IT and the Channel Do Matter

According to Harvard Business Review's editor-at-large, Nicholas Carr, IT doesn't matter. Since IT is ubiquitous, it has no strategic value or competitive advantage, only high cost and potential downside. Carr's assumption is that scarcity is the essence strategic value. "You only gain an edge over rivals by having or doing something they can't have or do." To use Carr's logic, since every company has channels and salespeople, channels must be strategically insignificant. After all, the idea of channels is as old as Satan using Eve to sell Adam a bite of the apple.

Carr further argues the following points in his article and blossoming book and consulting business:

1. Capital expenditures of 30 percent to 50 percent on IT is too high and given too much attention as a strategic asset.
2. When a resource becomes essential to competition but inconsequential to strategy, risks become more important than advantages.
3. The greatest risk in IT management is overspending.
4. IT spending is driven by vendors.
5. IT management should become boring—cut costs and risks meticulously.

Carr's recommendation of a defensive posture in IT spending is more a reflection of the pessimistic, market-killing attitudes than real business opportunity. For simplicity, I will call this attitude Carrism and its supporters Carrists. As I pointed out in my blog, The Channel Professional, in December 2003, Optimism is the Channel's secret weapon. We are in the channel because we know we can make a difference to our customers, to our suppliers and to our own companies. Consider how absurd Carr's arguments are when applied to channels.

To the Carrist, high costs and universal adoption signal that channels can be used only for defense. Admittedly, the capital invested in staffing, training and supporting channels is very high. Sales and marketing expenses can exceed 20 percent even at well-run companies such as Cisco (22 percent in '03) and Microsoft (21 percent in '03) and almost as high as 40 percent for companies such as Novell (38 percent in '03). And that is net of the up front 30 percent to 50 percent channel discounts to distributors and resellers. Yet even with high costs, the most effective channels continue to be offensive in nature.

Since sales channels are "essential to competition and inconsequential to strategy," the Carrist should look more at how to reduce channel risks than at how to build new programs. Anyone in the industry knows the risks of running a channel can be overwhelming. Lost accounts, diluted brands, gray market selling, channel conflict and over-distribution are but a few of the ways channels can ruin a company's future. Yet it is not risk-averse companies that are making gains in channel management. Despite the risks, the successful vendors are investing their channels as strategic assets.

Carrists look too much at spending and not enough at returns. If overspending is the biggest mistake companies are making in the channel, how come margins are so thin? Isn't it strange that all the cost cutting during the last few years in channels has not helped companies get more productivity out of their channels? No executive condones wasteful, unproductive spending, but visionary companies invested in their channels during the downturn.

The Carrists believe that a powerful and manipulative group of technology vendors duped the world into buying too much IT. Channel are, in this view, part of an IT conspiracy to brainwash customers into wasteful spending. The truth is that technology is bought by businesses in spite of advertising that often lacks the sophistication of consumer product companies such as Proctor and Gamble. Channels fulfill legitimate business needs for design, custom implementation and support.

It is how you use IT, not whether it is a commodity, that makes it valuable as a strategic asset. As one of my professors at the University of Chicago Graduate School of Business liked to point out, "Every company needs a realist, but they only need one." Growth will come not from meticulously cutting costs and risks, but from identifying opportunities.

Carr's advice is dead wrong for channels. If you are in a more defensive posture toward channels in the last two years, you are on the wrong course. You need to make your channel more exciting, more powerful and more productive. Start spending on your channel before the recovery is fully recognized, and you will not get lost in the Carrist fog.

Scott Karren, the "Channel Pro," is chief executive officer of Channel Ventures, a consulting firm and channel development agency that helps companies build profitable channel businesses. Read his Weblog, The Channel Professional.