Avnet CEO, Rick Hamada was recently in town along with Asia-Pacific president, William Chu. ARN’s Julia Talevski and Rimin Dutt had the opportunity to sit down with the two along with A/NZ vice-president and general manager, Darren Adams, to talk about the distributor’s plans and strategies for the year ahead, and embarking on further growth in the Asia Pacific region.
What brings the two of you to Australia?
Rick Hamada (RH):I make it a personal priority to get on the road, not only out of Phoenix, but also out of the US. Avnet is a global company, we’re doing business in more than 90 countries and there’s no substitute for getting on the road.
William Chu (WC): I chose Australia as Rick’s country to visit because it is the fourth largest country for our company, in terms of country revenue perspective, and it’s very important for us. I come here at least once or twice a quarter, to support the team. I’m not here just to go through the business review, but very importantly to visit our top suppliers and partners, and establish a relationship.
What are some of your plans and strategies for the year ahead?
RH: At the turn of the fiscal year, we have a new financial plan, but the strategic point of view, we don’t necessarily get dramatic new changes. For Avnet globally, I try to spend the majority of my time on three major conversations with the team, which know it as Rick’s three G’s.
The first G is growth, I’m always interested in talking about profitable growth in our regions and I have to learn from the regions how that’s going to happen. We don’t sit in Phoenix and dictate to William and Darren, that I have a great idea for how we should grow our computer business in Asia and Australia, Avnet provides a certain amount of resources and the growth strategies really have to come from the bottom up - from the team up through to Avnet. They’re living and breathing the marketplace, competitive nature, suppliers, customers and talking to our team, they know more about how to win in Asia and Australia, than I ever will, but at the same time, I’ve got a fiscal and fiduciary responsibility to allocate Avnet’s resources where we can get the appropriate returns.
Second is globalisation - so what can we be doing to help bring more scale and scope to the global marketplace? Help them be more competitive and more importantly, provide a differentiated platform for their customers and suppliers that local or regional competitors can’t provide.Where are the opportunities to leverage Avnet’s global scale and scope for local benefit?
The third G is great people. I’m always interested in talking about our people, not only do we have the right people in the right places, but what are we doing to invest in their development, tools, infrastructure and resources to put them in a position to deliver consistently in our commitments to our customers and suppliers.
Nothing is more frustrating than having management fly around, make big commitments, and then everyone has to kill themselves to try and deliver on those. We’ve got to invest in the infrastructure and resources to help them be able to consistently deliver on that customer experience that hopefully differentiates us from our competition as we continue to evolve our value propositions and strategies specifically for the market.
Are there any plans to increase your investment in Australia infrastructure wise?
RH: We have grown tremendously via acquisition in the last 10 years. When you grow via acquisition, you acquire different ways of doing things, different systems and IT platforms, and it’s normal course of business for us to be optimising, consolidating, standardising and centralising platforms where we can. Right now, there are some major ERP platform consolidations taking place, we’re also standardising on a global warehouse management system, we’re embarking on a more globally standardised HRIS platform.
In Australia we recently consolidated our ERP platforms. We have to constantly be challenging ourselves along these lines not only for great automation, but a great process before we automate.
WC: We’re also doing CRM across the Asia Pacific. It’s a very important project for us as we want to learn, retain and service our key partners.
Darren Adams (DA): Global systems integrators is one of the areas we’re really looking into. Those organisations really need help in the supply chain acceleration areas of their business. They’re also looking at how do they converge in a market where storage, networks, servers, software and databases, all need to be consumed and packaged in certain ways for clients.
That type of supply chain challenge is something companies like Avnet, have been dealing with for sometime. We’re seeing some interesting developments in that area. It’s just not the Accenture’s, Wipro’s and some of the local system integrators like DiData, they’re looking at how they get more leverage out of distribution.
We went through this period of value and pick, pack, ship concept, which was important, but now its far more complex to get products into the customers in an efficient and timely manner. That is driving renewed interest in some that integration and supply chain work that we’re known for.
