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The Service Imperative
Today's corporate reality requires that businesses identify a set of core competencies and focus on that with ferocious and relentless determination. In the non-verticalized organization, corporations now regularly procure outside services that improve performance - and offload services that do not contribute to competitive differentiation. This requirement comes in degrees but falls equally to businesses that provide services as well as products, even in distribution - where value-added services for customers and partners are a traditional competency.
Ingram Micro is the world's largest IT broad line distributor and IT supply chain management company, a tier 2 wholesaler that sells only to value-added resellers (VARs). Ingram's customers are the businesses that add value and deliver IT solutions to end customers. The company distributes a very large and complete line card of IT products and services, and represents about 1,800 IT product manufacturers, the largest of which include Cisco, HP, IBM, Lenovo and Lexmark. Ingram sells to small, local VAR companies all the way up to large national system integrators and wholesale providers such as CDW.
Justin Crotty, VP Services North America at Ingram Micro, is responsible for the growth and sale of (usually higher margin) service offerings, a priority of growing importance across the distribution value chain. As this article was written, Ingram had just launched a new business unit to help VARs address warranty maintenance, labor-based services, recurring and subscription-based services and managed services. Crotty likens the new division to a virtual services warehouse. "We know that the business models of our customers are changing, their revenues as a percentage of total from services are increasing year over year and we want to service that market, continue to be relevant to our customers and grow influence with them." The objective is to establish Ingram Micro the same position in the services value chain as it already occupies in the product value chain. This kind of entanglement has long served Ingram Micro through back-end service functionality addressing products; the new service division was created to address the changing revenue profile of VARs. That's a good thing since the VAR service market is largely disorganized and inefficient, and across about tens of thousands of VARs, capabilities differ.
One defined area of the new services unit, warranty maintenance, presented a unique opportunity to improve service contract "attach" rates, tracking of warranties due for renewal and products reaching the end of their lifecycle. While VARs make the bulk of the revenue on service contracts, there are also margins for manufacturers and distributors like Ingram Micro. "In the market for warranty maintenance and management, a tremendous dollar amount is left on the table each year in the channel and that's why we are going after it," Crotty says. "VARs buy and sell these contracts at the original sale of the equipment, but there is not a real good way for them, unless they're good at it independently, to track a particular warranty maintenance contract against a particular piece of equipment for the lifecycle of the warranty maintenance contract or the piece of equipment." That leaves resell opportunities to renew the maintenance contract and to renew the equipment at end of life, margin opportunities in sales and service for Ingram and its partners.
Service on Tap
It is correct to assume that the applications and infrastructure required to track discrete warranty contracts across thousands of manufactures, customers and VARs is a considerable project that falls outside the scope of Ingram's core competencies. For the warranty part of its new service unit, Ingram turned to MaintenanceNet, a new class of data interchange and data quality provider that falls into the buzz-filled category of software-as-a service (SaaS) providers. (See sidebar.)
What MaintenanceNet does specifically is to import database asset information from manufacturers, distributors and VARs, and scrub and match the data to a single, hosted database. "We have built algorithms that do data matching where we start to match an asset to a service, create all the associations because everybody has the information, they all have it in pieces in different places," says Scott Herron, CEO of MaintenanceNet. "It literally is a puzzle that you're putting together certifying a record that needs all those pieces. Especially between a distributor and a manufacturer, we can develop all the downstream relationships including who the end customer was."
It's a big pie and good opportunity, according to Christina Richmond, research manager at IDC. "It's more than data management; they are cleaning up and moving the maintenance services market forward. Nobody else is going to stop and address that."
MaintenanceNet provides a hosted portal through which distributors, VARs and manufacturers can access information specifically screened to contain data on their own products, customers and partners. Alerts are set to trigger notice of upcoming service contract deadlines. As they desire, users can extract the data for use in spreadsheets and reporting tools. "That's the great thing about it," says Crotty. "I'm not a database jockey myself, but the ability to export and import in standard file formats allows as much or little flexibility as we at Ingram or the VAR would like to see." As of now, VARs are more interested in the portal and alerting function provided by MaintenanceNet than in reporting.
The initial rollout this year addressed HP products, and testing is ongoing with products from Cisco, IBM and Lenovo. Crotty says Ingram Micro is seeing "some great improvements" in attach rate, renewal rate and registration rates of contracts related to those products. "We've got data showing us which VARs are using the portal versus those that aren't, and we're seeing that the portal is increasing sales renewals, refresh and registration across the board." As the multi-vendor effort continues, Crotty says he'd eventually like to extend the service to all of Ingram's vendors that offer service contracts via a central multi-vendor hub. The effort bleeds over into other areas of Ingram's services unit as well. "Ultimately I think there is a software licensing and renewal opportunity and it can be expanded to include other similar types of functionality, but we're eating the dog food one bowl at a time."
Enabling the Market
Regardless of industry, distributors play the role of market enablers, aggregating investment, processes and capabilities to consolidate fragmented markets. By taking charge of the warranty investment, Ingram Micro can spread its capital investment across tens of thousands of customers, making for a standardized and cost effective service. Crotty is confident that MaintenanceNet will offer greatly improved visibility to the VARs it supports, which will lead to more business for Ingram Micro. "What MaintenanceNet is extremely good at is taking all of those data points, combining and scrubbing those such that they can identify individual contract opportunities and display those opportunities in a uniform and succinct way to help the VAR manage all the contracts out there."
VARs are both rainmakers and, in various degrees, dependants of Ingram Micro, but more succinctly, says IDC's Richmond, "Everybody makes money." It's natural evolution of the distribution and sales chain - not a revolution - that is increasingly supported by third-party providers.
"In the early 2000's you heard all this talk that you had to be all service or you were going to go belly-up, the end was nigh," Crotty says. "The VARs that have been most successful in increasing their service revenues as a percentage of total have done it methodically, intelligently and in a long term plan where they add technical or service capabilities as they can ingest them and as their sales organizations can learn to sell them."
Jim Ericson is editorial director of DM Review, a SourceMedia publication. You can reach him at Jim.Ericson@sourcemedia.com.
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