Improving the channel's bottom line

Dean Douglas

Dean Douglas joined Westcon Group as global chief operating officer six months ago and boasts of an illustrious career in the IT space including senior management roles with IBM, Motorola and wireless engineering group, LCC International. He was recently in town to meet with the distributor’s Australian team and caught up with NADIA CAMERON to talk about growth plans, market sentiment and where distribution is headed.

What’s at the top of your to-do list? Dean Douglas (DD): The macro-economic climate is probably foremost on everyone’s to-do list. The reason it’s at the top of the list, and in its own category it seems, is that the crystal ball is very foggy. As a result, it presents an interesting set of challenges – do you gut it out and hope it recovers quickly, or do you start to take moves today that put you in a better position down the road? What we have done is the latter, and we’ve done it in a number of ways which I think will help the industry through transition.

As a distributor, customer empathy is very important for us. It’s the resellers we are concerned about and we want to make sure they have the wherewithal to buy in this climate. There will be demand – it may be less than in the past, but there will be demand. So making sure they are comfortable to go forward is important. We are fortunate that John O’Malley [Westcon Group CFO] did a great job of putting together a set of long-term financial instruments that allow us to have extraordinary lines of credit back in August 2007. We plan to use that, as well as some cash flow, and make it available to customers in order for them to be able to buy.

There are a number of different models we could take, depending on the laws of each country we operate in, and it depends on the rules the vendors have with customers. We had a meeting a few weeks ago with our top US customers and unveiled a program to ensure they don’t have cash constraints. In Australia, we will continue to underscore that.

Isn’t credit being squeezed out of the channel?

DD: Credit is being squeezed out of the channel, and that’s where the challenge lies. The opportunity is to figure out how to structure different types of deals to allow for our customers to buy product and have sufficient credit to run their business. We won’t be wildly irresponsible, but there are risk mitigating ways for both parties that allow for transactions to proceed. It’s difficult for me to talk about this in broad strokes because it does depend on the vendor, but the good news is there’s several different paths we can go down.

How are you seeing the state of the market globally and in A/NZ?

DD: So far, we haven’t seen a significant deterioration of our business in A/NZ and that’s positive. We may not – there are certain economies in Asia that will continue to do okay. It really does depend on the length and breadth of the economic slowdown. It’s interesting to see many countries in the world, and Australia is one of them, are investing heavily from a government standpoint in forward investments, or augmenting the money they would have spent in order to keep the economy going. It’s a great move that will help our industry and channels.

Has the market downturn affected Westcon’s go-to-market strategy?

DD: We continue to invest in our go-to-market and in opportunities in the SMB space. That’s probably the space that gets hit the hardest in a downturn, but there really hasn’t been much done in SMB in the past and we want to be prepared. We will look at each country we operate in and the market segments we address – be it convergence, security or routers – and monitor that closely. Given we use one IT system across the globe, we have real information we can use to manage the business.

In an interview with ARN last year, Bill Corbin [Westcon global chief for strategic vendor relations] highlighted globalisation as a key driver for Westcon. How far along is this push?

DD: We are getting a great deal of interest in creating much more efficient processes around how multinationals deploy ICT equipment and security infrastructure globally. What’s happened is that in most countries, the communications infrastructure, Web access and the like is developed to such an extent that it’s almost first-world irrespective of where you are. Entities are wrestling with managing that effectively, making sure they don’t create a security hole in those third-world markets but still provide the functionality that allows for that productivity to have real benefit to the entity as a whole. We are able to provide that capability and are seeing a great deal of interest.

Is there more to do around your globalisation strategy?

DD: Last year, we did roughly 20,000 cross-border transactions, so it’s gotten to be pretty robust. What we have done is elevated it from a reporting standpoint out of each geographic regions into a global view so it gets the investment and focus it needs.

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What other initiatives are you working on?

