A Partner community or a Channel (Channel), properly run, should be a terrific asset to any producer of goods or services. Sadly what is too often the case is that ‘some’ of that Channel performs really well, some is mediocre and quite a lot is, frankly, totally ineffective. In fact many Channel managers report that the 80:20 rule (which observes 80% of the business, from the Channel, is coming from 20% of the Channel) is very much alive and kicking when it comes to these potentially highly valuable assets.
Given the huge benefits of having a well run Channel it’s well worth stepping back from the ‘day to day fray’ and considering why that might be the case and how it might be possible to transform that dynamic.
Understand the Value (and the Risk)
Looking at the value that the best Channel members bring to an organisation might give some indication of the potential that is being missed out on with the remaining 80% of your community. On the other hand it might very well not. That is because organisations experiencing the effect of the 80:20 rule in their Channel are, above all else, getting a good indication that ‘Something is wrong’.
That ‘something’ (or those ‘something’s’) might exist in Structure (of the Channel), or the commercial arrangements of the Channel, the quality of the service provided to the Channel or the ease of ‘doing business’ for the Channel. Or in several places at once.
Whatever that ‘something’ is, it is highly likely there are very significant cost and risks involved. First of all there is likely to be a significant cost in wasted overheads of running a Channel in which 80% of members are not really contributing. The second manifestation of the cost is in terms of lost business opportunity. But perhaps most important for those organisations experiencing the effect of the 80:20 rule is that it is often it is a reflection of a significant risk(or risks) to a business. Risks that ought to scream for attention.
Overhead costs are the easiest to identify and quantify. It’s probable that each member of a Channel can have an overhead applied to them. Depending on the sophistication of how that overhead is calculated it’s then pretty straight forward to work out an overhead cost of having 80% of a Channel being ‘poor’, in terms of performance. What is troubling is that many organisations stop there. They simply identify the cost of carrying ‘poor performers’ and then look to mitigate that cost. This might be appropriate, but it is worth a lot more consideration than that, because of the two other factors at play here.
Opportunity cost is harder to quantify (and because of that is often ignored). It’s arrived at by understanding the combination of the financial benefits your Channel brings to your organisation and formulating some method of assessing the amount of business you are missing out on because the Channel is not performing. It is usually not an easy task, but a reasonable indicative number is usually not beyond calculation. Having a trading history can help.
Properly quantifying the overhead and opportunity costs is often a transformative experience for organisations. Most organisations completely fail to assess these and it can come as a real shock when they finally work it out. However it is when they finally recognise the ‘Risk’ that most experience the greatest shock. There can be a number of reasons why. Here are just two potential ones:
Direct V Channel. Many organisations have a double pronged strategy. Go Direct and use a Channel to reach a target market. It is often (even mostly) the case that there is a tension between the organisations behind these two routes to market. Even when there seems to be no immediate threat between the two (perhaps because an organisation has carefully set out the ground rules) there is usually a nervousness between the two routes. Which means that politics is at play. Direct teams, by their nature, work within and daily for the organisation. That means they are closer, more numerous and more intimate with the organisation. As a result they usually have an unfair advantage over their Channel colleagues (or potential adversaries).
Representatives of the Channel (within the organisation) are less numerous and can often seem external to an organisation, somehow less real and slightly ‘out of touch. The result is that, all other things being equal, many organisations tend to view the world through ‘Direct’ eyes, and those eyes, by luck or design, often subtly undermine their potential adversaries. Because the Channel often gives a somewhat different view of the world it can come as a shock to some organisations when they are confronted with concrete feedback from a Channel highlighting a Risk the Direct team either didn’t see or didn’t see as a problem. Channels are often far tighter with the end users than Direct teams are. Their view of the world can be too expensive to fail to properly assess.
