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Interview: Ingram looks outwards and upwards in 2010

Greg Spierkel and Jay Miley discuss investment, strategy for 2010, channel evolution and the cloud
Ingram Micro's Greg Spierkel (left) and Jay Miley

Ingram Micro's Greg Spierkel (left) and Jay Miley

Ingram Micro global CEO, Greg Spierkel, was in Australia in January to meet with vendors and customers to set the distributor’s agenda for 2010. He, along with Australian vice-president, Jay Miley, caught up with NADIA CAMERON to discuss the company's strategy and investment priorities this year, the impact of HP and Cisco’s changing go-to-market strategies, cloud computing and the evolving role of distributors and channel.

What’s the purpose of your trip? Greg Spierkel (GS): I have really put a lot of emphasis on trying to see most of our operations on a global level at least one a year. That’s the main reason for me being here – there’s no major acquisition, no closure or catalyst. I’ve been visiting a large number of customers and vendor partners just to understand what we are trying to do together.

What are your key priorities for this year? GS: Like every company, the biggest thing I’m going after right now is how we get on a growth path. It was a tough late 2008 and 2009, and the whole IT sector went down further than the overall GDP growth rates – typically, IT expenditure runs at a better rate than GDP rates do, but when there are recessions, as there have been recently, IT goes down much further. There is variable capital and people won’t spend as much on product, which is what has been happening in the last 18 months. People are running systems hotter and longer, and rather than let people go, they decided not to put as much into IT infrastructure. That has been a phenomena across the board and what we’ve seen from our VAR and vendor community.

Most of the ugliness of the last 18 months is really behind us. What we had been focused on was what we could change internally to be more efficient, so there was a lot of focus on that in the last three quarters. All our sights and canons have been shifted from running a lean operation to getting the most out of the improving market. A perfect example is here in the region, where in about half a dozen key vendor relationships we are all saying we struggled a bit last year, but all have new plans for the new year. And that’s exciting, because everyone feels like they’re back on to something after a tough ride.

There are a few big catalysts that are helping – the movement to mobility has been consistently a high priority, you’ve got Microsoft bringing out some good software that’s getting good traction early, as compared to Vista. Again, a lot of customers of ours are working off Office 2003.

Where does Australia sit in terms of your growing point-of-sale (POS) and solution businesses? GS: The mostrecent acquisition of Vantex filled a gap in the portfolio here, relative to the global initiative we set-up three years ago. But that gap is filled very nicely and we’re the largest play in A/NZ because we bought a good player and they’re executing well six months into it.

We’ve also been putting emphasis at a global level on differentiating between what I’d call a volume transactional capability in a broad-based model, and solutions. We’ve gone down a divisional structure in a more focused manner over the last four or five years and had some significant initiatives, point-of-sale being one of them. In the VAD space, we are doing a broad decoupling of product management, solutions-orientation from the volume, commoditised products. There has been a big emphasis in Australia, but there’s also stuff going on across the globe. It’s a significant change for the company and has lots of implications on the business unit structure we are putting in place, compensation, solutions and technical centres that are sharing resources. There is a lot of investment going on in that divisional company structure to help us be as good as any specialised player in a solutions context.

All the acquisitions we have done over the last two years – and we have done eight acquisitions, some multi-country in nature – are all about supporting this value versus volume structure and go-to-market. A lot of VARs have been asking us to help them move up the value stack in their own business models. So much is going on, for example, with virtualisation and virtualisation as a practice has really taken off in the last three years and we’re a strong player there. A lot has been going on with players in storage, and with Cisco going into the market differently – from Flip video in the consumer space through to telepresence, VoIP and now the datacentre around the networking backbone they have, but adding compute.

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What’s happening with Cisco and HP around their acquisitions and market strategies is setting up a stage where resellers have to choose one or the other. As a distributor, how do you make sure you give both sides what they need and balance that?

GS: A lot of it is us setting up teams that are very specialised – sometimes it comes down to specialisation capability in a broad category context. Some will come down to dedicated resources for one vendor versus another because there’s a lot of technical expertise and certification we need around their products. So we go down two tracks: What is the solution requirement, either in a market or solution vertical; and focusing on addressing end customers that might have a preference on one or the other. We want to do well with both, and they know that. Would they like to have more dedication in one versus the other? Sure, there are always people trying to get more mind or market share. But our objective is to execute well with both and be their biggest partner. Here fore we have been able to do that with both. Maybe not with Cisco in this country, I’ll give you that, but we are their biggest partner by far globally and we’re not resting on that.

