NAVIGATION

November 19, 2017
A CEO's lessons

Photo: Alex McKnight

Bob Dutkowsky, CEO of Tech Data

Tech Data

A CEO's lessons

The biggest Florida company and ‘nobody knows we exist.'

Amy Martinez | 10/26/2016

Bob Dutkowsky runs what’s about to become Florida’s biggest company — ‘and nobody knows we exist.’

Every day, Bob Dutkowsky gets up knowing that Tech Data, from the time it opens to when it closes, has to sell at least $100 million worth of goods just to make a razor-thin profit. A favorite saying of his reflects his sense of urgency. “Hunt it, catch and kill it,” the otherwise mild-mannered Dutkowsky likes to say.

Dutkowsky’s company is a technology middleman that sells everything from $6 printer cartridges to multimillion-dollar Cisco routers. Based in Clearwater, the firm buys products at wholesale from major tech brands like Apple and Dell, then sells the gadgets and applications to tens of thousands of retailers and other middlemen, who in turn sell them to consumers and businesses in more than 100 countries.

“Our average order is $2,000, so we have to do a lot of hunting and fishing to keep the lights on,” says Dutkowsky. “If we run Tech Data really, really well, we make a penny and a half on the dollar.”

Those pennies mount up. The company has grown from $50 million in annual sales in 1986 to $26 billion last year — making it the third-largest firm in Florida and placing it 108th on the Fortune 500 list.

And in September, Tech Data announced it was acquiring competitor Avnet Technology Solutions, based in Phoenix. The $2.6-billion deal will make Tech Data Florida’s largest company, with $35 billion in annual sales and 14,000 employees worldwide. The company currently employs 9,000, including 1,800 in Clearwater.

For all that heft, however, Tech Data’s middleman role has made it probably the least visible large company in the state. “Nobody knows we exist,” Dutkowsky says.

College lessons

Born in 1955 in Endicott, N.Y., an IBM company town, Dutkowsky comes from what he calls a regimented, close-knit family. His mother was a homemaker, his father a lifelong IBM employee who made it clear to Dutkowsky, a once aspiring professional baseball player, that college would be part of his career path.

Dutkowsky, a good enough outfielder in high school to be recruited to play on Cornell’s baseball team, got a rude awakening after just a week on campus, when coach Ted Thoren told him he’d have to become a pitcher because he couldn’t hit well enough.

Dutkowsky, who had never pitched before, says he “worked really hard, and I became a pretty good pitcher.” Named team captain his senior year, he helped lead Cornell to an Ivy League title. Ultimately, Dutkowsky says, Thoren taught him that part of a leader’s role is seeing potential in people they may not have imagined. Also, that “people can do things they have no idea they’re capable of.”

In 1977, Dutkowsky joined IBM as a salesman. Tagged as having management potential, he moved from assignment to assignment for more than a decade as he advanced through the ranks. In 1993, he was golfing with a customer in Omaha, Neb., when his cell phone rang.

“The guy on the other end says, ‘This is Lou Gerstner’ ”— IBM’s CEO at the time. “I tell him, ‘Yeah, and I’m Mickey Mouse,’ ” Dutkowsky recalls. “Probably not a good thing to say. I called him back, and it was actually Lou Gerstner.”

Gerstner, brought in to rescue Big Blue from near bankruptcy, asked Dutkowsky to be his executive assistant. That twoyear stint, he says, provided more lessons in leadership and management. “I remember going home one day and telling my wife, ‘Lou Gerstner is CEO of one of the biggest companies in the world, and you know what? He puts his pants on just like I do. He has the same fears about business, gets nervous before presentations, just like I do,’ ” Dutkowsky said in an oral history interview recorded in Boston.

Dutkowsky left IBM in 1997, going on to become CEO of two tech companies that he steered through buyouts. In 2006, he was leading a Boston-area startup called Egenera and also served on the board of McAfee, a security software company.

