Accenture white paper developing indirect channels


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Accenture white paper developing indirect channels

  1. 1. Letter Flyer TitleCustomer Acquisition and RetentionDeveloping Indirect Channels:A Structured Approach toReaching New Customersand Growing Revenues
  2. 2. Overall, indirect sales channels entaillower total costs compared to directchannels. In challenging economic times,when deal size tends to get smaller,making effective use of indirect channelscan become a prerequisite for highperformance, by helping to boost revenueand maintain profitability. Whether acompany is adopting indirect channelsfor the first time, or is trying to optimizethe cost advantages of existing channels,realizing the maximum benefit fromindirect channels requires a structured,analytically driven approach to strategydevelopment, execution and management.2 Customer Acquisition and Retention
  3. 3. Sustaining High Performancethrough Uncertain TimesThe Economic expanding market coverage. This has an indirect channel that boosts revenue been particularly true in the electronics, and ultimately enables high performance,Significance of Indirect communications and high tech sectors. a company must select the right channelsChannels For example, the indirect channel now partners, bring them on board in the accounts for 66 percent of overall right way, and manage their performanceThe mix of direct vs. indirect channels technology sales1, up from 53 percent closely.used by many companies has changed in 1997. This change in the channelsignificantly over the past 10 years. Based on leading practices and our client mix—to include both direct and indirectDirect channels are critical routes experience, Accenture has structured a channels—has enabled companies tointo the marketplace, but diminishing five-step approach to help companies better target customers and expand intoeconomic returns often require a address these requirements and harness new markets (Figure 1).company to add indirect channels to their the power of indirect channels.go-to-market strategy at some point. However, while more companies have incorporated indirect channels into theirThe experience of many organizations sales approaches, the success of theseover the past several years demonstrates programs can vary significantly. To buildthat indirect channels can be critical toFigure 1. Technology sales distribution by channel type.Technology sales through indirect channels increased26 percent over the past 10 yearsTechnology Sales Distribution by Channel 1997 2007 33% 47% 53% 67% Direct Indirect Developing Indirect Channels: A Structured Approach to Reaching New Customers and Growing Revenues 3
  4. 4. Cost Savings and Channel-specific costs can differ were able to package their offerings so that their indirect channels could significantly by firm. Conducting aStrategic Growth thorough analysis of the overall cost enhance, sell and support productsAnalysis and anecdotal evidence highlight structure for direct channels vs. indirect and services independently, and drivea critical difference between the two channels helps determine the go-to- revenue growth. According to execu-channel types: in challenging economic market approach most effective for tives at these companies, more thantimes, deal size tends to get smaller each organization. In general, however, 80 percent of their sales are currently(Figure 2). In a weak economy, therefore, indirect channels can lower distribu- derived from indirect may become more important for tion costs, expand market coverage According to published reports, Hewlettcompanies to strengthen the strategy and enable improved performance by Packard (HP) also grew revenue us-behind their indirect channel programs supporting a rapidly growing product ing indirect channels during a slowand improve the execution of these portfolio targeted at new markets. economy. When Mark Hurd became CEOprograms. In short, leading companies use a in March 2005, HP developed indirectA recent analysis of total average IT combination of direct, indirect and channels to expand its market coverage.distribution costs by channel type inside sales channels, taking advantage By 2006, the company identified moreindicates the cost advantages that of the complementary capabilities of than $68 billion in untapped spendingindirect channels offer.2 While indirect each channel type to serve specific by businesses that had never bought anchannels add more cost categories than customer segments. HP product. Capturing these custom-do direct channels—for example, transfer ers through the indirect channel was For example, two major companies in HP’s 2006 priority for new growth indiscount, market development funds, the software and high technology sectorprice protection—both 1-tier indirect the slowing economy.3 By 2007, the have both used indirect channel pro- company surpassed the $100 billionchannels (for example, value-added grams from the early 1990s onwards toresellers, systems integrators) and mark in annual sales for the first time, navigate economic downturns success- largely driven by its strong emphasis on2-tier distribution approaches tend to fully, and both emerged stronger whendemonstrate lower total cost when the indirect channel.4 economic conditions improved. Theycompared to direct channels (Figure 3).Figure 2. Tradeoffs between deal size and volume for direct and Figure 3. Channel-specific IT distribution costs.indirect channels. Indirect channels save 11 percent in costs over direct channels Total Average Sales Cost by Channel Direct 63% 1-Tier indirect (Value Added Reseller) 61%DealSize The Gap$ Mail order/retail 58% 2-Tier indirect 56% Web 50% Direct Indirect Channel Number of Deals Notes: IT distribution costs are shown as a percent of sales. Total average costs are determined based on business to business and solution sales.4 Customer Acquisition and Retention
