How to retain profitability within the channel is an issue vendors, distributors and resellers have to constantly stay focused on. ARN asked a collection of industry veterans to come together and discuss ways to achieve better partner profitability in a changing climate.
Nadia Cameron, ARN (NC): Why are there still issues around partner profitability today?
Craig Somerville, Somerville Group (CS): That’s a very broad question as there are a host of issues including vendor personality disorders – are they a vendor or partner organisation for example? Staff is another big issue in our industry – the churn of staff, lack of staff and training them. I come from a contracting background where you have a structured award system, which means you can take someone with a certification and know what that person is like. I’m not saying we have to bring in an awards system, but we don’t have that capability in IT. There’s competition too, which is difficult but also healthy. We have a blended business and operate in several areas. This means we’re competing against traditional integrators on the one hand, but then suddenly find customers are buying products from e-tailers who sell at no margin.
NC: Was the focus on partner profitability lost during the downturn?
Nick Stranks, Ethan Group (NS): We didn’t actually suffer much of a downturn during the GFC because a lot of those no-margin businesses Craig is talking about were so uncompetitive they were unable to survive at that level, and a number of larger players disappeared. So you’ve picked up their staff, you’ve picked up their customers. What also happened through that rationalisation was that wages came down because people just wanted jobs. So profitability wasn’t overly affected. In terms of ongoing profitability, I think the cost restructuring that took place during the GFC – getting rid of some dead wood, moving people on and changing the way we expected our people to work – was beneficial for us long-term.
Jamie Warner, eNerds (JW): We saw on the horizon the need to restructure the business and put new systems in place to improve efficiencies and profitability. But certainly, you do see a tightening with the vendors and products around margins and profitability and you need to be aware and dynamic around the product sets you’re using.
David Lenz, Ingram Micro (DL): One of the interesting things we saw was diversification of business. For example, people who spent the previous year moving into markets or having a blended model including managed and professional services as well as product. At the same time, the opening of new opportunities was where vendors started to look and there were efforts to get in touch with new partners. What you’re also seeing is partners who have built themselves up in these areas now looking for the next white space they can get into – do I want to focus around security, or get into networking as part of a managed services model.
Cam Wayland, Channel Dynamics (CW): What was surprising was seeing vendors and resellers investing in training of staff during the GFC. That’s part of the reason why I think those smarter businesses have come out in a better position, as they are better prepared to take off from where they were with the right people doing the right things.
NC: Was there as much focus on profitability between the vendor and the partner?
CW: We see the good, bad and the very indifferent in there – it really depends on the vendor and also depending on whether there is external pressure from the US. There were good people leaving businesses that had done good things and had good relationships in the channel. It’s that channel memory that gets lost in terms of who is doing what.
Angela Logan-Bell, Express Data (ALB): There is a linkage there with available credit for the channel, which was a definite challenge last year. Because a lot of the credit financiers were based in Europe, they went into panic mode. Locally, it wasn’t as painful but there were definitely businesses that went under. Fortunately, what we’re now hearing is that credit providers are trying to localise their information and segment out Australia because they see the economic climate is different. However, the way they view resellers has changed: They are not looking at credit history or payment history, they are looking at financials and balance sheets.
CS: I think most of us put a bigger emphasis on services [during the GFC], which is a bigger risk business. We’ve spent an immense amount of money on structure and systems and we’re only at the beginning of that. But if we want to be extremely good in that space and be profitable, we have to have the systems. It’s like the sales cookie-cutter style – with services, you’re taking something that’s not the same every time and making it repeatable with reliability and utilisation.
Steve Martin, Symantec (SM): During the GFC, we saw a transition from selling the solutions and understanding customer problems, more to supplying what’s been asked for. When you transition to that supply model, you have nothing else to differentiate on but price. That then had flow-on effects on margin and the quality of sales and account management staff to engage effectively with the customer to determine what problem has been addressed. There has been a lot of pressure on the industry in the last 12-18 months to get the deal done quickly because organisations needed the business, versus stopping and asking ‘what’s the problem, let me be the IT expert in your business and provide you with the right advice and solution that makes sense’.
Sean Bishop, Harbour IT (SB): Clearly, keeping staff and the training up is important. I think we’ve also forgotten the importance of basic relationships and knitting. We saw several organisations go under who forgot that.