Jay Miley: We have strong relationships with Cisco and HP in this market. I don’t view it as picking one or the other. I view it as the end customer wanting our partners, which we support, to be able to give them advice that’s not biased around the needs of that business. Distribution’s value proposition is about choice. We need to strike the balance between representing both brands and how they compare and differentiate. Just like we do with notebooks in the volume business. It’s just the technologies are more complicated and there are potentially more points of differentiation.

During the Q3 financial announcements, you mentioned investments as a way forward for Ingram. Is there still a lot of investing to do globally and in Australia?

GS: We have done eight over the last two years, and I’m always looking. If you followed us at a high level, you’ll notice a pattern that none of them have been large companies relative to our size, but all of them have been where we’re trying to get a higher degree of value-added elements into our portfolio. If there is a great storage company – and that’s part of our value proposition where we have a gap either with the portfolio or technical/vendor skill set – that’s where we will look to see if it makes sense for us to bolster our capability in those country or in the region. For example, Jay said we didn’t have high-end IBM capability and some other vendors in New Zealand, and we closed the deal with VAD in the first half of last year. It wasn’t a large company, but was respected over there and complementary to the portfolio around strategic business units and capabilities. Without giving anything away, where you see a pattern happening, you shouldn’t be surprised if we make another step. Our balance sheet and cash position has never been better and that gives us flexibility.

Are there still options in Australia?

GS: Absolutely. It’s not trying to buy a big company – it might be something with a real niche in a couple of verticals or vendor product solutions we don’t touch. And there are some of those, for sure. Whether we go hard here or somewhere else will be made at a regional or global level. We might have something in Australian but if we can add two great things in China, and the trajectory is greater, we’ll look at doing those. At any one point in time, there are four or five we are looking at, and our cadence has been to close something once a quarter.

JM: I’m always looking in Australia and am interested in companies that add capability. If there is a gap line-card or product line-up, I’m interested, but it’s more capability discussion. When I reflect on where we are, I think we have many opportunities ahead of us in the areas we are already playing in and it’s about improving our customer services models and engagement model with partners on a variety of dimensions. Once we get that stuff right, whether I’ll need to make investments in acquisitions is up for debate. There are great, innovative companies in Australia.

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What does Jay’s report card look like for his first year heading up Australian operations?

GS:I’d give him high marks. He has had a very busy year. There has been restructuring efforts, a greater emphasis on certain business units and differentiating us in the market on a number of fronts. We secured two acquisitions last year – one covering multiple countries, the other in NZ. There’s a lot going on in a market that hasn’t been supportive of the top-line for Ingram, or the industry generally. But, that’s where we start saying we’ve come through the worst and are a strong company for that. I think we’re in a good situation given the changes Jay has made, to get even stronger.

Are you seeing increased investment from vendors in the channel? GS: Yes, they are. Microsoft has never been more channel-centric than I have seen them in the last six months. It starts in part, at the CEO or COO level – Kevin Turner [Microsoft COO] is very engaged on leveraging that jewel much more differently. You’ve got EMC going downstream with a number of partners, and VMware going downstream with partners. From that point of view, there are a number of vendors that were more direct with their business models before, but are now leveraging distribution to go reach new customers and build capabilities.

You look at HP and what Mark Hurd [CEO] is trying to do at his company – he wants to use the channel even more than he was before because it costs less to push the product through. HP does the branding, messaging and marketing, but if you execute well, HP can take cost out of the organisation and put more emphasis onto the channel. Some of the bigger vendors are seeing greater opportunity with channel than they used to see, because they have pressure in their own companies.

JM: If you look back at early 2000s, the whole debate was around whether the channel would survive – disintermediation because of the Web.

Aren’t we having that same debate now around cloud computing?

GS: If you look at what happened with the Web, there was a lot of work to put Web infrastructure in place and we were part of the route to market. As people started to put Web selling capabilities in the IT universe, we were the fulfilment for that. And if you look at the ecommerce players and Web stores that exist for our vendors, we are a big fulfilment agent.

Take the cloud: Tons of hype, very little revenue in it now. I think revenue will grow faster in that universe than the core on-premise IT business will over the next 3-5 years, but it’s still in the early adoption stage. Vendors are already saying ‘you need to get this business model down into the SMB market, because. I can’t reach that end-user on my own. They also have a lot of other applications that have to integrate with my PC and competency, which may be CRM or storage. The VAR is still the trusted IT department.

JM: And for the same reasons with cloud. We have been talking about disintermediation for some time now, but for the same reasons that the channel wasn’t disinter mediated then, I don’t believe it will in the future. At the end of the day, the VAR is the trusted advisors to these SMBs.