Who would have thought just two years ago that the Ilion the industry knew then would not be the Ilion it knows now? When the distributor's initial profit warning was filed in March 1997 little did the industry think it would be the first of three. Neither did it guess that before long it would see Ilion's UK arm in trouble, the departure of chairman Wayne Channon, Serge van Gorkum prised out of retirement to run Europe and Metrologie's Rob Johnson as managing director of Ilion UK. Not to mention, Lynette Summerfield out of the picture, Allan Mack come and gone and Julia Jones off to US internet training company HyCurve as managing director of EMEA. To cap it all, Ilion has been left vulnerable to a takeover by one if its biggest rivals after Channon sold his 6.63 per cent stake in the company to chief executive of Landis, Paul Kuiken (PC Dealer, 14 April).
The changes have been endless and they are ongoing. But as the old adage says, change is a necessity when the devil vomits in your kettle.
Many believe the distributor's first profit warning - issued as a result of a drop in gross margins - coupled with the departure of its then UK managing director, Roger Paul, in March 1997, set the ball rolling. With hindsight, it's easy to justify such a viewpoint.
By February 1998, Paul had set up Landis in the UK, recruited some of the brightest and the best from his competitors - namely Ilion, Azlan and Computacenter - and set about the networking market with guns blazing.
Three months later, Ilion was putting out its second profit warning, stating that its broker had wrongly assumed its growth would increase as it had done in the previous year and that it had overestimated the UK market's growth. The backdrop to this second warning involved a host of rumours - that Landis had taken market share from Ilion and other distributors, and that there were bitter disputes between Allan Mack - who was brought in to replace Paul as managing director and general manager - and some of the old guard at Ilion. Indeed, it was said there was in-fighting among top staff. The situation wasn't helped by the fact that Summerfield had hoped to be made managing director.
At the end of June 1998, Serge van Gorkum, group product and marketing director at Ilion, at the time, decided to retire. A month later, Ilion had secured the tag line of 'troubled distributor' and despite Channon's dismissive retort to questions about rumours of Mack leaving, Mack did indeed make a quick exit. At the same time, claims were made that Ilion had lost its way as a value-add distributor, that its distribution model was not efficient enough for the UK market, that it had taken on too many vendors and couldn't do them all justice and that the impact of the problems faced by Azlan - with Serious Fraud Office enquiries afoot - had taken its toll on Ilion's market and business.
Towards the end of what proved a tumultuous year for Ilion, just when it seemed that things couldn't get any worse, the distributor announced its third profit warning. Then, Channon, Ilion's founder, gave up his position as chairman and chief executive.
Reflecting on events past, Channon - who is now looking at investments on the West Coast and in the UK - states that one of the key factors that contributed to Ilion's problems was, ironically, down to technology.
'Initially, the third profit warning was very much an own goal,' he says.
'1998 was an impossible year to forecast. We had the new Tobas system put in, which was very difficult for us to install. It corrupted our pricing modules and exchange database and for many months the company didn't have accurate numbers on stock levels. Naturally, customer relations dropped to an all-time low.
'It was the worst situation imaginable. It was one thing after another.
In the middle of the system's installation the distributor was taken over, which only compounded the problem, and it wasn't until September that the system was sorted out. By then, customers had already gone.'
The events he maps out would be enough to make any chairman's hair curl, but why did Channon really go? He remains coy about his reasons but insists he doesn't regret his decision. A high-level industry insider offers an interesting insight: 'Channon left because he thought Ilion should be a private company. He wasn't prepared to run it as a public company. He believes the stock market is a tough taskmaster and didn't want to get involved in that. He didn't share the board's view, so he left the company.'
