Pioneer-Standard Electronics: Newest kid on the block

New CEO—actually a 20-year company veteran—begins tenure at Pioneer-Standard

By Heidi Elliott -- Movers & Shakers, 8/15/2002

The new face at Pioneer-Standard Electronics is actually one that is quite familiar. Arthur Rhein took over as CEO of the Cleveland-based distributor in April of this year, and while he’s still adjusting to the new title, Rhein is no stranger to distribution.

“We are going to innovate and differentiate. Ultimately, we have to improve shareholder value.” Arthur Rhein, CEO, Pioneer-Standard

He has served as president and COO of the company since 1997. During his 20 years with Pioneer-Standard, Rhein held a variety of senior-level positions with increasing responsibilities in business management, operations, marketing, and sales. He was named to the Board of Directors in 1990, expanded his responsibilities to include sales in 1991, and later was elected president and COO.

 Rhein succeeds James L Bayman as CEO. Bayman will continue as chairman of the board through March 2003. “He’s a real bright capable guy,” says analyst Clarke Walser of Walser & Associates, speaking of the new leader. “I think you’re going to see a more outgoing guy at [the helm of] Pioneer.”

For his part, Rhein says he and Bayman have different personalities and different approaches to business, differences which complemented one another well. “Jim and I have been working together for 20 years,” Rhein says. “Jim is an engineer. He may have a bit of a bias for structure. My background is in marketing and sales and I tend to rely more on instinct. Jim and I have made a great team.” Rhein also notes that the current members of the management team balance out his own strengths and weaknesses.

Pioneer is set apart from its contemporaries by its business mix, which is nearly evenly split between selling computer systems (52 percent) and electronic components. This gives the company a bit of an edge in the eyes of potential investors who may be wary of the severe ups and downs of the semiconductor market.

“Pioneer-Standard’s business mix is a little bit different,” says Brian Alexander, equity analyst with Raymond James. He contends that Pioneer-Standard is a more defensive play from an investor’s standpoint. “Because they have less cyclicality in their business, they are in a better position to maintain profitability. They’ve done a great job managing their business.”

An issue for Pioneer is its lack of true global scale. One significant criticism analysts level at Pioneer-Standard is that it did not leap into the acquisition game that shaped the current distribution industry. Arrow and Avnet made scores of acquisitions over the years, turning themselves into global entities and building their revenues to a level billions of dollars higher than the next group of competitors, including Pioneer-Standard.

For its part, Pioneer-Standard has not made more than a few acquisitions and is still almost exclusively a North American distributor. In 2001, the company reported that only 1 percent of its sales were from outside North America. Nevertheless, the company does have alliance partners in Europe and Asia, which gives it access to international markets.

Pioneer-Standard Electron World Components Group is made up of Pioneer-Standard, Eurodis Electron PLC in Europe, and World Peace Industrial Co Ltd in Asia. Together, the group can act like a global entity. “The international issue is still there...but I would personally like to see a more formal integration of these operations—that’s my advice to Art,” Alexander says.

Perhaps the biggest challenge, for Pioneer-Standard, and the distribution industry at large, is achieving growth at sustainable levels of profitability. Rhein’s priorities include long-term growth. “We are going to innovate and differentiate,” he says. “Ultimately, we have to improve shareholder value.”

“The fee-based strategy is an essential element to [Pioneer’s] corporate strategy. Art has really put a stake in the dirt here.” Tom Pitera, President, Industrial Electronics Division, Pioneer-Standard

One of the ways the company is doing that is by jumping on the fee-for-service bandwagon. Pioneer recently launched its own menu of fee-based services, joining Arrow and Avnet in trying to improve profitability by charging for supply-chain related services. Pioneer’s services, like that of its rivals, focus on improving the current inefficiencies in the electronics-industry supply chain, from the design-inception phase through volume production.

“The fee-based strategy is an essential element to [Pioneer’s] corporate strategy,” says Tom Pitera, president of the company’s Industrial Electronics Division. “Art has really put a stake in the dirt here.”