Look up the word ideal in the dictionary and a variety of definitions will spring up, including: the conception of something that is perfect, especially that which one seeks to attain; a person or thing considered to represent perfection; and something existing only as an idea.
But ask anyone in the IT industry - including the staff who work at the distribution operation - and they'll definitely say that the ongoing situation at Ideal Hardware is far from perfect.
The recent history of Ideal paints this aura of imperfection. Just over a year ago, the distributor issued a statement warning of gloomy conditions in the storage market. This warning caused its share price to plunge by more than 17 per cent in just one day.
Ideal then embarked on a restructure in October in which it placed more emphasis on the services element of the business by dividing it into three distinct operations and the creation of InterX as the holding company: Ideal Hardware became the distribution arm; Unisolve its services business and IT Network the multimedia division.
In March, InterX saw its six-month, pre-tax profit slump to £3m, down from £4.5m previously for the period ended 29 January. The figure included exceptional charges totalling £1.5m, relating to group and start-up costs for the IT Network unit. Turnover for the period was £148m, up 34 per cent from £110m.
Barely had the industry embraced these figures when the group was once again the bearer of bad tidings. In June, it revealed it was extremely disappointed with trading at Ideal and kicked off a massive management restructure which included a £700,000 redundancy and cost reduction programme.
The group's share price plunged 45 per cent to 197.5p in the face of widespread investor disappointment.
InterX put the blame on difficult trading conditions, but that wasn't the only cause of Ideal's problems. Ian French, recently-appointed chief executive of Ideal Hardware, is candid about the fact that management direction had been lacking. The day-to-day running of Ideal had been vested in a 12-strong operational board, which has now been disbanded.
"The operational board was a camel designed by an elephant," he claims.
"It had too many people on it and didn't have the right direction. There were too many directors not directing. There was also quite a lot of empire building going on. Now we have five people who are 100 per cent responsible for running the company."
Those five people - French, Steve Lundy, Gordon Milner, Alex Tatham, Simon Miesegaes - constitute the altered executive board, headed by French, who reports directly to James Wickes, chief executive of InterX. Of the previous line-up, only two members were casualties of the redundancy programme. Ronan McDonald, former head of the defunct operational board, is one of the two. He is understood to be taking a break in France with his family.
The other is Ian Harper, father of Ideal co-founder Kevin Harper. The latter has himself resigned from the InterX main board and does not have a place on Ideal's executive board, but he remains active in the company by working in a consultancy role.
French says this is a position that suits Harper's skills: "He knows more vendors than you know pubs in London. He knows the people and he has worked with them for years. He adds enormous value because he is now free to be strategic, which is what he was always best at."
Three other ex-board members left before the redundancies hit. According to French, they "had already decided to go and do their own thing". He says: "When Ideal floated, a lot of staff were given shares and options which matured over a period and this is the year they cut in."
In total more than 90 members of staff left the company in a five-week period. The axe fell across the board, but a quarter of all job cuts made were sales-related.
"Everybody built empires here," says French, who avoids pointing the finger at any given manager or team. "There is no blame attached to any of this. We had a dysfunctional company that wasn't managed. The fact that we employed too many people and had to thin it down is not their fault."
The upheaval has shaken the company to the core. "We had two weeks of trauma internally," he recalls. "When you part with a lot of people, that's painful."
French plays down the knock-on effects: "At the manufacturer level, there's almost been a sigh of relief that someone has faced up to reality and done something about it. At the customer level, I don't think anyone noticed. So most of the pain has been internal."
The unenviable task Ideal faces now is to try to put the business back on track, piece by piece. As part of the overhaul, the management is revising its vendor strategy and is poised to strike suppliers off its list where necessary.
"We are having a look at all the vendors to find out if we actually make money out of them," says French. "This applies mostly at the commodity end, with some of the component vendors, where margins have become so abysmally low. As soon as you start looking after things such as warranties, delivery and credit, there is a question whether you can actually make money. We have got the guts to say if we don't make money out of it, we may not be interested in doing it any more."
Interestingly, InterX blamed Compaq for a fall in gross margins. Traditionally, Ideal's holding company would have margins between 13 and 15 per cent, but gross margin fell to 11.9 per cent. Excluding the Compaq business, margins would have been 13.3 per cent.
In another bold move, the board has decided to re-integrate Ideal with its services business Unisolve, which provides configuration and assembly capability and pre and post-sales technical assistance.
"Unisolve was heading off in slightly different directions," says French.
"Under the old structure it had its own director, its own life. Ideal is jumping on the services bandwagon and wants to put Unisolve at the heart of its strategy.
"Unisolve and Ideal are back under one management structure. That is significant because Unisolve is an area we have invested a huge amount of money in. Services are so important now. If businesses want to sell anything other than a commodity now, they have to back it up with real competence."