A second reason it can come as a shock is that when an organisation first set up it’s Channel, they were building a thing of value. It took time and money to create that Channel and it was all done at the time when Channel members first thought ‘there is a good reason for being in this Channel’. Typically this was because they recognised there was some inherent value to being in that Channel brought to their business and their own clients. Channel members rarely waste their time, effort or money becoming part of a Channel if they cannot see value in it, either for themselves or for their own clients. Even is the Channel was built on entirely different products or services, when they signed up for this current set of products and services the same still applied.
Yet the situation now is that those self same members of Channel, members who were recognised as being in some way especially connected to the target market of the organisation, are now effectively ignoring the value they originally saw. Something has gone wrong, either in the process of bringing on Channel members or in the execution of the realisation of the value the organisation offers. The nature of the failure itself is clearly telling you that ‘something’ is wrong.
Too often organisations fail to properly identify what that ‘something’ is and address it. Internal politics often helps obfuscate the reasons. It’s easy to simply blame the Channel itself -they are not there to defend themselves. Failure to identify the ‘something’ invariably lead to negative ramifications, but often it is the blame that is becomes the thing that is outsourced. The bottom line is that Channels should be highly valuable assets in many more ways than simply the financial, but too few organisations take the time to translate the messages coming from the the Channel. Experiencing the 80:20 Rule is almost always a clear message that should not be ignored.
What factors establish ‘the 80:20 rule’ in Channels
The 80:20 rule doesn’t only apply to Channels of course. It applies to many aspects of life. For example 20% of the average carpet takes 80% of the wear. Since the rule applies to so much of life there is a strong tendency for organisations to simply accept it and say ‘It’s always like this’. No one ever thinks perhaps we can route people across a different part of the carpet by moving the furniture. In our experience, the 80:20 rule is merely an indicator that can be used to make change.
Now some issues are undoubtedly in the domain of the Channel itself. Their effectiveness (or otherwise) is to some extent ‘outside the remit’ of the product or service provider. But it should be a matter of real concern that 80% of a Channel does not perform properly. That is a figure that screams ‘It’s not us, it’s you’! Establishing why ought to be a priority for any organisation.
Every organisation, providing a business or service, has different Channel dynamics going on. Their markets are different, their Channels are different, their history’s are different and obviously their Channel arrangements are different. But there are some common factors within all Channels.
Top among those common factors is: Channels are always (or at least almost always) built on a backbone of mutual commercial gain. It is the dynamics of that part of the relationship that will, invariably, be at the core of the issues affecting the performance of a Channel. Identify and deal with that issue (s) and you will have solve the problem.
a) Channel arrangements have been changed or aspects of the commercial arrangements are not working for a large part of your Channel.
b) The cost of doing business is not what was anticipated – The Channel is finding it more expensive (whether in money or time) to leverage the commercial arrangement you set up.
c) The competition is ‘winning’ – A competitor (or competitors) has made a better arrangement for the Channel, or perhaps direct to the clients of your channel.
d) An alternative way of receiving the value provided by the organisation has become available (Not exactly direct competition but something to identify as early as possible).
e) A spin on some of the above, which is that the difficulty of a channel doing the business of the organisation has increased in some way. This might be technical or administrative. To often organisations simply change the rules for Channels without considering the impact -if it raises costs in time or money it’s going to have a detrimental effect on your business relationship.
Each one of those factors might have complex components to them. Clues will lie on the surface but the truth might be hidden a little deeper. Simple things like looking at the differences between the 20% and the 80% is obviously a great place to start. ‘Eking out’ deeper problems can be time consuming and complex. But the evidence will be there. Methodologies for getting to the truth are available, whether via Channel dialogue, Data analysis and/or commercial review.
The important thing about addressing the issues highlighted in this document is that it is done using a structured and methodological approach to identifying and addressing the problem. This ensures you don’t fix one problem to find another simply pops up in it’s place (which is an extremely common occurrence). It’s also an approach that ought to be repeated reasonably regularly, if you hope to keep your Channel humming along as it should do.
As with any type of partnering, B2B relationships can usually be improved. Doing so should unlock terrific value and might well mitigate what may be serious business risks.