Channels & Alliances - building the money machine. Part 1: trust & process

Some years ago a product development engineer said to me...

'The trick in business is to find something of huge potential value that is very difficult to do, to the degree that many try and fail.  Then learn how to do it well.  This offers transformational competitive advantage; it will also make you rich'.

If you think about it there are many examples of this.  Pick an industry,  think of the market leaders in that industry and think how they got there.

In this case my friend was referring to designing products.  It occurred to me that the area in which I work is also a candidate his list.  Building an effective community of channels and alliances can transform a business, drive exponential growth and be the business driver that enables an organisation to quickly pull away from competitors.

Many of the most successful companies have found that establishing these relationships is nothing less than a money machine.

The ability to effectively partner is a strategic capability.  Not many have it.

First, a quick word on two cultural pitfalls companies fall into in this area:

1.   For organisations for whom the investment in partners has never brought a return, the everyday value of partnering in general is dismissed; even when those with whom they compete are accelerating away from them powered by a healthy and positive community of business relationships.

2.  Once built the partner community can be taken for granted.  They are left poorly maintained and protected.  Decisions are made that damage these relationships.  The value they bring is only properly recognised when it breaks.  When all is going well the vital role the channel plays is often played down.  When times then get tough a lot of emotional sound and fury is directed at those partnerships.

When things go wrong look in the mirror first.

The crucial fact is that building the money machine requires investment, time and the right team of 'engineers and mechanics'.  To labour the point, an alliance / value added channel relationship when correctly constructed is a money machine.

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Organisations embark on these relationships for many reasons.  Put broadly, organisation are seeking to create value (traditionally for those who own the business):

• They improve the firm's performance
• They create and extend resources and capabilities
• They facilitate organisational learning
• They increase the nature and scope of the strategic network

However the ongoing management of the relationship and the judgement of success is restricted to one single criterion.  Is it making money?  Or will it make money soon enough?

Channel and alliance relationships are evaluated by scrutinising their ability to create new, profitable and sustainable streams of revenue.  Is the money machine working?

Often an organisation 'needs' a return but often invests late (or not enough).  This creates a business plan gap.  Scaling business revenue through partnership is quicker and cheaper than through internal development or acquisition (and much less risky).  The quickest collaborations are often driven by a single opportunity.  This is determined by the length of a sales cycle.  This can still be many weeks or months.   The larger, more multi-faceted and more strategic relationships take a bit longer.

For most companies the channel is a quick, agile and potentially disruptive way of growing sales. But it needs investment, expertise and a realistic view of timescales.

At this point it is worth mentioning the organisation whose revenues are growing scarily fast.  Do they need a channel?

In this fortunate situation sales will outpace the firm's ability to scale to support a growing and demanding client base.  The firm just cannot hire fast enough (compromising quality) and once adequate systems and processes creak or break; all business functions are stressed.      There was a time in my career when I was spending 25% of my time interviewing (and that firm had a great channel).

Customer satisfaction suffers and future success is put at risk.  How many companies have burned brightly and beautifully for awhile, attract a lot of wonder and attention and then just as quickly burn out and disappear?

It is easy to forget (or underestimate) the non-sales value of the partner network:

• They improve the firm's performance
• They create and extend resources and capabilities

Here is a quick and real example.  I worked with a partner that for many years looked after a piece of my employer's client base.  Foolishly an edict was sent out that from a specified date in the future we would service that base directly.  Naturally that would save us the margin we were paying to that partner.    The response from my partner was,   '... who in your organisation will scope, check, offer advice on design and configurations and issue the 6,000 quotes we are currently managing in a year on your behalf?'

Of course, my company had no-one to do this.  The issue was kicked down the road.  My partner didn't even mention credit checking and the cost of money due to delayed payments.   

These are the quantifiable issues.  As the channel person I had some relationship fixing to do. Trust had taken a knock.  My partner no longer trusted our intentions and certainly doubted our competence.

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Like any machine when it runs smoothly the channel and alliance community can deliver continuous output with the minimum of supervision.  Looking after such a machine requires an oil can and an intimate knowledge of how it works so that it can be fixed quickly should it break. Those responsible also need to predict issues and keep the machine fined tuned and serviced.  Constant supervision is required.

