While just about everyone breathed a sigh of relief when clocks ticked over to 2000 without a ripple, for some companies in the IT hardware, it was the beginning of a real threat.
“Pre-Y2K, demand exceeded supply, but post-Y2K, supply exceeded demand, and you really have to go find the business,” says Pomeroy, president and CEO of Pomeroy IT Solutions Inc. “It’s not going to be announced, it’s not going to fall in your lap, and you need to understand the customer’s business and what their initiatives and their challenges are and what they’re trying to accomplish and take an unsolicited proposal to them.”
All the Y2K upgrades meant plenty of businesses already had the latest and greatest hardware and software, and the easy money for hardware sellers had pretty much evaporated.
Adding to the challenge was the fact that equipment manufacturers were under a lot of pressure to take their business directly to end-users rather than getting it to them through a business partner like Pomeroy. Hardware margins and prices were dropping dramatically, and companies weren’t necessarily buying all of the latest bells and whistles anymore all trends in the wrong direction for a company like Pomeroy that derived most of its revenue from hardware sales.
Competitors were going out of business or getting scooped up at bargain-basement prices. And by 2003, Pomeroy realized his company needed to make changes or risk its demise.
“We were going to have to change our business model,” Pomeroy says. “We were basically perceived as a regional company at that point.”
Remaining a regional company would limit its growth, and landing large, national customers wouldn’t be likely without a more complete suite of service offerings.
“We basically formed a strategic steering committee that was made up of management from the field, as well as senior management, and we started to meet regularly in late 2003 and 2004,” Pomeroy says. “The first thing we started with was analyzing our current business model, the pros and cons of that business model, and having discussions whether or not we were properly positioned for a change.”
The analysis revealed that to survive, the company would have to adopt a model that included services as well as hardware and software sales. And to land and serve large national customers, it would have to establish a national presence.
“The customer has perceived you in a certain light for a couple of decades, so to go in and change that perception, it’s not going to happen overnight,” says Pomeroy. “For us to really make the shift, we had to change some things within our legacy organization, and we had to go out and make the acquisition of a company that was a pure services organization.”
And while that conclusion was perfectly clear to Pomeroy, there was no immediate consensus within the company that it was the right path to take.
“When some of the people do not have a service delivery background most of their background was in hardware you can’t expect them just to say, ‘Wow, that’s a great idea, and let’s get after it,’” Pomeroy says. “You can’t just have one meeting with your staff and the people in the field and get their buy-in when you’ve been doing business the same way for a couple of decades. It’s something that happens over time.
“We started the discussions back in 2003, so they need constant reinforcement in terms of why we need to do this. They need to feel like it’s not being dictated to them, that they are a part of the solution and they have equity in it, that it’s a collaborative effort.”
He says the key to breaking the resistance was to start talking about the need for change early and to cover all of the implications of both changing and of continuing on the same business path.
“We started these discussions with a lot of key people going back into 2003 and really didn’t pull the trigger for about a year,” Pomeroy says. “So a lot of the discussion was around the current business model, what the new business model needed to look like, how we’re going to get there, the investment, the pros and cons of the of the old model and the new model, talking about challenges we felt like we were going to have in the execution.”
To complete the service portion, Pomeroy IT Solutions acquired Alternative Resources Corp. It offered Pomeroy an attractive client base, good relationships with some OEMs and a stable of help-desk customers.
“We think that acquisition really solidified us as a national player and filled in some white space in the Northeast as well as on the West Coast,” says Pomeroy. “Again, we were perceived as more of a Southeast and Midwest company. I think that went a long way in terms of changing that perception, because now we had a technical work force north of 2,000 people, and that’s a good-sized, mid-tier national firm.”
A challenging transition
While the purchase of Alternative Resources offered Pomeroy IT Solutions the opportunity to gain a more profitable national presence, it wasn’t without its challenges.
“They had three CEOs in as many years, so that creates a little bit of a dysfunctional environment, and I think because they were a troubled company, they had a heavy debt load, and so they needed to pursue some options,” Pomeroy says. “When you’re a bit of a distressed company, you’re going to react a lot differently internally and externally than when you’re not.”
Pomeroy spent a lot of time meeting with the management and employees of Alternative Resources, assuring them that the union of the two companies was going to be a benefit to both.
“I think we just tried to lay out as best we could what the combined strengths of the company would be and that each of the entities brought something to the table that would fill in the voids,” says Pomeroy. “We didn’t try to make it an adversarial thing: ‘You’re a distressed company, we’re a company that’s had a good track record.’ We tried to realize and show that we both bring something of value to the table.”
Pomeroy says building a leadership team that knows the business was critical, and that meant bringing in new talent. Putting that team together required some upheaval and making substantial changes high up in the organization. He says it can hurt the company if you wait too long to make those changes.
“In some cases, you have to go out and recruit people and we did that have a specific experience that maybe you don’t have in-house, and you can’t be afraid to make some changes,” says Pomeroy. “You may like people, but you can’t be afraid to say that while that person might have been good in this position in the past, going forward, it’s a different company. So you need to educate yourself on what you need and, in some cases, you need to find them and make some changes.”
Consistent with its plan to build Pomeroy into a national company that could deliver services as well as hardware to its clients, Pomeroy recruited individuals with the commensurate skills and experience for several key positions.
“We brought in an individual to head up service delivery who’s been working for companies that have delivered service on a national basis for a long time,” says Pomeroy. “We felt like, even with the acquisition, we didn’t have that expertise in-house at that time. We also felt like we needed to bring in a CIO that had a service background and has worked with national companies, and we brought that person on earlier this year.
“And we also made a change in CFO, someone who had a good background with companies that have gone through change, gone from a decentralized environment to more of a national centralized environment, so we had to make some significant changes to the team.”
Pomeroy says a CEO has to spend time in the field to make sure that the integration process is working effectively, not sit behind his or her desk and wait for reports to come in.
“That’s where you’re going to get the feedback from your employees and your customers in terms of what’s working well and why, and what’s not working well and why,” says Pomeroy. “No one’s going to bring it to you. You need to go to it. That’s how you inspect your expectations.”
He says the process requires the CEO’s constant attention. Pomeroy had a conference call with his team once a week for the first nine months after the acquisition to keep tabs on the progress of the integration and make sure it was headed in the right direction.
Says Pomeroy: “You can’t assume anything; you can’t take anything for granted and assume it’s getting done. You can’t just come in and tick things off and everybody’s going to go off and they completely understand. You’ve got to circle back on a regular basis.”
While the results of the changes weren’t directly reflected in the company’s net revenue of $715 million for fiscal 2005, Pomeroy says there is evidence that the changes are having an effect. The more profitable services side of the business accounted for a larger share of its net revenue in fiscal 2005 than in prior years 27 percent versus 19 percent in fiscal 2003, for example.
Pomeroy says the acquisition has created synergies that weren’t there when the two companies were operating independently, and some of the business the company has collared recently would have slipped through its hands before the acquisition.
“Some of the contracts we’ve been awarded over the last 18 months as a result of the combined companies, I don’t think either company would have won them on their own,” says Pomeroy.
And, he says, it’s important to recognize that any change a company makes, no matter how major, won’t be its last if it expects to survive.
Says Pomeroy: “Because you’re always changing and you’re growing with your customers, that’s not just a one-time-and-you’re-done kind of thing. I think you’re constantly looking in the mirror and saying, ‘How can I lead this company and guide the company and manage the business to respond to the changes in the industry?’ It’s always changing; the industry is grow or die.”
How to reach: Pomeroy IT Solutions Inc., www.pomeroy.com