A Hybrid Approach: The Way to Go for Most?
The one certainty in the world of value-added resellers (VARs) is that there is no cure-all, and no magic fix. We've taken a look at some approaches in parts One and Two of this series, but it's worth exploring some other intriguing tactics.
Part Three of the series The Cha(lle)nging World of Value-added Resellers.
Indeed, most vendors' business models are of a hybrid nature, where there is a tiered approach to demarcating direct sales from the channel-driven model. Typically, most vendors will want to give special, personal "care and feed" to customers of strategic importance, whether because they are large and widespread global corporations, or because they spend a certain annual amount on the vendor's software. Larger businesses typically manage infrastructure and integrate products to a large extent with their own information technology (IT) resources, while smaller and midsized companies buy the infrastructure within the applications, and want integrated products containing only the features they need. Also, small and medium businesses (SMBs) typically want ready-to-go business processes with built-in flexibility to accommodate their inimitable processes, whereas their larger brethren want the unrestrained capability to customize solutions to fully fit existing best processes (see Cookie-cutter Solutions Won't Cut It with the Mid-Market).
The channel will typically service customers of a lesser size (whose sales, delivery, and support demands are amenable to an indirect channel, anyway) in the markets where the vendor is present too, or it will service the countries and vertical segments where they exhibit better-attuned localization skills and heritage than the vendor. For some time, there has thus been an abundance of vendor hustle and bustle aimed at polishing their channel-friendly qualifications in the hope of attracting new allies, preferably by luring them away from competitors. Some sweetheart deals (such as guaranteeing margins as high as 35 percent, offering discounts up to 50 percent on the core vendor's product for internal use, and providing free sales training for up to 5 people) have been offered to existing qualified resellers of competitive products.
To take another example, Sage Select partners are rewarded with free education and training programs, free Sage Software products for in-house use, extended marketing programs (including additional co-op funds), and improved margins. Through an extensive network of well chosen business partners, Sage offers small and midsized organizations a broad lineup of business management applications (from back-office solutions like Sage MAS 90 ERP to renowned front-office applications such as Sage CRM SalesLogix). On the other hand, SAP considers two-tiered or hybrid distribution whenever it gets a critical mass of customers, if its partners are generating significant revenue in the market. To help generate business in the SMB space, 75 percent of SAP's marketing funds are now spent in this sector, 80 percent of which can be accessed by partners. Logically, SMB market incumbents such as Sage, on the other hand, are wholly focused on SMBs.
Sage Software has been focused on the SMB market since its beginning, and long ago recognized the need for resellers to provide local sales and services for its growing list of products. While some vendors will customarily help to kick-start their reseller channel and then leave them to either succeed or fail on their own merits, Sage has taken the view that a partnership between vendor and reseller is a basic requirement for success. Many vendors pay lip service to the idea of partnership, but Sage tries to truly live up to it, having delivered such strategies as the 100/100 program, which provides a direct investment of $1 million (USD) to assist its channel partners in qualifying, hiring, and training professional sales people. The vendor also delivers training programs in project management and general business management, offers marketing advisors, and even delivers business mentoring affiliations. Sage's turnkey marketing programs aim at simplifying marketing processes for these VARs, thus helping them to drive new business at minimal cost. Sage continues to innovate in these areas, and will announce extensions to the assistance programs at upcoming partner events, with an eye towards helping VARs in their efforts to recruit effective consultants, as well as supplying many other benefits.
In addition to financial incentives which aim at coveted recurring revenues for partners, vendors increasingly tout their suites' cloning facility for providing a cost-effective means for resellers to develop and subsequently own their own vertical solution. To that end, Sage offers product suites designed to serve a range of industries, including manufacturing, distribution, accounting practices, non-profit organizations, construction, and real estate. Yet despite the recent craze for enticing and poaching partners, the truth of the market place is that the universe of business partners for business management applications is not swelling with unknown partners deciding suddenly to get involved with enterprise applications for the first time. Instead, the universe of existing applications partners is relatively stable; some occasional movement from dropping one product in favor of another occurs naturally, and no single vendor is immune to losing partners.
