The combination of global economic changes and new technology life cycles has made global IT vendors more accountable for the business value of their solutions. This has created a sea change in the approach of selling technology solutions through channel partners. Whether a partner is at the position of a distributor, reseller or system integrator, they have all had to modify their solutions and services to work towards a much better value of engagement and accountability with their end-customers. Enter champions of value addition!
One of the most significant changes emerging from vendors recently is the pressure on channel partners to move towards product and technology specialisation programmes. Global vendors now grade their partners on the basis of the number of certified engineers and the types of technology certifications they have opted for. By end 2011 most global vendors would have dissolved their previous sales linked programmes and switched over to certification and competency based programmes.
In the current transition phase across old and new global vendor programmes, channel partners have been partly alienated by the sheer pace of change, the challenge of investing in up-skilling their technical work force and the complexity of new partner programmes. Used to claiming rebates on relatively straight forward sales programmes they are now struggling to become eligible for the same rebate margins based on new set of parameters including skill levels, qualified work force and solution specialisations. With millions of dollars unspent rebates at their end, global vendors state that resellers are not doing enough to understand their new programmes and leaving rebates as unclaimed. Resellers are equally polarised and say the programmes are too complex to understand and follow in the short term. Both sides are working towards closing the gap.
But from all this there is definitely a clear winner and that is the end-customer. With end-customers faced with budget squeezes and higher accountability on delayed or failed projects from within, vendors have had to look closely into reasons for project escalations, delays, poor solution performance and even implementation failures. A singular reason for such occurrences consistently emerges and that is lack of technical competency of the engaging partner. Either the partner was unable to build the optimal solution or was unable to implement and manage it satisfactorily. In either case, for the end-user, it is a case of failed vendor technology.
Help AG, a value added reseller operating in the information security services space, competes with the big five for its consulting services. The skills and specialisation of its technical workforce and its delivery model for complex end-user projects are its forte. Says Stephen Berner, Managing Director Middle East, “If the vendor is not going to make sure the right qualifications are in the field, they are going to fail to sell their solutions successfully.”
Vendor specialisation programmes are therefore meant to help channel partners avoid such project failures by encouraging them to train and certify their technical workforce. They are also meant to help end-users select suppliers on vendor established competency metrics rather than lowest bid and other subjective credentials. In the near future, an end user will be unable to negotiate a project with a supplier who is not vendor specialised and certified. And a supplier who is not vendor certified will be unable to provide products and services to an end customer.
Meera Kaul, Managing Director of Optimus Technology and Telecom, an added-value distributor, who initially started off as a reseller entrepreneur working across UAE and Qatar, has seen the progression of changing vendor and distributor business models. “The financial recession was good for the market – it corrected a lot of things, since some of the partners were there on hype,” she reflects.
For partners who have a strategy to continuously invest and improve their technical workforce, the vendor specialisation initiative has been welcomed since it eliminates suppliers who chose not to invest in their technical workforce and therefore have higher probability of failure at the end-customer. Other than the resulting shake out at the bottom, channel partners who are actively adopting this route see vendor specialisations as a marketing tool and positive differentiator in the market place. For vendors, competent partners would also become preferred partners to be awarded projects they win out of the named space accounts where they operate directly.
Cisco a strong proponent of partner competency runs multiple partner programmes based both on its products and market facing strategies. Says Claire Jones, Regional Sales Manager UAE: “At Cisco we highlight the impact that a programme can have on a partner’s ability to differentiate themselves to their customers in the market and the profitability that it will bring to their company.”
Spectrum Group is the holding company for Comguard security applications distributor, and Psilog logistics equipment distributor. Says Ajay Singh Chauhan, CEO Spectrum Group, “Once the partner is specialised we help them recover some of the benefits from the vendor programmes and differentiate themselves from the other resellers, otherwise they are all in the same basket.”
STME, a systems integrator has a revenue model built around data integration and protection services and after sales support services. Says Jocelyn Al Adwani, Deputy CEO, “All the vendor partner programmes are evolving to actually help us and encourage other partners to follow the right track in terms of specialisation.”
While global vendors closely monitor and operate across named accounts, the open space account is left to channel partners to penetrate. Under such conditions, “Partners act as the extended arm of the vendor and therefore it is important they are specialised,” says Hemayun Bazaz, UAE Channel Manager for HP’s networking division.
The Value Gains
There are more positive spin-offs. “End customers are ready to pay more for the right solution, right services and right implementation. They are not ready to pay more for a solution that is not right or exceeds requirements,” asserts Bazaz. By ensuring the customer is getting the optimal and right solution and the implementation is being correctly executed, the partner can look forward to a more satisfied customer, one of the prime considerations for repeat business from the end-customer.
