Channel is okay. Channel is not okay. The answer depends upon whose perspective you listen to, how they define channels and how they are measuring channel transformation. Techaisle studied 814 US channel partners with revenue ranging from US$500K to US$50M and number of employees from 9 to 1200. Measured against 12 points of Techaisle’s channel transformation imperatives, only 5 percent of partners are nearing completion of their transformation journey. Data also shows that the channel transformation is split right in the middle. 52 percent of partners are transformation followers and 48 percent are transformation leaders. 45 percent of partners are in initial stages of transformation working on an average of 5.3 of the 12 imperatives.
Most vendors including Microsoft, SAP, IBM, Cisco and distributors such as Ingram Micro are focusing their efforts in helping their partners transform their business models but the channel has been slow to adapt to rapidly changing environment.
Let us discuss three areas that are priorities for IT suppliers, where channel is falling short and what is Techaisle’s recommended transformation timeline.
1. Transforming from “sales quota” to “book of business”
58 percent of partners are focused on sales quotas with either none or skeletal business goals and inadequate strategy to maximize revenue from their current clients. Techaisle’s assertion is that by 2022, 100 percent of channel partners should have implemented at least one of three sales rep compensation models and vendor metrics for SPIFs should be designed to support recurring revenue compensation structure.
Most traditional channel organizations have been built on a conventional IT sales approach, in which sales reps are given quotas, and where some portion of the quota is retired with each new sale. Reps who exceed quota get overachievement bonuses, while those who fall short lose part of their variable compensation, and may be in danger of being replaced.
This approach works well in an environment where the value of the contract is defined at signing, and where the amount owed is collected in a limited period of time, and against one or a limited number of discrete invoices. It does not work nearly as well when a client’s payments are received over a multi-year period, and where there is no master invoice defining total accounts receivable in a deal. In this situation, the channel organization can only pay the sales rep on a limited proportion (a month, a quarter, perhaps a year) of anticipated total revenue. The contract will define payments stretching over a period of time, but account value may vary (up or down) over the contract period – and few channel businesses have the resources or inclination to pre-pay commissions based on future expectations.
To align with the basic revenue model, cloud businesses often view sales commissions as tied to a book of business, in much the same way that insurance reps are paid: each contract results in a small monthly contribution to the rep’s variable compensation, and the sum of these payments increases over time. This is a very difficult proposition to present to seasoned reps who have substantial quotas and variable compensation expectations – and that in turn is one of the reasons why established channel businesses are having difficulty in migrating away from product sales to hybrid/cloud sales.
2. Transforming from “value addition” to “value creation”
Only 46 percent of partners are focused on customer value creation. It is clear that today’s IT industry is comprised of many moving pieces. Buyer’s options have expanded; with the increased involvement of non-IT managers, the buyer community has expanded; and with the channel’s struggle to understand and act on the new cloud-driven demands of a post-transactional IT market, the supply chain itself is undergoing tremendous change. Techaisle’s assertion is that by 2020, 100 percent of channel partners should predominantly be selling to line-of-business buyers and vendors should own the responsibility to train channels to use business language delivering business outcomes.
The notion that channel businesses need to add value to remain viable is as old as most of the people employed within the channel itself. What, though, is the nature of that traditional value-add? In some cases, it is straightforward logistics – time and place of delivery of a product. In others, it is the addition of memory or storage to a central processor, the installation of software, the implementation of a system at a customer location, the provision of management services, or some similar type of activity.
Each of these value-adds has an important factor in common – it looks at what the channel does to enhance its own revenue stream or differentiation. None looks at the issue from the other direction: in what ways do the products and services delivered create value for the channel’s customer? What is my client able to do differently or faster, or more efficiently in a way that enhances their revenue stream or differentiation? In an era of ‘good enough’ technology, customers are not especially interested in optimizing the performance of their hardware and software widgets – they are focused on improving the performance of their businesses.
3. Transforming from “lead generation” to “digital discovery”
53 percent of channel partners are still focused on traditional lead generation processes (referrals from vendors, distributors and customers) as opposed to investing in digital discovery. In fact, 52 percent rely on distributors, 51 percent on vendors and 49 percent on customers. Only 20 percent have been successful in generating leads through digital discovery. These data points on lead generation trends have not moved in the last 3 years indicating that channel’s lead generation process has a heavy reliance on its vendor partners.
It is Techaisle’s assertion that by the end of 2019 every channel partner must participate in digital marketing and be able to generate leads through long-tail content and vendors should support discovery programs.
Lead generation is at the core of many channel businesses’ marketing activities, and is central to the connection between channel organizations and their suppliers: the channel relies on vendor funding and programs for lead generation, and evaluates vendors at least in part on their delivery of leads. But the campaign approach to driving new customer engagement – in which a supplier drives out a message to a large number of ‘suspects’, and then identifies those with a need and capacity to purchase – is no longer as prevalent as a model that begins with internal (to the customer) research and ends with contact between a prospective customer and a potential supplier. Techaisle research shows that 50 percent of purchase decision process is completed prior to first contact with a channel partner. An extensive (expensive) lead generation campaign will likely uncover some ‘ready to buy’ accounts, but this is less a matter of developing opportunities than of identifying established demand.
If the customer journey begins with research conducted via the web, the marketing imperative begins with digital discovery – the ability to be identified as a source (of value, or partnership, of innovative offerings) in the early stages of the research. This requires the channel marketing team to invest in thought leadership in key business areas, in the tactics (SEO, re-targeting, etc.) needed to put thought leadership messages in front of prospective customers, and in the processes needed to nurture new contacts to the point where they become sales-ready leads. Leaders at traditional channel organizations will recognize this end point – but the process required to arrive at this point is much different in the post-transactional world.
Techaisle’s channel advisory service provides facts that channel executives need to navigate the future, insight into what must be done to ensure a viable path forward and how can vendors work with channels to help boost momentum at today’s critical business juncture. Techaisle’s channel research leverages network of 250K channel partners across 20 countries which can be utilized for custom quantitative/ qualitative research and channel recruitment/expansion.
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