Dr Alexander Scott is not a well-known figure in the channel.
nes when he took over the helm last year. He describes the aftermath of the changes, what's in store for 1999 and how he rose from the sewers to lead a global distribution company. However, his alter ego, Sandy Scott, managing director of distributor Ingram Micro, is, despite having only entered the game last March from a background in healthcare. From the outset it was clear that things at Ingram were going to change.
The company went through some harsh changes last year when Scott arrived and took a scalpel to a layer of management - about 100 senior and junior staff were let go. The reasoning, according to Scott, was simple: 'It was taking too long for us to make decisions. Our account managers weren't able to respond quickly enough to customers because of the length of time it took to get approval from all the different departments.'
Despite the predictable media backlash against the severity of the clearout, Scott is still running things and Ingram's business is improving. In addition to growing finances, the distributor has just secured what could be a lucrative slice of IBM's AS/400 business. IBM is jettisoning its tier-two business - made up of more than 250 resellers - to the channel. Along with three other distributors, Ingram is hoping to nab as many as it can.
'We have just been awarded IBM's AS/400 - most of the AS/400 resellers dealt directly with IBM, but now it wants them dealing with the distributors,' Scott explains. 'This is a great opportunity for us - it brings in a whole tranche of resellers. We're very excited about it and we will start to ship product this month.'
Scott is not a salesman by nature. He's too precise and quiet spoken to fit the stereotypical bill of the loudmouth sales bull with upturned shirt sleeves, rampaging around the company knocking both business and underlings into shape.
Maybe his past life as a cardiologist has imparted the trait of speaking gently to patients with dicky tickers, but it's most likely that 'quiet' sums up his management style. Now that all the dust has settled after last year's overhaul, Scott can concentrate on making sure his set-up works.
The revamped structure is as much about controlling the company's costs and boosting efficiency as it is about differentiating itself from its main rivals. He believes there wasn't much separating the distributors in the UK and that the changes that were implemented were also aimed at making Ingram stand out from the crowd.
'What we tried to do was to maintain the focus on vendors, but to turn the other part of the company into a customer-orientated business,' Scott says. 'We're doing this in response to changes in the channel. The old linear distribution model of OEMs, manufacturers, distributors, resellers and customers is altering very fast.'
The most obvious change with the old guard system is the arrival and rapidly growing success of direct players such as Dell and Gateway. However, while certain companies are ranting about the negative effect of the direct model, Scott remains calm, claiming there's nothing to panic about.
'We shouldn't be so frightened by all the talk about direct versus the channel,' he says. 'The direct model is very biased towards the vendor.
This is fine if you're an IT department in a large company and you can support long lead times and possess the expertise to implement the kit.
'However, this is only one small group of all the customers out there and they don't want a package aimed specifically at vendors - such packages are multi-vendor in nature and the channel is best placed to deal with that. At Ingram we are broadening the range of vendors and resellers we deal with in response to that. We have to provide systems to our resellers, rather than just focus on product.'
Scott is also convinced that it's up to the channel to beat its own drum and not sit back quietly while the number of boxes going direct increases.
'The channel has to do a better job evangelising the benefits of the reseller model, which gives vendors access to a million salespeople and five million administration staff around the world - which is what the reseller community is. This is an enormous sales force at their disposal and we sometimes overlook that.'
Just in case though, Ingram is expanding its reach into other markets.
A few weeks ago it unveiled a white box operation - something Computer 2000 tried and subsequently failed at. Ingram is doing quite a bit to ensure that its efforts don't go the same way. Last year, it put the final seal on its pact with Solectron to make and sell build-to-order and configure-to-order PCs, servers and other computer products. And last month it bought a further 17.4 per cent of Singapore components provider, Electronic Resources, bringing its share to 38 per cent.