DD: There are a great deal of additional services our customers are looking for. It’s very important for us, and me personally, that we don’t compete with our customers. I’ve been in businesses before that have done that and it never works. I was a hero in one business I ran because we grew it so dramatically, but if you got to the core of things it was because we stopped competing with our customers – it was that simple. But a lot of our resellers are looking for more services and our global businesses is one of these services we can provide. Software-as-a-service activity, as well as process-as-a-service, are things we can do for our customers that they find expensive to do themselves. We have the scale and can do things much more efficiently. Good economy or bad, you’ll see Westcon investing in doing more of these services. It allows us to establish customer affinity, and the side benefit is that when you talk about processes with a customer, understand them and adapt them for their use, then you can provide advice and counsel as part of the business relationship that adds real value. That kind of rapport is very important for a distributor like ourselves. Westcon’s not going to do a lot of outsourcing per se, but we are going to do these process-as-a-service activities and I hope it creates the same awareness and ability for us to provide strategic and operational value.

Do you see the role of distributors changing with the introduction of new delivery mechanisms such as software-as-a-service?

DD: I come to this with a little bit of deficit in my background, because I haven’t been in the distributor side for the last 20 years. But from my perch at IBM and Motorola, I understood they were out there and role they played, but what I thought back them was that distributors just provide a logistic capability. As I’ve come to understand Westcon, I realise it’s about managing the portfolio of products so that as a reseller, you have the availability there, and as a vendor the right product mix in the market and channel. But secondly, you need to look at what integration activities need to be done in order to provide a configured product to the user. We can bring together disparate vendors for a solution and help resellers provide more rounded solutions. We have talked about financing, and now as we evolve, these capabilities with regard to SaaS or process-as-a-service will continue to add value.

How far can distribution go in terms of the services it provides?

DD: I think we all appreciate the fact that vendors will ensure they’re not left out. At the other end of the spectrum, we won’t compete with our resellers. But there are a broad reach of capabilities and gaps we can fill. There are boundaries, but I think these are widening. The reason is that from a vendor’s standpoint, trying to manage hundreds or thousands of resellers is an expensive proposition – not just inventory and financing, but also putting together the organisation for them to interact with resellers leads to bureaucracy. By allowing distribution to do more, especially services, means they have a leaner organisation. Security vendors are already looking to us to do that activity.

On the reseller side, it’s really a question of what they want to be good at, but to address customer requirements there will always be a gap. If you think about the cost of people, such as bench time, can destroy a business. Why not utilise a firm like ours to help mitigate that risk?

Software-as-a-service and on-demand computing are about very small, multiple transactions. Are your processes strong enough to handle that, and is there enough margin for everyone?

DD: It’s absolutely an area we’re focused on. Our single IT system and investments in our logistics capability are very important to that. The good news is that more electronic interfaces save our customers money. I believe, and I may be proved wrong, that distribution is essential to that – you really can’t affect those smaller, electronic transactions efficiently if resellers are just going to vendors. Vendors can’t respond fast enough, and there has to be a weigh station in the middle to allow more efficient processes.

Westcon is well entrenched in several markets experiencing vendor consolidation, such as security and networking. Has that affected your business so far?

DD: We haven’t seen that as a negative – I think they all play to our strength because the more robust and sophisticated the vendors are, the broader the set of capabilities and value-added offerings we can put together for our market place. In some situations, we help with these integrations because we can act as a de facto channel as we’re dealing with both vendors.

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Managed services are being touted as opportunities for the channel. What’s your opinion?

DD: Managed services are a solid opportunity in these kinds of times, but it’s not a panacea. There are trade-offs and risks. Having managed such a business, I know you need to be careful on the ‘mess for less’ kind of managed service, where everything is the same and they charge you less for it. You just need to be sensitive to how that’s being done and understand it better. Are there real models where someone’s mess can be provided for less? Absolutely, no question. Are there scale opportunities? Absolutely. But for new entrants, you have to have that savviness and understand how best to sell these.

Do you think the rise in managed services from the channel and their vendor partners, such as Cisco, will push down the value of services?

DD: I hope not. We saw that in the industry back in the mid- to late 1990s as the hardware and software components were split. If you weren’t watching properly, the go-to-market teams would giveaway all the software as they wanted to sell hardware, and it was the software that was supposed to present that annuity stream and change the dynamic in these major companies. I think the vendors have learned lessons from how that played out and hopefully they won’t allow others to create a marketplace that mitigates the value their services can provide.