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Old school, one-to-one, title-taking relationships between vendors and partners based on an aging master/slave model are under pressure. Replacing them are new school, one-to-many, influence-based relationships between vendors, partners and other members of specialized channel ecosystems. The purpose of this issue of ChannelCorp Intelligence is to continue the focus on channel ecology and channel ecosystems established in the May/June 2005 issue. The specific purpose of this issue is to shed light on what questions partners, vendors and distributors need to be asking to thrive in the new emerging marketplace.
The models
The ecosystems of today have clear structural differences from the old School master/slave relationships pre-2000. These structural differences are present in both Partner, Vendor and Distributor relationships. Partner relationships have followed a transition path from single linkage relationships, to the iceberg structure, to the multiple ecosystem structure. Figure 1 Single linkage relationship
Vendor Partner
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North America
ChannelCorp workshops key dates
Vendor
Business Partners Network Providers Competitors Distributors
13/14 September 2005 Santa Clara, CA Channel Management: the business dynamic 15/16 September 2005 Santa Clara, CA Advanced Channels Workshop
System Integrators
April 2006 Santa Clara, CA Channel Management: the business dynamic April 2006 Santa Clara, CA Advanced Channels Workshop
For information on in-house deliveries of these ChannelCorp programs, contact Bruce R. Stuart at 604 / 263 6811 or channelcorp@telus.net
Information at www.channelcorp.com
The transitions have caused partners to have to heighten their understanding of their own profitability as well as their business and profit models of their partners. The best partners in the business have established dedicated roles in their organizations for those who develop and manage the ecosystems relevant to the partners business. Vendor relationships have generally developed behind those of the vendors partners. Most vendors have been somewhat slow to aggressively invest in the ecosystem structure of the partner community. Not happy to trade (perceived) control for influence, many vendors have kept with a master/slave approach ( or at least the underlying culture of master/salve) for too long and it has hurt. Witness the number of software platforms being launched without a developer
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Asia/Pacific
ChannelCorp workshops key dates
Sydney, Australia 21/22 November 2005 Sydney Channel Management: the business dynamic 23/24 November 2005 Sydney Advanced Channels Workshop Register for Sydney now. Class size restrictions will be in effect. The programs will SELL OUT. March 2006 Singapore Channel Management: the business dynamic March 2006 Singapore Advanced Channels Workshop
ecosystem in place and the amount of hardware being launched without an ecosystem structure that can make money on services. The vendor ecosystem stimulation model has evolved from single linkage relationships (Figure 1) to the investment in hundreds of relationships with partners leading to coverage in technology, vertical, market space dimensions. (Figures 4/5) Figure 4 New School vendor model
Vendor
For information on in-house deliveries of these ChannelCorp programs, contact Bruce R. Stuart at 604 / 263 6811 or channelcorp@telus.net
Information at www.channelcorp.com
High
Technical Competency
V Low 1 2 3 4 Verticals 5 E C M S Client Size E = Enterprise C = Corporate M = Medium Size S = Small V = Very Small
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Distributor relationships are evolving to prove how distributors can be involved in the ecosystems of their vendors and their partners as brokers and catalysts. Historically a make bulk . . . break bulk function in the industry, the new school ecosystem structures of value-added distributors have planted them squarely in the middle of the ecosystem strategies of both the vendor and the partner. Figure 6 Distributors occupy strategic role in partner and vendor ecosystems
Vendor
Partner
Distributor
Vendor
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The Ecosystem Audit is made up of ten questions that, when answered, will provide the partner with a clear picture of the environment in which they are operating. 1 Your business is involved in many ecosystems partner, distributor, vendor. How many ecosystems do you participate in? Which ones are critical? 2 Not all of the ecosystems that you participate in are equally important to your business. You will need to pick your spots. Of those ecosystems that are important to your business, which participants in the relevant ecosystem are the most critical to your business? You will need to focus on those that have an impact. Figure 7 Which ecosystems are strategically relevant?