Backing up the white box strategy will be its Frameworks operation, based in a manufacturing facility in Holland. According to Scott: 'Frameworks is making boxes at the moment for the rest of Europe, but it is now very close to making them for the UK - systems for retail customers and white boxes for resellers.' Ingram is so confident that the white box operation will succeed that it is planning another facility closer to home. 'We will have another one running at the end of this year in Dublin with our worldwide partner Solectron. It will be part of Frameworks,' he adds.
Ingram's move into white boxes has raised a few eyebrows, but Scott is adamant that the business case is solid. 'We are doing it because there is a massive market out there that isn't being served by the A-brands at the moment. Some analysts claim that 55 per cent of all PCs sold in Europe are white boxes. We are aiming this service at resellers that want to focus on sales and service and that can't achieve the economies of scale that Ingram can. In addition, there's lot of legislation out there that makes manufacturing on a small scale less attractive.'
Saving money appears to be the watchword for 1999. With a recession looming, a very short leash is being kept on internal costs at Ingram UK.
Ingram US was so sure its fourth quarter was going to be hit by poor sales that it issued a profit warning in December 1998. The distributor told the markets it was expecting a profit of between $73 million and $75 million, or 48 to 50 cents per share. Most analysts at the time had expected a profit of 56 cents per share. Published two weeks ago, the fourth-quarter results were still up on figures for the year ended 1997, with the company reporting $73.2 million in net income for the fourth quarter, six per cent higher than the $69 million earnings results for the same quarter a year ago.
Sales for the fourth quarter were $6.2 billion, a 21 per cent hike from $5.1 billion for the same quarter in the last financial year. For the fiscal year, Ingram posted a net income of $245.2 million, compared with $193.6 million in 1997, while revenue rose from $16.6 billion to $22 billion (PC Dealer, 17 February).
Scott, speaking before the results were posted, was cautious about 1999, but determined that money would not be wasted. 'I think if you look at the results of most of the distributors, there's no doubt that the market is soft at the moment. If you listen to the strategic planners at the large vendors, they have a view that the market will show very strong growth in the first half of the year and then quieten down in the second half of the year. That's not what appears to be happening.
I don't know what will occur in the second half, but we aren't seeing this huge growth in the first half, despite only being six weeks into the year.'
One thing that is quite clear from the latest set of results is the discrepancy between revenue and net income, which points to a market in which margins are incredibly tight and where novel ways to do business that can boost the bottom line are being thoroughly investigated.
The concept of e-commerce is not new to Ingram, but the distributor is hopeful that more of its UK resellers will step onto the virtual trading floor. It offers discounts to resellers willing to try the e-commerce approach, but - significantly - not EDI.
'E-commerce - we need to do more of it,' Scott believes. 'We are pushing ahead as fast as we can with some of our resellers to implement our e-commerce systems, as this helps the reseller reduce the cost of conducting business.
'There has been a colossal increase in interest in the use of e-commerce combined with virtual warehousing. We have plans underway with some of larger resellers to get there quickly, but right now only one reseller is completely electronic,' he adds.
Scott claims that about 10 per cent of Ingram's business can be put down to electronic means, but he'd like to see that figure rise sharply - and soon. He may be helped by the fact that the company's European e-commerce facility is based in the UK.
Until then, Ingram will not be digging deep to cover any experimental expenditure this year - unless of course it's on the acquisition trail. With 1999 shaping up to be financially tight, only the big companies are going to benefit from the misfortunes of the smaller players. The forthcoming squeeze may make some of them very attractive buys indeed. A soft market means battening down the hatches at Ingram for the present, though.'The so-called recession means three things: fanatical customer service, gross margin management and internal process management,' Scott says.
After last year's lay-offs, internal costs have been brought well under control and the revamped, customer-focused Ingram is under way. The launch of a telebusiness centre towards the end of last year was the first real sign that the company was serious about getting closer to its customers, as well as a key part in the rebranding of Ingram. That said, such centres are fairly common and many are seen as little more than a glorified sales room. As Scott sees it: 'Just opening a telebusiness centre is OK - lots of people do it - but it had to be about customer service.' He maintains that it is.
