IT Innovation for Competitive Advantage
The Index Group, one of the largest distributors of computer products in Turkey, has been in business for 27 years with $1.
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The Index Group, one of the largest distributors of computer products in Turkey, has been in business for 27 years with $1.2 billion in revenue and 40 percent market share. A combination of aggressive competitors combined with changes in consumer buying habits forced Index Group to rethink how it uses IT to gain operating efficiency while supporting new business models and ways of working.
Listen to The Index Group's Chief Information Officer, Tayfun Yigit, explain how the company changed its approach to IT and replaced an in-house system with SAP.
Michael Krigsman: I’m Michael Krigsman, industry analyst and host of CXOTalk. And I’m talking with Tayfun Yiğit, who is the Chief Information Officer of the Index Group in Turkey; and the Index Group is a large distributor of computer products in Turkey.
Michael Krigsman: Tayfun, tell us about the Index Group.
Tayfun Yiğit: Okay. The Index Group is a 27-year-old company, and the number one, one-stop IT distributor in our country. We control around 40% of the market, and have been the leader of the market since 2000, which is around 16 years now. And, we work with approximately 4,000 - 4,500 channel partners. Last year’s global revenue was around $1.2 billion annually.
Michael Krigsman: So you have a 40% market share; that’s an extraordinary number!
Tayfun Yiğit: Yes, but there’s not much room for many distributors. So, the market is mainly controlled by the distributors appointed by our vendors ─ the brand owners like Lenovo, Asus, Apple; any brand you can imagine that is currently being distributed here in Turkey. So, that’s the business model for the vendors. So what they do is they appoint several distributors, and namely, we are one of them. And thankfully, we [have been] kind of the greatest for 16 years now.
Michael Krigsman: Now, I am sure that the market and the competitive landscape has changed very significantly over this period of time, and probably especially during the last 2, 3, 4, maybe 5 years. So, tell us about that, please.
Tayfun Yiğit: Yeah, exactly. You are very much right, and the margins are getting narrower every day, and it’s becoming more and more competitive every day. The distributors are seeking ways to do new methods of business in the markets for the larger market share. They compete with each other, and also trying to adapt to the consumer needs as days go by. So naturally, we experience all these issues firsthand and we must develop new methods, and ways to adapt to issues that we come across every day.
Michael Krigsman: So what are these methods and approaches? How are you managing and addressing the changes that have hit your industry?
Tayfun Yiğit: Okay, we have several responses to these issues. The first is we are trying to invest more and more into IT, and increase the efficiency of our resources ─ mainly human resources─ because, also, our cost is human resources. And so, we are trying to do business more efficiently through the facilities of IT operations. And, the second thing is we are trying to expand to new markets in our neighbors, the former Soviet Union markets, [which are the] historically Turkish origin countries like Azerbaijan, Georgia, and Uzbekistan, and similar countries like that. And, another thing we are doing is we are trying to align better with the consumer markets through investing resources into mobile computing - mostly mobile phones, tablets, phablets, and things like that. So, we are kind of trying to diversify and proliferate our services.
Michael Krigsman: It sounds like you’re undertaking business model changes that are pretty significant as well in this mix.
Tayfun Yiğit: That’s right, that’s right. The IT issue is kind of an important and hot issue for us because we migrated to SAP on January 1st of this year, 2016. And that was a big change for us because we used to run our in-house developed ERP system. And now, thanks to the large ecosystem and infrastructure provided by SAP, we are much more agile. So, Goal #1, achieved. We are improving our efficiency through the change in our IT infrastructure this way. And, another thing is we are reorganizing and re-engineering our business processes because things have to change and adapt to all these mentioned new developments. Human resources is kind of a key element in our job. So, what we are trying to do is we are trying to choose the right people for the right job. This is another trick maybe we use to adapt to our newly emerging requirements. So, of course, the new landscapes, the new countries, the new markets are natural and it’s standard sales and marketing thing we do like every company.
Michael Krigsman: When you say that you needed to become more agile, and you’re relying on your systems to help with that, can you elaborate on what specifically you mean by that? How does it directly impact the business?
Tayfun Yiğit: Okay, that’s a very nice question. Actually, the IT business requires lots of manpower and development efforts to put a new process into use. Every day, a new requirement comes up from our vendors, from our group of companies, the management teams, the sales force, etc., and our natural business expansion actions, etc. So, we have to develop and tweak our software every day. In the old days, this took a lot of time, and after we received a new requirement, the actual Go-Live, or the actual implementation took around, let’s say, four weeks. But now, thanks to this large infrastructure and ecosystem and plumbing provided by SAP, we kind of reduced this to approximately four days, comparatively. So, it’s a magnitude faster [when we develop] our systems depending on our requirements. So that’s a very large efficiency. With the same team, we output much more productivity, and products and services, to our clients, which is the company personnel and business.
