Not long ago, channel partners tended to fall into two camps: those primarily engaged in transaction-client relationships and those who believed (or wished to believe) that their customer relationships were consultative and advisory.
Today, the channel window has changed. Forget the “trusted advisor” moniker; become a “success partner” because shared risk agreements are reshaping the channel landscape.
Shared Risk, Shared Success: The New Channel Paradigm
Techaisle has seen a rise in outcome-based relationships – in which customers define their target objective (rather than issuing an RFP detailing a specific set of products) – and shared risk agreements, in which the client contracts for a specific outcome (often, one which is tied in some way to financial metrics), where the partner is paid on achievement of the goal rather than delivery of a bundle of technology.
Techaisle’s recent Channel Survey confirms that this migration is well underway. Across all 2,115 channel partners, more than 45% describe their current “relationship philosophy” as outcome-based or shared risk. These new relationship models are best established in the MSP community, where shared risk is a primary philosophy for more than one-third of the survey’s MSPs, with an additional 23% reporting that they primarily engage in outcome-focused agreements.
Shared risk is also a critical relationship model for SIs. This seems like a logical step forward; SIs have often been targets of complaints about solution timeliness or completeness, and a shared-risk agreement helps forestall these potential objections. In contrast, VARs are only half as likely as SIs to pursue shared risk agreements; they are far more likely than any other channel group to establish transactional relationships.
The End of "Trusted Advisor"? Why Channel Partners Must Embrace Shared Risk for Mutual Success
There are few more cherished channel objectives than attaining the position of being a 'trusted advisor' to clients. The phrase connotes a relationship rooted in respect, where the channel partner provides sage counsel to clients who rely on the partner for technology and strategy. Channel partners who act as trusted advisors can direct client attention and investments in ways that enhance the long-term relationship between supplier and buyer.
Users recognize the value of advisory services. More than three-quarters believe that there is a real advantage in a supplier's ability to respond to business pain points with helpful advice. 71% report that a partner that "listens to business needs and guides a customer towards the right technology solution" provides a vital service. Nearly two-thirds believe that a firm that "shares vision and partnership with both IT and business units" facilitates outcomes important to supplier selection.
These findings reinforce channel partners' focus on developing a trusted advisor position. However, a close look reveals an essential distinction between the advisor and client positions. Except if the supplier's advice is so poor over time that the buyer severs the relationship, the customer takes all financial risk associated with decisions based on the channel partner's input. An advisor may identify increased efficiency, cost reduction, or the ability to upsell/cross-sell products as the reason for investing in a solution. Still, at the point of the transaction, the buyer pays for a combination of hardware, software, and services. Any guarantees are tied to technology uptime and performance. Rarely, if ever, is pricing contingent on the buyer's ability to capture the anticipated benefits.
Procurement's Shift: How Shared Risk Contracts Are Reshaping Buyer-Channel Relationships
Cloud began to chip away at this risk imbalance with its monthly billing approach – customers who didn't believe they were receiving sufficient value could, in many cases, terminate contracts and switch suppliers. Techaisle’s corresponding SMB, Core Midmarket, and Upper Midmarket surveys reveal that 18% of firms plan to change their MSPs in 2024. As business decision-makers influence continues to increase, and as digital transformation projects shift even more emphasis onto business rather than technical objectives, we expect suppliers to begin to structure contracts that offer customers lower up-front or monthly costs but call for additional payments when solution objectives are realized.
As the buyer community increasingly demands outcome-focused project definitions, procurement departments will adopt shared-risk approaches to optimize the impact and value of systems that deliver new business functionality. In response, many channel partners will deliver via as-a-service (aaS) contracts, taking broad responsibility for specific technologies while establishing clear lines demarcating out-of-scope functions. These aaS/hybrid approaches to outcome-focused, shared-risk engagements will unlock significant growth potential – particularly in enabling the channel to build strategic relationships with procurement. However, they will strain the channel’s already-stretched resources, requiring new skills in negotiation, solution scoping, contracting, delivery, success measurement, and supplier management.
Shared Risk, Shared Success: The New Channel Paradigm
As this contacting approach becomes more common, we expect it will attract customers. As 'meaningful' (shared risk) customer partnership deals attract interest, even reticent suppliers must respond with similar offerings. More than half of channel partners (both in the US and worldwide) claim to have already transitioned from 'trusted advisor' to meaningful customer partnerships. Even if few of these firms are backing these partnerships with shared-risk contracts, there appears to be broad recognition of the importance of a partnership-based approach to client relationships. In time, this should prompt buyers and suppliers to begin looking at extending this notion of partnership into the structure of the agreements they strike. It is not an overnight transformation. To make the transition, executive leaders at channel businesses must commit at an executive level to business strategies and contract terms consistent with shared risk. At the same time, their vendor suppliers focus on metrics that prioritize and incentivize lifetime customer value.
For decades, channel partners have aspired to achieve 'trusted advisor' relationships with their clients; the concept is so ingrained that it is nearly impossible to separate the notion of 'trusted advisor' from the broader sense of VAR. But if the market is moving from value addition by the channel to value creation for the customer, isn't it essential to progress beyond 'trusted partner' status to becoming, in a meaningful sense, a partner of the customer invested in the client's business success?
The nature of the sales relationship will be a critical determinant of channel success. When all channel partners call themselves "advisors," no differentiation will be left across partners; focus on being a meaningful customer partner delivering customer success.
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