By: Dann Anthony Maurno
Hitachi is like no other Microsoft Dynamics partner, in that it implements solutions for manufacturers, and the parent company is a manufacturer that uses its own solutions.
Hitachi Ltd. is comprised of about 1,000 fairly autonomous companies, of which Hitachi Solutions America is one. “We ask new customers ‘When you hear Hitachi, what was your first experience, and what do you think of?'” says Hitachi Solutions America President Tom Galambos. “It’s everything from tape recorders to TVs and heavy equipment.”
Despite the consumer and industrial products image, information technology accounts for roughly a third of Hitachi Ltd. business, Galambos estimates.
However diverse the Japanese parent company, its subsidiaries are carefully chosen, synergistic, and carefully overseen.
While their parent company has added businesses in a range of sectors and geographies, Hitachi Solutions America has taken its own approach to acquisitions within the IT services space and the Microsoft channel to meet their strategic needs, while also aligning with a rigorous corporate culture. Galambos describes that strategy – how it serves Dynamics customers and channel partners, and how Microsoft partners of all sizes may best approach buy/sell decisions.
MSDynamicsWorld: Can you describe Hitachi Solutions America’s acquisition strategy dating back a few years, perhaps along those three traditional axes of growth – capabilities, geography, and customer base?
Tom Galambos: Going back a few years, the strategy for North America was to grow the business, and two years ago it was 100 percent around Dynamics AX and CRM. We stayed true to those product lines; we weren’t looking to get into the SMB market tied to NAV and GP.
Also, expansion in both our footprint across the US, and in critical mass; how do we add capability? We had a fairly broad presence across the US, so there were no hard criteria like “I want to find somebody in the Northeast”; it was more about adding critical mass around AX and CRM.
Then, looking for partners that fit our culture, had credibility, and [had] a strong business with strong leadership. In a perfect [situation] they came with real areas of expertise from an industry perspective that was synergistic to areas we were already in, or allowed us to crack into new markets.
The acquisition of Customer Effective in 2014 brought in quite a bit of capability around CRM, and real depth of industry experience in insurance and financial services. And it conveniently filled out the East Coast; we were more west-coast centric.
The Ignifiy acquisition about 18 months ago [with offices in the US, India, Philippines, Singapore, Thailand and Japan] added some other nuances to the business. We’d already built offshore capabilities, [and] it allowed us to greatly enhance the depth of our team offshore, which we leverage in the US and Canada. It also brought us expertise in retail and augmented our capability around AX.
Regarding those complementary areas, how do you make the build-versus-buy decision about a practice? Did you build your Internet of Things [IoT] and analytics practices through acquisition or develop those in-house?
It was a combination.
We picked up quite a depth of analytics expertise through our Ideaca acquisition [December, 2013], which was in Canada. They had a CRM practice, AX practice and an analytics practice. Then we consolidated our operations across North America, so we deliver those solutions across the US and Canada.
In IoT where our deep expertise in field service was really the crux, that was something we built as our own IP, including the IoT Predictive Services hub.
So along with acquisitions for IP, my R&D [operation] runs up to three to five percent of revenue in any given year, which is fairly substantial. So we not only acquire IP, we have our Innovation Center with full product management and product build [capabilities]. [This team] thinks about itself like a product company, an ISV that builds solutions that we then deliver through the broader Hitachi.
How about product; what are some factors of the make-versus-build decision? Perhaps a more rapid go-to-market?
It’s a combination.
Our fundamental go-to-market and business strategy is to be industry focused and differentiate with IP and unique Hitachi solutions.
On the “make” side, we have a set of solutions that we have built over time, and most of the make is around how we either enhance those or extend those.
Then we look at potential new areas of the business and perform a market evaluation to determine if we should make investments there to build product. For example, the talent solution that Microsoft has just released is complementary with some of our IP, so we’ll definitely pursue that as a line of business. Once we get into that space we’ll [decide], how do I need to further extend and differentiate there?
Our acquisition strategy around [product] is a mix. Early on, we probably looked more at where we need capability and capacity. We’ve now resolved the critical mass issue in the US, and I’m less interested in acquiring more Dynamics capability, but very interested in acquiring more capability in the broader Microsoft ecosystem – extending our Azure and analytics capabilities. But within Dynamics, a target [would be] somebody with some very unique IP that I could leverage greatly, given our base capability.
It’s opportunistic. It’s either a fit into an area that we have, or a market leader in a segment that would move us into a top position.
Can you describe your near-term acquisition plans?
Outside of North America, we’re definitely moving into western Europe, and that’s going to be more around capability and footprint. I’ve already started operations in France, we’re moving into Germany, extending our presence in the UK, and in Southeast Asia we’re moving into Australia and New Zealand. Then here in the US and Canada, as I mentioned, I’m very focused within the next 12 to 18 months on enhancing capability in complementary solutions which would further our data and analytics business, and our Azure and platform competencies.
The rash of consolidation in the Dynamics channel seems to have sped up with Dynamics 365. Is the channel environment a seller’s market? A buyer’s market?
I think it’s frankly a bit of a buyer’s market.
If you look at One Commercial Partner and the way both partners and even Microsoft will manage the customer base, I would say especially around D365, [Microsoft’s preference is moving] towards working with bigger partners that can do more than just one thing. That is, who can do more than just deliver CRM, now called Customer Engagement.
But if I were an owner of a smaller partner, [I would] need to decide if I want to stick with and grow the business and make sure I have a data and analytics story, and understand Azure and work in the cloud; or look for somebody I can join up with. If you’re Dynamics only, one of your opportunities may be to find someone with an Azure business and no Dynamics. Where there’s synergy, there’s opportunity for sellers.
We’re very bullish on the direction that Microsoft is headed [although it] is putting more of a burden on us in terms of technical readiness and investment to maintain that, which is shifting the business model.
So while there’s great opportunity, [partners] have to decide which direction they want to go – join up or go it on your own? I have a mandate to go get the business to half a billion dollars in a fairly tight timeline, so we’re one hundred percent committed to really grow this business globally and I see it is opportunity there for us moving forward. We’re excited.