RIP platinum, gold, and silver partner programmes - the new model is here
The shadow channel is coming into the light and will displace the traditional channel, argue Forrester's Jay McBain and Successful Channels' Gary Morris
Channel partners have proved to be remarkable change-agents, both in front of their customers and in their own businesses. Thinking about the amount of churn over the past 35 years can be downright dizzying.
Starting from the first disconnected PCs to the recent highly publicised ransomware attacks, channel partners have transitioned their skills to dozens of new technology opportunities.
At the same time, they have transformed business models from resell, break-fix, installation, and maintenance, to solution providing and recurring managed services, among others.
The one thing that has stayed relatively constant over these decades is how customers decide on and procure technology. Led by CIOs and IT departments, channel partners and vendors have fine-tuned their product and messaging mix to capitalise on this customer buying journey. Over the past couple of years, driven by the cloud and the growing acceptance of SaaS business ecosystems, this journey just took a significant turn.
Line-of-business executives are influencing and making the majority of technology decisions
Forrester reports that 65 per cent of technology decisions are influenced and/or made by line-of-business executives.
These leaders of departments such as sales, marketing, customer experience, finance, operations and human resources are increasingly taking ownership of their own digital transformations. In fact, it is predicted that this number could rise to 80 per cent by 2020.
Interestingly, 29 per cent of these technology decisions have no involvement whatsoever by the IT department. The line-of-business executives are building the solution without internal help and in many cases are using external talent to advise on areas such as security, backup, compliance, and disaster recovery.
They are also using their own money. Fifty-two per cent of business executives are using business-unit budgets to buy technology as opposed to assigned technology budgets from IT departments.
Buyer shift is creating a huge opportunity for the channel
The new buyer is also creating massive channel opportunities - just not where we thought. Fifty-eight per cent of business executives are significantly involved in deciding on and hiring third-party services firms to implement and integrate these projects into the back end of their company.
Because 73 per cent of B2B buyers prefer buying cloud solutions directly from the vendor, we believe reselling technology and taking a front or back-end margin will soon become a relic of the past.
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RIP platinum, gold, and silver partner programmes - the new model is here
The shadow channel is coming into the light and will displace the traditional channel, argue Forrester's Jay McBain and Successful Channels' Gary Morris
This shift has led to the creation of a new 'shadow channel'
Business leaders are clearly looking for full-service solutions and are putting together the resources and teams to make it happen. They are increasingly relying on a new set of influencers or "shadow channels":
- SaaS consultants and implementation partners. Thousands of new partner companies have been created to add value around SaaS platforms. These are line-of-business experts who understand cloud-driven best practices and have gone deep with very few vendors. Examples of ecosystem players include Salesforce in sales, Marketo in marketing, NetSuite in finance, and Workday in HR. Unlike traditional channel partners, many of these ecosystem partners are pure-play with only one vendor and have developed deep integration skills into multiple back-end systems.
- Industry-based professional services firms. In an effort to expand their own businesses and offer a full-service suite in front of the customer, many ancillary service or consulting companies supporting nearly every industry are becoming technology companies. Accounting, legal and marketing firms are examples of industry-specific professional services firms that are quickly transitioning to software and IT services companies. By 2020, more than 80 per cent of accounting and marketing firms will be indistinguishable from traditional IT channel partners. Legal is slightly lower at 55 per cent, but still heading in the same direction.
- Independent software vendors (ISVs). There are thousands of software companies that have been built inside large SaaS ecosystems. They add value to business leaders as they take generic platforms and customise them to their sub-industry, segment, or geography. Some of these companies are unicorns - valued at over $1bn in the market - and focus on adding tools, customised workflows and specialised industry solutions. In many cases, they focus on recurring software revenue and provide services for free.
- Born in the cloud. With a business model tuned to project-based revenue, these firms add value to business leaders by providing back-end integrations, security, backup, disaster recovery, compliance, and a host of other critical services to make a complete solution. They don't tend to participate in standard vendor channel programmes and prefer incentives that do not require them to resell or accept customer payments.
- Start-ups. Looking to disrupt traditional industries, the B2B start-up community has found business leaders to be receptive to hyper-targeted products that are focused on specific business problems. These business leaders tend to be less risk-averse than IT departments and are willing to test products that are specialised around their business objectives. There is a massive funding and support structure built for these B2B start-ups including angel networks, venture capital and private equity.
Traditional partners must adapt or perish
Traditional partners are facing challenges breaking into the new decentralised line of business buyer. This includes an inherent weakness in marketing skills.
As the book The E-Myth masterfully outlined, most SMB channel partners are technicians at heart and haven't focused on the sales and marketing skills required to scale their business. Now that there are 10 times the buyers at each customer, this weakness will be amplified.
Many vendors are also guilty of focusing only on the IT buyer and have a serious visibility problem with the new buyer as well, assuming their products and services are even relevant in this new world.
Traditional channel partners can also suffer from a lack of sophistication. About a decade ago we started a march towards specialisation. The secret to success was becoming verticalised in certain markets and industries.
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RIP platinum, gold, and silver partner programmes - the new model is here
The shadow channel is coming into the light and will displace the traditional channel, argue Forrester's Jay McBain and Successful Channels' Gary Morris
The new buyer is looking for a level of hyper-specialised skills around business outcomes. In this new world, "vectorisation" is now required, which means having skills germane to the line of business itself, customer size and segment, sub-industry, geographic nuances and business technology application and how it integrates with the organisation as a whole.