It is useful to have have a prompt feedback mechanism in place.  Changes in ownership, structure, personnel, policy and the business environment will have an impact on the success of the relationship.  Any one of these may require a response and it is best to identify this early.

Those not familiar with the machine just see what it delivers and the 'effortless' way it delivers it.

Many (perhaps the majority of) alliances and channel relationships fail.  The most common reason is that organisations do not appreciate the time and investment required to design and construct these invaluable partnerships.  It is very valuable and hard to get right.

It has to be done properly.

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Briefly here are the design considerations:

-  The nature and scope of the alliance must be agreed in detail.

-  The necessary resources must be identified and a medium to long term commitment of those resources must be won.

-  How those resources are configured must be identified in detail and again commitment must be established that this configuration will be in place over the necessary period.

Premature changes in resource levels and configuration is probably the most common cause of alliance failure.

Should one or both organisations become impatient or frustrated that a much heralded and publicised collaboration has not come into production quickly enough common responses are:

1.  Change the people involved
2.  Withdraw resources or investment
3.  Move the responsibility for the alliance to another part of the organisation

All of the above will stall or even wreck the development of the machine. No engineer would recommend changing the design of a car half way through construction.

4.  Allow cynical attitudes to proliferate about the value of the alliance or the channel network.  The cultural narrative becomes negative.

What is not understood is that the organisation at most risk from being damaged by this is your own.  Internal communications must give credit to partners for successes and progress.  A small but important example of this is the internal win notification process and client references.  Too often (still) vendors do not mention participating partners in customer wins.  If they do it is just a line item.  In many cases the sale would not have been made without the partner's relationship with the customer or the resources the partner brought to bear to the sale.  I rarely see this mentioned.  To do so is enlightened self interest.  Not to do so is a mistake.  Give some credit and win more business.

Response 4 will destroy any chance of creating what is absolutely necessary if the machine is to run smoothly; the development of 'social capital'.

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Successful partnerships are a blend of process and trust.

As mentioned trust has 2 components:  

Each trusting the intentions of the other.

Each trusting the competence of the other.

This is how you (both companies and individuals) proactively demonstrate and develop deep levels of trustworthiness:

1. Explicitly recognise the importance of the establishment of trust – absolutely necessary and not to be assumed.All the other 11 principles are defined to deliver this. Explicit ways of demonstrating trust should be sought on both sides.


2. Integrity – not to be assumed. A successful relationship will involve many individuals with differing objectives and pre-occupations. People, cultures and organisations have nuanced notions of integrity. Therefore this notion must be communicated clearly, consistently and often both with the partners and internally.


3. Consistency – in approach, planning and personalities. Nothing destroys trust better than inconsistent behaviour. Channel managers (especially alliance managers) should not be re-assigned too often. Their longer-term commitment is required. Frequent changes in alliance manager are both a symptom and a cause of an alliance that does not work. 


4. Communication that is both open and discrete. Sharing information should be the default. Privileged and confidential information should be the strict exception. The level of open-ness in a relationship is a good guide to its overall state. I.e. if one makes a ‘good’ decision there will have no difficulty explaining it to all interested parties. Do not make decisions that you would rather not publicise. They are suspect. This is the ‘touchstone of decision-making’.


5. A pre-occupation with the customer. No decisions should be made which creates a conflict between the interest of the relationship and that of the customer.


6. A spirit of enlightened self-interest. Look for ways to add value to your partners' business that may not directly benefit your organization.


7. Open and honest resolution of disagreements. Wherever possible disagreements should be anticipated. An advance declaration of actions with an explanation if necessary will prevent surprises and defuse possible disagreement.


8. Viewing conflict as an opportunity – embracing conflict as an opportunity to move a relationship forward, acknowledging conflict as an indicator of mutual commitment.

Often ‘heat’ and emotion when conflict occurs indicates that the relationship is important and valued. The participants care.  Ambivalence is not good.



9. Empathy. Relationship participants should be constantly assessing situations from the point of view of their alliance partners.


10. Pragmatism and flexibility.


11. A shared view of objectives, environment, intentions and expectations. 


12. Accepting the concept of unequal ‘balance of reciprocity’. This describes most relationships where individual activities rarely benefit both parties equally.  This is OK.  The more your partner benefits from doing business with you the more relevant you are and the more they will invest.