ES4 ES1 ES3 Ecosystem 6 Participant 1 Critical Participant 2 Not Critical Participant 3 Not Critical Participant 4 Critical
ES7
3 The composition of various ecosystems differs from market to market. Some ecosystems are vendor-driven, some are distributor-driven, and some are partner-driven. How does the composition of the ecosystem change from market to market? Are the changes material to your strategy? 4 Like any other social system, ecosystems have leaders and followers, players and spectators. In those ecosystems that are critical to your business, who is calling the shots and why are they allowed to call the shots by the other participants? 5 In order to obtain value from ecosystem participation, you need to make an impact. Where can you make the biggest impact in the ecosystem that you plan to focus on? 6 Various vendors and distributors have integrated ecosystem investment into their strategies in different ways. Based on the ecosystem share of wallet/share of mind, which vendors and distributors should you be working with? 7 Ecosystem participation is all about obtaining resources to help you execute your overall business plan. What resources do you need from the ecosystem to help you execute your business plan? 8 Not all partners are good partners. You can not do good business with bad partners. What characteristics should your partners have? Who do you say No to and who do you say Yes to?
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9 The process by which you find and engage with vendors is up to you. You have your strategic choice. Figure 8 Four options for engagement search process
Active Process Reactive Process
Purposive Search
Opportunistic
The highest potential return/lowest potential risk strategy is based on an Active Process by which your organization searches for very specific resources from ecosystem partners. How will you go about searching for and finding suitable partners? 10 In order to run a high return/low risk ecosystem strategy, your organization will need to have someone responsible for the management of your ecosystem partners who will be responsible for managing your ecosystem partners activities. Step 2 Develop a plan of action Based on Step 1, you will have enough data to develop a plan of action. Critical decisions to make include: which ecosystems are critical to partner in? which partners are critical to partner with? should you look for ecosystems that function in similar ways? how will you make an impact in the ecosystems you plan to participate in? which vendor/distributor do you need to work with? what resources do you need? what kind of partners do you need to work with to be successful? what will your Engagement Strategy be? what will your Management Strategy be? Step 3 Create structure to support execution The amount of structure that your organization will require depends upon the nature of the engagement search process that you drive and the nature of the arrangements that you create.
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Purposive Search
Highest structure/return
Moderate structure/return
Opportunistic
Moderate structure/return
Lowest structure/return
Formal Merger
Joint Venture
Personnel Exchange
Potential Returns
The amount of structure that your organization can afford depends upon your organizations size and relative wealth. It an ideal world, your organization would have one senior person as the custodian of the Partner Ecosystem Action Plan. This individual would fully understand the plan and its objectives. They would have full access to all of the resources (broadly defined) of the organization and the authority to use them. The plan custodian would be the go to person for all outbound activity and inbound opportunity management. Partner Note to File Once you have developed a plan and thought about execution, sit down and discuss your plan with your vendors and your distributor(s). Many vendors and distributors have new and emerging programs to help their partners research, develop and intensify ecosystem involvement. Step 4 Execute/review/execute Investments in developing the ecosystems around your business follow the same pattern as any other investments in the business.
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New Offering
ChannelCorp Intelligence electronic version All issues to date plus two key White Papers
ChannelCorp Intelligence Book 1 is an electronic version (pdf) of all issues of ChannelCorp Intelligence since Sept. 2002. Get up to date with the most thoughtful and insightful channel strategy publication available in the IT world today. Issues in Book 1 include:
September 2002 ROI analysis of partner business education November 2002 How are your partners doing? January 2003 Seven diagnostic checklists April 2003 Crisis . . . what crisis? June 2003 R/E/A/L channel programs . . . are yours? September 2003 Crisis in channel management? December 2003 Channel development . . . hoping for A while funding B January 2004 Channel development the solutions . . . the big 5 February 2004 Channel contraction . . . when less is more June 2004 Players, coaches and channel management performance July 2004 Urgently needed . . . sustainable R/E/A/L channel programs August 2004 Part 2 Urgently needed . . . sustainable R/E/A/L channel programs September 2004 Players and coaches . . . roles, organization, measurement November 2004 Emerge the trusted business advisor December 2004 Challenges for 2005 fire test findings January 2005 Strengthening channel organizations, strategies and programs for success February 2005 Partner growth, investment and profitability April 2005 Partners attach services for growth and profit
+ve
ve
a Time
Some relevant aspects of the investment pattern include: a How much will the maximum resource requirement be? b How long will it take for the revenue to begin to flow? c How long will it take for the incremental gains margins generated by the investment to pay for the amount invested in the Partner Ecosystem Action Plan? d How much will the longer term cumulative cash/resource flow be? Critical to the Execute/Review/Execute process is a realistic perspective on how long various relationships take to become productive. The following figure provides some guidelines based on the experience of clients of ChannelCorp. Figure 12 Developing a realistic expectation
Technical/Sales Personnel Marketing Alliance1 Exchange 1. Maximum Investment 2. Time to revenue flow 3. Time to payback 4. Business risk assessment 5. Management skill reqt 6. Relevant review cycle low moderate Joint Venture high
Merger highest
1-2 quarters 13 quarters 26 quarters 26 quarters 23 quarters 24 quarters 48 quarters 48 quarters lowest lowest weekly/monthly moderate moderate monthly high high monthly/ quarterly highest highest monthly/ quarterly/ annually
Upon purchasing ChannelCorp Intelligence Book 1 you will automatically receive future issues of ChannelCorp Intelligence. ChannelCorp Intelligence Book 1 $150.00 U.S.
