In 1991 IBM was in crisis. The company was losing ground in all directions. It had scores of products to market and sell. Some of them were sold through third parties, some direct. IBM corporate sales people were in a difficult position; did they sell everything direct and risk alienating partners or try to use the channel for some elements of the system and services delivery?
The same problem applied right back through the organisation. How much marketing fund should be allocated to the direct and indirect channels for each product area and service? How much R&D? How much service and support resource? In the end, IBM realised that it could not hope to reach its widest potential market unless it used the channel.
But IBM was a very large company used to dealing direct with the customer at high level. Like any big ship, it took time to turn in the water. So, when the market started to fragment and move into narrower channels, IBM found itself unable to follow.
The company had to be split up. But that too led to problems. Steve Voller, UK channel sales manager explains: "Three or four years ago they split the company and gave all of the different businesses their own channel strategy. In many cases they went out and engaged the same channel partners with those strategies but on different terms and conditions."
This was frustrating for the channel partners. Often, they would be dealing not with one or two people from IBM, but several. In one case, according to Voller, 26 IBM representatives were talking to a single organisation.
No-one would describe this system as efficient but, while dealing with channel partners was a problem, the split had been working in all other respects. IBM had focused its businesses, cut out a lot of waste and started to get sales back on track. The company's most recent results are the most tenable evidence yet of IBM's revival.
IBM needed to find a way of giving channel partners an easier way to interface with the company and this led to the formation of a central channels group within IBM.
There are 30 people in the channel team in the UK. They are responsible for interfacing between resellers who have more than one accreditation or partnership with IBM, and the respective parts of IBM. So, for example, a business which is an authorised PC dealer, RS/6000 Var and software developer will have an account manager from the channel team responsible for co-ordinating the communications and efforts of the IBM divisions with that third party.
This is an improvement on the old system but it is still not easy says Voller, because every reseller has a different mix of skills and offerings.
They all require something different.
"It's very challenging because the RS/6000 business will tell you that their competition is Sun and HP and talk to someone at Lotus and their competition is Microsoft. You don't have any one group that is the same as a competitor and the channel strategy for one business won't be right for another."
The management of a partner is looked after by a CRBPM (a Client Relationship Business Partner Manager. These individuals are measured on the total business performance of the channel partner. This prevents internal competition between IBM groups as to which solution might be best.
Previously, IBM sales teams would have been encouraged to go through channels but may have been competing with each other inside the dealership.
Another important aspect of the CRBPM's role is finance. Voller points out that many of the projects being rolled out through third parties involve vast sums of money. It is sometimes necessary for IBM to adjust credit or assist in the arrangement of leasing agreements and finance to fund the project.
This is just one reason why the agency model appeals to third parties in the AS/400 arena. Agents do not have to fund the purchase, they simply take a commission cheque.
However, Voller says that rather than moving towards an agency model he is looking towards two-tier systems. This is already being introduced, very successfully according to Voller, into the RS/6000 channel and there is also an attempt to move AS/400s through Vars.
IBM needs to channel more of its business through third parties, says Voller, to reduce costs. IBM has around 2,000 active channel partners of one kind or another with whom it works on co-operative marketing and other schemes. There are probably 3,000 more who are acting as fulfilment houses, says Voller.
The company plans to reduce the number of organisations with whom it deals directly to hundreds rather than thousands over the next year and to diminish the number of direct relationships further still in the subsequent years.
Although the channels group looks after the relationship between the third party and the company and has an influence on channel strategy, it does not decide who is and is not appointed to each divisions channel.
The divisions set accreditation and authorisation criteria and make the appointments.
But it is part of Voller's job to encourage resellers to sell other IBM systems. Although the channels group has emerged from a need to provide co-ordinated management across the divisions, there are not that many businesses which have major operations in more than one or two areas.
This means they are very close to the divisions and the central group does not want to interfere in that long-term relationship too much. "We act as a clearing house really because the divisions have some history with the partners and obviously they are looking to increase their business."
The CRBPMs must strike a balance between allowing them to do this and introducing other products and giving everyone a fair crack at the business. They act as a buffer for the competition between divisions but can't irradicate it totally while there are sales people dedicated to selling each of the different product ranges.
Although there is a move towards the channels, direct sales are still happening. Customers insist on it and it is a way for sales people to circumvent the internal competition in the channel.