Vendor programmes therefore have the benefit of elevating the status of a specialised partner where the end-customer is ready to pay an additional premium for the value of engaging with the partner over and above the price of the vendor product. Depending on the end-users perceived value of the partner, these premium mark-ups will vary. The more strategic and business aligned the benefits of working with a channel partner, the more elevated will be the value of the channel partner. On the flip side, the more commoditised the benefits offered by a channel partner the less will be its ability to charge a premium during its engagements with the end-customer.
SAS’ Regional Alliances and Partners Manager, Amir Sohrabi, calls it the natural law of economics. Any product or service that is a commodity can be quickly replicated and offered by a lot of competitors. Prices will be hammered downwards. But for SAS, who expects partners to be competent enough to tackle complex business issues and whose portfolio of services includes business analyses, presales, implementations, support and maintenance, not everyone may fit into the SAS partner fabric. “If you are tackling complex problems and solving complex issues there are going to be less of those types of integrators in the market. They can demand a premium and get a premium, because it is a simple law of economics and they are driving value,” says Sohrabi.
In the region, SAS has ramped up the number of its partners to 35 over the last eighteen months. It has moved from a 100% direct model in operation for the last twenty five years towards a mix of both direct sales to hard deck accounts and partner driven indirect sales. In its business model for partners, the ratio of revenue from vendor products to value driven partner services ranges from 1:1 to 1:2. The component of services increases based on the complexity of the project and the business maturity of the end-customer. SAS selects its partners based on either technology or vertical market competency.
Today large IT infrastructure companies across the region are struggling to cope with below 5% profit margins on hardware, where previously they would make up the margins on implementation and support services. Now smaller specialised companies have replaced them with lower costs. Since the large infrastructure companies traditionally sold to the IT side of operations and not the business side of operations, they have been substituted as a cheaper commodity replaces another. By not having significant business benefit embedded in their portfolio they have been unable to either move to the next level of engagement or maintain it.
“Our technology allows further discussion with business rather than IT. When you drive value, you drive value with the business side. You are positioning a solution that can have a higher impact on the business profitability and better decision making,” says Sohrabi.
The ability to map technology to business and to include it in every discussion with the end-customer is a key part of survival for channel partners. “The way technology is going to sell is going to change. You will not need an aggressive sales person to sell it – you will require a person who can actually fit technology into a business to sell it,” says Kaul.
While help AG competes with the big five consulting companies in the arena of consulting services its core competency lies in its ability to combine the product business and strategic consulting. “To combine them you need a different skill set which we have on board,” says Berner. The value added reseller competes only for complex projects and will even decline invited bids for projects involving commodity products. The reason is the reseller has built its business model on the basis of price points it can win when taking charge of complex projects from end-customers. By accepting projects at lower price points it not only erodes its own financial viability but it diverts expert resources to projects that can be executed by less qualified and expensive staff. “We can only add value to our end-customer if they talk about complex project requirements. If the requirement coming from the customer is not complex enough then in many cases we are the wrong company to deal with,” explains Berner.
Not only does help AG consistently sustain its price points on the services side, it also sustains them on the products side. “The kind of margins we achieve on products is much higher than other resellers in the commodity business, because not everyone can implement complex intrusion prevention solutions.” The reseller is experiencing 100% YOY growth driven by products. With these inbuilt skills, help AG often finds itself elevated to the level of trusted advisor on products. Another spin off – nine out of ten new customers want help AG to stick around with them post implementations and sign up for its 24×7 support contract.
Vendor specialisation programmes will help partners retain customers through better sizing of solutions and better implementations. And if a partner’s business is growing that will make the partner more loyal to the vendor. Increasing loyalty by a partner towards a vendor makes it easier for the vendor to reciprocate with rebates and other money sops.
Loyalty is therefore a two-way, win-win business process built on the platform of vendor specialisations for channel partners. “How much are partners benefitting and how much they add value to each other – this drives loyalty”, comments Bazaz on the dynamics of vendor-partner loyalty.
“After recession the game has changed for vendors as well. Vendors are aggressively supporting the channel and have started taking smaller VARs more seriously,” observes Kaul.
The Value Alliances
While the benefits of channel partners building skills and competency along vendor programmes may be clear and relatively well marketed the path to achieve those goals are more subjective and require considerable effort and ingenuity to attain. A key enabler can be the role played by vendor distributors to aid its reseller partners to jump start into the value game.