  5. 5. By studying practices employed by • Phase one identifies channel develop- several growth strategies at the samethese and other successful companies, ment requirements and creates a time. This approach can be a drastic shiftAccenture has developed a structured short list of qualified channel partners from a single-focus growth strategy thatapproach for developing and manag- who can address those requirements. served a company well in a more stableing indirect channels to enable high business climate. • Phase two develops actionable steps performance. for bringing new partners on board. To meet revenue goals in more challeng-A Five-step Method Step 1: Review Go-to- ing times, business units often embark on competing and expensive channelOur approach to channel development(Figure 4) defines an effective market Approach development efforts. In contrast, high- performance businesses tightly alignmultichannel strategy for selling Accenture’s research into leading their growth strategies across varioussolutions and services, which helps industry practices shows that successful customer segments. Creating suchcompanies quickly identify the gaps in companies segment their addressable alignment results in a more unified andtheir market coverage requirements, market and prioritize vertical targets.5 efficient go-to-market strategy.identify the right channel partners for Because customer needs vary, it canaddressing these gaps and rapidly bring be difficult to establish new indirect Accenture’s approach to channelnew partners on board to boost sales. development begins with the premise channels that concurrently addressThe approach consists of three distinct the needs of multiple vertical markets. that a well-defined go-to-marketphases: Companies should first prioritize the strategy addresses specific customer vertical markets they plan to target, and segments within target verticals using• The prerequisite phase reviews the well-defined, differentiated offerings. outline known routes to these markets existing go-to-market strategy and before developing new channels. Absent a clear go-to-market strategy, its alignment to the overall corporate we recommend that companies complete strategy. Our research also shows that companies this prerequisite step before beginning under pressure to boost revenues in a phases one and two. challenging business environment pursueFigure 4. Our approach to channel development helps establish a successful indirectchannel program to boost revenue and enable growth.Accenture Channel Development Method: A Five-Step, High-Level Approach Pre- Requisite Phase 1 Phase 2 1 Review Go-To- 2 3 Research and 4 5 Create Onboarding Analyze and Map Evaluate and Qualify Market (GTM) Develop Partnership and Implementation Approach (Optional) Channel Structure Candidates Select Partners Approach Assets• GTM framework • Industry specific channel • Relationship with 3rd • Partner evaluation • Partner on-boarding• Leading practices structure party channel framework best practices development agencies Activities• Review target customer • Determine key players in • Evaluate existing • Adapt Partner • Evaluate current segment profile value chain channels’ ability to evaluation framework on-boarding plan• Confirm segment • Define players roles, high provide market coverage to meet client needs (Optional) requirements level economics, operating (Optional) • Develop shortlist of • Identify caps• Align channel segments protocols • Identify market coverage partnership candidates (Optional) with target • Create specific product / gaps (Optional) • Conduct 1:1 interviews • Develop on-boarding market/customers service channel map • Uncover potential with prospects approach• Assess offering roadmap partnership candidates • Complete required due • Construct channel and value proposition • Supplement list, as diligence specific ‘Business Plan’• Assess channel program needed, with additional • Finalize shortlist • Define “100 Day” value proposition research action plan• Confirm GTM approach Deliverables• GTM approach - • Channel map • Target partner list • Qualified shortlist of • On-board approach assessment partnership candidates • Business plan • “100 Day” action plan Developing Indirect Channels: A Structured Approach to Reaching New Customers and Growing Revenues 5
  6. 6. Step 2: Analyze and Map sales model. Mapping the channel right customer segments. Similarly, structure bolsters the company’s ability distribution partners and resellersChannel Structure to support multiple partnering models. It help in transacting and deliveringResearching new channel partners for is also important to recognize, measure the product to the customer. The HPa go-to-market strategy requires a and reward the specific contributions OpenCall platform facilitates a seamlessthorough understanding of the industry made by partners to growing the flow of information among all the rightchannel structure and the relationships partner ecosystem, and it is equally entities in the partner ecosystem.between market participants. Accenture important to manage the channels in a Using a mapped channel structure,recommends creating a channel consistent manner. the HP partner program providesstructure map to identify key players For example, HP has instituted a a customer-facing directory of itsand how each influences solutions holistic partner ecosystem management complete ecosystem of partnersavailable in the market place. Because a program to support its HP OpenCall and solutions. An accurate partnerchannel structure varies by market, such solution. This program engages an profile—available 24/7 through thea map can be invaluable for identifying appropriate customer segment with portal—plays a critical role in engagingworthwhile sales channels. the right channel partner, fostering the right entities on the channel mapFor example, in an evolving channel profitable business momentum and and linking them with the appropriatelandscape high tech vendors use lowering development and testing costs. customer segments.multiple channel partners and tiers, Results include faster time to increasedincluding systems integrators, resellers, sales and new revenue generation.independent software vendors, direct This partner program also addsmarket resellers and distributors. The momentum to development and go-to-complexity of this kind of multi-tiered market plans. Software providers andchannel structure makes it essential to system integrators help influence dealsunderstand the role each partner plays during the initial stages of deal makingin the original equipment manufacturer’s by informing and interacting with the6 Customer Acquisition and Retention