However, various schemes across the IBM divisions have started to erode this problem, with sales people having to channel some business through indirect channels to earn their commission.
This does mean however, that IBM can make a lot of effort only for the reseller to pick up a commission simply for handling the sale. So not all of IBM's schemes are heavily weighted towards the indirect route.
Third parties must earn their keep and Voller believes that those who do will increase the level of business they do with IBM.
"It's my view that if the business partner can't show value-add then they won't get the business but in most cases they can. A specialist company usually has a better understanding of the customer's needs than IBM."
Across Europe IBM has 1,900 RS/6000 resellers, 280 in the UK. Over Europe, 55 per cent of sales are indirect, 45 per cent direct. Resellers are described as 'value added remarketers', this is a kind of cross between a Var and an agent. Direct sales teams concentrate on vertical markets and corporate business. Vars or 'business partners' must go through an extensive education programme to qualify for RS/6000.
At present, larger Vars who generate 35 per cent of revenues deal direct with IBM and smaller dealers work with IBM's channel management partners (CMPs) or distributors. According to Diane Oubridge, who is channels sales manager for the RS/6000 group, all but 25 of the current RS/6000 channel in the UK are handled via the CMPs.
In the UK there are two CMPs ( Bytech Systems and CST are the distributors for RS/ 6000. They handle most aspects of the relationship with the reseller and also have responsibility for expanding the reseller base. Oubridge says that IBM is looking to grow the reseller base through this route but stressed that it is "all about quality not quantity".
Voller says that a higher proportion of the business should go indirect: "The RS/6000 is volume-driven and IBM does not have the infrastructure to deal with a growing number of Vars," he states. "Our administration systems are good but they are not as slick as distributors' systems."
There are additional schemes designed to assist those Vars with specialist or additional skills identify themselves to the customer.
The business partners technical quality programme (BPTQ) keeps Vars on their toes on technical matters and the ISV programme gives software developer BPs additional support.
The mainframe business is still the most important part of the IBM business in many respects. The AS/400 channel is run on the agency model that IBM has always used for its mainframes. Although this has never been a popular method of handling PCs or Unix boxes, it works well for the mainframe business.
Most agents, JBA and JD Edwards for example, are software houses with established solutions for large companies. They sell the solution and act as the agent for the platform taking a commission on the sale.
IBM will install the AS/400 and traditionally, the company would have also maintained the system but increasingly, the agents and other third parties are now competing for the maintenance business as well.
This is one of the areas of conflict IBM has at the present time but in this very mature sector of the market most players regard the competition as being perfectly reasonable. "There days everybody supports everybody else so it's a case of may the best man win," Voller comments.
However, IBM is also looking to move AS/400 models through Vars. In May it released the AS/400 Advanced Entry system, designed to appeal to SME users who want to use AS/400 software but can't afford the full blown rig.
At this level the right channel is Vars, rather than agents, says Voller.
"At the entry-level we are getting down to PC server type prices and on an agency basis it's just not worth it because you are earning diddly-squat out of it on those terms."
The value of the AS/400 system sales can be as much as is u500,000 and agents are not much used to dealing in figures with fewer than six digits.
The range of offerings coming from IBM software can reasonably be claimed as unique. As well as OS/2, Warp, the MQ and Eagle middleware products, there is Lotus Notes. The channel teams for these products have been merged and IBM is very actively pursuing a channel policy with these products.
The aim is to put 100 per cent of its sales through the channel by the end of this year.
IBM's software channel is called the BESTeam network. There are around 1,300 of them across Europe, 220 in the UK.
Following the merger of IBM software and Lotus channels, the company has tried to encourage use of the 'buddy' system by resellers. This aims to get IBM salesmen selling alongside their reseller partners.
As in RS/6000 there is now a move towards two-tier distribution. This already exists for Lotus but now needs to develop for the IBM products, presently dominated by corporate resellers. IBM needs to expand its reseller base considerably if it is to become the alternative to Microsoft that it claims both users and Vars are crying out for.
IBM needs to change user perceptions. "We have to be a bit clever about our marketing now." says Susi Pink, channel marketing manager for IBM Software. "Most users are only interested in what they can touch and feel and IBM has mostly been involved in the back-room stuff. Our software now is series of building blocks with which resellers can put solutions together."
