By Michael Kerman
It seems that a day doesn’t go by without a high-tech company either eliminating a channel executive or implementing a channel strategy overhaul. Having spent more than 20 years in high-tech and being intimately familiar with the complexities of the vendor-channel relationship, I understand that there are multiple routes to market. For that reason companies must constantly evaluate their channel requirements, vendor offerings and business models to remain competitive in the industry.
Consider some recent headlines in the news — HP recently executed major changes to its channel programs and internal operations, EMC dropped its Velocity channel program at the end of 2013 and opted for the streamlined EMC Business Partner Program, while Oracle stated partners will play a key role in expanding its cloud business. These massive channel transformation projects have caused some in the industry to step back and ask, “What’s up with all of this?" After researching and speaking with executives, analysts and partners, I’ve concluded there are five main causes of these changes:
- Fragmentation and segmentation
- Soaring cost of sales and support
- Cloud-driven business
- Quest for channel visibility
- Need for speed
1. Fragmentation and segmentation
Demand for technology-oriented products is extremely volatile. For example, consider the current plight of tablets, which were predicted to quickly eliminate the need for PCs and laptops. Not only did it take many years for widespread demand to appear, but now smartphones might take over the tablet market. Additionally, demand for manufactured goods is shifting and becoming more fragmented than ever. In fact, a study revealed that 50 percent of all consumption of manufactured goods will come from emerging countries by 2025. Companies clearly recognize that providing coverage in this dynamic environment with a direct sales model is virtually impossible.
2. Soaring cost of sales and support
One of the challenges that arises from having a large portfolio of indirect channel partners (wholesalers, distributors, retailers, resellers, integrators and more) is that they all require support. Many vendors have found that their internal contract and incentive management systems and processes are simply unable to support their partner ecosystems in terms of scalability, performance, real-time analytics, and usability. As a result, manufacturers often find themselves in a “high-touch model," needing to be involved with the partners on virtually every deal, regardless of size or complexity. Ideally, most manufacturers would like to a more scalable and less labor-intensive model — often referred to as “low-touch" or even (for the truly commodity deals) an automated “no-touch" model. However, making this transformation requires a major overhaul of channel processes, programs, communications, and underlying IT systems.
3. Cloud-driven business
Gone are the days when distributors and resellers could make a healthy, sustainable margin selling hardware, as well as offering consulting and implementation services. Today, channel partners are being pushed by their customers and vendors to transform their companies into cloud-driven businesses with recurring revenue. In fact, even traditional ERP vendors are pushing this “drive your business to the cloud" message. Some distribution partners will make the transition, some might not. This uncertainty is forcing high-tech manufacturers to reassess their partner portfolios, as well as develop new solutions, tools, and training programs to bridge the gap from on-premises to cloud solutions.
4. Quest for channel visibility
For manufacturers, obtaining a current, accurate view of overall channel and incentive performance is extremely difficult. Distributors that used to simply handle fulfillment are now also manufacturing their own product lines. Alternatively, some companies have seen their third-party dedicated sales agents morph into more self-sufficient dealers that now conduct business with multiple vendors. This turbulent environment makes it extremely difficult to objectively assess the performance of specific partners, incentives, or even product lines. Acquiring a 24/7 view into channel performance, regardless of the channel complexity and size, is a common objective behind channel transformations.
5. The need for speed
With product life cycles constantly shrinking and new competition emerging at record rates, manufacturers place a premium on speed — speed to market, speed to measuring adoption, speed to assessing partner performance, speed of adjusting to the market. It’s all about speed. However, many manufacturers rely on channel management processes and systems that are at least 10 years old — hindering operational speed. Furthermore, the contracting and incentive management processes wrapped around these systems are equally outdated. Channel transformations shrink the time, effort, and cost of capturing channel performance data and transforming it into insights that can generate higher-impact incentives and further optimize partner program segmentation.
The 'Secret sauce' for Channel Transformation
Previously, when companies needed to transform their supply chain operations, they implemented enterprise resource planning (ERP) systems. Similarly, when companies wanted to gain a 360-degree view of their customers and integrate various touch points, they turned to customer relationship management (CRM) solutions. In both cases, these systems provided automated, rules-based processing and analytics to drive new revenue opportunities and reduce margin erosion.
Now manufacturers find themselves at yet another inflection point. The five points highlighted above are causing a holistic reassessment of channel structure, operations, and performance. The key to making a successful transformation is implementing a revenue management solution that can:
- Automate the validation and processing of any type of partner claim, including rebates, discounts, ship-and-debit claims, and all other incentives
- Streamline the creation, collaboration, approval, and execution on any type of channel agreement, including master distribution agreements (MDAs), non-disclosure agreements (NDAs), contracts, statements of work (SOW), and market development funds (MDF)
- Ensure both regulatory and commercial compliance through audit trails of all channel-related transactions and payments
- Analyze and correlate incentive and partner performance to optimize channel spend and drive higher yield across the entire partner portfolio
- Seamlessly integrate into existing ERP and CRM platforms
Today’s businesses need an integrated and automated solution that enables complex, channel-driven companies to implement, execute, and manage involved channel contracts and incentives in order to accelerate revenue, optimize profitability, and ensure regulatory and financial compliance. Revenue management solutions accelerate deal flows and shorten sales cycles through the optimal use of contracts and incentives — enabling partners to maximize performance and rapidly transform manufacturers into a company easy to do business with. The solutions incorporate robust analytical tools to evaluate performance and leverage historical program performance data to develop more creative incentives and better-performing agreements while meeting quarterly sales goals.
Revenue management platforms also enable manufacturers to optimize profits and control margin erosion by eliminating overpayments on incentives and increasing productivity in channel operations. Finally, they ensure regulatory and commercial compliance by tightly managing contract milestone compliance, royalty payments, and accrual accuracy.
Given the dynamic nature of the technology industry, channel transformation initiatives are likely to continue and become even more critical to both short- and long-term success. Manufacturers looking to leapfrog their competition (just like what HP, DELL, Xerox and others are doing) should seriously consider investing in modern, automated revenue management solutions to maximize the efficiency and effectiveness of their indirect sales channels.
Michael Kerman is vice president of business management at Revitas, a leading provider of integrated solutions for contract, revenue and compliance management. He is responsible for product management and industry solutions worldwide. Prior to this, Kerman was Revitas’s director of industry development. He has more than 20 years of experience in commercializing software, hardware and service solutions that enable companies to improve shareholder value, including leadership roles with CDI Corporation, SAP America and Overland Storage.