The VARBusiness 500 Roundtable: Thought Leaders

In their own words, the heads of Ciber, GTSI, SBI and Co. and other companies ruminate on the burning issues impacting their companies most. Many, including Ciber CEO Mac Slingerlend, shared what they think it takes to build a successful company today. He, for example, had not seen much of a reason for optimism until recently. Instead, he focused on cutting SG&A while adding five points to his operating income in the past few years. Since then, he's formalized a joint venture in India and acquired AlphaNet Solutions. With momentum building--second-quarter sales were up 14 percent, while income jumped a whopping 113 percent--Slingerlend is directing his team to get a better grip on customer buying habits. He recommends others do the same.

"You get into some of these other conversations about saving money or bits and parts and pieces, but [perfecting] consultative selling is [what I'd advise others to do]," he says.

In the following pages, top executives like Slingerlend share their executive vision on a variety of issues. They address the pull of the public sector, the lure of Linux and the possibilities of peer-to-peer partnering. First up: the state of the economy, naturally.

A Rebound In the Offing
Few companies are seeing the growth that they did in the late 1990s. But many are enjoying remarkable upcycles as customer projects long on hold now move forward. Mark Metz, CEO, Optimus Solutions, is one of them. Just three years ago, customers almost bragged about how much they wanted to spend.

"It's kind of the opposite today in that everybody is trying to save money. Just about every deal we see, we're trying to show a one-year return on investment. If we can't show that, customers don't want to buy," Metz says.

Still, his business is growing. "In the last, I'd say, three months, though--especially this past month--we've seen the biggest increase in our pipeline than we've seen in about a year. So, now we're seeing some big deals. Our pipeline is bigger than it's ever been."

One thing that solution providers wonder is whether the recent spike in sales is new business or old business approved months ago that is just now getting a green light. If it's the latter, what happens when the backlog dries up, many fear?

Eva Losacco, president and CEO of Forsythe Solutions Group, a Skokie, Ill.-based division of Forsythe Technology, No. 79 on the 2003 VARBusiness 500 list of leading solution providers in North America, says customers are very interested in new technologies. After hunkering down and closing their checkbooks for two years, they are eager to see what new things IT can offer.

"We're seeing significant increases in 'shopping.' Customers are really starting to look at new technologies. But we're still seeing significant pressure against closing business and projects being delayed," says Losacco, who was recognized this year as one of two VARBusiness CEOs of the Year.

Losacco says her company has tried to focus on the areas where the customers are most interested, naturally. That has been cost conservation, server consolidation and data-center consolidation. "Those kinds of projects are getting through because you can justify the ROI. I think if you can't justify the ROI, customers are not spending money today," she says.

Glen Jodoin, vice president of operations at Greenpages (VB500 264), has observed the same thing from the customers he's visited of late. And he's encouraged by what he has seen, save for what's happening to product reselling. Although demand for his company's services is soaring and his pipeline has never been bigger, product sales have slumped.

"I'm actually in the middle of a month-long barnstorming tour asking this question of our customers. I've met probably with 10 of them in the last two weeks with the specific question about the economy and what's driving their needs and what they are doing," he says. "We see a similar thing with four-x growth in our solution-provider business and an extreme drop in our reseller business. There is no catalyst at all for product. There is nothing driving any demand...What I'm being told from my customers is two things: Show me a short-term ROI while addressing security issues that are coming from the board level, which will supersede ROI, [and then manage] storage, which is out of control."

Opportunities In Government
One area that's not slumping, of course, is the public sector, where turning on and off a budget tap can take an act of Congress. Literally. Those in the public sector have generally enjoyed greater stability than their counterparts who cater to commercial industries, including telecom or financial services. Of late, they have seen demand for products and services increase as Washington, D.C., moves forward with the Homeland Security Act, the Patriot Act and other initiatives.

The downside for some is that the heightened awareness in selling to government has created a bit of a Gold Rush to Washington and to state capitols nationwide. Seems everyone now wants a piece of the action.

"There are more companies that have come into the federal marketplace in the last two years than I can count," says GTSI chairman and CEO Dendy Young. "While that's been happening...we haven't seen the nice sort of steady planned execution [we'd hoped for]."

What Young, the recipient of the inaugural 2003 VARBusiness 500 Lifetime Achievement award, is referring to are the delays in purchasing that have resulted from the extended conflict in Iraq and ongoing government reorganization.

Young recalls a recent conversation he had with Steve Cooper, CIO at Homeland Security. Young asked him if he was going to be able to spend his budget before the end of September. Cooper's response: "I don't see how I can get there from here."