What is your fastest growing market at the moment where does Australia fit in Asia?
WC: Australia is more a stable and advanced market in terms of its maturity. On a growth perspective, China and Indonesia, because of their nature, it’s a high and fast growth market. What we leverage on A/NZ is their maturity, and look at how we can leverage some of their best practices and share it with the rest of the region. On a services level, we have Adam Chicktong, who will help me grow the software services business, so we’re looking at how do we leverage him to help the whole Asia Pacific to grow this Cloud business.
What areas of the business are you banking on to help drive growth?
WC: There are a few areas in the Asia Pacific where we see opportunities. We have expanded very rapidly within the past four years and we’re now present in 11 different locations in the Asia Pacific. We are one of the well represented value solutions distributors in the region , but we will not rest on our laurels. We’re continuously looking at opportunities for us to grow organically as well as by acquisition. Also how do we continue to develop our value proposition with our suppliers and continue to support them across different countries so that we can support our global partners across all continents.
Another thing is geographical expansion in markets such as China, Indonesia and Vietnam. There are a lot of untapped cities that we can potentially grow into, and many of our suppliers aren’t represented there, so we can provide them with support to go into those cities.
Any new countries within Asia that you’ll be looking to expand into?
WC: There are still markets that we’re currently not present in such as Japan, Korea, Philippines and developing countries like Myanmar, everyone wants to go there. But at the same time, we need to balance risk with opportunities. Many suppliers are asking us to do that, and we’re considering it very seriously. Whether we want to do it organically, or if there’s a potential acquisition target, we have not yet set a target, but there is potential and we will be interested to look at opportunities as they come along.
Rick, you’ve been in the distribution game for a long time, how have you seen the distribution landscape shift and change throughout the years?
RH:I’ll celebrate 30 years with Avnet in November. I still can’t believe it. It was my second job out of college and it’s been an amazing journey. The thought that crosses my mind is that the more things change, the more things stay the same.
Distribution in my entire 30 years, has been a high velocity, high activity, very dynamic business and industry, but there are still some constants regarding the quality of our relationship management with our suppliers and customers and the quality of our engagement with our team.
We don’t believe it’s an accident that if you take really good care of your team, they’ll take really good care of your customers, which leads to great results. In the midst of technology which is changing the world for the better in many ways and we have all devices that we didn’t know we needed 10 years ago, there are some constants that still make sense. Finding ways to still make sense of those core values of our business, but still responding quickly to the needs of our current customers and suppliers and finding new ways of helping accelerate their success in the marketplace and provide them with the coverage, reach, development and enablement of the ecosystems to help get those technologies to market faster. That’s what gets me up everyday and keeps me passionate about it. There’s nothing boring about this business. We’ve been in business for about 92 years, and I would like to make sure that I make a contribution for a bright future for Avnet for many years to come.
How is the company currently shaping up as you’re coming to the end of your fourth quarter on June 30?
RH: Starting from the recession in ‘08 and ‘09, we had two strong fiscal years of ‘10 and ‘11 and fiscal ‘12 and ‘13 have been adjusting not only to coming off the sharp recovery, but we’re also dealing with slower economic growth.
We’re trying to adopt a philosophy around Avnet that uncertainty is the new norm, we just have to find a way to deal with it and if and when economic growth gets more exciting, that will be a positive for our business. But meanwhile we have to continue to work all the other levers at our disposal, what can we do to manage the mix of our business and steer more resources to higher margin, higher return areas along the way. What can we do to work on our productivity and efficiency, and what can we do to become more important to our existing suppliers and customers.
Lean on organic growth more in the future than what we have through acquisition. All those pieces of the formula are important to Avnet today to sustain an exciting growth profile for the company for the next leg of the journey.
What are some of the high growth margin areas you’ll be looking at?
RH: Services jumps out, it’s high gross and operating margins with great returns and not a lot of capital tied up. But it’s a different way of doing business. We are a services business, but now we’re looking at areas like software, lifecycle and education services. Where ever we can deploy the capital and get the appropriate return, we are interested, but we are bringing more attention to what’s going on with our margin profile. Growth is not an issue for us, revenue growth is not a problem, but where can we deploy Avnet’s value and get the appropriate returns overall?
