Mike Haines, director of partner incentive strategy at Microsoft, shares his thoughts on working with partners.
In the current digital revolution, customers are increasingly adopting cloud-based solutions to drive innovation and business outcomes. The shift to the cloud presents an unprecedented opportunity for the IT channel. Thus, the business of many if not most IT providers is rapidly shifting from an historic construct based on products and volume licenses sold to businesses and public sector organizations to one based on services and solutions sold and delivered to these customers via the cloud. Therefore, the makeup and role of the IT channel ecosystem, as well as the incentive and investment models required to motivate and reward that ecosystem, must evolve.
A key challenge inherent in this evolution to cloud-delivered solutions is the need to continue to deliver expected product-based revenue while accelerating a new generation of cloud- and hybrid-focused revenue. This is categorized as the need to perform while you transform. To realize success with this dual revenue generation strategy requires that IT providers create financial reward models that motivate their partner ecosystems to deliver results against both models while transforming their own companies for future success in which an increasing portion of their revenue mix moves to the cloud.
This strategic duality will be an ongoing challenge in the partner investment model of IT providers for many years to come. One key element that remains a constant, though, is that channel partners must be able to continue to realize an acceptable level of net profitability with their business related to specific vendors or they will look for alternatives that can. They can’t afford to be as altruistic in their relationship with a specific vendor or set of vendors as they have in the past. In an increasingly competitive business environment, the partner incentive and investment strategy of IT providers must recognize this need now more than ever.
Building Partner Incentive and Investment Models Across Three Dimensions
In the IT industry, we must now look at partner incentives and investments in three dimensions. The first dimension of partner compensation is across the solution lifecycle and at each stage of the lifecycle. Providers need to define the types of activities that they need partners to perform and the compensation levers that can be applied in each stage of the lifecycle to drive that desired performance.
The second dimension is by partner type. Each of the different types of partners have specific value they bring to the sales process, markets they specialize in, and value they bring to the customer. These capabilities and contributions should be optimized through targeted investment elements.
The third dimension is by specific strategic solutions. Aligning partner incentives and investments to the business objectives for each solution, in conjunction to alignment with the elements and issues of the other two dimensions, will result in higher performance in all target markets. At the same time, this strategy will allow providers to better execute with their partners in each stage of the solution lifecycle and more optimally drive results from each of their partner communities.
This approach to partner incentive and investment strategy and planning allows IT providers to apply their budget surgically; where and with whom it can have the greatest impact against defined business objectives. It also allows for measurement of impact and adjustment as needed to ensure both optimal business results and flexibility against a changing set of business strategies and goals. Concurrently, it will allow partners to align their focus with their strategic vendors and providers to ensure that they are generating optimal revenue and profit growth within each of their defined practice areas.
As IT providers evolve partner incentive and investment strategies and the models needed to address the changing market dynamics, they must carefully balance incentives between pre-sale activities, the transaction itself and the post-sale efforts needed to ensure the usage and consumption of what was sold, as well as the renewal and upsell and cross-sell efforts to ensure a continuing and growing relationship with every customer.
A key point with this evolution of incentive and investment strategies is that some level of focus must remain on the transaction, for without it the rest of the strategy is irrelevant. IT vendors and solution providers rely on partners to generate a significant portion of their revenue and manage all the aspects of these transactions. Increasingly, profitability of IT channel companies will primarily come from their ability to provide value-added and differentiated services to their clients. Additionally, earnings around the transaction are often leveraged by these companies to invest in creating new value-added services and innovation. IT providers must recognize the efforts and the results related to the sales transactions and ensure that their partners can execute profitably in this stage of the sales lifecycle. The work they do to execute and manage the transaction cannot be, for them, a financial zero-sum game. So, via either margin, incentives or a combination of both, IT providers must ensure an acceptable level of partner profitability for their efforts at this critical stage of the solution lifecycle. If their strategy in this component of the business model is to eliminate or reduce the margin element of the transaction, then they need to offer incentives to ensure adequate partner profitability. Conversely, if the strategy is to remove incentives from the business transaction, then margins must be increased to compensate and ensure acceptable levels of profitability for the partners. No partner can afford to lose money while executing this required and important work on behalf of their vendors and providers.
IT providers must take a different approach to how they strategize, target, and measure partner investment and incentive budgets if they wish to stay relevant to their partner communities and capture the expected opportunities that present themselves with the current digital revolution.