Young says Cooper told him that he has money and plans for it, but cannot overcome procurement and personnel issues while trying to survive a massive merger of 22 different entities. It is just impossible, Cooper told him. Curious, Young wondered, what would happen to the money if Cooper didn't spend it by the end of September?

"'I have no idea--don't even ask me that question!'" Young says Cooper responded.

Young guesses Cooper will eventually figure out how to invest it, but worries that it could be on last-minute initiatives. Moreover, Young sees funds being diverted from one priority to another as the war in Iraq continues. "I think we're seeing [rushing] in many agencies. Department of Homeland Services is probably the worst right now, but [for example], the Army is backed up [and] the Air Force was spending money to buy fuel instead of computers. A lot of agencies were diverting monies," Young says.

To navigate the ins and outs of such oddities, government experts advise boning up on as much as humanly possible about the inner workings of our democratic system.That's because of all the inspector generals who oversee decisions, and other regulatory influences.

Mardi Norman, president and COO of Los Angeles-based Dynamic Systems (VB500 390), advises others to take such thinking to heart. "It's not so easily done with governments. There are so many rules and regulations, contract vehicles that you must have in play in order to really be successful in the government space. You can't just turn on a dime and become successful in the government market. We've been doing it for 12 years, and it's taken us that amount of time to get the proper vehicles in place to make it successful."

Dynamic Systems, which generates 75 percent of its revenue from the federal government, has grown substantially in recent years. Last year, sales jumped 59 percent to $38 million. What transformed the company into a winner was its decision to focus on service sales, Norman says, particularly maintenance services and extended warranties.

"The government, just like, I think, everyone in the economy, has a tight budget and they're choosing to put a lot more money into maintenance services," she says. Without a complete grasp of customer needs, buying habits and rules of the road, however, would-be government VARs and solution providers could get stuck in a world of trouble.

Changes In Buying Habits
While sales have grown for many during the past several months, it's taken more work to make them grow. Sales cycles have lengthened considerably. Some VARs report that ERP or CRM projects can take upwards of a year or more to close. That's if they get approved at all. Not only are deals taking longer, but they typically are smaller than before. That's because customers are breaking them up into pieces, preferring to upgrade software, hardware and networks separately rather than all at once.

Competition is also greater. VARs are not only competing with one another, but with customers, too. In many instances, customers have made putting their people to work a priority.

That said, certain sectors are growing faster than others. Those who sell security solutions report that customers buy quickly once their systems have been infected with a worm or virus, such as the recent MSBlast attack. Likewise, certain industries seem to be buying goods and services more rapidly than others. The education sector, for one, has proven to be fairly robust. Midsize enterprises, too.

One phenomenon to track as the year enters the fourth and final quarter is whether customers will spend all of their budgets. Last year saw many dollars go unspent. This year, however, VARs say customers have indicated they intend to spend what they have allocated to IT.

Making sense of all these trends is tough for VARs, but absolutely necessary, says Lew Johnson, CEO of Siwel Consulting, a New York-based IT solution provider (VB500 305).

"I think that many IT departments and the people who are responsible for both the decision-making process and the recommending process are somewhat in disarray today," he says.

One reason is the advances in technology. "It's very difficult to keep track of everything and what's best for you and your organization," Johnson says. "The second is many of today's customers have gone through a lot of cuts in their personnel. There are people who have many, many jobs, and wear many, many hats in many organizations. As a result, the decision process is sometimes much more difficult with everyone looking for a value proposition and how much you charge for your value. My business has grown considerably over the last couple of years in this environment, but I can tell you, I've spent a lot of time in this business, and each individual deal tends to be more difficult."

One trend to follow: departmental IT spending. In the past, many individual business departments within companies began to spend money on IT, Internet Web sites, especially. During the recession, IT reined in rogue spending and centralized purchasing. Although that reduced costs, the practice has stifled development. Going forward, many business units are likely to regain some control for approving investments even though the acquisition of such assets will likely take place inside IT.

"A lot of us have spent our careers selling into IT, but inside the organization with that CIO, very often, a lot of his budgets are coming from the business units," says Mark Perlstein, vice president of sales at AlphaNet Solutions (VB500 456). "If we're not able to communicate with those business units directly, we're behind the eight ball in the selling process."

On Demand Computing
Of all the topics that have captured the attention of CIOs and CTOs alike in 2003, few have generated the interest that on-demand, or utility computing, have. Funny thing, not everyone agrees exactly what utility computing is. HP and IBM, for example, have differing opinions with their respective Adaptive Enterprise and On Demand strategies. Nearly every vendor of size today has some notion for selling IT as a scalable service that end users can acquire on an as-needed basis.

