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:
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.
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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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 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....
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