Another Hybrid Approach
One vendor with a historically direct sales approach and "not invented here" attitude, Intentia, has recently introduced the concept of a blend between direct and indirect sales, especially in high growth industries and emerging markets. After signing several partnerships in the Asian Pacific early in 2006 (most recently in April), this global enterprise solutions provider for the manufacturing, distribution and maintenance industries (soon to be part of Lawson Software) is strengthening its route to channels by formally announcing its strategy in Europe, Middle East and Asia (EMEA). It has appointed a new vice president of partner channels in EMEA, and unveiled its Business Partner Jump Start program.
Intentia believes this initiative will extend its geographic reach across the region, and add value to customers by providing a greater choice in local partners with new industry skill sets. It currently has a team of twenty people across the region to help drive its indirect sales strategy. By 2008, its aim is to increase license revenues from the channel to represent 30 percent of Intentia's total license revenues. Business partners selected by Intentia will qualify for the EMEA Jump Start Program, which will provide business partners with the tools necessary to differentiate themselves in the market, such as a start-up kit with price lists, catalogues and current product information; training at Intentia University, including seminars, classroom instruction and Web-based learning; and the opportunity to earn Intentia product certification. Other benefits should include pre- and post-sales support, the use of Intentia marketing kits, a joint marketing program, dedicated sales support, and sales leads for qualified partners. Additionally, sales tools will be made available, such as competitive analysis support, configuration support, and free online product demonstrations.
In 2005, Intentia recruited twenty-three new partners to its channel network, and is aiming at adding another fifty during 2006. These partners will play a major role in supporting new business and implementation efforts for Intentia's enterprise application suite across its core target markets—in particular food and beverage (F&B), fashion, wholesale distribution, and enterprise asset maintenance (EAM).
Some Traditional Value-added Resellers Also To Turn Into Independent Software Vendors
Recognizing the trend favoring systems integrators, distributors, resellers (or whatever other labels one can apply to these firms) that have some value added, ePartners, a leading Microsoft-based strategic and technology consultancy with twenty-three offices in North America and Europe, announced a major shift in strategy early in 2006. This shift was heralded by the release of the ePartners Solution Series, a suite of software and services that caters specifically to select microverticals in the health care, government, and manufacturing sectors. These solutions, created for the Microsoft platform, focus on industry-specific business issues and processes not addressed by many other solution providers.
Headquartered in Seattle, Washington (US), ePartners has become a larger and more global company (with nearly $80 million [USD] in annual revenues), thanks to recent mergers and a management change. Its previous incarnation had long been based in Irving, Texas (US). The privately held firm is backed by Needham Capital Partners, Mobius Venture Capital, Texas Growth Fund, Austin Ventures, Liberty Mutual, Madrona Venture Group, Rustic Canyon Partners, Capital Resource Partners, and Charterhouse Group. Combining fifteen years of experience of merged entities, ePartners has deployed financial and sales solutions to thousands of midsized companies, spanning more than forty-five industries. These companies depend on ePartners' 400-strong consulting organization for help in aligning business and IT strategies, improving business processes, and deploying and supporting solutions to accelerate business results.
But by developing and aligning industry solutions with specific market segments, ePartners hopes to greatly enhance the range and depth of services it can provide, while improving the client's experience and reducing their total cost of ownership (TCO). The technology comprised in the ePartners Solution Series is the result of extensive development of the full suite of Microsoft Business Solutions (Dynamics), as well as the development of customized .NET vertical applications and Microsoft SharePoint portal technologies. ePartners clients should thus receive a cohesive solution that includes almost everything from exhaustive enterprise resource planning (ERP) and customer relationship management (CRM) to business intelligence (BI) solutions with real-time key performance indicators (KPIs) for executives and middle management.
