QandA: GTSI CEO Jim Leto On Company Changes

Two weeks after Chantilly, Va.-based GTSI announced that Dendy Young would step down as CEO, his successor, Jim Leto, took time to talk to GovernmentVAR senior editor Jill Aitoro about the changes at the company.

Leto: Ready to interrogate me?

GovernmentVAR: Yup. You've avoided it long enough. I know you must be incredibly busy at the moment, so I appreciate it.

Leto: Well, I did manage to find the men's room.

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GovernmentVAR: That's a step in the right direction. So why don't you tell me a bit about your background. What about your experience makes [the CEO position at GTSI] an ideal fit?

Leto: Well, years ago I was director of the data-processing group at AT&T that figured out how to break up "Mother Bell." We prepared the case that got presented to Judge Green [who broke up the Bell system] and said it would take five years of data processing; he came back and said, "Do it in 18 months." Eighteen months later, we were done. AT&T then promoted and transferred me to Canada to take over AT&T Canada. We started out with almost no revenue and after three years had over $100 million in equipment sales and half a billion in cross-borders toll traffic. From there, I came back to start the AT&T Systems Integration Group. In three years, we won $9 million in contracts and ramped up to $600 million in revenue. After my stint at AT&T, I took over a company called PRC that was close to $650 million in revenue and got very profitable. Three years later, we were almost $1 billion. I sold PRC in three pieces, and then took over a dot com that was losing about $27 million a year; at the end of three years, we were profitable with a banking line of credit; I sold that company and retired. Eighteen months later, someone ran a plane into the Twin Towers, and I started getting calls from Washington to come back and make a contribution. I came back, and John Gioia talked me into running his company. In three years, we took that company past $100 million in sales.

GovernmentVAR: So what's the strategy you use for that kind of growth?

Leto: Empowering people--making sure that direction and strategy are clear and that everyone marches to the same tune. I get rid of all of the infighting within a company. I don't tolerate that. And have fun. My philosophy of management is hedonistic.

GovernmentVAR: It will keep people around. So how did GTSI lure you to this position?

Leto: Well, I was on the board for 10 years, so it was a company that I watched gradually change. We began to take a look at some of the products we were providing and the margins. Roughly 90 percent of our order base generates 10 percent of our revenue, and 10 percent of our orders generates 90 percent of our revenue. The significant difference in the margins is interesting, especially because the cost structure is not that different. It was obvious that we needed to become increasingly a high-end solution provider and move away from being an end-all to every customer for every known product that's in the technical arena. We represent 1,500 vendor products and have vendors we represent that we haven't sold a product for in years. There's a cost for maintaining those relationships. We'll be monopolizing the vendors that we have, increasing the services content of our contracts, and selectively bidding contracts that have high engineering content and high services content. We'll be more focused on providing the solutions than the commodity product.

Does that mean GTSI will abandon commodity products? Read on.

GovernmentVAR: So will you be jumping out of that commodity-product market entirely?

Leto: We'll be more selective in the products that we represent. We'd be fools to say "We're not going to honor a PC procurement on an [IT Enterprise Solutions] contract for the U.S. Army. I just couldn't do that. So there will always be some element to this business that will accommodate the customers' need. They just won't be able to provide any product known to man from GTSI.

GovernmentVAR: Has the company announced yet which vendors and products the company will keep on and which it will steer away from?

Leto: No. I mean, the vendors will know. If I don't sign them up and I don't represent their products, they will know. It's just not something we'll announce publicly.

GovernmentVAR: How will the decisions be made? Is it just a matter of demand?

Leto: We're going through all vendors right now to determine which should still be represented and which cost us money with no value. We also implemented lines of business within the company that are focused as specific practices. For example, I just had a meeting with the senior vice president at Cisco, which is in our communications and networking practice. We're working with Cisco to configure high-end solutions that we would represent on the market. So while it used to be that we represented Cisco products, going forward we will be a partner with Cisco in going after specific targeted markets.

GovernmentVAR: The focus on full solutions and services is the direction the market continues to go in, for both small and large companies.

Leto: For the past 15 or 20 years, it's all I've been doing, mostly as a systems integrator. But even as a software provider, every license carries with it a huge services component. I was always talking to analysts about services as a necessity; it's not something you can walk away from.

GovernmentVAR: Do you believe there's any opportunity left for product-only resellers?

Leto: Oh, absolutely. The CDW-Gs of the world will continue to thrive because they have a business model that allows them to accommodate large commodity kinds of sales at low cost. I just don't see them as our competitor.

GovernmentVAR: GTSI has faced some issues recently, with the botched ERP solution and then the strategy to increase the sales force that ended in layoffs. Are changes in the works that will deal with those internal issues?

Leto: The ERP implementation was stressful. And we lost probably 50 percent of our sales force during that whole process who couldn't input orders, couldn't make their quota. And this is the town that has no unemployment, so we had a pretty high attrition rate both in our purchasing department and our sales. I can directly relate that to the ERP implementation. I can also relate that to the inventory problems we ran into. So now we're downsizing our expenses to match our revenue forecast and margin forecast, and we recognize that hiring salespeople is not a linear function to both revenue and margin; there's diminishing return. Right now, we have a stable sales force, our ERP system is improving on a daily basis and a lot of that is behind us.