Thinking outside the box

For government resellers and distributors, the phrase "selling boxes" is no longer politically correct. Neither is "pick, pack and ship." The government is emphasizing solution-oriented purchasing these days, and resellers and distributors are changing to meet this need. At a Feb. 5 meeting with industry leaders, Mark Forman, the Bush administration's point person on information technology and e-government, laid down the new law: Businesses must help agencies solve problems, and not just put PCs on desks."It is critical that ... you provide us the best practices of the commercial world to address our needs," he told industry officials at a briefing outlining the administration's proposed $52 billion budget for IT products and services in fiscal 2003.To a large degree, Forman was formalizing an ongoing process. The General Services Administration, for example, has seen a shift in the last few years toward more solutions-oriented purchases on its schedule for IT, said Pat Mead, acting deputy assistant commissioner for the GSA's acquisition office.Government downsizing, performance management requirements, ever-more complex security issues and even the increased need for A-76 outsourcing studies have driven the growth of services purchasing on the Federal Supply Service procurement vehicle, Mead said. The Federal Supply Service oversaw $11 billion in IT sales for fiscal 2001, of which 57 percent of sales were services, she said. Thus far in fiscal 2002, sales have been 28 percent higher than this time last year, with services being a primary driver.For industry, the message is clear."The days of just selling computers are pretty much gone. Our resellers are doing more solution selling," said Bob Laclede, vice president and general manager of the government and education division for distributor Ingram Micro Inc. of Santa Ana, Calif.Three days after Forman's speech, the board of directors at GTSI Corp., Chantilly, Va., elected John Spotila president and chief operating officer. Before joining GTSI, Spotila worked at the Office of Management and Budget as administrator for the Office of Information and Regulatory Affairs during the Clinton administration.Spotila said Forman's initiatives "dovetail very much with what we have been hearing from customers for some time." When Spotila worked at OMB, the White House wanted agencies to make their IT purchases consistent with their enterprise architectures. "The bottom line is that it creates a lot of opportunity" for resellers, Spotila said.XXXSPLITXXX-Brad Mack, vice president of sales for government-exclusive reseller iGov.com, McLean, Va., cited a Department of Agriculture modernization effort, called the Common Computer Environment, as a prime example of OMB's preferred approach.The agency began the initiative in 1998 to standardize IT equipment and applications across its 2,500 service centers. This will allow its field offices to share data and for citizens to retrieve and file forms electronically, as well as simplify IT management in-house. Overall, the contract vehicle is expected to carry $350 million in sales through 2011, according to Scott Snover, program manager for the Common Computer Environment. Mack, whose company supported the project, said: "They picked a sound procurement strategy and based their decisions on best value and past performance. They select the very best technology products to meet their needs."Mack said the department often uses the National Institutes of Health's Electronic Computer Store II contract to purchase a product line for the entire organization, saving money by consolidating sales and simplifying IT management."The upfront work pays off in the long run. It's easy to support a printer when you have the same type of printer around the country," he said.XXXSPLITXXX-The drive toward solutions is changing government resellers themselves. In the past year, GTSI has developed "solutions teams" of engineers that consult with agency offices and help solve problems. GTSI has teams in areas such as networking and security."From our standpoint, we're trying to find the best solution for the customer," Spotila said. "We can have a neutral approach, because we represent many different vendors. We try to understand what the customers' needs are and then suggest alternatives that would fit."GTSI points to a recent contract the company finished with Washington, D.C., to upgrade the police force's data wire-line and wireless networks. "They didn't have a lot of in-house expertise in this area, and you wouldn't expect they would," Spotila said.GTSI dispatched its engineers who specialize in Cisco Systems to formulate an approach. The city signed off on the design. The GTSI team then helped set up a parallel network for seven police districts and 22 satellite precincts and switched the force over when the network was completed a year later."At the end of the day, the city had 10 times the bandwidth with zero downtime and much more efficient access," Spotila said.Chris Rother, executive director of government and