CRN Interview: John Edwardson, CEO, CDW Computer Centers

In the summer of 2001, CDW CEO John Edwardson began unfolding a strategy under which the Vernon Hills, Ill.-based IT direct marketer would partner with SMB solution providers. The plan: In return for their product business, CDW would pass on services leads. But it didn't pan out, and CDW instead now aims to team with large national integrators. Edwardson explains CDW's strategy shift, its channel perspective and its competition with archrival Dell Computer in an interview with Online Executive Producer Jeff O'Heir.

CRN: In an interview with CRN last year, you said CDW was readying some programs that would allow solution providers to sell services in exchange for their product business. Where are you with that?

EDWARDSON: What happened is that it became clear to us that most of the people we're doing business with want a name brand doing that services work. The two independents we're using are Unisys and Decision One, along with Hewlett-Packard and Sun Microsystems. One of the things that's really important to us is what we call an 'attach rate.' When we sell an HP, Compaq or IBM computer, selling a warranty with that is the best form of service we can offer quickly. [Customers really want to know that the OEM is standing behind their product with warranties. To a certain extent, Unisys and Decision One are doing installation work. We really have not broadened [our channel partnerships to companies that don't have a national footprint because what we discovered is that going out and interviewing people was just too much work. We couldn't have 10 VARs in the Northeast, 20 in the Southeast and 40 in the U.S. It was just too many people to keep track of. What we've done is to limit what we're taking to market to a few big players. That seems to be what's best received by our customers.

CRN: Outside of the regular services CDW offers, is the company doing anything with the independent solution provider to become a better partner?

EDWARDSON: Not really. There are a few [solution providers we're working with in the government business like SAIC and EDS,more so in the government business because those customers want one throat to choke.

CRN: How much of CDW's sales goes through solution providers?

EDWARDSON: We think it is under 2.5 percent. We pay quite a bit of attention to it because some of our bigger OEMs forbid us from doing business with them. Others don't care. So, for example, we cannot compete against [distributors Tech Data and Ingram Micro on HP and Compaq products.

CRN: To what extent is CDW aligned with Ingram Micro and Tech Data?

EDWARDSON: I spend as much time talking to [Tech Data CEO Steve Raymund as any senior officer at HP. We are their biggest customer, and we buy literally hundreds and hundreds of different products from them. The reason we will continue doing business with them is because of the service they offer. We can take orders from customers until 11 at night. Tech Data and Ingram Micro have big distribution centers close to our headquarters, and we get shipments from them at 5 in the afternoon. We turn the shipment and get it out to our customer by 11 that night. That's something the big OEMs can't do. If we're ordering 400, 800 or 1,000 boxes from HP, Sony or Toshiba, that's one thing. But if we don't have enough of them in stock, distributors can get them to us on a same-day basis, whereas the OEMs might take a week or two. There's a real reason for [partnering with distributors because of our business and how quickly our customers want things delivered.

CRN: Ingram Micro's VentureTech and Tech Data's TechSelect are national networks of VARs that serve the SMB market. Unisys and Decision One are great at warranty work but not necessarily as good at integration as the VentureTech and TechSelect solution providers.

EDWARDSON: We just haven't tried to build [a VAR partner base, and our people have looked at building multiple relationships. A year ago, I used the example of Sears and how it uses all these companies that put up aluminum gutters. Some of them are really good at what they do, and some of them are not. I think [establishing a network of VAR partners is more complicated right now than what we can do. The numbers are big, and there are too many of them.

CRN: You've previously said that CDW aims to become an $8 billion to $10 billion company. But CDW would have a lot of work ahead to reach that goal, especially if the economy doesn't turn around. Do you envision working with solution providers to help CDW grow its business? At this time, do you want to deal with them through formal programs?

EDWARDSON: We're just not ready for it and, at this point we really haven't figured out how to do it productively and efficiently. With HP, Unisys and Decision One you can feel easier that the quality of the work will be done well consistently across the country, and that is a big issue. If we ever want to move in that direction, there are four or five regional VARs we can go to before we go to the local people. I'd like to talk about the channel now.

CRN: Go ahead.

EDWARDSON: I'm tired about all of the bitching from everyone. Here's what I'm thinking. Everyone's going nuts over HP's decisions and how they made the announcement that they'll be sending catalogs [to SMB customers. Well, HP and Compaq have been doing catalogs as independent companies for years. But it isn't as if they are our only competitor. The biggest direct competitor is the archenemy, Dell. But then again, IBM has been gong direct, Toshiba is going direct and everyone else is going direct. When I'm working with my people on the inside, I tell them that there's a reason why we exist as a company and why these 75,000 other companies exist. There is a value to someone who can give great high-touch service on a local basis. We have to do it as productively and efficiently as we can. To compete against the others, we have to do what we do better than they do. In many cases, customers don't want to wait a week or a week and a half for a box, which they have to with any of these OEMs. They want it tomorrow, and that's where we fit in.

I do think HP has some valid points about the amount of inventory they need to get to. They have to continue to make that number smaller. On the other hand, we do well because we have inventory available when companies want it. I don't need HP telling me how much inventory I need to carry. What I want is inventory available from HP the day I need it. It's the same for Ingram Micro, Tech Data and anyone else. HP has other issues like [selling, general and administrative costs that they have to get in line to be competitive with Dell. As an industry, we have to work with the OEMs to get the inventory turnover to a point where it's competitive. But if they think that's the only issue they have, then they are wrong.

CRN: What are some of the issues they have?