Alliances that require one or both partners to make investments in new capacity and capability have investment patterns that look more line Joint Ventures or Mergers.
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Channels Handbook
second edition
The Channels Handbook (second edition $150 US) is unique in the IT industry. It is written by Bruce Stuart, President of ChannelCorp and a leading expert on vendor channel strategy. The book is based on more than fifteen years providing consulting and executive education to the worlds channel executives. The Channels Handbook (second edition) is the premier management and channel strategy guide for all personnel having direct or indirect contact with their organizations channel partners or the organizations channel strategy. With its 213 Questions for Contemplation, the Channels Handbook will push readers to think about building better channels and better channel strategies.
Economy
Ecosystems Vendor/ Distributor The economy around a vendor/distributor can be 510X the size of the vendor at the center.
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For this reason, the environmental understanding for a Vendor or a Distributor needs to focus on the economy and the ecosystem. The Economy Audit is made up of sixteen questions or avenues of inquiry. 1 How large is the economy that has developed around your companys offering? 2 Which vendors and distributors are partnering with whom in the economy that you have created? 3 Which vendors and distributors are influencing the economy that you participate in? 4 Where and how can you have the biggest impacts on your economy? 5 What other vendors and distributors should you be working with based on their share of mind/share of wallet in the economy around your company? 6 What resources do you need or could you acquire from the participants in your economy to help you make your business plan? 7 What characteristics will suitable vendors, distributors and channel partners for inclusion in your economy have? 8 How will you go about finding and engaging with suitable partners to assist your business plan? 9 Who in your organization is responsible for comprehending the economy that you work in and the ecosystems that make up the economy? 10 how many ecosystems make up your economy? 11 Which ecosystems are the most strategically relevant ecosystems to your economy? 12 How do the composition of your relevant ecosystems differ from each other? 13 Who is calling the shots in our relevant ecosystems (if not you, then who . . .)? 14 How can you make the biggest impact on your relevant ecosystem? 15 Which vendors and distributors should you align with in each relevant ecosystem? 16 What resources do you require in each relevant ecosystem? Step 2 Ecosystem audit The Vendor/Distributor Ecosystem is made up of ten avenues of inquiry. The analysis laid out below should be executed for each currently strategically relevant ecosystem. In addition, it may be valuable to understand those ecosystems deemed to be likely or potentially relevant in the next two to five years. 1 Where are the leverage and control points within the ecosystem that reach between your organization and the ultimate end-customer? 2 Who is partnering with whom? 3 What is the composition of the ecosystem for each key customer segment?
