Distribution Shifts Gears

Distributors' revenue is at an all-time high but that's not stopping members of the Global Technology Distribution Council (GTDC) from worrying about where their next dollar will come from. Finding the next generation of products, customers and solutions to drive future growth has become a critical part of distributors' business models these days. Last month, some of the leading distribution executives in the channel sat down with CMP Channel editorial director and vice president Robert DeMarzo and assistant news editor Scott Campbell following the GTDC Summit in Newport Beach, Calif., to talk about how they are shaping their companies for 2008 and beyond. The following are excerpts from the conversation:

It's All About The Solutions
Part of the distributors' growth centers around their ability to transform their business models away from products and toward more solutions and services. Here the executives offer some examples of the success they've had—and how they can help VARs do the same.

SLIDE SHOW: The GTDC Attendees Look to The Future

Greg Spierkel, CEO, Ingram Micro: Some of the solutions we put together are around [point-of-sale], data capture, HIPAA, transportation, navigation. You have to get specialty capabilities if you want to latch into the sectors with strong growth characteristics. We may bring together disparate pieces [of a solution], like structured cabling. [A solution provider] may have software or networking expertise, but they can't do the rest. We've gone well beyond [pick, pack and ship]. We had to.

Rick Hamada, COO, Avnet: It's no big secret that more VARs are getting less horizontal and more vertical. They know what they're good at. We have found hundreds of millions of dollars in revenue around health care before we even focused on it. We found we could accelerate the channel enablement for health care for VARs interested in a growth strategy. We can help how you play in health care—how you bring in and offer industry expertise, when to call on a hospital, how to work with oncology or how to work with administration.

Don Bell, chairman, president and CEO, Bell Microproducts: Horizontal guys need more help. That's where our guys have to be up-to-speed. We have to be on the leading edge. We are doing early adopter stuff. Our technical people have to be current on today's push products. We have to train the VAR resellers. Once they're trained, then that [technology] becomes more of a commodity. Then we have to move up and do it again.

Bob Dutkowsky, CEO, Tech Data: VARs specializing in networking or unified communications, we can tie them in to what to do when a 10-person law-firm client calls and wants them to also manage their Exchange, or host their BlackBerrys. We try to figure out bundles to take to the market space so the VARs can become very sticky with [their customers]. We don't know how to run a law firm, but we know the value of bundles. The average VAR thinks about selling rack servers. We start them thinking about selling virtualization, cooling and power. They can't worry about it. They look to us for leading-edge trends.

Pssst, Have You Heard About Managed Services?
Managed services have become part of distributors' outsourcing mantra. Why build the infrastructure if distributors have done it for you? It's still a small part of their overall revenue, but the executives expect to gain a lot of traction in the next year helping VARs migrate to an MSP model.

Dutkowsky: Managed services have the potential to re-engineer the whole way the channel works. [Offering managed services] will free [solution providers] to what they do day-to-day. It's an opportunity for our customers to get more tightly intertwined with their customers. It's more of an opportunity for the VAR to say, 'I'm your IT shop.' The typical VAR doesn't have the capacity to build out a complex managed services infrastructure. There's an opportunity for us to bring a managed services component to market, and the VAR can choose how to deploy it. The other dynamic is, as these small businesses use technology, now you're doing e-mail in a five-man law firm. Someone has to monitor that. That's where the VAR of the future will make all his or her money. These service offerings are really critical.

Spierkel: We all try to add more capability so that the VAR as the trusted adviser doesn't have to spend as much money making commitments in technology to run a small business. A lot of small-to-midsize VARs don't have the money to start out [a managed services practice]. We built out a NOC ourselves and we sell that on a fee-for-service structure. It's off to a good start, but it's early days. It's all about stickiness and the capabilities you want to put in place. [Aggregating services opportunities] for Best Buy, that's a service. Here we are leveraging a network we worked hard to develop. We put in a great software tool—that's what led to the Best Buy relationship.

Attract A Talented Workforce
Distributors, like many solution providers, face the challenge of developing their current employee base and attracting new workers. In an industry with paper-thin margins and complex business models, the executives discussed their recruiting tactics and how solution providers can attract talent to the channel.

Hamada: There's no lack of interest in what we're doing, but we've got to have some compelling work. We need to make them feel more entrepreneurs within a large organization. The demand for skilled jobs and the number of skilled [employees] are diverging. These kids will have choices. I was sitting at a dinner with a bunch of [interns recently]. I asked them why did they pick this industry. They were passionate about it. Their equation revolves around what's the culture, the social responsibility profile of the employer. [Social responsibility] has legs. That's important to the next generation. Not every executive drives a Prius, but we have to use non-polluting Styrofoam packaging. They want to know what our packaging is.

Bell: You've got to have the career path. That's one of the biggest challenges. We lose our people outside the industry or to suppliers. Our biggest danger is our [vendor] suppliers [stealing our employees].

Next: Product Innovation