EDWARDSON: The other issues [involve overhead in general. What we find is that our account managers can sell an HP or IBM box for more than a customer would pay Dell because those brands are still so important. We can get 20 to 30 bucks more on a box than someone will pay Dell. I don't know if it's because of the service we offer, the brand or a combination of the two. But what we really need from these OEMs is a quick response. What we need from the vendors is a price out of the gate that is competitive with Dell.

When we lose business, we usually lose it because it has taken the vendor too long to get back to us. I hope you're hearing this from hundreds of people because I'm pounding on my OEMs every day about this issue: If you can give us realtime, competitive authority, then we can beat Dell. What happens is that it gets caught up in bureaucracy. And by the time they get back to us, if it has taken a couple of days or more, the customer gets frustrated and buys elsewhere. If there is an issue in the channel today, that is the issue. Where the big guys are losing against Dell is in responsiveness. When we are in a competitive bid situation against Dell, if we can get a same-day answer, we can usually win the business. If it takes three days, that business is usually gone.

I think all of us in the channel have to work together in certain ways, such as pushing the OEMs to be more responsive. The other thing is,and this is one I really want to hit home,is that Dell's move [to offer the channel a white-box desktop was a token move and nothing more. If their value of the channel is a 2 percent rebate on the volume that the local solution providers do, that tells you how much Dell values the channel. What I don't get is this: I've been talking to every major manufacturer we do business with that sells through DellWare [a Dell division that resells third-party products and services, and I keep asking them why they're putting their products in DellWare. I just don't get it. We've asked them, 'Why are you letting [Dell Chairman and CEO Michael Dell build up a whole book of business on your brand and then, when he gets it to the level where it is profitable, he clones your product and puts his brand on it?' One of the messages I sing to all of the people we do business with is that when you talk to the executives of the OEMs, ask them, 'Why do you do this? How short-sighted can you be?'

CRN: What makes Dell CDW's archenemy?

EDWARDSON: If we look at who we compete against the most, it's the local solution provider because there are so many of them. But if I ask my people whose name you hear most often, it is Dell. And it's not so much on peripherals. It's on servers, desktops and notebooks.

CRN: One thing Dell is doing a lot of now is pushing the solution sell, such as a wireless or a networking bundle. What's CDW doing in terms of selling solution-oriented bundles?

EDWARDSON: Where that comes in is when our specialty teams enter into customer relationships. It may be a storage or a communications issue, and then they will work with our account manager and customer to put together a package. Now we don't do the installation. In the corporate world, the customer has their local or internal people to do that work. At this point in our growth, that has not been an issue. We have 2.5 percent to 3 percent of the market, and there is an awful lot of market out there to get. And we believe that our model continues to be what customers want.

CRN: Could you name any vendors that are doing a particularly good job of working with the channel?

EDWARDSON: I don't really want to get into that because what I'm hoping is that we're working better with most of them than [they are with any of our competitors. I meet with the senior executives on a regular basis. If I send an e-mail to [Microsoft CEO Steve Ballmer, like I did a few days ago, I get an answer the next morning. We meet with our competitors too, like I did at the Tech Data customer summit. There are some things we obviously don't talk about. But one of the things we talked about is credit-card fraud and how we can cooperate better on that. I was delegated the responsibility for having all of the directors of credit of seven or eight of the biggest companies to start a communication process.

CRN: Has your relationship with HP changed at all since the Compaq merger?

EDWARDSON: We're probably spending much more time with them since the merger than when they were independent companies.

CRN: What will CDW have to do to reach that $8 billion to $10 billion revenue goal that you set for the company?

EDWARDSON: There are two different things. There is revenue growth, and there is continuing to be the most productive and efficient at what we do. For revenue growth, the first focus is to do more business with the existing base of customers. We believe we are getting between 15 percent and 20 percent of the total technology spend of our typical customer. I want 40 percent. When I say 4 percent of our customers are 60 percent of our revenue, those people are giving us more than 15 percent to 20 percent. So what do they value, what is different with that relationship, how do they talk to their account manager and what is it that the account manager knows or does? We're getting feedback on all of those things, and we're redoing training programs based on the feedback of those 4 percent.

CRN: CDW has always invested heavily in training. What are you doing differently today?

EDWARDSON: We're massaging those courses. For many years, our attitude was to make as many phone calls as we could make every day. For example, one of our top account managers had over 500 customers. We had a discussion about how much he knew about what his customers did. He knew very little. His general approach was to call them up, ask if they needed a box today and, if they didn't, he said he'd call them next week. Now we have them focus on 100 customers instead of hundreds of customers. We have not grown our account managers as much as we expected, but the revenue per account manager has grown significantly. That's because they're getting to know their customers better.

The Web continues to grow. Every one of those accounts is owned by an account manager who gets credit for that business. What we're trying to do with account managers is when someone wants to order something that doesn't take a lot of advice or service, we try to encourage them to order it over the Web. You need to save your time for consultation and advising people, not entering orders. But when you want to talk to me about what kind of printer you need, I'll give you all day. It's a delicate thing to do. But that's why we're getting more revenue from account managers. We're not making more phone calls. We're getting to know our customers better. We're teaching them listening skills and how to ask the right questions.

Product mix also continues to be important. The Sun/Unix business continues to do very well. We're going to be moving upstream. We're getting more and more sales specialists the certification they need so we can move into the bigger boxes. The other thing we're beginning to do is hire a field-sales force. We are finding that approach is effective with certain types of accounts where the volume can be big enough.