Many organizations pride themselves
on the number of partners they can list in their company marketing
materials or web sites. Manufacturers and resellers,
alike, seem to race in acquiring partners, often with quantity
overwhelming quality. We believe many companies have too many
partners and would become more effective by reducing the number of
partners, developing relationships that drive the highest levels of
performance and profitability for each organization.
Sometimes criteria for partner
selection seems to be the ability to “fog a mirror.” Often, the
ultimate objective of the partnership seems to be the press
release. Too many times, we’ve seen manufacturers and resellers
alike, seek partners not for their commitment to sell and drive
business growth but to add prestigious brands and logos to their
We have long counseled our clients
to develop “just enough” quality partnerships. What does this
mean? How do we build strong partner channels that maximize the
profitability for each party?
How Does The Partnership Create and
Partnerships, whether channel,
strategic, technology or other forms are about creating value. If
they don’t create value, then they are driving costs. In
determining the value of the partnership, it is useful to look at
the value delivery chain.
First, what value does each partner
contribute to the final customer solution?
The key reason for any partnership
is that each partner contributes value in addressing customer needs,
providing justified solutions and driving revenue. Product
manufacturers may provide products which are complemented by the
services provided by
distributors and resellers (i.e. industry knowledge/expertise,
implementation and support, etc.) Together they create a solution
to the customer business problem. If each partner does not add
value in delivering the ultimate solution to the partner, then they
are only adding cost and inefficiency.
partner must create value for the other partners. Without this, it
is impossible to deliver differentiated value to the customers.
Manufacturers provide products,
partner programs, marketing,
support, and other capabilities designed to help the channel
partners be more effective and efficient in selling their products.
Distributors provide a broad catalog of products, single point of order,
invoicing, and many other services that reduce the costs for
manufacturers and resellers. Resellers provide customer access,
knowledge, industry and applications expertise, geographic presence, a
portfolio of products and services that enable them to efficiently and
effectively reach the customers. Each organization involved in the value
delivery chain must create value for the other partners in the chain.
Without this, they are creating cost and will be lose in the competitive
In developing and executing the channel
or partnering strategies, each party must carefully understand their
role in creating and delivering value—for each other and for the
ultimate customer. If the value cannot be articulated in a compelling
manner, if it cannot be quantified, then the relationship is not likely
to be profitable or sustainable over time.
Size Matters, But It’s Performance
Traditionally, resellers and integrators
used to focus on developing relationships with the “800 pound
gorilla’s,” establishing partnerships with the Microsoft’s, Cisco’s,
HP’s and other leaders. Likewise, manufacturers focused on establishing
relationships with the “heavy hitters” in the channel, often seeking
relationships with the Accenture’s, PWC’s, IBM Global Services’, and
other big names in the channel.
It would be naïve to suggest size is not
important. The big players can bring resources to bear, leverage
powerful brands, reputations, and other factors that make them important
in many circumstances. However, we believe there several other factors
that drive greater levels of profitability and productivity.
Partnerships should be evaluated based
on performance versus their potential. Effective partners perform in a
manner consistent with their potential. While larger organizations may
have raw numbers are very high, their potential may be far higher.
Sometimes smaller organizations are making a greater commitment and
performing, relatively, at a much higher level, but are receive less
attention and focus.
There are many ways to “level the
playing field” in comparing performance to potential of large and small
players alike. Simple techniques might be percentage of sales or
support people certified in products, compared to total population of
sales and support people. Another might be average sales/partner
employee or profit/partner employee.
We believe one of the most important
areas of partner improvement is in the area of achieving alignment
between realized performance and potential. Our research indicates
partners performing to their potential drive the greatest profitability,
for themselves and their partners.
Traditionally, many partner programs
have favored the largest organizations producing the greatest raw
performance. Smaller organizations with greater levels of commitment
and investment in the partnership are often disadvantaged in discount
levels, incentive programs, support, MDF and other areas because their
size precludes them from being able to perform at the same raw dollar
levels of the giants.
Many leading manufacturers, using
channels, are recognizing this by measuring their partners differently,
so that raw size and raw revenue performance is no longer the only
factor used in evaluating partner performance.
We believe manufacturers are best served
by prioritizing their investments in developing the channel first to
those partners who are performing close to their potential, second to
invest in programs that help lower performers reach their potential.
For those partners that are at the bottom of the performance/potential
balance and are not improving, we believe those partnerships bring
little value to either party or their mutual customers and should be
Likewise, resellers should look at the
performance and potential of their manufacturer partners. Simple
measures include product line profitability and share growth (within the
reseller’s customer base.). There are a number of other measures
including channel program effectiveness, product line fit (with other
products, services, target markets, and reseller capabilities.), and
One reseller client encapsulated their
evaluation of their manufacturers in a metric they labeled the “hassle
factor.” Loosely, this was a rough profitability measure weighted by
the “ease of doing business” with the manufacturer. This organization
actually ended up terminating the relationship with one of their larger
manufacturers because of a very high “hassle factor.” They found they
produced better results by shifting their focus and resources to
partners with lower hassle factors.
The Importance Of Being Important.
For partnerships to work, each party
should be important to the other. Simply put, unimportant partners
will never get sufficient attention or support to be effective and will
probably not achieve their goals in the partnership. This doesn’t mean
a reseller must have personal relationships with Bill Gates, John
Chambers, or Carly Fiorina, you have no chance of developing good
partnerships with their organizations. Likewise with manufacturers, you
don’t necessarily have to have relationships with the top executives of
the reseller organizations to have effective partnerships with their
It is critical to be important within
parts of the organization. For example, resellers want to be important
to the key product managers and sales managers for the manufacturers
they represent. Small manufacturers want to be important to the part of
the reseller organization directly responsible for their target
customers and markets. For example, we worked with a small software
company, focusing on telecommunications software solutions. We sought
to develop relationships with the practice leaders of key systems
integrators in a few geographic regions. For example, they would never
be important or a significant contributor to business for one of the
largest integrators, globally, but they could become a very big
contributor to the “next generation communications practice” in North
America and Europe. We sought to develop strong and important
partnerships with the key people in those organizations.