InterX also plans to step up its investment in IT Network, the information resource which has at its heart a product comparison database containing details of almost every leading IT product.
"The product comparison thing has gone down an absolute bundle with manufacturers," says French. "When we can get the resellers really involved with it so we can start the lead generation side, then the real value will be revealed."
The question is whether or not these areas can be made to deliver. "In any company you have to recognise what adds value, but you also have to understand how to release its value," he says. "We had an awful lot of good things happening in the group, but I am not sure that until recently we really understood how to unlock their worth."
The reorganisation, including French's recent appointment to the InterX board, should help achieve that, he hopes, by increasing openness within the company.
Rivals believe Ideal's mistake was to take its eye off the ball - its future will depend on whether or not it can re-group. Paul Sangster, sales and marketing director at storage distributor Hammer Distribution, says InterX's downturn is a case of badly-handled growth. His main doubt is whether Ideal has grown to such a size that it cannot achieve the necessary focus.
"It grew to a certain mass and brought in more middle management and product lines," says Sangster. "It then floated the business, took more of a back seat and wasn't running the business hands-on. The next thing, it was in trouble. Ideal is a great business, but it has just taken its finger off the pulse. I have no doubt it can turn itself around and get back on track, but the only way it can do that is by becoming more focused."
Forced into a corner, InterX held up its hands and admitted its mistakes.
It's an approach that industry analysts say could stand it in good stead, if the company can back up its candid stance with some substantial action on the ground.
Brian Burke, manager of Dun & Bradstreet ComputaNet, says: "What Ideal has done is sensible. It has identified a problem and done its best to deal with it. That gives me confidence that it will get the business back on track."
Sandy Cals-Summers, senior analyst at Canalys, adds: "Ideal has been very frank and honest about where its troubles lay. It's a good message because rather than trying to hide behind market conditions or margin erosion, which seems to be every distributor's bone of contention, Ideal has actually said it is aware that it was too dependent on certain areas and is trying to focus on other more lucrative ones and it will be back in a different light."
It may be cold comfort, but Ideal is not alone in finding the going tough in the current climate. In the same week in June that InterX made its profit warning, so did Datrontech. Profit warnings have also come from Northamber and networking distributor Ilion.
"This quarter hasn't necessarily been the best for distributors," says Cals-Summers. "There has been widespread market erosion, while commoditisation has increased in some parts of the market."
Burke agrees: "All players are fighting in a market that has contracted, not necessarily in terms of volume, but in terms of value. If, for example, the standard price of an item has dropped by between 30 and 40 per cent, the margin has to go with it. Plus, with the amount of market competition, distributors have never worked from a very high margin base anyway. So I don't think there is anybody out there who is having a really plum, wonderful time."
Sangster admits there is price pressure. "As a result of the other distributors not having such a good time of it, they chase after business and the only action they use to try to win that business is price. As a result, margins are coming down. But that is just desperation tactics by the other distributors. They are not creative, so the first thing they do is offer better pricing."
Andy Dow, general manager of marketing at Computer 2000, agrees the heat has been turned up in recent months. "Summer has arrived and it always plays havoc with the market," he says. "There is always greater margin pressure on distribution because people are always looking to maintain the volumes in this quiet period."
But, in general terms, he is bullish: "I wouldn't say it's extreme, and I wouldn't say it's untypical of this time of year."
Burke says against the current backdrop of doom and gloom, distributors across the board are looking for the next opportunity to develop their businesses. "There is a lot of strategic manoeuvring going on," he adds.
"Everyone is looking to exploit the best opportunities for their business.
Cals-Summers believes players need to cast around for alternative revenue streams: "It is a challenge for all the distributors to look at where their next revenue opportunity is going to come from in terms of either specialising in higher margin products or moving towards other areas such as services. It's a challenge that all distributors have to face."
In Ideal's case, Burke thinks IT Network could prove a profitable operation, if it can get it right. "IT Network isn't Ideal's traditional market," he says. "The aim is to run the two businesses side by side and hopefully one will complement the other."
Ideal is patting itself on the back having taken some immediate measures, but the group has a raft of medium to long-term issues to grapple with and industry commentators agree it cannot afford to take its foot off the accelerator.
"I am happy because we took on an immense challenge and we have delivered every single thing we said we would deliver on time, which includes the redundancy scheme and the restructuring is forging ahead very quickly," claims French.
"At a vendor level, I don't think we have hit any walls and customers don't seem to have noticed. The City appears to have shrugged its shoulders and said, 'OK, life goes on'," he adds.
While Ideal may have merged its distribution and technical support operations into one and is looking to its online information service to turn its fortunes around, the short-term experiences of distribution prove that there are many pitfalls for a company to fall into - and Ideal Hardware is not immune to this.
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