The telebusiness centre, which aims to create about 100 jobs, has been set up to play a key frontline role in boosting the company's leaning towards 'radical' customer care. Housing about 360 staff (it has room for 400 in total) that cover sales, customer services and technical support, the 25,000 sq ft centre is designed to bring order to the frenetic business of sales and support.
The centre is based at Ingram's headquarters in Milton Keynes and is one of a number of buildings, including the administration and warehousing operations. Inside, staff are arranged by business group and occupy circular islands boasting futuristic anti-glare devices. For a place with so many sales people, the atmosphere is more calm than chaotic. That's part of Scott's goal for bringing order to all aspects of the business.
It also means it's more efficient than before.
According to Scott: 'The way it's structured means that when a customer rings in, only to get no answer from their contact, the call is forwarded automatically to someone else in that particular business group, not just anyone in the call centre.' In addition, the company's focus on internal training means there is always a fully staffed training section within the group.
The most outward example this year of Ingram's fresh take on the channel is Interface - the redesigned roadshow that replaces the four-year-old Showcase. While the latter did little more than offer special deals to attract resellers, Interface - sponsored by PC Dealer - is promising to give resellers far more in the way of useful information. The slant of the show has moved away from just plugging products to an event that will feature a series of briefings on leading technologies and trends. A special area has been created for resellers to meet many of the senior people from the large vendors.
Previously, resellers did not get the chance to meet the companies whose kit they resold. 'If you're going to try to drag resellers out of their offices to an event such as Interface, you have to bring some value,' Scott explains. The first one kicks off on 25 February in Edinburgh and will be followed by one in Birmingham and another in London during March.
The coming year for Ingram will no doubt act as an example for the rest of the channel. Scott is hoping that Ingram will have the same success this year as his Celtic footballers had last year. The recession may put a dampener on things, but with Scott holding the purse strings there's little chance Ingram will be scoring any own goals.
A YEAR IN THE LIFE OF INGRAM MICRO
Scott joins Ingram Micro UK as managing director from PPP Healthcare.
Jerre Stead, chairman and chief executive of Ingram, admits that he has an annual salary of $0, choosing to take share options instead.
Ingram buys a majority interest in distributor Macrotron from rival Tech Data for $100 million.
The first PCs from Tulip, since it was rescued from bankruptcy during the summer, ship.
The PII-based desktops and minitower servers start production after being built by Ingram at Tulip's Dutch plant in Hertogenbosch, which Ingram leased as part of the rescue package.
Ingram saw a 35 per cent leap in income, despite a tumultuous quarter for the PC channel. Net income reached $59.8 million and revenue was up 40 per cent to $5.7 billion year on year.
The distributor's alliance with Solectron was unveiled, revealing a build-to-order PC service from early 1999. The two companies will sell in the US, Europe and Asia.
BREAK FOR THE BORDER
Managing director - Ingram Micro
Where were you born?
Aberdeen, in 1956.
What was your first job?
Working for the town council sewer squad. I was eventually promoted to the dustbin lorries.
And your first real career?
I was a consultant cardiologist in the NHS.
Any particular reasons for leaving the NHS?
There was not enough opportunities for personal development and the money was better outside the NHS.
Where were you working before you took the Ingram post?
I was deputy managing director at PPP Healthcare.
Do you have a favourite movie?
Braveheart - that's a cracking film.
Which football team do you support?
Which was the last CD you bought?
Do you have a favourite drink?
A gin and tonic always goes down well.
If you could have any job in the world, what would it be?
Jack Welch's job at GE.
Do you have time for hobbies?
I find scuba diving very relaxing.
Who do you admire most in the channel?
Have you planned a holiday yet?
Actually, I've just come back from Antigua.
What's been your biggest personal achievement?
Still being here after the savaging I received last year over the cuts.
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