educational sales for CDW-G, the government-focused subsidiary of reseller CDW Computer Centers Inc., Vernon Hills, Ill., said although CDW-G has always stressed solutions buying, it has nonetheless beefed up services offerings in the past year. In November 2001, CDW-G added a line of IT training programs to its offerings, approximately 1,000 in all, by KnowledgeNet.Com Inc., Phoenix, and Productivity Point International Inc., Raleigh, N.C. In August 2001, the company also extended its custom services, providing more in-house solutions and services by Compaq Global Services, Compaq Computer Corp.'s services arm, and DecisionOne Corp., Frazer, Pa. CDW-G now features local area and wide area network installations, consulting, project management, warranty extensions, equipment disposal and accident coverage. "A lot of this was driven by customer demand, customers calling us with certain situations, and we tried to find solutions for them," Rother said.XXXSPLITXXX-For Harry Berridge, vice president of sales and marketing for Intelligent Decisions Inc., Chantilly, Va., a migration toward more solutions spending can mean greater margins for the smart reseller.Berridge said a reseller may make 6 percent or 7 percent margins just selling products, but a reseller providing a solution may see returns as high as 20 percent."You are solving a problem for an agency, so it justifies the cost," Berridge said. Intelligent Decisions, which employs 100 people, expects to see 20 percent growth this year, thanks in part to this shift toward solution spending, he said.The company, for example, is pursuing an FBI project to consolidate about 12 criminal records databases to a handful using Oracle. The FBI approached company officials, asking if they knew of a way to consolidate the databases, Berridge said. Berridge said many resellers are becoming what he calls "boutique integrators," or resellers that build up consulting services around specific product lines.Of course, the government's migration to a services approach will also necessitate revamping the skills the sales force needs. Intelligent Decisions is going through a sea change with its sales force, Berridge said. The sales staff is being trained to think like consultants who "ask the difficult questions pertaining to the agency's mission and bring back the information," Berridge said. For new sales hires, having consulting expertise has become more important, he said. XXXSPLITXXX-As resellers scramble to meet the government's increased demand for services, distributors have stepped up with programs to help resellers better understood the technology and their agency customers. This year, Ingram Micro plans to extend its Partnership America program, which offers government resellers assistance in proposal and contract support for technical and pricing responses, for requests for proposals and for bids. It also offers a database of fellow resellers that companies can draw on quickly to form partnerships to bid on work."We give resources to small resellers to allow them to compete with much larger players," said Bob Stegner, vice president of channel development for Ingram. Approximately 1,600 resellers participate in the Partnership America program, according to the company. In 2001, Ingram had 8,300 resellers selling to the government and education market. Resellers can participate in the program if more than 50 percent of their sales are government-related.Each fall, Ingram holds a convention that allows government resellers to confer, share experiences and attend panels and seminars led by industry experts. There are also breakout sessions on individual topics, such as the effects of Section 508 regulations. "What we do is guide them," said Ingram's Laclede. "We bring them into a general session, we talk about where we are with the government industry and where we're going, which is extremely important, because it gives resellers an indication of where they think their businesses could go."Networking product distributor Westcon Inc., a division of the Westcon Group Inc., Tarrytown, N.Y., has opened two new GSA schedules for its product lines: one for networking products from Nortel Networks Corp., and the other for security offerings from Checkpoint Security Systems Inc."We saw more resellers asking us if we had GSA contracts that they could be part of," said Stu Schwartzreich, federal sales manager for Westcon. Handling the upfront work of maintaining a GSA schedule allows resellers to compete on government contracts without maintaining a staff dedicated to refreshing its schedule, Schwartzreich said. It also opens the door to more state and local work, where contracting officers often use the GSA's pre-set prices as a basis for their own purchases.Distributor Tech Data Corp., Clearwater, Fla., helps resellers by offering contractual and technical support that goes beyond what can be offered by manufacturers. On the technical side, Tech Data has a support team adept at solving problems that involve components from different manufacturers, where each vendor's own technical