In the current Australian IT&T market, the portion of total IT sales (hardware and software) that goes through a channel partner is about 57 per cent and growing. Given the significant revenue contribution channels make to many vendors’ go-to-market strategies, especially in the SME market, an increasing level of interest is coalescing around channel management initiatives and business partner programs.
As an extension of a vendor’s sales organisation, the central issue plaguing both vendor and channel is uncovering the optimal way in which all partners can work together to drive sales and improve profitability in the face of growing competition in a slowing IT market.
This dilemma is revealed when examining a vendor’s expectations of their channel or business partner program and the relevant timeframe in which they hope it will make a favourable impact on their bottom line.
Past experiences of various IT&T vendors have proven that too short-term a focus on pure sales targets, without a clearly structured go-to-market channel strategy, will result in misaligned direct/indirect sales efforts and invariably instances of channel and customer poaching.
Clearly, vendors need to articulate and, more importantly, enforce the rules of engagement for a business partner model if they are to reap consistent returns and benefits from their channels. These benefits usually take the form of improved market intelligence/customer relationships, ability to influence customer specifications, improved sales forecasting/selling costs, greater lead generation and demand creation opportunities.
A first step towards realigning a vendor’s business strategy and channel program would be to understand where the channel fits into the vendor’s overall strategy and then to uncover the motivation and needs of the channel partner, gauge the effectiveness of existing programs and understand the critical levers to improve channel effectiveness.
Conceptually, a vendor’s channel relationship or programs can be examined according to seven critical areas: Business processes/administration; field engagement/channels sales support; technical support and training; marketing support; economic terms; channel partnership and loyalty measures. Ongoing IDC channel research examines various channel observations and critique of vendors in these areas and will provide an ongoing scorecard by which to monitor these performance levers.
Early indications from our research suggests that clear ‘vendor versus channel’ market segmentation is not well understood, direct sales and channel engagement rules are not strictly enforced, joint planning/leveraging of resources/activities is sporadic and the channel to channel conflicts resolution processes is not fully transparent. IDC believes that greater focus and collaboration between vendors and channel partners are needed to make further inroads into the important SME market. Due to limitations on both channels and vendors, it is inevitable that efforts from both parties will be required to service this segment effectively.