New Ways to Solve Channel Management Complexities
By Michael Kerman
OK, I'll admit it—I love trees. This summer, I went camping for the first time in years. I forgot how much I love the sight of the tree canopy against the blue sky, providing deep shade even at midday, and the giant cedar towering over tiny saplings, each trying to become the next skyscraping conifer.
Soon after my trip, I found myself drawing parallels between the trees and the challenges companies face in managing distributor and reseller channels.
As channel dimensions grow in size and complexity like the cedars, the old ways of managing partners and programs can't keep up, dwarfed just like the saplings. That vast difference in scale causes operational and, eventually, strategic problems for businesses.
Back at work, I listen to manufacturers and partners alike, who speak of challenges branching out in many directions:
--Desire for pay-for-performance channels. Many manufacturers lack the insight to know if they're rewarding partners accurately and fairly for selling the right mix of products.
--Changing incentive strategies. Manufacturers are shifting from traditional incentive programs that beget short-term results to more strategic programs that drive sustained behavioral changes. This places greater market-planning burden on the partner than ever before.
--Compensation for referrals. The traditional role of the partner has been to sell, but that role is changing. With the emergence of the cloud, channel partners have more recommendation influence and want to be compensated accordingly. Manufacturers are wrestling with the fundamental dynamics of how to reward partners who recommend a sale but don't actually close the deal.
--Difficulty assessing financial impact. Manufacturers tell me time and again: "It's almost impossible for me to show an ROI on our channel investment. My finance guys think we're paying our partners too much. I'm sure we've overpaid on our MDF and incentive programs; I just don't know where."
Lying beneath these challenges are disjointed dimensions of people, partners, products, systems and programs—a snarled mess of tree limbs that are difficult to track and untangle.
In the shadow of the giant tree sits the sapling of channel management. Customers admit that although the business has dramatically changed, they continue using siloed systems; obsolete and aged applications; and complex, spreadsheet-driven processes (even years after the spreadsheet's original owner has departed). The investment in the solution doesn't address the magnitude of the problem.
It's time that channel management professionals (including everyone in sales, marketing, operations and finance who affects channel success) see the forest for the trees and realize the time for channel management transformation is here. In fact, it's the natural next step in driving greater channel revenue, reducing the cost of indirect sales and driving closer, more productive manufacturer-partner relationships.
Reluctance to Change a Channel Management Strategy
Making a change for the better means first recognizing existing procedures don't offer optimal performance and don't identify opportunities for greater profitability. That's not easy, but even more difficult is finding a starting place for problem solving.
You might turn to IT giants like SAP, Microsoft, Oracle and IBM; when you can't find a product that addresses your problem head-on, you might assume the road ends there. It doesn't, but the big vendors aren't focused on the specific challenges of the channel. If you do go a step further to search for solution providers, you'll find 1,000 unrecognizable companies with "point solutions" that solve a single problem but can't scale up to handle the full spectrum of channel management.
With so much confusion about what solutions are even available, it becomes easier to fall back on old habits, even when you know the tools and processes are inadequate. But when you figure out where to start your transformation, the solutions reveal themselves.
One Branch at a Time
Implementing a channel management solution means climbing one branch at a time.
It seems counterintuitive, but taking a holistic, big-bang approach to transform your channel management isn't typically the best place to start.
Before you try tackling the entire tree, start with a branch. Pick one process—let's say North American Rebates, for example—and focus on that. You've narrowed your geography and narrowed your program; you could even further narrow to just your top partner tier. Now focus on understanding and validating everything related to those partners and that process.
Taking a focused approach gives your project scope. It also lays a foundation for making changes and investing accordingly. Once you've obtained meaningful insights (e.g., 38 percent of those rebate payments were unnecessary), you can expand the project to more partners, more geographies or other types of channel incentives.
Scaling up your sapling will help untangle the complexity of the giant tree.
Once you have a significant amount of analytical data from your first project, you're ready to expand. How do you define "significant"? It depends on the size of your business.
Going back to the North American Rebates example, let's say you've been tracking and validating rebate claims for the last eight weeks. You've found that 19 percent of submittals come in without proof of execution and 22 percent are duplicates—which means you're paying an average of $300,000 per quarter.
That number will serve as a baseline against which you can measure and estimate the overall impact to your channel business. At this point, you're well-positioned to expand your program.
There are four ways to build out a channel management strategy: lines of business (laptops, printers, etc.); geographies; partners or partner tiers; and channel transactions (marketing development funds, or MDFs, rebates, incentives, special pricing, charge-backs, etc.).
Don't go for all four categories at once. Build at your own pace. You want a road map to get from point A to point B without boiling the ocean but without taking 10 years. Success is about reaching a milestone, not an end goal. The milestone is where you're able to share empirical results and deliver new insight to the business.
Growing Profits Means Increasing Channel Management Investment
As technology evolves and more commerce options emerge, transforming channel management methods to accommodate changing business complexities will become even more imperative.
What happens if you stick with the same old spreadsheets? Nothing immediate or dramatic, but over time, your business could experience "death by 1,000 cuts": Your partner who used to carry seven of your products now carries only three. Your low-touch sales model now requires your involvement in almost every deal. Your earnings report, income tax depreciation and amortization (EBITDA) drops from 23 points to 9.5. Your business slowly becomes less profitable and eventually spirals downward.
In most industries, especially advanced tech and manufacturing, shrinking profit margins mean less margin for error. That calls for change. As striking as the canopy overhead may be, they say the view is better from the top. Now, you just have to implement the solution that will take your channel management practices to the next level.
Michael Kerman is vice president of business management at Revitas, which provides integrated solutions for contract, revenue and compliance management.