“Generally you do not see resellers being faithful towards one distributor unless they see a significant value add,” comments Bazaz on the importance a distributor can have on partner loyalty.
FVC, a distributor for Polycom and other network and communication technology streams, relies on being ahead of local competition by hand picking vendor technologies and solutions that have begun to rise above the pack in developed economies. Once selected the technology competence gets embedded within itself through investment in its training centres, the training sessions it holds for its partners, its availability of proof of concept demonstration equipment both onsite and offsite, and the availability of its presales force. In some technologies it is building alliances with telecos and other service delivery partners, to partner on generating revenue from its managed services. All these components create a value framework for its reseller partners to build on.
Says KS Parag, FVC’s Managing Director, on the technology selection differentiator: “If it is a completely mature technology, there is no value addition. And if you cannot add value there is very little money to be made for us or our partners.”
With the rapid convergence of network and communication technologies, FVC is proactive to ensure that its vendor solutions are complementary to each other rather than competitive. With the levels of investment it maintains around its portfolio, for itself and its partners, receiving the right financial support from vendors is critical. Says Parag: “Our vendor partners recognise the value added distributor model and provide margins accordingly, clearly differentiating our services from that of a volume distributor.”
For Avaya distributor Optimus Technology, much of its business delivery model is built on alleviating pain points, its founders experienced a decade ago when they first started as resellers in the region. Managing Director, Meera Kaul prides in calling herself “serial entrepreneur” and says any business that can be built on an enabling layer of technology is of interest to her.
The distributor takes credit in negotiating vendor contracts and localising them to work across the region; it selects partners for whom service delivery is an important part of their business model; its presales teams work jointly with its partner network from business development right upto winning business; it helps manage extended credit lines for its partners; and it provides IT managed services moving IT capital expenditures into operating expenses.
Says Meera: “We have deliberately picked up products that can create a value proposition for the customer. We thought the best way to enable the channels to value sell, to convert a lot of partners into value partners, was to show them the way. We used our consultants, made the blueprint, selected the partner, took the partner into the account, and we actually built their business.”
For TechAccess, it is leveraging actively on its global portfolio of Oracle hardware and software delivery platform and Symantec security solutions. It has built a sophisticated proof of concept demonstration unit for its partners to capitalise on. While large system and network integrator are part of its portfolio its primary relationships are built with partners a level below.
For mid-tier integrator partners its value proposition is across its stable baseline of global solutions; its ability to provide solutions across all major vertical market segments; its consistent ability to maintain, sustain and drive profit margins from vendors to its partners; its consistent support to partners as they pitch for high value deals and its ability to provide after sales support across 17 countries.
“A medium to small partner can score a big deal if the value-add elements are available through a distributor,” clarifies Ahsan Ali, Senior Vice President, Marketing, on their support role for partners.
TechAccess has established well defined lines of operational roll out between itself and its vendor partners and this has been responsible for maintaining healthy go-to-market relations with all parties. It has recently started its own loyalty programme to reward partners committed to growing their business through its portfolio of solutions.
“Anybody who is active in the market in a given sector, we would want to be with them and we would want them to know us,” says Ali.
Distributor EMPA has a product strategy of tying up with tier-two vendors. Its partner vendors Fujitsu, Toshiba, Netgear and Lavasoft are relatively less in demand than tier-one vendors but provide higher profit margins for resellers. Since they are less in demand, EMPA supports its reseller partners with marketing and road shows. Within its own portfolio it has five categories of products depending on stock turnover. An A-line item is fast moving, B and C items have higher price points and configurations, D-item is on back to back order and E-item is back to back with advance payment. A key responsibility for Shahood Khan, EMPA’s Director of Sales and Marketing is to ensure vendor programmes are made simple for partners. “Every vendor wants partners who know the products and whose people are certified and they want to reward them,” he says.
Even vendors can help partners to jump start into the value proposition with end-customer. For example SAS is looking for partners who actively want to engage with customers in opportunity areas not open to them today. “If they are looking at taking their business to another level then we are the right fit for them. If they are looking at SAS as another software company for margins then we are not the right fit for them”, says SAS’ Sohrabi.
On the flip side not all resellers necessarily need to leverage completely off the distributors and some would prefer to invest internally in their own skills and resources, especially those focussed on delivering specialised services. To distinguish, those partners that rely entirely on the distributor for presales, proof of concept, BOQ and other services play the role of fulfilment for the distributor. For the others there is scope to build their own value and price elevation with end-customers.