She says that the distribution model is key to IBM's success. "It will help resellers by making it easier to buy and to deliver products but they also have that way into IBM through the buddy system."
Software resellers are categorised as Premier, Professional or Software.
The commitment to training is successively greater for each but it is only Premier resellers who are asked to make revenue commitments.
Networking is an increasingly important part of IBM's business and strategically vital to the company's long-term success. IBM must work with the channel if it's going to remain a major player in the long run and in June, IBM announced its NETeam initiative to try to expand and enthuse its networking channels.
IBM is targeting skilled networking resellers with this initiative and the membership approval and authorisation process is taking place this summer and autumn.
There will be three levels of NETeam reseller. Associate members will pay nothing to get onto the scheme but will have to send two experienced network sales staff on a two-day sales seminar. and agree to recommend IBM solutions 'where the fit is right'.
Associate members will benefit from earlier access to information, support and education. The idea here seems to be to allow resellers to gently increase their activity until they are prepared to become an authorised NETeam member. This requires more demonstrable technical skill and proven project experience.
Authorised members are allowed to use the NETeam logo and get leads and referrals from IBM and distributors. Beyond this level Premier Partners will be authorised if they show substantial financial and organisational commitment to IBM and regularly propose and install solutions based on IBM products.
IBM Global Network
This is IBM's Internet channel initiative and IBM's answer to BT and others moving into computers from the communications business. IBM provides solutions that include leased-line access, hardware and software for dial-up applications and Internet/intranet systems.
Global Networks is very much aimed at the corporate sector from IBM's point of view and through the Internet channel partnership IBM also hopes to reach smaller organisations too. It wants to work with Internet specialist resellers.
Kathy Luck, UK channel manager for IBM GN, says that working with IBM on GN services will give Vars a different angle. "They are widening their portfolio and they will have more of a management role, more control over the relationship."
GN is not part of any specific division and as far as third parties are concerned the relationship has an 'agency' status. IBM provides the service and supports the users. There is a one-day accreditation and Vars must submit a marketing and support plan and buy a 64K leased line for Internet connection so that they can demonstrate the GN system.
AS/400 agents have shown the most interest but Luck says that RS/6000 and PC resellers are also asking questions.
The PC business moved to 100 per cent channel fulfilment earlier this year. The channel is increasingly handled through the two-tier model while the PC group is concentrating on giving developing sales support for the industry sector business units within IBM's own sales organisation.
All IBM sales staff are now paid commission for sales that are channelled through the third parties. This has helped Vars who work principally with other parts of IBM to add PC business to their primary sales.
VAR World's analysis
IBM's channel strategy, after many years of conflict, finally seems to be coming together. The focus of each group works because in real life there is little cross over between the product sectors.
But there are still some difficult problems to address. Inter-channel conflict is potentially dangerous and could force IBM sales staff back into direct routes if the product strategy is not nailed down.
IBM also competes with some Vars and agents in the services arena. In certain cases it may walk away from the business if asked but with vendors all chasing the same business, withdrawal is not always going to be an option. IBM must find a way of working more closely with its channels partners in services.
Finally, there is the danger of moving too rapidly towards a theoretical two-tier model across the organisation. It must not do this at the cost of reseller support. If it puts too much distance between itself and Vars, IBM could lose much of the ground it has worked to regain in the last two years.
The central channels group at IBM co-ordinates the efforts of nine separate product divisions of IBM PC AS/400 Software Lotus Storage The Software and Lotus divisions are operating as one division in many respects but, as Voller points out, Notes needs to be handled differently to DB2. The channels cross over a lot but are by no means identical.
The branded-product Storage business is growing fast says Voller, and using distribution, through ITE/Storm, to great effect. The plan is to move more business from more of the divisions through a two-tier model.
Voller says that there are many major UK channel businesses with which IBM does a lot of business but has only a small share of that company's overall budget. At Azlan, for example, IBM is nowhere near the leading brand, says Voller. "They do a lot of business with us but nowhere near the business they do with 3Com, Bay or Cisco."
There are some major distributors with whom IBM does no business such as Persona and (excepting OEM storage sales) Ideal.
Overall the channel business in the UK is worth $1 billion a year to IBM. The PC business remains the biggest contributor but the most profitable part of the business is AS/400.
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