Managing Channel Partnerships

The best channel organizations plot channel strategy the way a pool player
does. He never shoots the shot that sits before him on the table; he is thinking
five to ten shots down the table. Vendors need to emulate this when they mull
over their channel strategies.

Indian vendors and channel partners are constantly redefining their markets
and business models. One such major shift occurred when the market moved from a
volume to value model a few years ago. Channel partners were keen to move up
from the box-pushing role and vendors began investing a fair amount in training
initiatives.

While attempting to reinvent the role of the channel partner however, the
benchmark of success still seemed to be the number of unit sales notched up per
quarter. "And why not?" most vendors would say at this juncture. Isn't
the end objective of training a channel partner to finally increase the bottom
line? Yes, of course, but what most vendors tend to lose sight of in a bid to
realize near term gains, is the more strategic objective of developing a value
model in the first place.

Timelines to success

The value model was a natural progression of a maturing market. In an era of
diminishing margins, it appeared to be the next driver of growth. The model
allowed channel partners to move up the value chain.

The most effective channel organizations are those who have longer gestation
periods for success. Vendors should be prepared for making decisions and
investments today that will only pay off two to three years down the line.

Therefore it becomes imperative for a company to adopt a customer-focused
strategy, rather than a product limited one. The essence of a value model and
its core difference from that of a volume model is the fact that the customer
drives the former and the business drives the latter.

Putting theory into practice

While most vendors would readily agree to a value model in theory, most find
it difficult to translate it into practice.

Most may find this hard to believe, but some premium partners of the best-run
channel organizations in the world actually don't even sell any products!
These partners simply consult with customers and help in the planning of the
network. Their partnership is critical to the vendor's business but is nowhere
measured by the number of units sold.

Most
vendors today are increasingly looking to expand their addressable market. Here
the key is the small and medium business market, which has evolved into a
potential gold mine. To effectively tap the seven million odd SMBs in India
today (source: AMI Partners), vendors need armies of sales personnel.

This is where the relationships they have with existing channel partners
makes the whole world of a difference. When vendors turn to their partners to
prospect upcoming commercial opportunities, this automatically encourages
channel partners to grow the market by adopting a more customer-focused
strategy, rather than a product limited one.

Channel partner segmentation

A proactive segmentation of potential channel partners, with identification
of the partner segments most closely aligned with customer needs, is no less
important than the segmentation of the companies they serve. Most vendors tend
to take a reactive approach to segmenting their partners. More often than not,
they are categorized as system integrator, value-added reseller, etc. However
there is actually a science to the process. The most effective channel partner
segmentation involves a data-driven analysis that links partners' ability to
meet customer needs.

Avoid overlapping services

Vendors need to determine early on the services they would provide directly
and those that their partners will provide. This will thus ensure no overlap and
a smooth handling of the customer.

The worst mistake a vendor can make is to infringe upon the customer
relationship that his channel partner has developed. The partner will look upon
the principal as a looming threat and will soon find ways to exit the situation,
and in all likelihood take the customer with him.

The author is Vice President - Channels, Cisco Systems (India & SAARC)
and can be reached at shijoshi@cisco.com