Some VARs love the idea but others aren't so sure it will ever take off. Mark Romanowski, vice president of client services at AMC Computer of New York (VB500 234), thinks a subscription business with IT assets sold as utilities is a wonderful idea.

"The annuity type of business--that's what we want. I used to work for IBM years ago. Every single product that we sold had a maintenance agreement. It was a beautiful thing. That's not the case anymore. But it's coming around. It's coming around," Romanowski says, although he wonders exactly when his company will be able to aggressively offer his customers such services. Others see great customer interest despite some big questions that remain unanswered.

"It's very active right now," says Mary Garrett, vice president of distribution channels and midmarket customers with IBM Global Services (VB500 1). That's despite the fact that her company is still working out the specifics of pricing and other aspects of on demand computing.

Others, however, are more sanguine about the new model.

"I just want to add that if you all think that software is going to be on a subscription basis, I'm happy for you and please, please go in that direction. I encourage you to do it. I wish you would spend the next decade doing software by subscription," says Ciber's Slingerlend.

He, for one, doesn't believe yet in the concept and thinks those that go chasing after opportunities there will wind up leaving more opportunities on the table for his company to enjoy.

Why? Simple, he says."You get nothing that's special to yourself unless you get some customization or something, even if it's some kind of report, whatever is built into it," he says.

"We are probably one of the bigger, if you will, 'non-big five' or four or whatever there is, packaged software implementers. Twenty percent of our business, at least, is packaged software implementation and that's different than you would typically find other than at the Big Five level. So we're big fans of custom software. We're a big fan of ISV-packaged software and the reasons why you would use both. But I don't extend that to say that you get it on a subscription basis someplace," he explains.

Time will tell, of course, whether on demand is just another IT fad a la push technology or OS/2, or whether it really is the next big thing.

The Promise of Linux
One thing that is shaping up to be a big thing is, of course, Linux. There's no question that interest in the open-source software has reached critical mass.

"I'm responsible for the service channel management on a global basis, and we do an electronic survey of our partners every six months. We just completed a survey of our partners on a worldwide basis and compared that to from six months earlier, and the dramatic increase in the amount of investment that solution providers are making in Linux was very pronounced," says Marci Meaux, vice president of worldwide channel partners at HP. Many solution providers are living proof.

A significant portion of the new applications his company sells today are Linux, says Jim Carrick, CEO of SCS, Syracuse, N.Y. (VB500 335). "We have a traditional hardware business, we have a new applications business where we are helping people, we also have our own outsourcing business as well as a business that's focused on generating [integration opportunities]. Everything in the e-space is Linux, Linux, Linux."

Some who cater to the biggest of business clients, however, say Linux, while wildly popular, isn't taking over just yet.

"Linux makes good copy, but never underestimate the [entrenched way of thinking] of the IT group," says Manuel Barbero, managing director of BearingPoint (VB500 29). "What I observe is the vast majority of the IT group talking a lot about experimenting with Linux, but that's what it is: experimenting. There's certainly some major replacements in storage, but I don't see a radical change merely because there's not a lot of trained talent really," Barbero adds, noting that outside the United States, Linux adoption is far greater and expertise more advanced.

Alliances And Partnerships
There was a time solution providers could afford to be all things to all people. But the economic downturn turned that idea upside down. Now specialization is the order of the day, at least for some.

Companies such as FusionStorm cater to many customer needs in response to those who need accountability.

"[In the] multimillion-dollar deals that we're walking into, the customer really is looking for more of a one-stop shop," says John Varel, CEO of FusionStorm. "They really are looking for somebody that they can trust because they have to get that ROI."

In many IT ecosystems, VARs have followed the advice of industry leaders, including Cisco CEO John Chambers, who advises his solution providers to focus on what they can consistently point to as their sustainable, long-term competitive advantage. Avoiding everything else has helped many solution providers survive the long IT draught. To prevent from missing out on new opportunities, however, more VARs have turned to partnering. According to the VARBusiness State of the Market study, for example, more than three-quarters of all VARs partner with peer companies. These relationships account for nearly 20 percent of VAR revenue. As the economy improves and customers open to new ideas, interest in partnering grows.

"We made a conscious decision for a couple of reasons to partner more in the last 12 months," says Robert Cagnazzi, CEO of Dimension Data North America (VB500 82). "One, it gives us the ability to [make] deals we might not have the technical expertise for, but ones in which the overarching solution is one that we can deliver, manage or design."