George Samenuk, McAfee’s CEO at the time, happened to attend a business awards dinner where he struck up a conversation with Steve Raymund, then CEO at Tech Data. Raymund, the son of Tech Data’s late founder, Edward Raymund, had run the company since 1981 and had taken it from a small business that sold computer supplies for hospitals and government agencies to a publicly traded wholesale reseller with global reach.

But by the mid-2000s, he was ready to step away from day-to-day operations. “I felt like, by any measure, I had put in my time, and I still wanted to do a lot of other things,” he says. “Being the CEO of a big, global company is a consuming, very intense commitment. Most people don’t want to do it their entire lives.”

At the awards dinner, Raymund told Samenuk he was looking for a successor. Samenuk recommended Dutkowsky for the job, telling Raymund, “I have the best CEO candidate you’ll ever want to meet.”

“I put the two of them together, and next thing I know, he’s CEO of Tech Data,” Samenuk recalls.

Unambiguous signals

Having twice replaced the founding CEOs of companies, Dutkowsky knew the pitfalls when an outsider replaced a member of the founder’s family. He and Raymund engineered the change to send unambiguous signals about who was in charge. Raymund moved out of his topfloor office to another part of the building and wasn’t even in town when Dutkowsky officially took over. “For the first 100 days or so, he didn’t come back at all. He just left,” Dutkowsky says. “When people came looking for Steve, they had to see me.” (Raymund remains the firm’s non-executive chairman.)

There were problems nonetheless. Based on Dutkowsky’s experience leading companies that were bought out, many Tech Data employees assumed he had been brought in to sell the firm. “As I’m meeting with employees, they’re all saying, ‘How long before you sell us?’ That’s a fine how-do-you-do,” he says.

Dutkowsky arrived at the end of 2006, a year in which Tech Data lost $97 million. Among his first tasks was restructuring the company’s operations in Europe, where small and medium-sized businesses — its core customers — dominate, and where the company generates some 60% of its overall sales. Within a year, Tech Data swung back to profitability, posting a full-year gain of $108 million as sales rose 9% to $23 billion.

Since then, Dutkowsky has focused on developing new revenue streams — shifting the company from being mostly a PC distributor to a more complex business that now deriaves more than 40% of its sales from servers, storage, networking equipment, consumer electronics, smart phones and other mobile devices. From its $26 billion in sales last year, the company made a profit of nearly $266 million, a supermarketlike net margin of 1%.

More challenges lie ahead. The days of double-digit growth for IT spending are gone. Customers are upgrading Pcs and smart phones less frequently, and the move to cloud computing means consolidation and potentially fewer inhouse data centers requiring new hardware and software.

In much the same way that IBM changed under Gerstner, Dutkowsky is now trying to remake Tech Data as a “technology solutions” company, selling IT and logistics services rather than just hardware. Five years ago, the company launched an online marketplace of mixand- match cloud services from multiple vendors, offering customers one-stop shop convenience and technical expertise. Last fall, the company predicted its cloud sales would grow from $200 million a year to nearly $300 million by 2017. The acquisition of Avnet Technology Solutions will boost its cloud offerings.

“The cloud transition creates complexity for customers, and complexity creates opportunity for distributors,” says Brian Alexander, a Raymond James analyst. The key for Tech Data is proving its worth as a “cost-effective route to market” for a new set of software vendors and service providers.

One strength, Dutkowsky says, is the breadth of what Tech Data does, which gives it flexibility to pivot toward the hottest products at any given moment. By maintaining close relationships with suppliers, he says, Tech Data can stay out in front of market trends and identify new opportunities — like smart home devices.

“The connected home is where the real opportunity is,” he told CNBC “Mad Money” host Jim Cramer earlier this year, when asked about disruptive technologies.

“A little-known fact: Tech Data is one of the largest sellers of big-screen Tvs in the world,” says Dutkowsky. “Not because we want to sell big-screen Tvs, but because we want to sell wi-fi-connected technology so that those Tvs can access the cloud and get things like Netflix brought into the home.”