Channon's departure signalled a flow of resignations from Ilion. Some say Ilion employees left in reaction to Channon's exit, others argue they walked out because exciting opportunities cropped up elsewhere. Maybe it's a mixture of the two. Those who have since gone include: Steve Smith, Cabletron product specialist; Chris Stockley, premier account manager; Steve Whitaker, Hewlett Packard salesperson; Paul Hudd, Siemens account manager; Dave Norman, 3Com account manager; Jason May, Cisco sales manager; John Garside, SME account manager and Julia Jones, managing director of Ilion's training and services division.
And it seems that there is little love lost between those who have left and those who remain at Ilion. Tom Pattinson, director of business development at Ilion, says: 'We've fought to keep the best people. Yes, we've lost about seven or eight of them, but there are only three we regret losing and they are Dave Norman, Jason May and one outstanding salesperson.'
The big question now is whether Ilion will survive the metamorphosis it has embarked on and come up smelling of roses. Or, will it end up a shadow of its former self and eventually be diluted in a takeover or partnership with other companies after admitting that it is holding talks with interested parties? Everyone's money is on Landis being the likeliest acquisitor.
Industry watchers offer some sobering thoughts on such matters. One says: 'This is not going to be a turnaround job in a matter of months. Ilion's forecast for 1999 is very modest - it has to be, because the company has lost a lot of key people and a lot of ground on the back of that. It will probably take Ilion at least two years' recovery time to return to its previous levels of business. The customers it has lost won't return so readily - they'll only start to move if something goes wrong with whoever they're doing business with now. Everyone was surprised when van Gorkum was brought back and made group chief executive. He's a safe option, innocuous.
Ilion's board wants to dress up the company for sale. Someone like van Gorkum won't get in the way of the board's plans.'
Despite such views about van Gorkum's appointment, he is proving himself a leading light in the turnaround that is currently under way. It is apparently van Gorkum who is forging ahead with plans to turn the distributor back into a true value-added company. One Ilion insider says: 'Serge is a very charismatic and inspirational person. He works hard himself and we are following his leadership. He has made the difference. Ilion was a disaster and he turned it around.'
Another observer also comments on the management setup: 'When Wayne was chairman he was in the UK. Now, Michael Sayers is chairman but he doesn't seem to be doing much. What's his profile? And Serge is above Rob Johnson (UK managing director of Ilion), but he's in France. It seems Rob is doing both roles here - chairman and managing director. It doesn't make sense.
Ilion should have had someone in the UK who could talk to the analysts and the press while Rob went ahead and sorted out a plan of action. No one has bought Rob any time. There are also some queries hanging over Mike Watkins. He has a background at Ingram Micro, but Ilion is supposed to be a specialised company. Some say Watkins doesn't fully understand the sales floor, and a sales floor needs someone strong and inspirational, who's involved.'
Ilion's direct rivals in the networking distribution game also have their queries about the future of Ilion and its role on the distribution landscape.
Richard Pryor Jones, managing director of Azlan, believes: 'The big challenge for Ilion is what is it going to become? It seems to be dropping networking references, in its corporate speak, and talking more about a client server and Unix focus.
TopLog (a unix specialist distributor Ilion bought in 1995) stood for that, so is it going to be more akin to the French business than the UK's?
It really depends on what Ilion wants to be, but it may be difficult to recover the status of pan-European distributor. The next three to six months will be a crucial time to get its message to market. The next step will be to deliver.'
Graeme Watt, managing director of Computer 2000, is also curious to see what Ilion will do over the next six months. 'Ilion's model hasn't been right for some time,' he says. 'It was dealing with low margins and high volumes so it was impossible to make any money. I think Ilion has to get the model right before it starts doing anything else. Rob has a good reputation and I think Ilion has some good people in there, but it has to move quickly to regain that lost ground. We're part of the tough competition that's out there. This year, we'll have made #150 million in networking products and that's not including services. Ilion has to restore confidence in the market, with vendors and partners. Changes in a company with a high profile always add uncertainty.'
So far, the distributor's plight doesn't seem to have made key vendors nervous. Naill McGrain, acting channel manager at Cabletron, says: 'We've had a long-standing relationship with Ilion, so there is a degree of loyalty, but we still expect it to do its job.
