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Avnet's Steve Phillips: IT is an 'enabler for growth'

Phoenix-based Avnet, Inc. is one of the largest distributors of electronics components, computer products and embedded technology, a company whose roots go back to 1921. But technology is more than a product at Avnet. The company used technology strategically to transform aspects of his company as it secured its leadership position. Steve Phillips, Avnet's senior vice president and chief information officer, spoke at the Leadership Seminar Series, a program that brings industry leaders and experts in contact with the professionals enrolled in the evening Master of Science in Information Technology (MSIM) program.

2010-12-03

Steve Phillips, senior vice president and chief information officer of Phoenix-based Avnet, Inc., flashed a slide showing a snippet from a now infamous 2003 article in the Harvard Business Review. Information technology, writer Nicholas G. Carr declared, had ceased to matter. Standing in front of a roomful of students and industry professionals, Phillips was met with anticipated snickers from an audience for whom IT very much matters. Then he proceeded to demonstrate the importance of the IT field to Avnet, one of the largest distributors of electronics components, computer products and embedded technology, whose roots go back to 1921. Phillips' presentation was part of the IT Leadership Seminar Series sponsored by the W. P. Carey Department of Information Systems as part of the Master of Science in Information Management evening program. He shared strategies on how IT helped transform aspects of his company as it secured its leadership position. IT: Enabler for growth In fiscal year 2010, Avnet had annual revenue of $19.2 billion across more than 300 locations in over 70 countries. It was ranked number one in Technology Distribution on Fortune Magazine's Most Admired Companies list in 2009 and 2010. Does IT matter to Avnet? Without a doubt. Avnet boasts some 300 suppliers and 100,000 customers. Because the company sells nothing unique, Phillips said, customer service and efficiency are paramount. IT helps Avnet stay nimble and guard against its competition. Unhappy customers can easily defect to rivals. "There's nothing we sell to our customers they can't buy from someone else," he said. IT is an "enabler for growth" and is considered Avnet's R&D. With 70 percent of supplier orders being placed electronically and 38 percent of customer orders being received electronically, the necessity of a sharp technology system is clear. To help win its customer base in the market, Phillips said, Avnet must tightly manage IT sustaining costs and invest in innovative, differentiating solutions. It's been nearly a century since 33-year-old Charles Avnet struck out to sell surplus radio components to the public. Since then, Avnet, Inc. has expanded its scale and scope enormously. But with growth come hazards. The Avnet website tracks 33,000 visitors worldwide daily. It also logs an average of 1,850 external attempts to breach IT systems each day, and 95 percent of its 6 million daily emails received are filtered out as spam. Pillars of success Success on all fronts is built on a framework of three pillars: profitable growth, operational excellence and people development, Phillips said. In the first, he explained, Avnet must be the preferred partner for customers and suppliers. Second, the company must always strive for perfect execution and process innovation. Finally, people development rests on the ability to attract, develop, engage and reward top employees. In seeking to improve customer loyalty, Avnet categorizes its clients based on their responses to an annual customer survey, dividing them into four groups: Truly loyal: These are the most supportive customers, a group whose relationship Avnet aims to maintain and expand. Accessible: They like Avnet but might stop using the company's services. Avnet will determine what is drawing them away. Trapped: They plan to remain with Avnet for reasons that prevent their defection but could pose a long-term flight risk. Avnet must convert them to loyal customers. High risk: These customers are likely to stop dealing with Avnet if they have the opportunity. The goal: to intervene and fix any relationship issues. Phillips quoted Jack Mackey, vice president of the company's Service Management Group: "Loyal customers spend up to six times more than satisfied customers — they buy more often, and they recommend you to new customers." Surveys found that loyal customers like both Avnet's customer service and their sales representatives. Relationships forge bonds. "People make the big difference," Phillips said. An IT approach to problems In an instructive format, Phillips presented several case studies that demonstrate how IT has provided solutions for differing issues at Avnet. Four profitable growth case studies showed neat problem solving, thanks to technology. The first business issue stated that e-commerce customers' expectations of service had been shaped by their experience on such consumer sites as Amazon. Taking a cue, Avnet omitted pre-registration, added intelligent search engines, incorporated on-line chats and enacted shopping lists. The result was a 75 percent increase in annual e-commerce sales revenues and a 50 percent increase in new visitors to the web site. Second issue: Value-added reseller customers found tracking their progress in obtaining supplier rebates to be difficult. The solution was to implement a service-oriented architecture, or SOA, and a rules engine that created a system monitoring real-time sales goals against rebate items. As a result, Avnet customers boosted their rebate draw by more than 33 percent. Third issue: Product manufacturing is increasingly relocating to Asia, while design work remains based in the U.S. Avnet's solution to ensure