Lack of service skills weighs down profits
Comdex special It is easier to pledge services than to deliver them.
Everyone knows that services are an increasingly important facet of. the successful Var, as profits on shifting hardware are shaved to the bone.
But as the channel heads towards a services-centric era, many resellers are finding the transition a painful process. A panel of channel services specialists assembled at Comdex to offer advice to Vars on how to turn their businesses into highly profitable services machines.
Mark Romanowski, vice president for services at US reseller Jade Systems, spoke of the recent move within the channel from mere box shifting to service provision. 'It is clear that there has been a paradigm shift in the past few years. For the Var, product sales no longer drive incremental services - it is the other way round,' he said.
Though many Vars are aware of this, Romanowski suggested that they are having difficulty in making the transition in their business. 'A lot of users have told vendors the service they receive stinks,' he said.
Romanowski said that this is a result of the fundamental structure of the organisation, particularly with regard to its senior personnel. 'If we look inside the business, services are often weak because we (senior managers) have a sales background. Because of this we don't invest enough in staff training because we don't appreciate its value. The bottom line is that if we are going to be services led, then we have to be dedicated,' he said.
Tim Curran, senior vice president of sales and services at Tech Data, agreed. 'Services are a mindset and mentality issue. In the first instance, Vars are not in the IT business, they are in the customer satisfaction business,' he said.
This rings true in light of research examining the 'hot' areas of growth for resellers. Evidence collated from more than 800 US dealers by US channel organisation CompTIA, highlighted issues that UK resellers should note.
According to the data, services-rich sectors are the most profitable.
Overall Var revenue grew by eight per cent in the past year, with networking - a services-rich sector of the industry - being the largest revenue generator.
Customer needs analysis is the top service provided by Vars across the board, ahead of more obvious services such as hardware and software integration and hardware maintenance.
Though networking dealers are experiencing a 10-year high in terms of profitability, almost half of the firms interviewed were currently experiencing a skills crunch, demonstrating the importance of holding on to key personnel.
Having the right people is key to securing repeat business, which the research said forms 63 per cent of revenues for Vars across the board.
Richard Rysiewicz, director of services CompTIA, said: 'There is a serious skills shortage in the Var community and the retention of experienced personnel is more important than ever before.'
Rysiewicz emphasised that holding on to key staff is more important as the transition to services shifts the business model from a variable cost to a fixed cost platform. 'We need to maximise billable time,' he said.
Rysiewicz claimed about 67 per cent of networking projects in the US are either under budgeted or delivered late, a fact he attributed to a combination of poor project management and a lack of qualified staff. Romanowski agreed: 'How many times have you sent an engineer to do a job they are not qualified to do?' he asked resellers, to murmurs of recognition. 'The potential to lose business through mistakes like these is enormous,' he added.
And such mistakes could prove even more costly if a customer complaint lands on a vendor's doormat. 'Vendors themselves are also experiencing a transition to becoming more services oriented, so it is more important than ever that Vars have a solid relationship with them,' said Romanowski.
Brian Vincik, Hewlett Packard's North American consulting manager for its commercial channels group, emphasised the importance of the services a Var provides. 'We're not out there to compete for your business, but we do need focus from Vars. Our workforce should be an extension of the Vars workforce,' he said.
The solution comes down to the right mixture of training, planning,
partnerships and focus. To address the training issue, Rysiewicz is campaigning in the US to introduce a mentoring scheme to stop competing firms from poaching staff on a remuneration-only basis. 'Companies think they are wasting money on staff training because staff move to a higher-paid job as soon as they have enough experience. I believe staff will remain with a company that offers the right combination of training, money and prospects,' he said.
COMPAQ DEFENDS HYBRID SALES MODEL
Eckhard Pfeiffer, chief executive of Compaq, defended his company's sales model at the Comdex 98 show last week, claiming service and support capabilities would win out over the direct vendors in the end.
In a keynote presentation, Pfeiffer took a swipe at the critics who have said Compaq is unable to compete effectively with Dell and other direct vendors.
'Compaq is becoming a global IT solutions company with strengths and capabilities that no PC-only company can match,' he said.
Pfeiffer quoted a recent report from financial analyst Salomon Smith Barney that said Dell did not have the optimum sales model and that, in fact, a hybrid model mixing third-party resellers and direct sales was ideal.
According to the analyst, this has the benefit of allowing, 'sales through whichever channel the customer prefers'.
Pfeiffer noted that in 1997 Compaq sold 11.5 million computers compared to 7.5 million sold by IBM and 4.5 million sold by Dell.