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Distribution executives focus on adding value

Marketing managers from the top six Canadian IT distributors met recently for the seventh annual CDN Channel Roundtable. The panel suggested ways of changing the negative mind-set that people have about the IT industry, how to increase sales margins and if they are willing to deal with the devil that is Dell.

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For this year’s annual CDN Channel Round-table, marketing managers from the six major distributors in Canada came together to try to figure out ways, new and old, of kick-starting the still sluggish IT industry in Canada.

The panelists, Tom Carswell of EMJ Data Systems, Shelley Kelly of Synnex

Canada, Michael Mercer of Bell Microproducts Canada, Greg Myers of Tech Data Canada, Howard Rosenberg of Supercom and Dave Walsh of Ingram Micro Canada, all admitted they did not have all the answers. In fact, Walsh said before the roundtable started that if he had the answers to the first two questions, he would be wealthy well beyond his wildest dreams.

The one thing all agreed is that in today’s business climate they have to be up front with the resellers and tell them what the reality is.

The panel also discussed several ways of increasing margins and possible partnerships with Dell Computer, if it decides to bring the company’s new channel strategy to Canada.

Computer Dealer News: As marketing managers I would like to know from each of you how can you change the mind-set out there that the IT industry is in a depressed state with no future in sight?

Tom Carswell: It is not a matter of changing someone’s mind-set as it is changing the perception. There is a huge perception out there that things are bad and they are not going to get fixed any time soon. There will always be some bad no matter what you do. It is looking for the opportunities that I think are important. A lot of people are used to looking a certain way with blinders on. They should step back and say ‘What kind of world am I living in or market or industry? Maybe it’s not the right one for me anymore. Maybe I should look at something else.’ It takes a diversified outlook in order to see what the next opportunity is or to fix this thing.

Dave Walsh: There are companies in this industry that are doing well. If you look at the market, it is only off 16 points from last year depending on what side of the border you are on and that will paint the doom and gloom picture. But companies are doing well.

Michael Mercer: The reality is the business climate is not good. The reality is it will get better, but the fact remains that business is not good. If you are sitting waiting for the things to go back the way they were, you will be sitting for a long, long time. (We) have to change the way we do business and accept the new dynamics of this industry . . . and resellers have to adapt to that in their own way.

Walsh: If I can focus back on a comment you made — back to the way things were. The industry is not going back to 20 and 30 point growth year over year. You can’t even grow yourself out of this industry unless you look at expanding your addressable markets. And that is really what everybody has to do in this industry.

Shelley Kelly: I don’t think technology has stopped as we experience the changes that we are going through. There is promise on the horizon in several initiatives that the vendors will be the champions for. Part of getting the good news out is picking those initiatives that you are going to back, and you need to look for the one that brings the right qualities for success to the table. You look for adoption rates that are high. You look for volume so you can make that investment for the resellers. As you pick those initiatives and you start to see the momentum and the wins, we do have the ability to take what people see now as pessimistic and we will see pockets of success.

Greg Myers: That is a key point. Resellers are going to have to choose what they are going to do as they evolve. They have to diversify their business by increasing the services component of their total revenue. That still has not played to the satisfaction of the market place. The value proposition from the reseller point of view is not enhanced. We see more and more resellers that are focusing on some of these opportunities such as wireless, VoIP and security. The business climate, I have to say, has impacted the adoption curve as well. The CIOs that were willing to buy into an awful lot of different technologies over the last 10 years today look at most acquisitions in a completely different light. That has percolated all the way through our industry, which is why we have resellers that have struggled. Distribution continues to struggle and consolidate, certainly at the vendor level. That is probable where the most dramatic consolidation still needs to occur. To Michael’s point, you can’t wish away the problems or operate in an environment that really does not exist any longer. You have to understand the changes and the new reality. I’m even finding from a people point of view you can be more frank with people and talk to people about what is going on and you are not a bad manager for sharing information with them.

Kelly: There is a new sense of candor in organizations today.

Howard Rosenberg: We need to take their mind out of the daily grind and offer them a break from the routine. This could be a new twist in the product offering, a different solution bundle, and a proposal they can look at from a different angle. Our industry is still young, we’re just starting to mature, we are going through a business cycle where those who can evolve will come out stronger at the other end. I simply do not subscribe to the notion of a depressed state with no future — all I see is a very bright future.

CDN: Are there any new strategies that we can use to create buzz back in the industry?

Walsh: The market has to be realistic out there. I am sure we all have been approached by marketing companies who can deliver this and bring this to you. My simple answer is that we have been doing this for a long time. I say bring me something that I can’t do myself or isn’t already available. I relay that to the resellers. I say to them don’t bring your customer something that they can find. I have beat this statement to death. A 20 station LAN with three printers and a storage back up unit is not a solution, it is a shopping basket at Dell. That said, how do you help out that customer.

Mercer: If you look at the downturn in the economy you can arguably point at our industry as being the cause of it. The IT industry has weathered down turns before. But for the first time the IT industry has been the cause of it. Look at the meltdowns at Nortel, JDS, and WorldCom. You are not going to wow anyone with technology. I hope we are seeing the end of that in our industry. We have had too much wow. I do not think you are going to have marketing plans with boom factor. I think you are going to see more consistent growth and people looking for more value. The customers are looking for value. We are looking for value with the vendors and the customers.

CDN: How can we increase margins in distribution and for the resellers?

Rosenberg: We need to group products and customers into different categories and manage them accordingly. In fact this is a process that we just went through at Supercom. Some products and customers can and should be managed by their volume and others should be managed by their solutions, offering each with differing margins. Each of these categories will offer the resellers different opportunities for their own business plan or how they can go to market with their own solution bundle. The key is always added value, both from a distribution standpoint and the reseller standpoint. The more added value, the higher the margin you should be able to make.

Myers: It is less around increasing margins because I do not know of any business whose value proposition is strengthened by increasing margins. The bigger focus is how do we improve o