A Perfect Storm Strikes VAR Channel
Kevin Bandy, senior executive at Accenture,explains how fundamental shifts in the customer base and in buying behaviors have altered the ways channel partners must operate their businesses.
In my discussions with numerous executives working for global communications, electronics, and high-tech companies, I have learned of a combination of factors that are driving this storm. I captured these findings in a new Accenture report titled Big Changes in Indirect Channels Bring New Opportunities to Achieve High-Performance. Its key findings are that:
Vendors and their channel collaborators are striving to add service solutions, because product profit margins are weakening, and more business customers are seeking complete solutions;
Some collaborators, no longer succeeding with product-only sales, are finding it tough to master sell their services;
And some collaborators are stepping up to selling services independent of their vendors, possibly cutting vendors out of important new revenues.
The report also found that several fundamental changes in the indirect channel are emerging. One change is the shifting in the customer base. Third-party channel players have traditionally had the reach, relationships, and economics to succeed in the small and mid-size business segment. As a result, they have become the centers of attention for a plethora of vendors competing for their services and loyalty. The degree of importance vendors are giving to this indirect channel segment for driving growth continues to escalate.
A second change is the shift in business buyers behaviors. Business customers are becoming much more demanding; many expect services that complement their product purchases. This is channel consolidation. In addition, merger and acquisition activity among channel players is growing, which creates further disruption. As such, vendors are under mounting pressure to identify the right players with whom to collaborate. Channel players are looking for differentiated business models that can help them move up the value chain to sell and deliver more services.
To solve these indirect sales channel issues, I recommend the implementation of five design principles:
1. Building Trust
In a channel collaborator/vendor relationship, which is typically characterized by widespread dissatisfaction and uncooperative companies, trust is essential. To obtain trust, simplicity and comprehensiveness are indispensable. Channel collaborators must be transparent from the outset. The relationship must evolve as business conditions evolve, not through turnover in leadership.
Vendors must also collaborate closely with channel solution providers. Successful programs are designed when the vendor works closely with the channel provider from the beginning. Starting small and scaling fast usually fosters trust. And nothing breeds good will like success. Its crucial to secure a series of quick, small wins early. Collaborative growth begins there.
2. Developing Collaborative Services
To help facilitate good working relationships, vendors should treat channel collaborators as true and equal joint workers in projects who have sufficient control and visibility into channel relationships. Vendors need to upgrade offerings to present a differentiated combination of products, software, service, and financing. In some cases, vendors can even offer customer-specific solutions provided only by collaborators or co-delivery platforms.
The co-delivery model integrates strengths and weaknesses of the involved parties and provides an infrastructure to be leveraged by vendors and collaborators. This collaboration makes it easier for collaborators to share managed services revenue streams without making independent and significant infrastructure investments. Collaboration also provides vendors the opportunity to adapt to changing customer demands, create differentiated and customized offerings, and scale sales and delivery capabilities for emerging markets and multiple business segment sizes. Delivering collaborative services should also make it easier for channel collaborators to change business models.
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