CRN Exclusive: ScanSource CEO Baur Says Channel Sales Force Reorganization Needs More Time

‘Because we believe the future for our resellers or our VARs is to sell more to their customers to form a solution, we need to have our sales force lined up better to enable that VAR to sell more,’ ScanSource CEO Mike Baur tells CRN.

Trying To Get The Channel Reorganization Right

ScanSource Tuesday reported financial results for its second fiscal quarter of 2020, with both revenue and income down year over year. It’s a situation ScanSource Chairman, President and CEO Mike Baur called self-inflicted as it was caused by a move to reorganize its channel sales team.

Baur told CRN that the reorganization's goal was simple: change the channel representative teams and retrain them to make cloud and services a bigger part of their sales pitch to solution providers, who Baur refers to as “customers”—saying he uses the word “customer” because “I have to treat them like customers, and not partners.” The goal also was to start bringing in telecom offerings from ScanSource's Intelisys acquisition and cloud services from its intY acquisition.

However, despite a fairly smooth pilot with a handful of ScanSource's top partners, the initiative did not work as planned. Partners complained about not having access to sales reps they've known for years or not being able to get the information they need.

Baur told CRN that the reorganization is being adjusted based on the response from partners so far. He also said he expects progress this year.

Here’s what Baur had to say about the reorganization and other topics.

On the financial conference call Tuesday, you talked about issues caused by ScanSource's VAR channel in the last quarter. Where did that start?

We're rolling out a new program within ScanSource called One ScanSource. We started it in April, and it affected most of our customers in North America. It is a realignment and reassignment of many of our customers and their former sales contacts. A VAR may have worked with one person for 10 years selling them premises-based technologies, barcode scanners, whatever. Because we believe the future for our resellers or our VARs is to sell more to their customers to form a solution, we need to have our sales force lined up better to enable that VAR to sell more. And so we had to restructure, reorganize and really reconfigure our entire North America sales team. We started that in April. [But] it caused us to lose momentum with our customers.

When you came up with this plan to realign the partner organization, did ScanSource run the proposed changes through some of its channel partners or a partner council and your salespeople?

Sure, so we ran a pilot two years ago. We brought it out to a small group of our very best customers back in July 2018, and brought to all our customers in April.

So where was the disconnect, then?

The issues that we identified on the call were some of the things we changed in our channel [for the pilot]. We rolled out the same structure in April, and it didn't work quite as well. And so there's differences in the type of customers that we rolled this out to after we did this with our very best customers in 2018 and early 2019. So that's what we're referring to. And we're trying to be a little bit careful about exactly what's wrong. We indicated on the call what we did. But we don't want our competitors to know exactly what we're doing. But we do believe we know what happened. We believe we are able to fix this. We're not worried about the long term. But we definitely have some problems we caught and we can solve it. And we'll solve it quickly.

Looking back at your rollout process, is there anything you would have done differently compared to a year or so ago?

I don't think anything. At this point, nothing. At some point, you have to do this, and it's painful as you go through it. For a typical company going through a big transformation, at some point it's real painful as people learn new processes, assignments, customers, how to sell new things. This is all part of change. And our team knew it wasn't going to be easy. But the end result is much better for us and our customers, who will be better served by us. And really the ultimate goal of this was become more customer-centric, add value to our customers, and enable their growth. We believe if we do that, we're heroes, and our customers will love us.

And just to make sure, when you say 'customers' you mean your channel partners, right?

Yes, our VARs. Channel partners, VARs. I use the word 'customer' because I have to treat them like customers, and not partners. We have to serve them.

I did see there was some positive results from sales of Intelisys' offerings. What do you think was behind that?

That is actually an ongoing success story. Intelisys is now the most dominant master agent in the world, and we are so excited as the numbers continue to flow in. We have more competitors than ever, and yet we continue to take market share and achieve phenomenal success. So we could not be happier with Intelisys.

Can you give some information to show how well Intelisys did this past quarter?

What was said on the call was 19 percent growth. But the really interesting story was 68 percent growth through the cloud. The cloud for us is UCaaS [Unified Communications as a Service), CCasS [Contact Center as a Service), all the things that are cloud-oriented. When you think of all the up-and-coming key vendors like RingCentral and others, we're the largest master agent. We're winning all the awards. Our partners are winning all the awards. And we're just saying, 'Here, guys, bring us more to sell.' We've got just a phenomenal track record. We've owned it now for almost four years.

Was the Intelisys business impacted by ScanSource's VAR channel reorganization?

It was separate. Again, the reason we're doing it is we want our VAR sales teams to understand how to sell recurring revenue, including how do you sell cloud services that we're doing very successfully with the agent channel? How do we turn more VARs on to selling that? And that's why we went through this painful reorganization. We need every one of our ScanSource VAR account teams to be able to sell recurring revenue of some kind to their VAR partners. And every VAR we talk to is excited about trying to start selling recurring revenue. It's just not easy. I said on the call that, in some cases, they have to make a financial investment. And that's why we added not only Intelisys, but also this intY Cascade platform [for selling cloud services]. We can now deliver Software as a Service starting with Microsoft to all of our VAR partners.

What are some incentives and some programs that ScanSource is doing now to get more of its traditional VAR partners to sign on with Intelisys?

One thing we already started, and you probably heard about it on the call, is we put together a team called Ignite. That team was put together to go out and specifically target our top VARs and introduce the Intelisys offer to them and help them select, are you going to do this? If not, OK. We want to identify the best VAR targets to add the Intelisys offers to. That Ignite team is very successful. We started them in the marketplace a year ago, and we believe we need to expand the numbers of VARs they're talking to. That is our key to growing that revenue.

For 2020, what are some of the big issues you see distribution facing?

I think every distributor looking at hardware spend will continue to see pressure on margins, pressure on working capital, and [questions about] what is your value proposition? And we believe you have to be very excellent in all the service-type things like delivery, etc. But you also have to bring something else to the party. I think what we have uniquely is this line card of recurring revenue offers, whether it's the UC products from 8x8, RingCentral, Terra Nova, or it’s Comcast and AT&T and Verizon and CenturyLink. We have the best offers. And then you add Microsoft to that as well. We've got relationships and offers and ways for the channel to make a lot of money. We really think the answer is, assume your margins will be pressured on hardware, and add recurring revenue so that you can sleep at night and make money. We want to help them make 'mailbox money.' It shows up every day and every week. Once you turn it on, it just shows up in your mailbox.

On the financial analyst call, you talked about the coronavirus spreading from China, and said that ScanSource is not yet seeing an impact. Do you expect the IT channel to start seeing an impact from the coronavirus?

We continue to talk with our suppliers. They gave us word there's possibly a week or so of some delays and workers getting back to the factories and being quarantined. But we're certainly, like everybody, watching that closely. It's certainly a sad situation.

Is it similar to what ScanSource and distribution faced back in 2003 with the SARS epidemic?

You know, I don't recall that we had any impact at all. It was like, zero impact on us.