Changing Course

Systems integrator Seven Seas reaps the benefits of switching focus from volume based PC business to true solution provider business

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By  Mark Sutton Published  May 1, 2002

Declining markets|~||~||~|Almost everyone in the IT industry today can see that box shifting, volume business is almost impossible to preserve high margins in, but it has taken a long time, and some very hard learned lessons, for the message to get through. But while many resellers struggled to carve out value in the face of declining revenues and an overstuffed market in recent years, a few realised that the only way to preserve margins was through a change of business model. The owners of Seven Seas, a Dubai-based systems integrator were one of the few that foresaw the problems ahead. Although the company, a reseller for several leading PC brands was still profitable, it was becoming obvious that the same sort of returns that the market had enjoyed, would not continue.
"It was a case of changing before change hits us," explained Mehboob Hamza, director of Seven Seas. "We decided that we needed to take preventive medicine, rather than curative medicine."

The directors realised that the volume business could no longer be addressed through traditional models of business, Hamza said, and set about deciding how best to change the approach to market. "We are not exiting any business," he said. "The business that was profitable can still be profitable, but based on a model that supports the revenues, margins and cost structures."

Seven Seas also realised that the high end enterprise business, where it was already active in networking and several niche sectors, would be a much more profitable sector of business. Mark Richards was brought in as general manager, with a brief to realign the company.
The decision was made to separate the business internally, into a solutions and a volume team, to tackle the different sectors. "When you are selling a solution, you are addressing business issues and solving business problems, whereas if you are selling a product, you are just delivering something to the customer's specifications, they have already decided the requirements. The two are completely different, the skills set to address the issues are completely different," Richards explained.

||**||Building new expertise|~||~||~|The first problem lay in finding a way to tackle the volume business, as Richards summed up the situation: "The reality is that in the marketplace for PCs, the margins are so low that you would make more money selling a fridge."

The company could not do away with the volume business altogether, Richards said, because of the need to be able to offer a complete top-to-bottom solution, including the basic desktop hardware. Instead, a more cost-effective way of addressing the business was suggested, through use of customer call centre and improved Internet facilities. The idea fit well with vendor's own plans. "If you compare what we are doing to what the principals are doing-take Compaq-they have stripped out their PC and low-end server business and now address it principally through a call centre. Even Compaq appreciates now, that in order to address the volume business, you cannot dedicate the same high expense resources to do that," he said.

A focus team was established, and a number of pieces of technology put in place to handle business. On the telecommunications side an Avaya INDeX digital communications platform was installed. As an Avaya reseller, the solution not only gives Seven Seas a proof of concept deployment of one of its key products on the solutions side, but also allows the creation of a company-wide virtual call centre-volume enquiries are automatically routed to the volume team to handle. This not only saves on dedicated call centre staff, but also enables customer requests to be automatically logged into the second piece of technology, a SalesLogix CRM package. The whole company is now based around this deployment, that is used to map and manage all customers and prospects, and allows more accurate marketing and customer care. The SalesLogix package also allows escalation of customer enquiries to the solutions team as appropriate.

While the technology has been put to good use internally, initial plans to move more volume business over the web have been sidelined. The company has a payment gateway, and has offered online purchasing for over two years, but the web site is not the focus that had initially been expected. "While we have taken initiatives to move some of our business to the web, we have put this business on hold as we are currently pushing more into the enterprise than volume, and the SME business is better addressed by the volume team," explained Dominic Morris, marketing manager for Seven Seas.

Another important element of building a profitable business has been getting the product portfolio right, both for the volume and the enterprise business. "We have spent a lot of time getting the product portfolio together that we want to offer. We have probably reduced by 50% the number of suppliers, because you can't be an expert in everything, you choose what you are good at," said Richards. "There are some things that you have to offer-you have to be able to offer a PC, even if margins are terrible-there are some things that you prefer not to do but customers want a one stop shop."

For the volume business, this has meant a reduced range of PC hardware, mostly Compaq and IBM, to allow for more simplicity in the sales and logistics process. In the solutions group it means that there are some areas where the company plays out of necessity, and others where partners are called upon. "In order to attract the voice convergence market, we have to be able to offer structured cabling. The reality is we just break even with it, but we will continue to offer it to control the quality of our installations and to offer a complete solution. On the other hand, we have a partnership with a company that provides us with raised floors-I don't want four people sitting around just to do raised floors," Richards said.

"There are areas where we have decided our core skill sets cannot match the requirements of the customer; in those cases we either choose not to offer it, or partner with somebody else," he added.
Security solutions was a particularly difficult area, Richards said, as there were so few partners that Seven Seas felt could deliver to its standards. The company now has a local partner that it feels it can trust, but is also a key focus for the solutions team, along with voice and infrastructure.

||**||The costs|~||~||~|Building the expertise to address these areas has been difficult, expensive, and caused a considerable turnover staff. A round of redundancies was made in October last year. "It was painful, but a necessary thing," Richards commented. "At the end of the day, if we hadn't done it then, it could have been doubled at the end of the year. We had to draw a line under what we had done, and move forward."

Getting the expert staff in was also a little more difficult. Seven Seas decided that it wanted to be able to offer a complete support service, up to the third tier. "We do not sell products where we are reliant on the vendor to give us second and third line technical support. The first thing I did when we signed up for the Avaya INDeX product was to go to the UK and hire a person who had been doing third line support for INDeX for five years. With the best will in the world, vendors are not going to give the Middle East the level of service we expect," he said.

If the staff were expensive, then the new facilities that the company invested in were even more so. Although the company only moved along the block from its previous Dubai headquarters, installing the CRM and communications system, and building proof of concept facilities has cost "an absolute fortune", according to Richards. The company can now show its building as a proof of concept centre, running most of the major solutions that it offers-long before the most of the vendors had their own facilities in the region.

The rewards of moving to selling solutions are worth the investment though, Richards believes. "If we make a voice sale of say Dhs100,000, the installation is probably Dhs20,000, as voice engineers are about twice the price of data engineers, the margin is quite reasonable, and more importantly, when someone buys a voice product, they will keep it for four or five years, so on top of that there is Dhs10,000 a year in support contracts. All of a sudde, our Dhs100,000 sale is worth Dhs90,000. If we can do a leasing deal, through our arrangement with HSBC, we can get all of this revenue up front, with no credit risk or payment problems. If you wanted to make the same sort of margin with PC business, I would have to sell about a million dirhams worth of product."

The model is proving to be a success. The company reported revenue growth of 45% last year, and expects the same this year. It has also signed a high profile sponsorship deal with Dubai's Victory powerboat racing team, and Seven Seas is now official telecommunications provider to the team.

It is not all plain sailing however, Richards admits. Some customers still don't recognise the value of services, so the volume team is being split to accommodate those customers that don't want to pay for account management. Customer satisfaction surveys that are planned for the next twelve months will provide a better idea of whether the customers understand the value of what is on offer. He also feels that many of Seven Seas competitors are still providing sub-standard services at too low a cost, but overall, he does not feel they are a threat.

"We are the only company in the Middle East that is positioned to become a true systems integrator. The owners took a decision a long time ago, and I was hired specifically to do this [restructure]. I would love to say we are on track with the timescale, but we have slipped about six months because of the sheer immensity of the task. We did our restructuring, it was a conscious planned thing, it was no gut reaction, it has cost a lot of money to make this investment, but right at the moment, as difficult as the IT market is, we are probably in better shape than anybody else, because we took all of the pain one to two years ago." Richards said.||**||

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