Likewise, we worked with a very small
systems integrator in developing a strategic partnership with a large
enterprise software developer. This integrator had a unique
relationship with key companies in the automotive industry, giving the
software developer better access to this niche than they could achieve
with other partners.
Nothing Is Free, Every Partnership Has
Real Costs, Make Sure You Achieve The Return You Expect On The
I’m surprised by the number of business
people who don’t understand the costs involved in developing and
maintaining partnerships. This usually comes from people who have a
“sign ‘em and forget ‘em” approach to partner programs.
There is no fat in any organization’s
budget. Every dollar/euro/yen invested in developing, managing, and
supporting the partnership must produce the highest possible return.
Supporting relationships that don’t produce results are a drain on the
Every relationship established creates
new costs—opportunity costs, expense, management time and resource. The
opportunity cost in developing, managing and supporting a relationship
prevent you from taking advantage of other opportunities. There are
direct expenses for all partnerships, costs of implementing programs,
training, materials and other items. There are indirect expenses in
terms of management time and resource consumed. There also may be
reputation costs. A bad partner can adversely impact the brand or
Every relationship must be evaluated in
terms of its cost and the return. ROI on partnership criteria need to
be established. Those partnerships that do not produce the desired
return should be terminated.
How Many Is “Just Enough?”
Like every consultant, I’ll give a
definitive answer to this question: It Depends!
The ideal number of partnerships will
vary by company and will vary over time. Manufacturers will want enough
partnerships to effectively, efficiently, and profitably reach their end
customers and target markets. Too many partners addressing the same
markets and customers produces disastrous results.
We worked with one software company that
was terribly over distributed. Their partners competed against each
other for business, more than they competed with the competitors.
Margins plummeted, customer and partner satisfaction declined, costs
skyrocketed, and they started losing significant share to their
competition. Once our client reduced the number of resellers by over
60%, producing dramatic recoveries in all of the areas highlighted
For resellers, too many partners also
produces terrible results. The focus of the people becomes diluted.
Their knowledge, expertise, and ability to create real value to their
customers can decrease. Costs in supporting too many suppliers
For some reason, manufacturers and
resellers still seem focused on quantity of partnerships. I still see
companies having many 1000’s of resellers and wonder if they might be
more effective and more profitable in focusing their efforts through a
much smaller number. For some organizations this may be appropriate,
but my suspicion is that for a large number of manufacturers a smaller
number of reseller partners may produce better results.
Likewise, I get concerned when I see
resellers (other than retailers and distribution) that have dozens to
hundreds of product lines to sell. How can they train their people and
adequately support that number of products? How can they be
knowledgeable enough about all the products to produce real value for
their customers and for their manufacturer partners? Perhaps the very
large resellers and integrators with 1000’s of people can support
product lines of this breadth, but I believe most B2B resellers need to
dramatically reduce their portfolios, focusing on a small number of
product lines in each major category and focusing their solution
capability into a small number of categories.
No, Arnold Schwarzenegger is busy as
governor of California, he’s not doing another movie. I’m advocating
thoughtful termination of many relationships, by both manufacturers and
In the past, there has been a tendency
for organizations not to terminate partnerships. The tendency has been
to let them whither through inattention and neglect. Yet, somehow the
partnerships are still maintained.
We think it is time for serious
pruning. Stop wasting time, ink, resources and energy on partnerships
that don’t produce the desired return. If they are not producing good
return for you, they probably are not producing good return for the
partner, as well.
Focus your attention and resources on
assuring each remaining partner is performing to their full potential
and that each investment made by you and your partner is creating the
greatest possible return.
Partner profitability is one of the hot
topics in channel management and partner development. To some degree,
it’s surprising to me this is getting so much play, it’s been an
implicit part of channel and partnership development forever. I think
the attention to partner profitability has risen as the tools to measure
profitability have improved.
Partner profitability is critical to
developing high performance relationships. As mentioned earlier,
nothing is free. Any partnership relationship requires investment on
both sides, each partner is investing time, resources, money, management
talent in establishing and building the relationship. Profitability can
be measured in quantitative ways and qualitative means.
Developing and implementing programs
that help your partners maximize profitability is and important element
of the partner profitability model. Analyzing each investment in
partners and partner programs that you make and maximizing the return on
those investments will improve your own profitability.
It is critical that each partner
establishes metrics and goals by which to evaluate their own business
and that of their partner. If the partnership fails to achieve the
goals, and cannot be corrected by investments by both parties, then the
relationship should be terminated.
We believe that this investment or
profitability orientation will drive greater customization of the
relationships and programs between each partner. Companies will make
program investment decisions based on specific capabilities and
anticipated results of the partner, not a category of partners. “One
size fits all” approaches, or even tiered approaches will evolve into
“one-to-one” relationships. Through one-to-one partner management, each
partner will drive higher levels of performance.
Building and maintaining effective
partnerships are investments. It is important that each party protects
those investments, building and improving those that produce superior
results or the greatest return and eliminating those that do not provide
For more information on managing your
partners for their and your profitability, contact Partners In
EXCELLENCE for support. Our channel profitability assessments and
related programs have produced dramatic results for many organizations,
they can produce tremendous results for you.
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