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4 Who is influencing whom? Who are the key players/leaders in the ecosystem? Where is the product/service/solution decision really being made? 5 What is the flow of revenue, e.g., where is the product/service/solution purchase actually being made? 6 How does this differ by customer segments, solution types and purchase occasions 7 What is your companys penetration in terms of number/type of partner relationships (share of influence) within these strategically relevant ecosystems? What is our competitors penetration? How should your partner portfolio be modified to effectively penetrate these strategically relevant ecosystems? 8 How significant is your organization to the partners within the ecosystem? How likely are you to be recommended? (Why/why not?) How can you become more significant to these partners? 9 Where can your organization make the biggest impact in these strategically relevant ecosystems in terms of influence over the product/service/solution purchase decisions (who/how)? Where should your organizations marketing and program dollars optimally be spent (specific partners and programs)? 10 What is the business proposition for each of the partners within the ecosystem chain? What messages do you need to convey to encourage your partners to invest in your brand? What programs, incentives and compensation packages would be most attractive? Step 3 Plan development Based on completion of Steps 1 and 2, you will have enough information to develop a plan of action. Critical strategic issues around your plan include: strategic objectives to be met what are you doing, and why? short term versus longer term objectives direct investment versus indirect investment approach make vs. buy It will be crucial to understand specific components of your economy and the ecosystems that make up your economy. Your plan should address the following issues: economy size economy relationships influence structure of economy impact points in the economy desirable partners to work with required resources to meet plans characteristics of appropriate partners how many ecosystems
copyright 2005 by CHANNELCORP/September/October 2005 issue page 11
what ecosystems are strategically relevant influence structure of strategically relevant ecosystems impact points in the strategically relevant ecosystems who to align with required resources Step 4 Support structure creation The size and complexity of a vendor and distributor organizations makes the creation of appropriate support structures for an economy/ecosystem initiative difficult. Economy and ecosystem development and stimulation projects cross industry, business unit, product and geographic lines. Ecosystems do not always line up the way the organization structures of vendors and distributors line up, in fact, the viewing of your organizations economy and its ecosystems from the perspective of how you happen to be structured and organized this year tends to result in inaccurate assessment of the problems and opportunities that exist. The creation of appropriate support structure requires a senior management vision and commitment to the strategic approach of building economies and ecosystems. In addition, it requires a willingness to make investments in the process as if the creation of a vibrant, flourishing ecosystem was the creation of a corporate asset. What this means is that successful programs do not start and stop based on quarterly ups and downs. Step 5 Plan communication/execution What is extremely clear is that not everyone who works for vendors and distributors gets the economy/ecosystem discussion that has gone on in this document. Like anything elsea small group of people in your organization understand most of what is going on. The rest may have awareness of, but not a great deal of knowledge about ecosystems and channels. It is our experience that when more people in your organization have knowledge about your economy/ecosystem stimulation plans and programs, the more likely successful implementation will be. It appears that this strategy, especially when first introduced, benefits from being heavily communicated and educated in to the organization to accelerate its diffusion and acceptance. Step 6 Execute/review Realistic perspectives on how long any stimulation plan is going to take to show results is critical. The following figure gives some insights into what you can expect. Reinforcing that investment always leads return and incremental expenses always lead incremental revenues is also important.
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Merger
36 quarters 24 quarters 48 quarters 48 quarters weekly/monthly monthly monthly/ quarterly/ annually monthly/ quarterly/ annually
Summary
The reader will definitely benefit from reading Channel ecology and channel ecosystems (part 1) before they read this document. This document has, by necessity, been prescriptive in nature. It is based on ChannelCorp experience with what works and what does not seem to work. The major focus of the document has been to help partners, vendors and distributors zero in on what they need to know to create and execute plans that will stimulate the economies and ecosystems within which they operate.
Call to action
If you are a Partner, we encourage you to begin thinking about a Partner Ecosystem Action Plan for 2006. Start by doing an Ecosystem Audit. Get your people thinking about ecosystems. Involve your vendors and distributors. Find out what they are doing in the area of ecosystem stimulation. If you are a Player, Coach, Influencer or Supplier in a Vendor or Distributor, find out what your organization is doing in the areas of economies and ecosystems. As Players and Coaches, you may need to identify who the key partners are that your Partners need to work with. Ask your Partners what they are doing . . . know your programs related to ecosystem stimulation. As Influencers and Suppliers, your task is to add knowledge of economies and ecosystems to what you know about the environment in which your programs operate. Your job is to understand the whole iceberg.
ChannelCorp
Bruce Stuart, President tel: 604 / 263 6811 fax: 604 / 263 4914 e-mail: channelcorp@telus.net website: www.channelcorp.com
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