Michael Krigsman: So, your business is based around people, as you said earlier; and so, it sounds like the consolidation of systems is enabling your people to get things done much faster, which of course, that level of efficiency can change your operations.
Tayfun Yiğit: Exactly, exactly. That’s the key issue. The efficiency was the main goal for us, and trying to do much more with the same, or even maybe less resources. Of course, the margin changes ─ the margin decreases ─ kind of forced us to take such similar actions. So, that’s a main issue: If you decrease the costs somehow, or if you increase your throughput, you will adapt to the decreasing margins problem.
Michael Krigsman: And this feeds into your shifting business model as well, I’m assuming?
Tayfun Yiğit: Of course, of course. Absolutely.
Michael Krigsman: I should ask you, are you cloud or on-premise?
Tayfun Yiğit: We are mainly on-premise. We are experimenting on cloud products and services, but we still do not rely on the communications infrastructure. The Internet connectivity here ─ it’s still not fast enough to achieve local access network speeds, and similar speeds. Also, there are some legal actions that need to be taken to make sure that your data is safe; your servers are safe; and your business will not be interrupted in any way through problems of the service provider or through other legal issues, etc. So, I think the cloud still needs some time to mature enough, especially in our environment, to make us feel comfortable enough to migrate entirely to the cloud.
Michael Krigsman: So it sounds like in Turkey, for the moment, on-premise is just a more practical option.
Tayfun Yiğit: Yeah, 90% of similar people like me think this way.
Michael Krigsman: What are the changes, the upcoming changes, that you anticipate in the market that are going to force you to respond?
Tayfun Yiğit: Yeah actually, the same trend that will probably continue. So, our net, our margins are going to get narrower every day, and the mobile rush, and the mobile popularity will increase every day. So, we will have to find ways and adapt to this issue. And we actually set up a company [that groups some of our] subsidiaries {to] concentrate solely on this mobile environment ─ the consumer mobile market. And, another initiative we have taken is we have kind of merged and placed around our contracts to make sure that one of our companies focuses solely on the value-added services like server storage services, database management products like Oracle, HANA, things like that. So naturally, value-added products and services kind of have higher margins. So that helps us to fight with the ever-decreasing profit margins much better.
Michael Krigsman: So your business model continues to evolve, it sounds, quite rapidly in fact.
Tayfun Yiğit: Exactly. Our market is a very interesting market, and let me try to illustrate it with an example: I’m going to mention some names, naturally, but let’s say the brand Apple takes a specific action to increase their sales, or to reach deeper channels, etc. In a week’s time, you will immediately observe that Samsung, or LG, or Huawei kind of take a similar action. So, you have to adapt very fast, because your vendors are acting very fast. So, agility is very, very important for us. That’s why I try to concentrate on that agility issue.
Michael Krigsman: And finally, as you have been through these changes, and these evolutions responding to the market, what are some of the lessons that you have learned? It’s always hard to change, and so, what can you share with us about your experience?
Tayfun Yiğit: Okay. That’s also okay; that’s also a great question, Michael and I will, of course, kind of touch on the issue of migrating to SAP a little bit when giving you these examples, because that’s the most significant change we have performed in the last year. It was a very important step for us also. Choosing the right partners is very important in this SAP ecosystem. So, it’s not easy to come across many qualified consultants every day in every consulting company, so it’s very important to wisely choose the right consultants for the right people.
And also, what we did was we kind of tried to train our troops, our internal team of developers, actually to pull themselves up by their bootstraps. They are trained as strong consultants and business consultants of SAP, and also developers of SAP. So, what we tried to do is to balance our resources to be more efficient this way by relying less on partners. [Or] maybe relying on them [for just] critical issues, and doing most of the legwork ourselves. We are saving lots of resources, actually, the time in terms of time. Because if you go to a developer consultant [for] a development project, it would take two weeks maybe. But if you do it in-house, it will take maybe two days, [which is] much less than two weeks, absolutely. So, it’s important that we kind of trained our team to be experts on this issue. This was an important lesson we learned.
And also, we really took advantage of many great training resources provided by the SAP ecosystem: One of them being the [SAP] Learning Hub ─ the portal of self-based training provided by SAP itself. [Another of them being there are] lots of e-books and books published mainly by SAP Press, actually. We really took great advantage of those resources.
Michael Krigsman: So for you, gaining the self-reliance through education has been extremely important.
Tayfun Yiğit: Yes, that’s right. That’s right, because it’s never enough to learn a lot about the SAP ecosystem. It’s a huge system, it’s a huge universe, actually. So, you have to be training yourself every day, and every day.