Three-On-One: Avnet Executives Discuss Channel, Vendor Relationships

Avnet Hall-Mark

CRN: Avnet is beginning to share resources across its different operations. Can you talk a little bit about Avnet's shared business services strategy?

VALLEE: Avnet has three operating groups and under that several divisions, including Avnet Hall-Mark. All of the things that are core to Hall-Mark, the sales and marketing for example, . . . will stay in the divisions, while things that don't measure results based on profit, such as managing a data center, real estate, travel, human resources--the things that don't make the difference between Hall-Mark being successful or not--we tried to centralize those things across the divisions or groups. It's almost as if Steve [Tepedino outsourced data center management to another organization.

CRN: Can you quantify how much you expect to save as a result of this program?

VALLEE: We're in the early phase internally and we are evaluating what we would outsource vs. insource. But if you group expenses to [shared business services, we believe we can expect to save 20 percent of those costs.

CRN: Will this program have any impact on the way you do business with solution providers?

VALLEE: Directly, no. It should be transparent to the solution providers. Indirectly, there are two ways they will see benefits. First, any savings will be passed through to the groups' profit and loss statements so the groups can invest in other resources. The other way is that we intend to make our shared services available to VARs. We're not looking to be a services company, but if we can offer to our customers some functions that we have the capability of handling, we can offer the solution provider more services.

CRN: Can you give an example?

HAMADA: Here's an example. We have one VAR that we have shared our instant messaging tool with. We've created instant messaging groups as part of our new Channel Connection tool. Any services on the IT side will come through Channel Connection. We also have a corporate broadcast center that is a differentiator to help our suppliers. VARs can rent the center to run Webinars or anything else.

CRN: Do you expect this to be a revenue stream?

VALLEE: It has to pay for itself. The goal is not to make money, but not to lose money.

CRN: Avnet Hall-Mark's IBM business unit recently completed a reorganization to resemble IBM's geographic structure. Can you talk a little about that?

TEPEDINO: The plan was completed at the end of June. IBM restructured its partner sales into geographies and we've been closely tracking their success. We had year-over-year growth with IBM and I think [IBM's restructuring was a contributing factor.

VALLEE: VARs do business by geography. We do business by geography and IBM does business by geography. It made sense to adopt IBM's structure.

CRN: Sun also had adopted a geographic structure for its partners. Do you think other vendors, particularly HP, will follow suit?

HAMADA: HP had five geographic regions, Compaq, I believe, had three. They're not there yet [with their integration plans on what their intentions are to do with that.

CRN: Speaking of HP-Compaq, I'd be remiss if I didn't ask about the latest communications with HP regarding its new channel program?

HAMADA: They've made a lot of tactical decisions regarding their teams and who is in charge. They've provided a great product road map for the channel. What they haven't made yet are [distribution decisions. They've announced Partner One, but they haven't announced the roles we'll play.

CRN: Will HP keep its HIP [HP Integrated Partner model, or adapt Compaq's more traditional channel model, or meld the two?

HAMADA: HP is studying very carefully which models it will sell through. They seek a lot of input from us, they want to know our expectations. I think we will know before the end of HP's fiscal year [Nov. 1. Those initiatives might not be up and running by then, but we should know what they are.

VALLEE: The communication lines have been open. We might not get all we want, but they asked us and we feel they listened to what we had to say. The one they've had ever since Hard Deck was introduced is a very stable channel policy. Before Hard Deck, HP had trouble in the market. Hard Deck was a good effort to correct that problem. As a result, HP server revenue began to grow again. It appears they understand that.

HAMADA: Consistency is an important message to bring to market. It encourages investment and promotes partnerships. People are not comfortable making big bets if there's a matter of clarity of communication.

CRN: IBM and Avnet have made a big point at this conference of instilling in partners here the message of a consistent channel program. Can you give me an example of how that has been successful?

TEPEDINO: The WebSphere Innovation Centers. IBM looks at software as a means to reach small business through the channel. As [IBM's Dan Fortin said, even after the dot-com bubble, a large percentage of business is e-business. The WICs are not just about e-business, but they're about enabling businesses to do more things and the partners are the best way to do that.

CRN: And Avnet was confident enough in that message to invest in its own WebSphere centers?

VALLEE: We committed space, we committed capital and we committed people so VARs can rapidly develop WebSphere solutions. A more recent example is our investments in life sciences to help IBM reach that market. Predictability enables us to do those things.

CRN: Dell announced this week that it plans to market a white-box PC. Will that have any effect on Avnet?

VALLEE: Dell managed a very successful company that inspires both awe and fear. This program is a nonevent in the enterprise space, but it could be big for the PC channel. There are 10,000 to 15,000 white-box builders in the U.S. It seems to me to be a question of why you would want to build vs. buy. People sell white boxes because their customers want a unique configuration that is off the curve. Another reason is that businesses sell hardware, software and services as a bundle. A customer can't look in their Sunday paper and see what they should have paid for it. If Dell can interest the public in the pricing structure of white boxes, it could have a major impact.