The distribution industry overall is facing tighter margins, how are you planning to adapt or turn that around for Avnet?
RH: Overall market growth will ebb and flow, but if we look at what we can control is our acquisition strategy - what if we start adjusting our valuations on the margin profile of the acquired companies. For example maybe for higher-margin, we’ll have a lower hurdle rate and lower margin businesses will have a higher-hurdle rate. When we look at organic growth opportunities, should we steer more resources into higher margin services arenas or should we steer more into logistics and operations strictly with fulfillment of commoditised product sets? It’s a matter of managing all that and where to allocate resources. The other thing to keep in mind is that higher gross margin may not lead to higher operating, because it takes more investment to produce that as well. So you’ve got to watch margins at both levels, but generally it’s better start with higher gross margin than lower.
We remain very committed to acquisition being a long term contributor to our profitable growth plans for Avnet at the global level. It’s really good to have the resources and money to back it up to be able to do that.
Is there anything that you’re now doing differently as a distributor in light of the economic market conditions?
RH:I can’t have a conversation about IT without talking about Cloud, mobility and Big Data. We’ve got things going on all those areas. We have allowed our team to be flexible to choose their own device and we’re mobilising some of our key applications to put them in a position to respond quicker and faster to our customers, that’s a change that Avnet is going through.
In the America’s over a year ago we launched a pilot and we’re a Cloud customer of a company called Workday, and we plan during the next two to three years that we’re going to establish Workday as our global Avnet Inc standardised HRIS platform. We’re a Cloud customer integrating in our own environment, we have to write 67 APIs to get Workday to integrate with all of our other systems. Internally at Avnet there are initiatives underway to take our analytics to the next level and get more predictive about where our business is going.
How does the Australian operation compare globally?
DA: I’ve been at Avnet for 10 years and having gone to America, spending four years on assignment there, it’s the same. The integrity, core values, teamwork and innovation, that’s universal. There are differences in how to serve the market efficiently, and fortunately we now have scale through the itX acquisition that gives a great opportunity that we can leverage going forward. We’re more alike than we are different, we like to think we’re different and certainly there are some nuances in the market. Over the next 12 months, we’re getting some more leverage in the local operation and it’s a great opportunity for us.
What exactly will you bringing in?
DA:We’re looking at some people in the US that might be able to help us out on the ground here. Our opportunity is to look at our processes at the front and back end, before and after we sell. That may involve CRM and how we handle inventory and process orders. The US has been through a very successful systems implementation in the last few years and it would make sense to leverage some of their knowledge. SolutionsPath is something we brought to Australia not long ago, and there are other opportunities like that, in vertical markets like health, banking and finance, but also in some horizontal areas like virtualisation, where we have solution frameworks and templates. If our partners win, then we win.
WC: Recently we announced that we were the global training partner for IBM, and from the Asia Pacific perspective, Australia has been chosen as the first country to implement that. How do we then leverage on our development in the IT area for example to use one website that can manage all the registrations, availability of the courses and transactions, where we can use one platform across all countries.
Rick, what are some of the key lessons that you’ve learnt while you’ve been in the CEO post for the past couple of years?
RH:That’s a long list. Some of the core principles that have guided me in my career both personally and professionally have been my four pillars - a positive attitude, balance - not just work/life but also short term versus long term, what’s good for the individual versus what’s good for the company, balancing what’s good for the customer and supplier.
Third is personal responsibility, my career personally changed when I went from ‘what are they thinking’ to ‘what can I do to help solve the problem,’ and fourth is life long learning. I’m still a work in a progress and the day I think I know it all, is the I’ve got to go. But I’ve put a new twist on lifelong learning because the pace of change has dramatically sped up. Lifelong learning isn’t just good enough by itself, I believe you now have to un-learn and re-learn, especially for someone that has been in this business for 30 years.