support insists the problem lies outside their product domain. The company's engineers are trained in the nuances of interoperability."That's the benefit of using a full-line distributor," said Terry Bazzone, vice president and general manager of strategic business development at Tech Data.Tech Data can do much of the technology configuration, freeing reseller personnel for other duties. Tech Data can deliver computers with selected software already loaded or with extra memory, networking cards and other specifications, Bazzone said. Reseller technicians are even offered office space at Tech Data to oversee the configuration of large orders. On the contractual side, Tech Data maintains an office that helps resellers parse solicitations and, after a contract is won, under-stand what is required to fulfill those contracts.For instance, many contracts will have performance specifications rather than product brands. Tech Data can help find the brands that would best meet the specs. "Our bid desk understands government contracts from federal to state and local to education," Bazzone said.XXXSPLITXXX-The market consolidations and shakeouts of the late 1990s that reduced the number of full-line distributors to just two has actually been beneficial to the information technology industry, according to Brian Alexander, an analyst with investment firm Raymond James and Associates, St. Petersburg, Fla. This is because the two companies left standing ? Ingram Micro Inc. of Santa Ana, Calif., and Tech Data Corp. of Clearwater, Fla. ? have stabilized prices for hardware and software."Those two companies have led the effort in restoring rationale in pricing," he said.Alexander also said the gross margins of both companies have remained "remarkably stable" despite the economy's downturn. "The fact that they didn't fluctuate shows there is a lot more discipline in the industry than there was five years ago," he said. Combined, Tech Data and Ingram Micro have about 40 percent of the market share for distribution. Much of the rest of the market is comprised of distributors that specialize in sets of technologies, such as the Westcon Group Inc., Tarrytown, N.Y., which supplies networking and networking-related gear.XXXSPLITXXX-The Federal Supply Service remains the largest federal marketplace with more than 9,000 contractors. The Group 70 Multiple Award Schedule for IT equipment includes everything from software to seat management. Fiscal 2001 sales were $11 billion.Awarded in January 1999 to 25 vendors to provide support services through 2005. Estimated value is $10 billion. Fiscal 2001 sales were $74 million through third quarter.Awarded in December 2000 to 34 vendors to provide ongoing IT integration and outsourcing support services through 2010. Estimated value is $19.5 billion. Fiscal 2001 sales were $68 million through third quarter.The second iteration of this vehicle, awarded in 1997 with a ceiling of $1.75 billion, procures commercial, general purpose computer equipment. Forty-seven vendors were awarded. The request for proposal for the third version is expected in March. Fiscal 2001 sales were $53 million through third quarter.XXXSPLITXXX-As the government moves increasingly to procuring commercial technologies to reduce costs and standardize infrastructure, resellers can help integrators by finding and customizing the best components for the job, said Bill Smithson, vice president for information technologies for Matcom International Corp., Alexandria, Va.In June 2000, Matcom won a contract from the National Institute of Standards and Technology to build an electronic system to approve bank-card purchases, process work orders for interdivision offices and reimburse travel expenses for NIST's 3,000 employees. Crucial to the contract win was a digital certificate solution customized by a reseller, Smithson said.NIST required that the system's digital certificates be managed in-house for security reasons, an option most subscription-based vendors of digital certificate authentication packages couldn't offer. So Matcom tapped reseller HandySoft Corp., Vienna, Va., which agreed to customize a public key solution offered by Entrust Inc., Addison, Texas, for in-house use. HandySoft also negotiated a low price with Entrust.Because the government is looking for commercial solutions, integrators must filter through the available choices. This is where a reseller can help, Smithson said."They know their technology better than we do," he said. "I am trying to meet aggressive schedules with the federal government, so I look for resellers who can quickly tailor their products to the specifications."Linda Gooden, president of Lockheed Martin Information Technology, a unit of Lockheed Martin Corp., Bethesda, Md., said her division often buys directly from the vendor, particularly from large companies such as Oracle Corp. and Cisco Systems Inc. But when the project calls for a wide variety of products, the company goes with a reseller. "It depends on the business case, on whether you just need the products or need services," Gooden said.