CMS builds from the final frontier

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1 April 2005 | 0

Kiltimagh may be the geographical origin of the word ‘culchie’ and the home town of Irish pop supremo Louis Walsh, but the Co. Mayo town (pop: 1,000) is also the unlikely location of EUR25m specialist storage distributor, CMS Peripherals.

No prizes for guessing that this has something to do with managing director, Frank Salmon’s combination of stubbornness and a self-confessed romantic attachment to the area. He hails from Knock and although CMS Peripherals was initially established in London in 1988 and remains Salmon’s base, it’s clear he views the Irish division’s presence in Kiltimagh through ever-so-mildly green-tinted glasses.
He has been in the business a grand total of 15 years now since he left the print and publishing industry to help set up CMS. He spearheaded a management buyout of the CMS business from its parent, The Stonehaven Group, in 1990.

He says it was a simple decision to locate CMS Ireland in Kiltimagh when it was established in 1994 as, for one thing, it’s only 15 minutes from Knock airport, from which Ryanair fly direct to London two times a day. The trip either way takes between three and four hours.

Infrastructure must remain a bit of a problem, however, and indeed Salmon himself has been openly critical in the past of the government’s neglect of the West in this regard. But today, he isn’t drawing too much attention to it.
‘From a logistics perspective, sure, it’s further to commute to see our customers but in terms of delivery of products, then of course, we have a next-day delivery service,’ he said.

The company currently operates a data network using a leased line to its nearest POP (point-of-presence) in Galway and Sligo that links the Irish division to the UK. Interestingly, Kiltimagh was one of the 19 towns that qualified for Government funding to build metropolitan area fibre optic rings that would connect local businesses to broadband networks. The ring is now in place and all that remains is for Mayo County Council to establish a managed service entity to link the ring to telecom operators’ networks.
In the meantime, the leased line is reliable but the company says it is looking at alternative technologies in order to build some redundancy into the network in the event of a failure.
Improving connectivity will undoubtedly be important to the firm in the future. The Irish operation, which employs 65 people, is a straightforward mirror-imaging of the UK company, but action is being taken to move the two operations even more closely together. Last year the company engaged in a pilot scheme to hire sales staff in Ireland to support the UK market.

‘We have people in Kiltimagh serving the Irish market, but we also have people there supporting the UK business as well. So we’ve kind of integrated the UK and Irish businesses and going forward they will become one virtual business.’

Avoid duplication
The reason for this closer alignment of the Irish and UK offices is to be sure of avoiding potential overlaps. ‘We have a lot of customers with UK offices and a lot of Irish companies with UK offices, so we’re trying to streamline our customer accounts so that we avoid duplication of skill sets.’
It’s clear, then, that a closer integration of the two operations will enable a quick and straightforward redeployment of resources when required across the whole business.
‘No matter what we do with our business in the Irish market, we’re addressing 3.5m people. To me, the UK will always be 20 times bigger than the Irish market, but of course, we also want to continue to maintain and grow the market share we have in Ireland.’

Not surprisingly, Salmon considers the company’s key asset to be the quality of its talent. ‘Why has it been the success it has been to date? It’s down to the people,’ he said. ‘We have very high retention rate of staff. They are very competent individuals who know all about their field, but they want to live in a rural environment.’
They certainly seem to like it there, judging from this journalist’s always chirpy conversations with various members of staff in Kiltimagh, who rave about the quality of life, clear roads, fresher air, etc, etc.
‘It’s a bit different, I guess, but it goes to prove that you don’t have to be located in a business metropolis to offer the same quality of service,’ Salmon said.

He is under no illusions about the huge competitive pressures many Irish distributors are experiencing, including CMS.
‘The issues we’re going through are no different to what other distribution businesses are going through. I think there’s a lot of change happening and people are trying to improve their business models and reduce their costs.’
‘What we’ve seen in the industry in the last three or four years has been a lot of consolidation. The introduction of electronic trading has forced a lot of companies to streamline their operations and decide whether they want to be a fulfilment house or a VAR.’
He expects to see even more consolidation among distributors, a prediction that will surprise few. ‘It’s essential for every distributor to maintain tight control over the costs of their business, but also that there’s a responsibility on the vendor not to over-distribute their products. You have a significant investment in all these franchises, so if you can’t retain profit, then it’s going to be very difficult to promote the brand. The size of the Irish market typically does not warrant more than three or four distributors.

Top four
CMS has managed to keep its place firmly in the top four of Irish distributors this year, although revenues were flat for most of 2003. Salmon says he hopes that the company will achieve growth in its next financial year, from August 2003 to August 2004 of some 10-15 per cent. The company reported revenues of EUR24m in the year to August 2003.

In recent years, IT industry revenues have been flat, so achieving growth may depend on moving into other channels and doing a better job of growing the parts that the company currently sells, he said.
‘I think its fair to say that the cost per solution increases annually by about 20 per cent, per unit of storage. So in order to maintain the same revenue, we have to be growing the number of unit sales by in excess of 20 per cent. So although we have achieved significant growth in unit sales, in overall revenues we’ve remained flat.’

CMS has been ploughing the value-added space for some time now and that is where it intends to stay. ‘Storage requires specialist skills and I think storage solutions are best delivered by value-added players. If you are in a value added services house, you’re typically a niche-focused player because, if you are a distributor who sells 5,000-6000 products lines, how can you be focused? By definition you can’t be. I don’t think you ever can play it both ways unless you have two different businesses.

It is, of course, hard to question the commitment of a company like CMS to supporting the channel. ‘We are a partner in the channel. We survive by providing a good quality service to our resellers who require the same for their survival. From our perspective, the channel is about partnership. We’re always trying to improve our service proposition and reduce the costs of bringing products to market.
‘From the perspective of value added services, its important that we are complementary to the channel and that there is minimal duplication.’

CMS deals with quite a large number of resellers in Ireland – between 400 and 500. Some of those resellers would deal with segments within the company’s different business units, which ensures that the profiles of resellers within each of the units will be quite varied.
CMS is currently split into four divisions: enterprise storage, commodity storage (tape, hard disk drives, CD-ROM and related media), storage software and digital media.

 

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Solution within a solution
‘We tailor each proposition to the profile of the reseller. So if you take Sabeo, for example, our proposition to a corporate VAR would be very different to an end-of-terrace retailer. The core of the VAR basis is about integrating the total solution into a solution, whereas price is probably third or fourth down the list. For the end of terrace retailer, price is number one.’
‘The biggest surge of growth certainly is in enterprise storage and software. Typically, around these two areas there are a lot of big opportunities for bolt-on services and that is where our growth has come from in recent years.’

NAS solutions are very mature at this stage, he says, almost to the point of becoming commodities. In the enterprise space, he says standards are coming of age, most companies meeting their storage requirements with a SAN solution. And given that SANs are not yet a commodity, this requires a fair level of expertise and accreditation, he adds.

Looking ahead, Salmon is cautious enough not to proffer predictions any more detailed than that the distribution sector will shrink a little more. ‘Ultimately, the companies that can adapt to the new environment we are all working in are the companies that will survive. The only thing that is constant within our industry is change, so it is imperative that we can adapt to that change.’

24/11/03

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