Digi-Key Electronics has a fat target on its back. Design engineers love it but rivals also both admire and begrudge its tight relationship with designers. It’s a well-earned reputation but with competitors snapping at its heels Digi-Key’s management say they are doubling down on the technology and service innovations that have set the company apart from competitors.
In the next several months, suppliers and customers will see Digi-Key respond to changing market conditions by introducing innovative programs and applications that will showcase new ways of interacting with the company’s varied audiences who themselves are using new technology tools in their businesses and private lives or that are being wooed with competing services from non-traditional rivals like Amazon.com, according to newly appointed president Dave Doherty.
“Digi-Key has great brand awareness and this is a strength but it is also a privilege that we don’t take lightly,” Doherty said in an interview. “We’ve got a history of excellence, a passion for customer service and unparalleled reach to customers. We highly regard the trust customers have put in us and take it as a huge responsibility to continue to serve them to meet their needs. But we know we have a target on our back and that the competition is watching us. That’s why we keep watching the design engineering community and reacting quickly to them, trying to set the tone and keep the base.”
Digi-Key isn’t about to dramatically change its operations. In fact, many of the company’s customers and suppliers will hardly notice the departure of Mark Larson, Digi-Key’s long-term president, since the new leadership had worked under the industry veteran for years and also because the changes would be introduced and implemented incrementally by the distributor. Also, as Doherty pointed out, Larson is staying on as a special advisor to CEO and founder Ron Stordahl and also as a member of the company’s board of directors.
“Mark was our inspirational leader for 40 years and we’ve had a single person, Ron Stordahl, as our founder who has also been the sole owner since inception,” Doherty said. “That continuity provides the strong foundation we need for service and growth.”
It would be foolhardy to believe Digi-Key won’t change at all under Doherty, however. Even if the new management doesn’t want to tamper with the structure and system Larson used to power the company into a nearly $2 billion enterprise, external factors over which Digi-Key has limited control are at play and the company must respond to these, Doherty acknowledged. One such force is Amazon.com, which in recent months entered the component distribution business and is poised to play a disruptive role in the market. Additionally, customers are applying lessons from the consumer and retail markets to B2B transactions and distributors must respond to this, according to Doherty.
The distribution industry is certainly grappling with challenges that are vastly different from the ones Larson and Stordahl faced in the earlier years of the company’s operation. From supplying components to engineers interested in designing early radios, distributors now service broad swathes of the global economy due to the penetration of technologies and electronics into more manufacturing sectors. Furthermore, the electronics market has become a global business with design and manufacturing occurring across multiple continents, all of which the distributor must serve with the same level of service and efficiency.
Old and New Tools for New Challenges
These changes have created new challenges related to the need for specialized offerings and services but they’ve also opened up new opportunities for companies that can nimbly navigate the market, respond swiftly to changing demands and provide innovative services. While still useful, however, the old tools distributors use to service customers and component suppliers, are no longer quite as effective, according to Doherty. New tools and offerings must be developed and the older ones optimized or discarded where necessary because “we can’t operate in a vacuum and pretend change isn’t happening around us, he said.
Doherty believes “it could be dangerous” if companies in the electronics industry meet the current surge of changes gripping the economy with apathy. For distributors like Digi-Key, competitive infiltrations by some companies from outside the industry create systemic challenges as well as opportunities, Doherty said. He cites the example of Amazon.com and eBay that have altered the dynamics of how buyers engage with sellers and in the process changed how enterprises engage with each other. The roles marketing companies like these play and the innovative changes they are implementing will have significant implications on the electronics industry, he said.
“Amazon and eBay have changed the rules on user functionality and we shouldn’t believe consumers will search for hotels, airlines and other conveniences in one way [online] but then operate with us the way they have always done,” Doherty said in an interview. “That’s not accurate. It’s dangerous to think that way. We have to put ourselves in a mode where we are continually evolving. It’s a very dynamic industry and we are ready to react to the changing desires and needs of the customer and how they consume data.”
Digi-Key recently marked the 20th anniversary of its presence online was one of the first to embrace the internet for trading and it has stamped its imprint online emphatically with a range of industry-leading services and offerings. Today, many of the company’s competitors in the component distribution business are in a race to match its vaunted prowess and engagement with design engineers, especially. Technology isn’t static, however, and two decades after launching its first website, Digi-Key finds itself once more exploring how to use recent innovations to chart a new and more dynamic future for itself, component vendors and customers, according to senior executives at the company.
“We’re going to see everything continue to change at an accelerated pace from static material to video and from desktop to mobile platform,” said Doherty. “We’re going to see new competitors out there, companies like Amazon that are launching B2B platforms. It’s easy to say you’re going to stay the course but you can’t do it blindfolded because it’s a dynamic economy.”
The technological shift roiling the worldwide economy and the electronics industry is happening just as Digi-Key itself is also experience a generational shift in executive power. Doherty recently assumed the role of president from Larson, a venerated executive who held the position for nearly 40 years during which he built it into a mid-size industry enterprise and established many of the best practices now associated with Digi-Key. As Larson steps down he can happily point to various achievements under his leadership, including giddy revenue growth in the last years that has pushed sales to nearly $2 billion, a widening global presence and a reputation as one of the go-to sites for design engineers.
What new direction will Digi-Key take under Doherty, however, and how will he and the other members of the current management transition the company from Larson’s leadership to face a market that’s become even more dynamic than when it was founded? Doherty says the company is going to build on the foundation laid by Larson and owner Stordahl.
That continuity will be critical due to the high level of respect other executives in the industry have for Larson. However, the transition had been planned for quite a while even though the company didn’t announce it until recently. Internally, Digi-Key had been steadily building the next group of senior managers that would take over from Larson. They include Chris Beeson, executive VP of sales and supplier management, Chris Lauer, head of packaging; Kevin Brown, VP, global brand management and; Randy Restle who leads the company’s applications engineering team and is responsible for many of its technological outreaches to design engineers.
Doherty said Digi-Key has in recent years added folks to beef up its IT team and is looking to hire a senior executive to fill a vacancy in the marketing department. These executives lead a rapidly growing employee base that now numbers above 3,400 and which continues to add key staffers in other global regions.
While Larson might have dreamed of and began executing the global expansion of Digi-Key, the process is likely to accelerate rapidly under Doherty due to changes in the market and the need for the company to reach and service engineers outside of its current major markets. Digi-Key has recently incorporated its European division and is reviewing formally incorporating the Asian division soon. These steps have been taken to ensure customers and suppliers see the company as a global enterprise with a local touch, Doherty said.
“I don’t want us to be thought of as just a North American distributor that has a warehouse in the United States that is able to ship parts anywhere globally,” Doherty said. “I want engineers in Germany, China or Japan to meet with us as partners in the local economies and the local designs in the same way the North American engineers have come to trust us over the last 40 years.”
In order to achieve this goal, Doherty said Digi-Key will continue to listen to its customers while partnering with suppliers in key technology areas. The company is also exploring and investing in new technology areas and boosting the number of suppliers it represents in these emerging markets. While Digi-Key may not change its operating system of shipping products to customers worldwide from a single location in Thief Rivers Fall, Minn., it will remain responsive to customers’ needs and localize some of the services offered, according to Doherty.
“We are in a service industry. We don’t make anything but we help a supplier bring products to a customer where the innovation takes place so we have to be the guys providing service that add value,” he added. “We are a part of the ecosystem so we have to be nimble, aggressive and innovative. We listen to customers, react quickly, and implement changes on the websites for what they want, make changes in the delivery system and changes in the services that we provide from the warehouse. The companies that innovate are the ones that listen to customers and react quickest to their demands.”