Dimension Data not only partners to expand its scope of capabilities, but also to help keep its costs down, Cagnazzi says.

"Why should we staff up? Why should we staff up in these specific areas if they're not core to what we do? Let's use the bench, the expertise that's out there with other organizations. And, as the business evolves, it becomes more important for us to look in that direction for revenue and from a cost set," he says.

Like many companies, however, Dimension Data is trying to refine how it engages other companies. It has a formal structure in place for bringing companies into its accounts and exchanging information. It expects nothing less of the partners it engages--a strategy more companies are adopting.

Recently, for example, IBM unveiled its "Principles of Engagement," which it hopes will clearly spell out what IBM Global Services expects from its subcontracting partners. The document covers what a solution provider can expect should it decide to hand over a lead to IBM GS, for example. With rules like that becoming more commonplace, reservations to peer-to-peer partnering have all but withered.

"We see many opportunities today being a lot broader. You need to partner with somebody else to be able to deliver a complete solution," says Joe Joyce, direct of East Coast sales with Sysix Technologies (VB500 426). Sysix, for one, has gone so far as to form the Solutions Consortium, a coalition of several companies that have agreed to work as partners on specific customer projects. "It doesn't really matter which of the member companies takes the lead with the customer. The idea is to be able to deliver a complete seamless solution to the client, have a single point of contact, a single billing, even financing," Joyce says.

Of course, some companies, including Ciber and others, have taken partnering a step further and made their relationships with allies a bit more permanent. Ned Stringham, CEO of SBI and Co., has made a name for his Salt Lake City company (VB500 270) by buying the remains of several VAR500 companies, including Scient, Razorfish and MarchFirst. But now Stringham says the good deals have largely been completed. He does not expect any major players to emerge from the possible business combinations that remain.

"The quality of what's left, the people that are in distress now, are a different breed than what were in distress [just a few years ago.] The people that are in distress now are generally very, very small and they don't have enough scale to ever really see themselves ramping out of this. But whether they get bought or not is going to have no difference on the structure of this industry," he says.

Maybe not, but that doesn't mean that they won't impact secondary and tertiary markets. In all likelihood, they will. So, too, will ongoing evolutions under way in vendor and business-partner relationships. With more VARs partnering with the service arms of vendors such as IBM and HP, the lines between vendor and peer alliances have blurred. Adding to the confusion, of course, are the ongoing changes vendors are making in the core partner programs built around product resellers, IT consultants and IT influencers. Faced with cutbacks of their own and the need to make their programs more competitive, a record number of companies have overhauled their channel programs of late, creating much confusion.

"The biggest issue I have with any vendor is inconsistency in their programs from period to period. You wind up investing in a program, and then they change the programs," laments James Hunt, president of Cap Gemini Technologies.

That sentiment is widespread, even among top companies. "The frustrations are the vendors' changing programs, and about the time you get an investment made, they change again," says Keith Coogan, CEO of Software Spectrum, a subsidiary of Level 3 Communications.

Where Companies Are Putting Their Money Today
When it comes to investing, solution providers are thinking geography as much as technology. "We started with a joint venture with offshore and are looking seriously at building our own," says Allan Frank, president of AnswerThink (VB500 157). "I'd have to say that probably of all the fundamental changes, I see a tremendous shift over the last 24 months to absolute insistence when we go into a client, particularly a large client, on what's our offshore story."

For a company that grew up billing out at $200 to $300 an hour, that's a huge change. Not only are clients trying to factor offshore labor costs when putting together proposals, but also low utilization rates in the United States. That's put price pressure on solution providers like never before. "I believe that the entire fundamental delivery makeup and economics of a professional services firm like we have is completely changing," Frank says. The key for companies like his is coming up with a blended rate of talent for customers that combines the best of $200- an-hour U.S. consulting with $20-per-hour code-crunching in India, China and elsewhere. "Now you're talking $100 to $125 per hour. The only way to get there is through offshore or, for companies like ours, to fundamentally change the compensation model, which we're doing, and others, too," Frank says.

While the need to augment staff with cheaper, overseas talent, looms over many companies, the need to get staffing right at home does, too. For many, the downturn has proven good for at least one thing: improving the quality of personnel. Smart companies upgraded personnel in the recession. Joe Freburger, vice president of strategic programs with Lockheed Martin's commercial enterprise solutions group, says one thing to look for is people who listen. "Often, people chase the wrong strategy because they didn't listen. Always try to recruit people who listen, people who are competitive and people who are receptive to change," he says.

Words to live by, now more than ever.