seamless connections was to create a system of tracking supply chain information globally. Result? Customers receive regular design pricing and planning information from around the world, and suppliers have greater visibility in regional inventory needs. Fourth issue: Sales teams in the field lacked access to critical business and customer information when visiting customers or traveling. The solution was to equip teams with mobile devices linking them to back-office systems and allowing sales reps to quickly obtain information such as product price and availability, order status, shipment history and trend analysis. Each participating employee gained an average five hours every month, thanks to improved productivity. Process automation In general, Phillips showed, process automation can be beneficial in such areas as workflow; self-service by customers, suppliers and employees; integrated and connected systems; real-time information access; and efficient data entry using bar codes and optical character recognition. Through four additional case studies, Phillips outlined how Avnet avoided a $5 million data center build-out by increasing the energy efficiency of that data center through virtualization and its physical infrastructure. Then, the creation of a playbook of best practices for guiding integration activities helped to assimilate more than 65 acquisitions since 1991. Now Avnet's IT integration process is often completed within 90 days of an acquisition's being finalized. This minimizes the impact on customers and employees and enables the delivery of synergy targets. Because of a decentralized account management system, Avnet users once juggled numerous IDs and passwords and were found to be writing down their access codes, a risk to security. IT deployed an enterprise identity and access management program that enables a single user ID and password to reach 70 applications. Savings: more than 12,000 hours a year. Finally, efficiency of warehouse operations rose and scalability was improved after web services were installed to provide real-time order status. The "picking" process was automated through devices that told warehouse workers the location of each product. As a result, Avnet will reap $5.6 million in savings over five years, reduced customer issues in a six-month period by 90 percent and cut picking time in half. Engaging employees One of the keys to business success, he noted, is employee engagement. Engaged employees are motivated to go above and beyond the call of duty to help a company meet its goals. They are more productive, remain on the job longer and are a valuable recruitment tool. In turn, they increase shareholder value. "It's just good business," Phillips said. Through employee surveys, Avnet seeks to communicate, gather information, set in motion an action plan and recognize people for their accomplishments. "If the team has outstanding scores, they are recognized publically," he said. If they are underperforming, supervisors work with them privately. Phillips summed up his presentation by emphasizing several take-away points. Though vital, technology alone is never enough. IT personnel must align with the businesses they support and develop IT-based solutions that map to the way users do their work. Companies should focus on operational excellence techniques to meet customers' expectation for 24/7 service. Estimating the time and cost of system implementations should be realistic, not optimistic. People and their expertise matter: Good hardware and software are necessary, but alone are insufficient. Focus on business value, not technology. His advice is to think like a business person. In a question and answer period, Phillips, a native of Great Britain who broke into IT 20 years ago while working as an engineer, reported that while Avnet currently has operations in the U.S., Europe and Asia, the company recently expanded its presence significantly in the fast growth region of Latin America with the acquisitions of Bell Microproducts and Tallard Technologies. Any time a new data center location is scouted, it is rated on its environmental security (no natural disasters, like Phoenix), political stability and availability of a trained workforce. Dealing with sales in any foreign country requires trade compliance. Before an order is shipped, it is checked multiple times for compliance with trade regulations. Working with other cultures can be a challenge, Phillips agreed. Language is sometimes an issue. Hiring fluent English speakers is relatively easy in Europe. In Asia, employees are offered language instruction and have English-only days to acclimate. Such training is vital, he said. "In IT, English is the working language." IT leadership seminar series/MSIM:

• The series features business leaders discussing how their companies have strategically used IT to transform aspects of their operations for building a leadership position in their industries.
• Seminars feature senior executives from around the country.
• Sessions are free but require reservations.
• Those who attend are students, W. P. Carey alums, members of professional associations and prospective candidates for the Master of Science in Information Management.
• The MSIM has been offered for six years as a one-year, 10-course evening degree program that begins in the summer. It is geared toward working IT professionals.
• The program is part of the W. P. Carey School of Business and is consistently ranked among the top 20 such programs in the nation by U.S. News & World Report.
• Between 70 and 80 MSIM students graduate each year.
• The career path for the MSIM is technology oriented as training for management in computer systems.
• Most students come from technical backgrounds and seek ways to improve businesses through technology.
• More information can be found at wpcarey.asu.edu/msim.

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