Finally, traditional partners may not have the will to change. This industry is about 35 years old, and most of the traditional channel started their companies in the 1980s with IBM, Apple or Compaq, or in the early 1990s with the rise of Microsoft.
It doesn't take long at an industry event to see that the aging channel is not being replaced by millennials. In fact, IT does not rank in the top 10 desirable industries for college graduates today, according to CompTIA.
After surviving all the technology and business model twists and turns, and with 40 per cent of the channel planning retirement in the next seven years (according to CompTIA), there may be a lack of energy or enthusiasm for this latest curveball.
This is more difficult than adding a new technology practice or specialty to the line card or changing a business model. Working with a completely different buyer, with different preferences, motivations, requirements, and levels of influence will profoundly challenge the channel like nothing before it.
The new "shadow channel" has emerged as a response to this change in business buyer behavior. This means that many traditional IT-centered partners are becoming more out of touch with the biggest growth opportunities for the brands they represent.
IT-centered sales strategies are yielding increasingly lower returns for partners because their target buyer is out of the loop for many/most business service and technology buying decisions.
Channel managers are the key to opening up the shadow channel for brands
Channel managers hold the keys to the kingdom in the rapidly evolving traditional and shadow channel market. The traditional precious metals (Platinum, Gold, and Silver) programmes are simply obsolete, not motivating in the new market, and not aligned with new classes of partners.
The new channel programme model must be based on the development of mutually agreed goals where both the partner and vendor needs are aligned. Channel managers play a key role in working with partners of all kinds to help define their needs, create joint business plans, scorecards, and action plans to achieve these mutually agreed goals.
Joint partner business plans replace platinum, gold, and silver programme structures
The adage of "applicable to everyone but relevant to no one" applies to dated "precious metals" partner programmes. These programmes are simply not flexible enough to help manage and motivate partners of all types.
The new joint business plan partner programme model helps partners establish their own programme goals that are best aligned with their priorities. The result is a set of much more committed partners that are motivated to succeed.
The key to success of this new model are trained and enabled channel managers who can serve as business growth and capabilities consultants to partners of all types.
A channel manager's role must be a business advocate for their partners. The needs of traditional and "shadow" partners are simply too diverse to rely on the old Platinum, Gold and Silver programme structure.
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RIP platinum, gold, and silver partner programmes - the new model is here
The shadow channel is coming into the light and will displace the traditional channel, argue Forrester's Jay McBain and Successful Channels' Gary Morris
The new channel manager management process
The new joint business planning-driven partner programme management structure requires that channel managers complete a range of steps to more effectively manage their territory and assigned partners.
Annual channel manager planning activities:
1) Profile and scorecard all current traditional partners: Complete an annual profile and capabilities scorecard of all partners to determine ability to support IT and functional buyers
2) Build joint business plans and performance targets with all traditional partners: Collaborate to set partner-specific sales and pipeline targets based on their capabilities, market and current opportunities
3) Inventory all new potential "shadow" partners that can deliver more growth: Complete a market analysis to identify complementary, functionally focused new partners that can bring in new classes of clients
4) Profile and scorecard all new "shadow" partners to build a capability plan: Profile new partners to determine strengths and focus enablement actions to improve performance
5) Build joint business plans with new shadow partners: Based on the partner's scorecard, build a joint business plan that sets sales and pipeline targets and support plans with each new shadow partner
Monthly/quarterly planning and performance management activities
1) Monthly business performance review: Once joint business targets are set, use a one-page Partner Performance scorecard to do performance-to-plan and pipeline-to-target reviews with partner monthly or more frequently.
2) Monthly account planning review: Collaborate with partner sales executives to review both pipeline deals along with account planning activities to identify potential cross-sell opportunities for your brand.
3) Quarterly capabilities scorecard review: Update the 5-minute capabilities scorecard to track a partner's improvement progress and refine their action plan.
4) Quarterly business review (QBR): Complete a comprehensive partner QBR every quarter or two times per year depending on size and potential of the partner.
The generic "precious metal" partner programme structure and level targets simply do not work for a growing inventory of traditional and new "shadow" partners.
What does work is a scalable and customisable joint partner planning and performance management process where partner goals are aligned with their priorities and market focus.
Achieving scale with this channel management process requires the use of automated tools to streamline and guide the process of joint partner business planning and performance management.
Channel organisations will become even more dependent on highly trained and enabled channel managers to lead the partner commitment and capabilities development process.
The battle for growth will be won on the ground, in the territory, working with partners of all types to help them achieve their jointly negotiated goals. Channel organisations that will win in the future will invest more, not less, in their channel manager team to help them better align partner goals with your brand goals.
The shadow channel is coming out of the shadows and will displace much of what we recognise as the traditional channel. There is a potential "land grab" happening in the channel with new classes of partners, and brands that proactively position themselves to support this market shift will find themselves outpacing the growth of their peers that are slower to adapt.
Jay McBain is principal analyst for global channels at research house Forrester. Gary Morris is CEO of channel consultancy Successful Channels.
This article orginally appeared on LinkedIn.