GTDC’s Frank Vitagliano: Distribution Key To Digital Transformation, Supply Chains, As-A-Service Models
‘There’ll be lots of technology delivered in the traditional way, and lots that get delivered as a service. So there’s going to be a need for new training and financial support, [and] the distributors will be providing a different level of service to the solution providers as they move forward. And that’s significant because things are not going to get less complicated than they are today,’ says Global Technology Distribution Council CEO Frank Vitagliano.
Distribution’s Importance Will Only Continue To Grow
The state of distribution is one of flux. The business is consolidating even as the distributors are dealing with the impacts of supply chain constraints, post-pandemic business changes, and the big shift toward cloud, security and Everything as a Service.
However, said Frank Vitagliano, CEO of the Global Technology Distribution Council, distributors are not only thriving through all the changes impacting the IT industry, they are actually becoming more critical to solution providers looking for sales and technical support to build their business during those changes.
Vitagliano, who this week is spearheading the GTDC’s annual conference, told CRN that distributors are becoming even more important to the IT industry than they were during the old days of pick, pack and ship.
“What I think has become pretty obvious now is people are thinking about it from a different standpoint and realizing that as we continue on this digital transformation path, the services and support and the evolution that the distributors are making in their businesses are really going to provide the potential for some real long-term value appreciation in their businesses,” he said.
Vitagliano also talked with CRN about how the changing investment environment in distribution is helping its solution provider communities, and said the GTDC’s new relationship with research firm IDC will result in more important information about the markets becoming available to the channel.
Following are excerpts of Vitagliano’s interview with CRN.
What’s the key message that the GTDC is bringing to the distribution community this year?
Well, it’s really not just for the distribution community. It’s really to the broader ecosystem out there, which includes the vendor community for sure, but also includes what I would refer to as the influencers in the marketplace, and then of course the distributors. The key message really ties back to our theme of ‘investing in tomorrow, today.’ And the fact of the matter is that the distributors in the GTDC have been making significant investments for quite some time in all areas to bring digital transformation to bear in the industry more effectively and more quickly. So the key theme is the investment that’s being made in a number of different areas as we watch how this overall industry transforms itself.
Let’s talk about the consolidation we’ve seen in distribution. Ingram Micro this year was acquired by Platinum Equity, and then we saw the birth of TD Synnex from the merger of Tech Data and Synnex. What’s going on?
There have been some smaller acquisitions that have happened. But there’s also been an IPO that was pretty significant, that of Exclusive Networks probably about two months ago. That was significant. And I think what all of it is leading toward is there are people around the industry with investment dollars who are usually pretty astute in terms of how they look at these things. I kind of refer to it as ‘smart money’ because it typically is. They’re realizing that there’s a ton of value existing today, but also see the opportunity to create more value through the work distributors are doing and what they’re providing in the marketplace.
The changes we’re seeing in the marketplace, the transformation we’re seeing, these require the type of support and services that distribution has traditionally provided. And they’ve always provided them in the physical world. ... What I think has become pretty obvious now is people are thinking about it from a different standpoint and realizing that as we continue on this digital transformation path, the services and support and the evolution that the distributors are making in their businesses are really going to provide the potential for some real long-term value appreciation in their businesses. And I think that’s what’s attractive to big private equity firms like Platinum Equity, or like Apollo, which is still a major investor in TD Synnex. And also to the public markets in the form of an IPO.
How is that money impacting the distribution business?
It enables significant investment. And it enables distributors to step back and really focus on how and where they are going to make investments. In the case of Ingram Micro, which went from a public company to being owned by HNA to now being owned by Platinum [Equity], there’s clearly an opportunity because Platinum wants to make significant investments and they’re not tied to public markets.
And as you know, with the 90-day shot clock that everybody talks about relative to being a public company--every 90 days you’re providing earnings--you can’t think about the longer-term perspective. But conversely, TD Synnex is a public company and now has the opportunity to combine two very large entities with two very significant budgets and using those dollars in a very focused way to invest in the areas that clearly make sense, and of course it’s all around digital transformation. And so there’s a huge gross dollar amount of investment dollars that can be focused very effectively.
And in the case of an IPO in the public market, same scenario: All of a sudden, there are additional investment dollars that will be provided to focus on these areas. So the net net of it is, it’s all very positive and it provides all of the players in the industry the opportunity to really look at ways to grow and expand the business opportunities in a time when there’s huge opportunity to do that.
How is distribution working through supply chain constraints? Has there been any lessening of those constraints recently?
I’m not aware of any lessening. I think that distributors traditionally have had excellent relationships and partnerships with their vendor partners. Those relationships have enabled them to more effectively work around these types of situations in terms of being able to procure and then allocate products and ensure that the end customers are getting the service and the supply that they need. Now, the problem is, they can only do that to the extent that the products are available. It’s one of those situations where we had a perfect storm in the marketplace where at the beginning of the pandemic a lot of folks in this space, a lot of the vendors, probably cut back, or at least thought they were going to cut back on their requirements. I think the chipmakers probably reacted to that. And in fact what happened was demand accelerated instead of shrinking. And the combination of those two things has really impacted the market. And so I see distributors are doing everything possible to work with their vendor partners. But it really is a problem that goes well beyond what distribution can do to solve.
Do you see any lasting impacts from changes distribution made because of supply constraints, or could supply issues lessen as distribution gets more involved in areas like cloud and security?