I have always dealt with Ilion on a UK basis, but I know a question mark hangs over its pan-European business.
Our business in the UK has been affected by the changes. We had a strong relationship with Wayne, and Julia Jones was helping us on the services side. But with Serge back in the frame, it's not as if we are starting from scratch. I understand that Ilion has a revised plan and new direction.
All distributors seem to have been through this type of refocusing at some stage or another and we've been through it ourselves. As long as we remain part of Ilion's plans, then we are happy.'
Rob Johnson, appointed UK managing director of Ilion in January, is in no doubt about Ilion's ability to overcome the problems that have beleaguered it. 'We're back,' he says. 'We're winning mar ket share - it's not 100 per cent yet, but good things are happening.' The good things that Johnson is referring to? 'Our stock profile has improved, the sales teams have hit their targets and there has been a boost in morale We are marketing in a different way - it is all product related. We are getting great support from France and, in addition, the UK management team we have in place is very driven.'
Gary Dyson, Ilion founder, is also included in the management line-up.
Dyson set up the training and services faculty and has come out of retirement to head the division when Jones departs. Duncan Hume, former TopLog director, joins as general manager of the Unix division, which already has a team of six in place.
Ilion is evidently betting on a host of familiar faces to regain some confidence. But Johnson says: 'These guys want to be part of the new management team. Our outlook is very positive. If it wasn't I don't think they would be rejoining us. Mike and I came from Ingram Micro and we both felt at home here when we first joined. Now, we are moving back to the model that a value-add distributor should have.'
In order to achieve this, the UK will be adopting various elements of the business model that has brought its French counterpart so much success. According to Johnson, there will be separate units focused on individual product groups, smaller accounts will have regional sales teams and are focusing more on project-based work. Order processing will be split off to an administration team to cut out errors and encourage time-saving and staff expertise is being increased with monthly weekend training sessions that cover product skills and communication. The company will be more selective about new vendor partnerships, there will be an increase in the number of staff engineers and, for the first time, there is a marketing schedule.
Pattinson adds: 'If we look at products other than the ones we already sell, it will have to be products that add value to our portfolio - those are higher-margin products that help resellers sell to users.
We want to pick kit that has some penetration in the market and bring them to a fresh level of saturation. We have shifted towards the value-add side. We still sell some low-end kit, but a lot of that has now been replaced with higher-end business.'
Watkins adds: 'So far, we have adopted elements of the French business model but we're not doing it blindly. We are assessing what will work for us in the UK each step of the way. We do want to keep on top of the client server and Unix business. TopLog did that well but was absorbed into the UK and we lost a lot of good people. We are looking to re-establish what it did.'
The changes made so far, it seems, are not only encouraging for Ilion, its financial results and its relationship with vendors and customers, but are also making an impact on the morale within the company. Philip Green, Ilion's business unit manager at Nortel, says: 'It has had a huge restructure and you can't go through such a sticky period without having concerns. But under the new direction, morale is picking up and it is having an effect because business is improving too.'
Johnson adds: 'There are still things for us to do, but we are making great strides.' Not surprisingly, he rubbishes the notion of a takeover or any form of partnership: 'The company is doing well. We recognise that there is a lot of consolidation in the industry, but there are no plans to make that part of Ilion's strategy. If anything, we would be interested in buying rather than being taken over. I'm on the board and I can definitely say there are no active negotiations being carried out.'
Of course, this was all said before the sale by Channon of his shares to Kuiken. As van Gorken has recently admitted, Ilion is treating this very seriously and is considering it as the start of a hostile takeover.
It seems ironic that two years ago anyone would have put money on Ilion doing the chasing and purchasing of rival companies, and now it looks as though Ilion is the one being hunted, rather than being the hunter.
Whether it will be Landis or another distributor, the future ownership of Ilion is definitely up for grabs.
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