For information security consultants help AG, if a customer desires high quality products and services they also need to be ready to pay the right price for it. help AG therefore draws a line between what its customers expect it to deliver and what help AG expects its partners to support it with. “We simply do not utilise the services value-add distributors provide because we believe it is our job and we have to deliver this,” says Berner. On the other hand if the distributor fails to provide the basic support to its partners, like pricing and warranty support, all its other investments and claims of value additions are of little use.
The Value Pains
Whether partners choose to use a vendor or distributor plank to jump start into the value game, ramping up is a little more complicated and requires a certain degree of business acumen. Significantly adding skilled technical staff to the payroll is an immediate drag on monthly recurring costs, while bids for related consulting supported projects may take time to materialise. Partners should have sufficiently deep pockets to sustain these investments focussing at least 12 months down the line.
In the case of the Spectrum Group, which provides vendor certifications and training under the name of Spectrum, it maintains a payroll of around 85 engineers across multiple geographies. Other than Spectrum training these engineers are shared with its other divisions Comguard and Psilog. Together the technical team doubles up to provide training, presales and other support functions. But even with such apportioning of costs the focus needs to be down the line.
“We have to apportion it for at least five years. We were prepared for it and we decided on that model, others may be unable to accept it,” says Chauhan, Spectrum Group’s CEO.
“The key factor here is to have sufficient volume of work to generate sufficient margins to cover the cost”, says STME’s Aladwani. Working across geographies and multiple business divisions can help to generate sufficient volume of work.
To further offset the costs, global vendors support the cost of partner certifications and training, wherever it is part of the formal programme. In some cases it may be as much as 50% of the cost. This support may come in the form of rebates when the partner uses the vendor staff for training or in the form of funds from vendor marketing budgets.
“Vendors are willing to subsidise these costs. They believe it’s a high value add for the end user, it helps to retain the end user for a longer period of time, the sizing of a project is better, and the solution is right,” says Chauhan.
While global vendors justify such support on the basis of their equivalent technical staff costs not available to partners in the open space account, vendor rebates are not meant to substitute the margins partners are supposed to recover from end users.
“It is very difficult to offset the amount of investment with rebates, however it does release some of the pain, but it cannot offset the costs,” is the way Aladwani looks at her technical staff overheads. STME recovers the other part of its technical staff costs during turnkey SI projects.
Again vendor rebates can only support a partner’s technical staff costs up to a point. For a services intensive partner like help AG, the breakdown point is quickly surpassed. “Vendor rebates don’t really matter for us. If you build your business on a rebate model coming from the vendor it is a matter of time till it becomes unviable. It is good to have it in place and nice to have, but certainly should not be a must to have,” says help AG’s Berner.
However not all partners ramping up their vendor certified staff numbers, automatically qualify for training rebates. There is another bogey in the line called vendor loyalty. Global vendors frown on partners who go to market with alternative vendor solutions in their pockets. The higher up the partner programme you are, the less leeway is allowed. “In the open space, loyalty of a partner is valued by the vendor. We also don’t want to train and certify a partner who eventually does not have the right resources, footprint and finances to go and win business for us,” says HP’s Bazaz.
While formal training and certification rebates are the norm for global vendors, for smaller players it works differently. These players are locally opportunistic and don’t need to manage regional or geographical consistency. For FVC its vendor programmes are less formalised and less documented. Getting support from them is on one-to-one basis and based on local factors.
Another factor that comes up in the early stages of business development is the localisation of a vendor’s business outlook. Unless partner programmes have been adapted for the region as well as for individual countries, there is little chance of early success.
“It is a huge impediment to business when you are working with vendors who are not basing their strategy for the Middle East market and on the intricacies of how business needs to structured and executed in this region. Partner companies have walked out when they have seen European contracts that make no sense to the business environment or profitability here,” remarks Optimus’ Meera from her long standing experience both as a reseller and value added distributor in the region.
To sum up, channel programmes have traditionally focussed on volume movement of products. Now there is a new requirement from end customers which is to support value. Global vendor specialisation programmes are a movement in this direction but also require other components to fall in to place. “You cannot put volume and value in the same basket and expect that it will work”, reflects Kaul. With the final challenge stated by Cisco’s Jones, “Partners must understand market transitions, and be clear on which role their company will play in realising these market transitions.”
People Articles:
KS Parag, Managing Director, FVC
Ahsan Ali, Senior Vice President, Marketing, TechAccess
Jocelyn Al Adwani, Deputy CEO, STME
Meera Kaul, Managing Director, Optimus Technology and Telecom