Whatever supply chain implications were going to be in place just because we don’t have enough chips, for example, there’s not much that’s going to change until the supply chain starts flowing again. And I think the transition to cloud, security and all the digital transformation things that are happening, well, those are happening anyway. And the supply chain is impacting that also because end users are looking to continue their transformations, and component shortages impact their ability to get product that’s required to make the transformations. But I think the longer-term implications are perhaps that people are beginning to realize that we were running very tight just-in-time inventory systems in all of the supply chains associated with the marketplace, not just in the technology space, and that’s risky. And when you have a disruption like we’re having, you just step back and you start to realize, well, maybe in some cases a little bit of inventory in certain places isn’t such a bad thing. And the role that distribution has traditionally played is to be able to provide that little bit of a buffer. Now, in this case the situation is significant enough that a little buffer wouldn’t matter, but I think there is some thinking that could go on relative to how we look at supply chains in the future and what adjustments could be made to mitigate these kinds of problems.
Have there been any long-lasting impacts from the COVID-19 pandemic on distribution?
[The pandemic has] taught all of us that there could be a different approach that we take in terms of how we transact our day-to-day business. Personal relationships are critical in this industry and have always been and, in my opinion, always will be. However, the idea that we had to jump on an airplane to attend a three-hour meeting across the country with people we already know, and we did that without a second thought, now post-pandemic we realize we have the technology to have that same session with the same people and accomplish most likely the same things, perhaps not the dinner the night before or the night after, but there have been plenty of dinners over the years. I think there’s a huge productivity gain that we are all going to take advantage of. We’re all going to see it. Because typically those types of meetings would have taken two to three days of someone’s time. And now essentially you do the three-hour meeting and you’re productive to do the other things that need to be done.
Everybody’s beginning to see that in our space. And so it’s not just the distributors, but solution providers, the vendor community, we’re all starting to see that the technology is enabled in different ways for business that I do think will be long-lasting. And I actually think it’ll be positive because I think it will result in more productivity. [But] it will never take the place of face-to-face events and the relationship things that need to take place.
Have there been any long-term impacts from the COVID pandemic in terms of the way distributors interact with their partner communities and the products or services they offer?
I don’t see any long-term changes there. But there may be downstream sort of implications that you have to think about, and by downstream, I mean how [distributors] react with their customers. In the past, distributors would have a room full of people providing sales support and/or technical support, and that support is still in place. Some of it perhaps could be more done from a technology standpoint instead of people having to get on a meeting together. But nothing’s changed. That support is still being provided. It’s just being provided now with an approach that’s more virtual. Instead of having 800 people in a room at a major distributor location, you now have those same 800 people providing it virtually, which is still effective and still works. And in some cases, depending on the situation, it may or may not be more effective. You can argue it both ways.
I think there was a ton of value in the traditional way, the way that’s been around for a long time because you’d have vendor partners and distributors working together to provide that support to their customers who ultimately then provided it to the end users. And in many cases, they worked together in the same location. And [that has been less common for] probably a year and a half, but [virtual support is] still effective, and in many cases you could argue perhaps more productive because people have more time to provide those types of services. So I think going forward, we’re going to have a hybrid approach.
Another thing we‘re watching closely is the move to Everything as a Service. How is distribution’s role changing as more and more IT is done as a service rather than the sales of individual products?
You’re right. There’s definitely a movement to do that. There’s definitely a ton of work going on. And it’s going on clearly at the vendor side where most if not every channel chief that I know is working on transforming their existing partner programs from what used to be in place to an as-a-service model of some sort. And obviously over time, the volumes will follow that. ...
Now, the interesting thing is every vendor is doing it. The approaches each vendor is taking is a little bit different. The support that the distributors are providing in some cases are geared toward what an individual big vendor wants to do. In other cases, what the distributors are trying to do is develop a more standardized approach that they could then use and replicate with many of the vendors in the marketplace. But what’s really interesting, and I think something that potentially gets overlooked and undervalued, is this change is going to have a profound change on the solution providers. The solution providers’ world is going to change pretty significantly as this continues to evolve.
How so?
It’s clearly going to remain a hybrid approach. There’ll be lots of technology delivered in the traditional way, and lots that get delivered as a service. What was happening is the solution provider has to morph their business to adjust to that. And traditionally when those things have happened, what solution providers have done is leaned toward distribution to help them make those transitions. So there’s going to be a need for new training and financial support, [and] the distributors will be providing a different level of service to the solution providers as they move forward. And that’s significant because things are not going to get less complicated than they are today. There are all kinds of evolutions happening that gets us there. Multi-cloud remains a critical element of this, multi-vendor solutions remain a critical element of this, and distributors have to be in place to orchestrate those things.
And so, similar to the role that [distribution] played in a purely physical world, and are now playing in a virtual world, whether it‘s as a service or whether it’s part of the transition to a cloud marketplace, the role that distribution plays remains really important. It’s just the activities change and the services change, but ultimately it’s all geared toward the same thing, which is to simplify the life of the solution provider, making it easy for them to transact business with their customers and be a conduit from the vendor to the customer for getting vendor products to market. That hasn’t changed.
The GTDC recently signed an agreement to work with IDC to provide information to the channel. What’s behind that move, and what impact will that have on the distribution and channel partner communities?
We decided to work with IDC who, as many people know, is the longtime leader in the industry in terms of being able to provide market intelligence about what’s happening in the marketplace in terms of the overall trends and directions. And that is supported with the really robust analyst network they have in place. In every major category that we all care about, whether it’s cloud, cybersecurity, Infrastructure as a Service, I mean, you name it, they’ve got analysts that are able to provide a lot of really good information about what’s happening in the marketplace.
We think that IDC’s market intelligence and analytical capabilities combined with the real-time POS [point-of-sale] data that they’ll get from our North America GTDC partners will result in a really actionable set of data that will be available in the marketplace for folks to be able to really understand not only what happened in the market, because obviously that’s important, but perhaps why it happened. And, just as important, what’s going to happen.