This strategy will facilitate growth of ePartners' consulting and development staff by more than fifty subject matter experts over the next two quarters, with most coming directly from the targeted industries. The ePartners projection is that by 2007, over 80 percent of new customer additions will be comprised of these microverticals. Preparation for the shift in strategy has included a significant investment in market analysis and testing, as well as a complete reorganization of the ePartners sales and consulting teams. Initially, ePartners will roll out Microsoft-based solution sets for the following microverticals:
- pharmaceutical companies
- discrete high tech manufacturers and their supply chains
- construction firms
- professional sports organizations
- health care providers
- media and entertainment
- state and local government (including public housing authority management)
Consequently, there appears to be another VAR level developing in terms of revenue and size, global reach, and business capabilities (see Global versus Local Channel Approach, Who Will Win?). Beside ePartners, one should expect similar moves from the likes of Tectura, which, in addition to a hefty $150 million (USD) (approximately) in revenues, also sells Microsoft accounting packages enriched with highly specialized editions, to such markets as life sciences and aerospace. Denmark-based, Columbus IT, with about $120 million (USD) in revenues, acquired the VerticalSoft independent software vendor (ISV) partner in 2005 (with the process manufacturing solution for Microsoft Dynamics NAV). And Seattle, Washington (US)-based Avanade, with about $300 million (USD) in revenues, acquired En'tegrate in 2005 (with the lean manufacturing solution for Microsoft Dynamics AX). Both appear to be going in much the same direction. For Sage, one can point to BDO Seidman, and Hightower, the Sage reseller that has been known for its MAS 90 ERP add-ons.
This trend is an extension of what has been happening in the industry for many years, with the mix of ISV/VAR relations with vendors. There are hundreds of ISV products extending Sage MAS ERP, Sage ACCPAC ERP, and Sage Pro ERP, for example, providing ready-made systems to fit a great range of business environments. And (especially in the case of Sage MAS 500 ERP and Sage Pro ERP, for which source code is available), the VARs that are also ISVs number in the hundreds, as resellers custom fit applications to SMB needs.
Despite the moves of the vendors and VARs we've discussed, addressing the needs of SMBs requires significant changes within traditional business models. Creating an indirect channel and building trust-based collaborative relationships with a large number of partners is certainly trying, although judging by the moves and initial success (in terms of growth) of the vendors mentioned above, some seem to have understood the formula for success.
With the shift in VAR capabilities comes a need for prospective users to make a candid and up-front evaluation of their own readiness to take on a long-term, large-scale project like an ERP installation. The foundation of any enterprise application implementation must be the proper alignment of the customers' IT technology with business strategy, along with subsequent software selection. This is the perfect time to create a business case and to galvanize the entire organization towards sharing a vision and buy-in, both being the key success factors (KSFs). We recommend that companies first analyze and build a business case that defines specific benefits, calculates overall investment, and identifies criteria for success—independently of the software and service provider. They must also understand how they will use metrics to measure the implementer's performance and the project's progress. The preparation needed on the part of the user organization is all-embracing, and the top executives in particular have to do the foundation work and lead by example. These steps are often neglected, however, despite the amount of expert literature emphasizing their importance.
Systems integration service provider selections and project planning should involve the same amount of due diligence as business IT strategy definition and software evaluation. Users involved in selections or early project planning should seek expertise from professionals who can understand the pitfalls of implementations and offer guidance. Experienced consultants can also help determine which system customizations to keep, which to further update, and which will be rendered obsolete by a new or upgraded system. The old German proverb "such a beginning, such an end" applies: many failures can be traced back to poor software selection. But it is no longer enough to evaluate the original (vanilla) ERP product's features and functions, since the prospective customer has to take the participating VARs and ISVs into consideration. The need to determine who exactly delivers what, and who is accountable for what, goes without saying. Finally, users are strongly advised to require fixed time and cost contract commitments from both vendors and vendor affiliates.
The scripted scenario demonstration phase of an enterprise system selection process is the perfect opportunity to put candidate packages through their paces, and prospective users must exercise this prerogative. However, instead of letting vendors (including VARs) take charge of the demo and perform their flashy "dog and pony" shows, the companies should unequivocally insist on vendors showing how their proposed system will help achieve the desired user objectives (see Demonstration Post-mortem: Why Vendors Lose Deals).
Only by a diligent process of evaluation that includes a plethora of other factors, such as scripted scenario demonstrations, outcomes for reference site visits or calls (see Client References—Still a Valuable Part of Vendor Selection?), and product flexibility (customizability, interconnectivity, data conversion, and so on), can users hope to select an enterprise business system that will serve their organizations and deliver the expected benefits.
This concludes the series The Cha(lle)nging World of VARs.