Tech Data sells the Tvs as part of its consumer electronics business, which makes up just 3% of total sales.

Raising the company’s profile

Meanwhile, Dutkowsky — surprised at how little-known Tech Data was in its home region when he first arrived — has tried to boost the company’s profile. As a business-to-business player, it doesn’t need a big marketing push to reach new customers. “All the resellers in the world know who Tech Data is,” he says. “If we ran a Super Bowl ad, we’d get no value from it.”

Reaching prospective employees is another matter, however, and Dutkowsky sees value in raising the company’s profile in the community. Tech Data concentrates its charitable giving on education, health care and youth development. It has a promotional deal with the Tampa Bay Rays and gives employees 16 hours of paid time off a year to do volunteer work at a non-profit of their choosing.

That kind of visibility is crucial to attracting millennials, who “won’t go to work for a company that doesn’t have a socially responsible position,” Dutkowsky says. “We’re far more engaged philanthropically than we’ve been in the past. We want this to be the best place to live and work so we can attract great people to come here.”

Dutkowsky says one of the most important lessons Gerstner taught him at IBM is that “the worst company in the world is old, big and successful” — meaning complacent and slow to change. A fear that Tech Data will become that type of company drives his sense of urgency.

“We’re the biggest company in Tampa Bay. We’re successful,” he says. “If you’re in technology, you’ve got to be prepared to change.”

Bob Dutkowsky, 61 CEO, Tech Data

» Compensation: $5.9 million last year, including a salary of nearly $1.1 million, $2.5 million in stock awards and a $2.3-million bonus.

» Personal background: Grew up in Endicott, N.Y., as the son of an IBM employee.

» Education: Bachelor’s degree in industrial and labor relations from Cornell University.

» Career highlights: 20 years at IBM, including a stint as executive assistant to then-CEO Lou Gerstner; led EMC’s Data General division in 1999; served as CEO of GenRad, J.D. Edwards and Egenera before joining Tech Data as CEO in 2006.

» Family: He and wife Lorraine have two grown children, Jennifer, who owns a clothing store in Tampa, and Kevin, general manager of Cypress Creek Golf Club in Ruskin.

» For fun: He plays golf and is an avid fan of the Tampa Bay Lightning and the Tampa Bay Rays.

Company Profile

Tech Data

Tech Data Timeline

» 1974: Founded by Edward Raymund, a contract representative for electronics manufacturers, as a computer supplies retailer. He views the new business as a sidelight with little long-term potential.

» 1981: Edward Raymund sells the firm to his 25-year-old son, Steve, for $10,000.

» 1984: Steve Raymund moves the company to become a wholesale distributor of computers to capitalize on growth in the PC market.

» 1986: Goes public on Nasdaq under the ticker TECD.

» 1989: Expands outside the U.S. by buying Canadian distributor ParityPlus.

» 1992: Diversifies into software and operating systems.

» 1993: Surpasses $1 billion in annual sales.

» 1997: Moves into Clearwater headquarters campus, now called the Raymund Center.

» 1998: Acquires Germany-based Computer 2000 AG, Europe’s top IT distributor, expanding to more than 30 countries.

» 2006: Hires Bob Dutkowsky as CEO.

» 2007: Enters European mobile and wireless device markets via a joint venture with Brightstar.

» 2011: Launches online marketplace for cloud computing services.

» 2014: Adds 45,000 square feet to its headquarters, putting its total footprint in Clearwater at 285,000 square feet — enough for more than 1,800 employees.

» September 2016: Announces a deal to buy Avnet Technology Solutions of Phoenix for $2.6 billion, its largest acquisition. The deal, expected to become final early next year, will make Tech Data Florida’s largest company, with $35 billion in annual sales and 14,000 employees worldwide.

Tags: Business Services, Manufacturing/Distribution, Technology/Innovation

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