CRN Interview: Tech Data CEO Ready To Roll

Tech Data CEO Bob Dutkowsky spent his first 100 days getting to know the company, its business partners, its vendors and its shareholders in the United States and Europe. He gave his take on where he sees the Clearwater, Fla.-based distributor going in an interview with CRN Associate Editor Jennifer Lawinski and Assistant News Editor Scott Campbell.

CRN: You spent your first few months at Tech Data visiting with vendors, customers, employees and shareholders. What does each group like about Tech Data? What did they want to do better?

DUTKOWSKY: It's amazingly consistent. So I'll kind of tell you the likes and the dislikes, and then I'll give you some flavor around how each of them spread out. What they liked and what I liked hearing also was the fact that they perceived Tech Data to be a strategic component to their business. From the outside looking in, you think we're just a middleman, just a distributor of product. But the reality of it, certainly from the vendor side, is that as they all are driving toward a variable-cost distribution structure, they want to have a lower cost model to put their products into the market. Direct sales is the most expensive model, and a variable-cost model like a distribution model gives them much more flexibility. So the vendors very much view Tech Data as delivering that variable-cost model.

The second thing the vendors appreciate about Tech Data is our reach into the SMB space. The big vendors have coverage at the enterprise level. When you get to the SMB space, where there are literally hundreds of thousands of businesses that they don't know how to get to, our channel knows how to get to them.

From the customer point of view, they really look for a reliable source of product, a broad line card of solutions that they can buy from, and most importantly or of equal importance, credit capacity. They can't get all of those from just one disty. They need several of them, so the customers are all rooting for a strong and vibrant Ingram Micro and a strong and vibrant Tech Data. They want to have several distributors they can pick from. One is not a good answer for them.

From the shareholder perspective, they want to know that we continue to strategically position the company to improve its profitability and to grow. From my perspective, everything that a management team does should be around those kinds of efforts. We should be focused on growth and profitability and making Tech Data the best place to work so that we can attract and retain the very best employees.

From the employees' perspective, they want to know they're working for a company that's going to be here long term and that will reward them for their hard work and will treat them fairly. I think our employees appreciate the company. They appreciate the culture of the company, they appreciate the work environment we have here and they're committed to help take the company to the next level.

There are areas that the company needs to do better at. We need to make sure that we are effectively growing with the industry. We need to make sure that we have an infrastructure and machinery in place that can create the profitability that our shareholders want to see and that we can continue to take those profits and plow them back into the company to make it stronger. That's not unique to Tech Data. That's just Business 101. You have to have an affordable business model that can create profit and sustain itself.

NEXT: Dutkowsky on Tech Data's customer base. CRN: As someone coming from the vendor side of the industry, what are some of the things that surprised you when you started talking to Tech Data customers?

DUTKOWSKY: I think the thing that surprised me first of all was how many customers we supply. I think we ship product to over 50,000 VARs a month. We have about 100,000 customers in our system, and we ship a product to about 50,000 of them a month.

I just didn't have a feeling for how broad the channel actually was. Obviously, I've been involved in the channel from the vendor's end for a long time. But I can recall from my IBM days -- again I'm going to give you round numbers -- I thought there were about 1,000 VARs that sold IBM products. Turns out we [at Tech Data] have 100,000 of them that we do business with. I didn't realize the customer base was that large, so as somebody joining the company that's a pleasant surprise because it's a tremendous opportunity. The downside of it is 100,000 anything is a lot of something. That's a lot of customers to cover. That's a lot of customers to have business relationships with. That's a lot of customers to offer credit to. That's a huge challenge for a company.

So the biggest surprise from the customer perspective was the magnitude of the customer base. The pleasant surprise was how many of those consider us to be a very strategic partner to them. We're not just some supplier of product; we're strategic business partners.

CRN: How about on the vendor side?

DUTKOWSKY: From that side, it's how open they are to tell us where they're heading as companies. You know, again, if we're going to be one of their primary routes to market, they believe they have to tell us what they're working on from a product point of view so that we're preparing ourselves to deal with products that maybe aren't even announced yet.

I didn't think that they necessarily would be showing us that. They'll call us up and say, 'We're thinking we're going to maybe move a product that looks like such and such and this price point and we want to take it to that market. Come tell us what you think about the market opportunity and how you would take that product into the market with us.' [It's] almost like a consultant for route to market, [the way] they view us. Again, I just didn't think that relationship existed. Now that's not every business partner. But some of the biggest ones in the industry talk to Tech Data that way -- in a planning mode and in a route-to-market mode, as opposed to just pure technical execution.

NEXT: Dutkowsky outlines Tech Data's mission. CRN: Now that you've had 100 days to digest all of this, what do you think are the most important areas for Tech Data to focus on going forward? What are some of the things that you've made priorities?

DUTKOWSKY: I've talked to the teams inside the company about four initiatives to focus on. The first is that the company needs to continue to execute and improve its execution. If you listen to our customers say we're a reliable supplier of product, what that means is we have to ship $20 billion worth of stuff every year. We're not like IBM, selling $5 million in a chunk. When we say $20 billion, that moves one printer cartridge, one printer cable, one laptop. It's a huge volume to be executed.

If you had asked what surprised me about the company [when I joined it], I would have said the velocity at which the company has to execute the amount of stuff we have to do every day just to make our objectives. It's a huge amount of activity. And so task No. 1 for the company is to focus on execution and constantly drive to improve the execution of the company.

The second mission for the company is diversification. I believe the company has to find and continue to search for adjacencies where we can apply our core competencies to build a bigger and stronger company. Those adjacencies are both from a technology perspective and a geography perspective.

The third initiative is innovation. I always give [Tech Data Chairman] Steve Raymund credit for inventing this industry. It was the ultimate innovation in the IT distribution space, and he figured it out faster than anybody else. We have to continue to innovate. We have to do things differently than what we've done in the past to keep up with the rate this industry moves at.

The last one I haven't made a one-world answer for yet, but it's to become more externally focused. I think there's an opportunity for us to turn our attention externally and get the company better-positioned to grow our business, to grow profitably, to service our customers and partners, and to create value for our shareholders.

CRN: Over the last several months, particularly in the U.S., we've seen a lot of consolidation in the distribution industry, with Alternative Technology, Access and Agilysys' KeyLink business all being sold. Did Tech Data look at any of those opportunities and do you continue to look at other prospective opportunities on the acquisition front?

DUTKOWSKY: I won't answer specifically what we looked at or we didn't look at. But I will tell you that part of that diversification strategy obviously has a [merger and acquisition] component to it. There are opportunities for Tech Data to acquire businesses that will jump-start us into new geographies or new technology areas. We have historically looked at those kinds of things, and one of the things I asked the company to do is to do that more aggressively and look more aggressively at those kinds of alternatives.

We're not [in the process of] buying anything, but that doesn't mean we're not analyzing opportunities all the time. I think it's important that the company is constantly looking. This is a maturing industry. One of the characteristics of a maturing industry is that it begins to consolidate. I think there's just natural consolidation. I think that with the strength of Tech Data's balance sheet, we clearly can be a company that can be one of the consolidators.