profitable so that they will be around in the long-term. Instead of account programs or geography programs, we are going to focus on partnership programs, partner relationships. Instead of developing an account sales plan, or a territory sales plan, we will be developing partner sales plans for these people. We also want to be very active in helping channel partners develop their business plans to grow their business. And then ultimately, we want to maximize our number of partner solutions. All recruiting will be done within the Green organization, but obviously there has to be a tight linkage between the Green and the Red organization. And that is really a lot of what industry marketing will do. Industry marketing, which we talked about earlier, will help determine which partners we need, and they will work with the Green organization to recruit those partners. They will all have money to give to the Green organization to recruit the right partners. Occasionally, an end-user customer called on by the Red sales organization also acts as a VAR or OEM. In these cases, the Red team will have responsibility for managing the business flowing into the "indirect" side of the account. We will have some exceptions to that, but this is the general rule, which supports the notion that the "account relationship" between HP and a direct account will take precedence over the indirect business in the same account. PARTNER TYPES ..pictureA:\3YEAR\3YEAR16.GAL,65535,49151,1,50,15, Here are some of the different kinds of partners that we've identified as part of the Green organization. We have influencers which are consultants, agents. Solution providers include ISVs, and we are really trying to characterize ISVs this year more then we have in the past in terms of are they tools providers or applications providers? We think we need to handle each of these cases a little bit differently. System integrators may also be a solution provider when they are not selling hardware. But they also can be a reseller if they are selling hardware. Other kinds of resellers include VARs, OEMs, value-added dealers, and CWRs. Two-tier distribution occurs when HP sells to a distributor who, in turn, sells to end-users through value- added dealers, CWRs, or DARs/small VARs Tuning our effectiveness in these so called "2-tier" channels is becoming increasingly important as price per unit on systems continues to decline. .PA PARTNER SALES REP SPECIALIZATION ..pictureA:\3YEAR\3YEAR17.GAL,65535,49151,1,50,15, Partner Sales Reps will be specialized as follows. They will either be "partner bound" or "partner type bound", like headquarter remote and system or workstation, if it makes sense. The partner type bound could have a mix, whatever makes the most sense. We will have separate recruiter sales reps, and we think TeleSales also has a place in the channel partners organization. I introduced the Business Development Sales Rep in the Red organization discussion, but I want to make the point that that position could also be available in the Blue or the Green organization. In cases where we have a large strategic partner that we have needed to recruit as a long term effort, that would be a great place to put a good, high power, Business Development Sales Rep. The beauty of the partner (Green) and geography (Blue) sales organizations is that they are tied together under one roof. This organization structure, which can be thought of as the "Blue/Green" organization, together with a channel neutral compensation strategy, will greatly increase the effectiveness of cooperation in channel/geography sales situations. The geography/partners organization will be split up into six Areas. Each will correspond to the three new NAFO regions in the U.S., so we will have two Areas in the West, two Areas in mid-America, and two Areas in the East. To develop the right partners to maximize channel sales; and then maximize overall HP sales within the geography. That is what this organization, this person gets measured on. To see how it all fits, we will have territory districts, partner districts, and TeleSales networks to support that. That covers the three main pieces of the organization - the Red, the Blue, and the Green. This slide ties it all together. ACCOUNT & CHANNEL STRATEGY ..pictureA:\3YEAR\3YEAR18.GAL,65535,49151,1,49,15, This is the triangle slide that most of you have seen. The Red organization (shown by the "Account Mgmt" box) is basically selling to the 800 accounts (shown in the top triangle), typically selling direct but also with ISVs. The Blue shown as "Territory Management is selling some direct, but mostly through partnerships with VARs and system integrators as resellers. Also recognize that these VARs and system integrators can also be resellers up the Red organization's sales path. In these situations, we would like to see these VARs and systems integrators act as ISVs in the Red organization. Ideally, we'd like to see ISVs up in the Red, VARs, equipment resellers down in the Blue, but also recognizing that what we want them to do and what they want to do isn't always the same, so we want to make sure that regardless of what they do in the Red, our reps are going to get compensated, and feel good about it. The partner (Green) organization sells to the VARs and system integrators, and they also take care of the ISVs. Two tiered sales occur when we sell to distributors who, in turn, sell to small VARs or small value-added dealers (VADs), for example the CWRs or OEMs. As the second and third "layered" triangles illustrate, VADs and OEMs see the entire customer base as fair game. Recognizing this fact, and the fact that each sales distribution "path" has a different cost structure to HP, our all channels sales strategy has been designed to compensate all parties as fairly as possible. On the left side of the slide you will see a box marked "Channel Mgmt". This represents the management team at the Cupertino Headquarters who has the responsibility of ensuring consistency and equity across the various channel programs. And finally, on the far left of the slide is the CSO marketing organization, this is aligned to the sales teams to provide focused programs that will maximize the sales efforts of each team. This concludes the overview of the organization structure for FY93 and the 3-Year Success Model philosophy that drove it. # # # End