ANALYSIS: Channel communications

With channels slated to bring in half of global IT sales in 2003, the tech giants must find ways to answer the comms questions such partnerships create

With channels slated to bring in half of global IT sales in 2003, the tech giants must find ways to answer the comms questions such partnerships create

"The channel" is a common topic in technology news, but what does it mean? The term relates to business partners in the sales system outside the company, including resellers, retail outlets, dealers, and distributors that might sell a company's products in lieu of its direct sales force. While not exclusively an issue for technology companies, channel strategy is particularly important in this ultra-competitive market. According to International Data Corp. (IDC), these business partners will generate 40% to 60% of global IT sales in 2003. The research firm recently partnered with Ketchum to launch ChannelEdge, a program designed to help companies address communications and strategic problems in their channels. Paul Rand, director of Ketchum's global technology practice, says that the channel is often underserved as a company stakeholder. "I think in some ways, there is a lack of understanding with senior executives of how important the channel is to the overall viability of an organization," Rand explains. "Technology companies are actively looking for ways - amid a reduction in growth in IT spending - to increase sales in what is a really challenging period." Companies facing a tough selling arena may blame the channel rather than try to fix the systems. "There are not a lot of people at really high levels of companies who understand this," says Janet Waxman, IDC's VP of systems and storage distribution channels. "Also, when a company is in trouble and you really start to look at what to do, the natural tendency is to say, 'These partners are causing me trouble; I'll knock them off.' They don't worry about the gangrene that has spread throughout the system." Rand says that many companies have evolved channel strategies without looking at them critically from the beginning. When the company needs to shift its approach, the change tends to be ushered in as a bolt-on rather than an opportunity to rethink the system. "In actuality, over the past few years the channel has increased in importance, and we need to thoroughly look at channel initiatives right from the foundation level and say, 'What is in the mix and how do customers want to buy?'" Some companies believe customers will go for the brand every time. "The biggest criticism of technology companies is they still think the market is supplier-centric, when in reality it is customer-centric," Rand says. "Customers are going to buy the way they want to buy." Technology companies are facing competition from resellers that market unbranded "white boxes" - computers made by unknown tech companies that often outsell their well-known brand-name competitors. Last week, The Wall Street Journal reported that Dell, the company that made its name in direct sales, will begin selling an unbranded PC through dealers in order to cut into the 30% share of generic white-box PCs. According to the paper, Dell may find limitations in its model that small dealers can overcome. "It's about that local face-to-face contact you can never get with e-commerce or over the phone," David Dukes, former co-chairman of PC reseller Ingram Micro, told the paper. Comms challenges of the channel Much of what comes out seems to be pulled straight from an internal communications handbook. But it is important to remember that the channel is not always viewed as a "partner," but often as a competitor to the internal sales force. Rand says that companies need to think of channel partners as a strategic asset and as a direct line to the customer. Communicating strategic change is one of the most important issues for developing the relationship. Stephen Graham, IDC's group VP for software partnering and alliances, says that too often partners will read about a company's new sales strategy in the media, not having been informed directly. "Sometimes, they will make statements that will catch the partners off guard," Graham says. "I've heard of instances where announcements have been made about companies dropping distributors, and when the media calls, they have no idea they have been dropped." But there are good examples of how this open communication can help usher in a policy shift, and the media recognizes when that happens. Following its merger with Compaq, the new HP has already announced a change in its strategy. Its existing plan was put in place last year, apparently to help the company calm so-called "strained relations with resellers," according to CNET. The program, implemented last year, meant the sales force would target only Fortune 1,000 customers, leaving other companies to resellers. Now the company plans to launch a system called Partner One in November, keeping such products as PCs and printers as the exclusive domain of its sales force, while allowing resellers to sell stuff like storage systems to smaller clients. While there has been some speculation that this could create tension with channel partners, CNET in particular noted that HP's effort to communicate this change with the channel was well received. Graham says that one of the most important things for channel partners is predictability. "In many cases, partners will forego favorable terms in favor of high levels of predictability," he says. That means internal communications must match channel communications. A CEO and other senior executives may make positive commitments to partners, but unless these promises are executed throughout the organization, they may engender mistrust. Sales partners and vendors both have a responsibility to improve communications, but the vendor clearly has the power in the relationship. Graham says that partners need to work harder to help companies understand their contribution. "There's always an expectation with channel partners that the vendor ought to be really interested in what I'm doing because I'm working with their product," he explains. "One of the things we constantly hear from channel partners is, 'How do I get attention?' There are a number of companies out there doing really interesting things with vendor products, but don't know how to get on the radar screen." Giving partners a bigger role Enabling good partners to expand their remit is one strategy. In June, Sun Microsystems announced the Accredited Installation Provider certification program, designed to enable its "best of breed" channel partners to perform services with support and training from Sun. "We've always had a channel program, but this was an upgrade," explains Angie Devlin, PR manager for Sun. Devlin says channel communications is an important part of the company's PR strategy. "We always take into consideration every partner who will be delivering service to customers." IDC believes that it won't be long before technology companies - and even companies in other industries that rely on channels - will find they are valued partly on the strength of these relationships. But measuring the impact of good channel relations is not simple. "My inclination is to say yes, but it is very hard to prove that this company is successful because of this and that," Waxman says. She adds, though, that "working with a channel is like a life-insurance policy: Once it is working, it pays annuities. The problem is, by the time you figure out something's gone wrong, it's way too late." ----------------- Changing channels IDC estimates that in 2003, between 40% and 60% of IT sales will be generated through channel partners. Recent news regarding channel partners highlights the importance of these relationships. HEWLETT-PACKARD Prior to its merger with Compaq, HP implemented a new policy that meant its internal sales force would target Fortune 1,000 companies, leaving smaller companies to be covered by resellers. Although strategy changes have been known to cause conflicts, a CNET article cited resellers who said HP did a good job introducing the new policy DELL The Wall Street Journal reported that Dell is changing its long-held policy and will begin using dealers to sell unbranded desktop PCs. The paper reported that Dell had previously "derided personal-computer dealers as costly middlemen" SUN MICROSYSTEMS In June, Sun announced the Accredited Installation Provider certification program, enabling "best of breed" channel partners to execute services and tap into Sun's best practices, tools, and support IBM Computer Reseller News reports that IBM's proposed PwC Consulting acquisition is worrying some channel partners, who feel the company's Global Services unit will be too big to compete against MICROSOFT AND AT&T A new package of wireless products and services will be sold only through the companies' direct sales channels, prompting some criticism from channel partners

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