CEO: 'This Is Not The Sleepy Old Tech Data'

Distribution executives typically avoid reporters like the plague the week their fiscal quarter closes, but Tech Data CEO Bob Dutkowsky took time this week [two days before its first fiscal quarter ends] to talk with Scott Campbell, assistant news editor of Everything Channel, about changes the distributor has made and how it's resulted in a company that can get closer to its customers. The following are excerpts from the conversation:

Your quarter ends [April 30], but can you tell us what you think of how the company is doing and how the overall market is doing?

Last year was a record year for us and at the end of January we had record sales. We were $23 billion plus last year and we grew organically by $2 billion. We grew the old fashion way. We're reorienting ourselves around markets that we can serve more efficiently. We grew with new product areas. The [Advanced Infrastructure Solutions] investment we made has paid tremendous dividends. We have renewed our European business. That was an important contribution for growth. We continue to invest in opportunities in Latin America, Canada. Those geographies grew healthy. We went from Fortune 109 last year to 105 this year. And you look at the list and everyone ahead of us bought somebody. We're happy with what we call the organic business company.

For the last couple of years, your European business has been a drag on performance and resources. What has caused a turnaround?

Last year Europe returned to profitability. It was a major swing from losing about $150 million the year before to making like $50 million this year. That's a $200 million improvement in profitability. How do do you that? We executed on the core business more efficiently. Vendor relationships, logistics infrastructure delivered on time, and we served customers correctly. We invested heavily in SAP years ago. Now that's up and running and we also exited some market segments, mostly retail in Europe. That's business that has very onerous business terms. You may have a $20 million order and the customer will say we'll pay you in 150 days. With our margins, you can't make money on that. We exited that business and put more emphasis in higher profit opportunities. The net effect was even by exiting revenue, we grew even more to make that work. Last year was a real turnaround story for Tech Data in Europe. We're not done yet. We're not as profitable as I'd like to be, but we're getting there.

What caused some of the issues in Europe and how has that been changed?

Five or six years ago we bought a [European] company called Azlan, a networking distributor. That was smart to do, but then the company chose not to integrate them together. In every country we had two country managers, two sales forces, two logistics infrastructures. That carried forward for a couple years. We couldn't make money that way so we shut logistics centers, office buildings, which caused us to totally lose focus on the marketplace. On top of that, let's install SAP pan-European. Any one of those three would cause us to lose our way. We had all three at the same time.

What happens when lose our way? We reduced our workforce and the fewer people we had went after the easiest revenue we had. The easiest revenue is retail. And we got pushed into a position where we had a lot of bad revenue. Our competitors went after SMB [customers] because they knew they could get that business. They had good revenue. That's why Ingram [Micro] is [more] profitable than us there. As we exited retail, we have tried to redeploy into the SMB space. We have countries now that have doubled profitability in a year. We dropped retail, we won SMB business and now we are performing effectively in some pockets. We run Europe in seven different regions and five of the seven are performing very well.

Now that you're profitable in Europe again, how do you intend to grow the business and drive more marketshare gain?

We've put in an offer to buy the assets of Scribona in the Nordics. It's a $1 billion business. If it gets through EU [regulatory approval], that will dramatically grow our business there. Our last soft spot is Germany. We continue to bring our German business up, but that's where we're most behind and that's where we have the most work to do. We're well on our way to recovery. We've had good performance, good vendor relationships and good customer satisfaction ratings in that area now.

With Europe turning the corner, will Tech Data finally look towards Asia, where Ingram has a big presence?

We are looking at Asia. Now. Six to nine months ago, we hired a business development person who joined us from Best Buy. He works directly for me and his job is to help us find market opportunities, whether it's geographic, technology or segment opportunities to grow our business. High on our list is an Asian expansion strategy. In the past, we've said we're looking, that we were interested, but not today. Now we have people dedicated, focused on the opportunity there. He's already done some very interesting work for us. You saw we added Zenith Infotech as a managed services company. They're headquartered in India. Greg made that happen. Us having a partnership with an India based company is not an accident. We wanted our tentacles in that space to understand what's up and what the challenges are.

I ran IBM's channel business in Asia. I'm not afraid of Asia. I understand the upside. In the short term, in the last 18 months, there have been better uses of Tech Data's resources than to launch into an Asia expansion. I didn't believe that when I came here, but what I saw was we had to fix Europe, and make targeted acquisitions to get into new and emerging technologies.

What technologies do you think will be hot in the channel over the next year or so?

We did the BrightStar deal to get into the smart phone business in Europe. That's one of the fastest growing technologies in Europe. We buy a phone for 18 months. Over there, they buy them for three or four months than throw them away and get another. It's like a fashion item. We had to find momentum in that space and [BrightStar] give us the opportunity to learn that segment on the fly. My belief is this convergence toward a x86 standard will continue and virtualization is a sea change for the industry. We are invested heavily in AIS in those areas.

To summarize our staregy, we will invest where we already are, in spots where we are underutilized or where we see the industry evolving. Once we go, we go full force. For example, we signed VMware. We already have Parallels, Virtual Iron, XenSource. We had to get VMware, which we got and in less than 90 days, we have more virtualization specialized people than anybody.

Where do you see Tech Data evolving in terms of customers?

When we survey customers about what do they want from their distributor, price is not at the top of the list. Having the right availability of right product is. Second, it's have available credit to fuel growth. Third is [being] easy to do business with. Fourth, adding discrete pieces of value and allowing [VARs] to pick from that menu.

If you're talking to the largest reseller in the U.S. they have their own NOC. They have their own logistics capability. But if you talk to a 2-man VAR in Des Moines, they have none of that infrastructure. We try to give the VAR choices from a broad array of services and they can pick and choose their capacity.

Underneath that, we have changed our sales model, proactively reaching out to customers. What are you working on? We have some unique opportunities. We can offer more service and support or better pricing. In the past we were a call center, now we are more of a sales organization. This not old sleepy old Tech Data. Customers like that.

What a customer wants is a reliable supply. One of the things we find, certain times of the month, we run our inventory levels too low. We are sold out and [resellers] go to the next guy. We've consciously raised inventory levels of certain products. We're fulfilling more customers demand, garnishing more business that way. We don't have to lower prices, we just need the right product on the right shelf at the right time.

Suffice it to say, the whole infrastructure was built around a call center mentality. We'd answer the phone within two rings. Now we're switching to a sales mentality. We help the customer solve their customers' business problems. The hotel room [a case study with solution provider La Salle Solutions] is a perfect example. We call customers and say, 'How can we help you.' It completely changes the relationship.