Nuff said for now....

Improve your sex life - something to bear in mind on your way home from work.

The tear in the wet suit was turning the water red in picturesque swirls.  Not knowing the nature of the wound the only thing to do was to kick through the fins even faster.  There were 6 of them in pursuit as they negotiated the coral reef .  Helpfully they were kitted out in black which singled them out as unfriendly.  There used to be 8 but 2 managed to lose their lives at the wrong end of a serrated fishing knife (standard MI5 issue)  a little earlier in the skirmish.

(Author's note:  We shouldn't give a thought to the countless unnamed human beings violently and imaginatively dispatched daily by Hollywood directors for whom every violent death is just set dressing.  We are never shown the scene when the mother of bad guy #2 is informed of his demise.)

Anyway back to action, much more fun.  Our hero is miraculously managing to avoid an everlasting supply of quickly reloaded harpoons.  It is lucky that these ruffians don't have the training, wit, charm and good looks of MI5 agents or the whole operation would have failed hours earlier.  In the hands of British Intelligence one harpoon would certainly have taken out at least 2 assailants with a well placed and much practiced 'in-off' shot.  Training always emphasised the need to deliver savagery with style.

Ironically the day had been a success.  The horribly deformed (placing any sympathy well out of reach) billionaire villain had been dissolved in his own acid bath (don't ask).  The 2 nuclear warheads had been inactivated with seconds to spare.  The city of Los Angeles had been saved  (why is it always Los Angeles?   There are prettier cities). Our agent had achieved this using only guile, an Omega wristwatch, a first class British Airways ticket, a Nokia mobile phone, a well placed Coca-Cola billboard, a Cisco telephone and a fake duck (don't ask).

Having located the US nuclear submarine 007 heaves on the hatch and manages to manoeuvre into the airlock as the harpoons bounce harmlessly off the hull.  The hatch below opens and the exhausted agent falls exhausted onto the floor along with a lot of water some seaweed and a single fish.

'Welcome aboard Miss Reliant, what kept you?' The captain had seen the films.

Robyn Reliant wriggles out of her wet suit and is handed a much needed cocktail.  She straightens the dress she was wearing the night before when it all kicked off.

A junior officer hands her a towel and the captain apologises,  "I am sorry you had to get so wet".

"That's fine.." she replies, "..my Martini is dry".

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Later that evening Robyn is meeting a fellow agent in the bar of a hotel the rates of which are well beyond the budget of the British taxpayer.  Over the past few weeks they have worked closely together and they naturally hated one another at first. This hatred turned into begrudging respect and there is now an inevitable sexual tension between them that neither has yet openly acknowledged to the other. Robyn is tired and elated and is in 2 minds as to how the evening should end.

She slides onto the bar stool next to her colleague.  They exchange glances and raise their glasses.

He asks, "How was your day?"

She replies, "Well actually..."

He interrupts,  "Well you wouldn't believe the bloody awful day I've had, first of all the traffic this morning was a nightmare...."

20 minutes later she thanks him for the drink and leaves.

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The evening could have gone a whole lot better.

  

How to be Lucky - Part One: Individuals

This brief article is based on an elective I have presented many times for the Open University Business School.  The main idea is not mine.  I have searched for the article from which it is thieved (30 years ago). If someone can direct me to it I will be happy to give the authors full credit.

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The word 'luck'is banned from the business lexicon.  There is no such thing as luck (apparently). Successful people are never lucky.  Success springs from talent, diligence, attitude, tenacity, cunning, knowledge and experience; I will not go on. If success required an element of luck the business section of airport bookshops would be replaced by scratch card vendors.

If you suggest that a successful colleague was lucky someone is bound to harumph and quote (usually misquote) Gary Player.  This erroneous notion is nicely explored in Malcolm Gladwell's book, Outliers if you're interested.

However, I will stick with western capitalist myth that all success and wealth is richly deserved and has nothing to do with accidents of birth, genetics, gender, race, geography, parenting, connections, other people's work or kismet.

This short piece describes 3 behaviours that can seriously up your chances of fortune smiling on you and not laughing in your face.  Each behaviour has a successful sponsor from history so don't try to argue with it.  I have not included advice from any unsuccessful people. First, because clearly such people lack the moralilty, intellect or diligence to make the advice they offer valuable and secondly we don't know their names.

Behaviour 1:  The Kettering principle.

'Chance favours those in motion'

'Keep on going and the chances are you will stumble on something, perhaps when you are least expecting it.

I have never heard of anyone stumbling on something sitting down.’

Charles Kettering said this.

He was a successful businessman and inventor in the early 20th century. He owned 186 patents.

Good inventions:  electric starters and lights for cars.
Not so good inventions:  putting lead in petrol and CFCs in fridges.

To be fair he  had no idea he was poisoning the air we breathe and making the earth uninhabitable. Chuck may have seen these developments as fortuitous.  Perhaps they were not so lucky for the rest of us.  Still, we don't need to crank the car in the morning.

His advice was to keep busy.  Get out of bed.  Communicate, consult, collaborate.  Be interested in everything and everybody.  Be energetic. Explore. Persist.  Experiment.  Basically get out there and get involved, not necessarily with a specific purpose in mind.

This may seem obvious but this is the pre-requisite for our next 2 behaviours.



Behaviour 2:  The Pasteur Principle.

'Chance favours the prepared mind'

‘Dans les champ de l’observation, le hasard ne favorise  que les esprits prepares’ 

Louis Pasteur said this.

Louis P was the French Alexander Fleming (and vice versa if you see what I mean).  These 2 biologists changed the course of humanity.  

The principle is that individuals should be constantly developing knowledge,  making observations and looking for associations.  Always look for linkage between seemingly unconnected phenomena and disciplines.  Here lies the motherlode, the wellspring of creative ideas and innovation.

Louis said it and Sir Alex is the great example.  He was a messy chap.  He didn't tidy up his lab before the August Bank Holiday. Over the doubtless warm long weekend something unpleasant developed in one of his petri dishes.  On his return he exclaimed "that's funny", made a connection and the world was given penicillin.  There are many examples of this variety of 'luck'.  Dr Spenser Silver invented a glue that was not sticky enough; the Post-It Note was born.  In 1960 2 guys came up with light amplification by stimulated emission of radiation .  At the time the laser was an invention looking for an application. And then someone suggested using it to torture Sean Connery, job done.

Both of these inventions were 'solutions looking for problems to solve';  it took the creative mind to bridge the gap.

So stay awake, never stop learning and don't let stress and the urgent things in life close down your creative faculties. 

       

Behaviour 3:  The Disraeli Principle.

'Chance favours individualised action'

‘We make our fortunes we call them fate’ 

Benjamin Disraeli said this.

He is the former British Prime Minister and author of romantic fiction.

Companies and products need some form of differentiation to be successful we are told.  So do people.  

Good fortune favours those who behave in distinctive ways.  They have something that sets them apart. They have a unusual skill or achievement. Fortune is a process where someone is singled out. 

An individual may be the greatest musician, novelist, inventor, business leader (you get the picture) but if no-one notices they are left spectating not participating.  I often wonder how much unrecognised talent has gone to waste in human history.  I don't need to wonder how much 'untalent' we have have to tolerate in all spheres of human activity (with the most disastrous consequences).  I won't mention any names but feel free to vent.

Plato described a ship in a storm where the loud and authoritative captain uselessly lashes himself to the wheel while to 'true navigator' lies bound and gagged in the hold.  

So here's the question.  If Benjamin D is correct then we should not be facing a  diversity issue in our established organisations.  If distinctiveness were a asset in attracting good fortune why are many of our leading companies and institutions full of white middle aged men?  Do people need to be distinctive in the right way? Ie in a way that is not distinctive at all?  

Perhaps the distinction created by gender, ethnicity, sexual preference or background is a bit too distinctive for some?  Over half of our available talent pool is still being largely overlooked.  Of course progress is being made.  If Ben D was completely right would we be having to work so hard at it?

So that's Part One.  Let me know your thoughts.  There is a lot more to say and this subject can lead us in many directions and discussions.  Part Two will deal whether this can be applied to organizations.