  7. 7. Mapping a channel structure is a three- The different colors show whether thestep endeavor: supplier or third parties determine the1. Identify the customer segments you operational direction of each channel participant. wish to serve.2. Lay out the basic channel functions An external market study would result that route you to market. A typical in defining key channel partner groups, model might include the routes you leading channel partners and their use to: company profiles, the regions where • Inform they operate, the segments they target, • Interact the offerings they support and services they provide, and the strength of their • Transact customer base. The study would identify • Deliver emerging channel trends and additional • Service channel considerations for future3. Define how channel partners perform expansion. basic channel functions exclusively or cooperatively (systems integrators, independent software vendors, resellers and distributors).The channel map offers a bird’s-eyeview of existing channel participantsand the topography of their existingrelationships. Figure 5 shows ahypothetical channel map from theperspective of an original equipmentmanufacturer in the automotive industry.Figure 5. Illustrative original equipment manufacturer channel map for customersegments and channel participants.CustomerSegments Inform Interact Transact Deliver Service Dealer Traditional Dealer Channel Dealer Marketing Traditional Direct OEM Direct Dealer Dealer Dealer Other Solution Providers Techno - New Media Ad Online Tech Online Dealer A, B or C Friendly Agencies Site Logistics Partner OEM Sales Force OEM Service Corporate OEM Direct Online OEM Buy Direct Organization Back Traditional Ad Agency Variety - Channel Ads. Dealer Service Channel Mass Merchandiser Facility Advertising Seeker Primary OEM Dealer Primarily Independent OEM/Dealer or IndependentOEM: Original Equipment Manufacturer Developing Indirect Channels: A Structured Approach to Reaching New Customers and Growing Revenues 7
  8. 8. Step 3: Research and Step 4: Evaluate and This step should also include developing an approach for education, as wellDevelop Partnership Qualify Select Partners creating materials to train new partnersCandidates In this step, Accenture recommends rapidly. Activities here should include: evaluating the strategic fit of channel • Training content development and This step in the channel developmentprocess varies depending on a company’s partners against a desired partner maturity level. Established profile. That profile derives from a • Training administration, registration companies successfully improve channel comprehensive understanding of the and logistics.performance by using advanced analyti- industry channel structure and the • Training delivery and methods. role the partner plays within that channel. Another critical component is • Training competency management.These methods help companies iden- the assessment of a channel partner’s • Partner certification, tracking and tify poor performers in their channel ability to mobilize by evaluating the testing.strategy and improve the potential of partner’s business readiness, opera- • Events content development and certified partners to improve channel tional readiness and technical readiness. management.efficiencies. Lastly, determine a potential partner’sTo improve partner productivity, compa- ability to achieve rapid sales impact bynies with established indirect channels evaluating the partner’s credentials,should also redefine their desired partner market visibility, depth of territory andprofiles to align with their revamped opportunities in the pipeline.metrics for partner productivity. Theyreevaluate the current partner network Step 5: Create theto weed out non-performers and addpartners who better fit the new profile. Onboarding andFor example, shortly after the dotcom Implementation Approachbubble burst in 2001, a major network- Two key activities for bringing channeling manufacturer realized it needed to partners on-board are enablement andtransform its volume-based partner education. This step calls for a custom-program into a value-based one to ized 100-day onboarding plan thatimprove channel efficiency. Detailed addresses key requirements for imple-analysis of its partner program showed menting the indirect channel program,that about 1 percent of its partners and establishes the key capabilitiesgenerated more than 70 percent of its required for effective enablement andchannel business. Only about 25 percent education prior to on-boarding partners:of the company’s channel partners werecertified and had the potential to drive • Vendor intelligence (product, additional business.6 The others were market and customer) dissemination,registered partners. including product roadmaps, addressable market data and business planning input. • Business planning and accountability management. • Partner contract amendment and finalization. • Partner activation and ramp up. • Solution authorization. • Joint solution catalog update.8 Customer Acquisition and Retention
  9. 9. How Leaders Build IndirectChannel CapabilitiesGrowing Revenues Diversifying the Entering New MarketsSun Microsystems Channel Mix JuniperIn July 2008, Sun announced plans to Dell Juniper Networks started in 1997 streamline its sales organization and use using a direct sales channel to target Michael Dell is another champion forits 600 or so channel partners to support telecommunication carriers. Aftercustomers below its top-300 accounts harnessing the power of indirect channels. improving its suite of offerings theworldwide. Sun’s senior executive When he returned as CEO in January company sharpened its market focusresponsible for channels reported that 2007, he recognized the drawback of and targeted large enterprises a fewtwo-thirds of business came through it over-reliance on the direct sales model years later. In 2004, Juniper launched its channel partners. By restructuring its he helped pioneer 20 years earlier. During indirect channel program and targeted thesales organization, Sun expects to raise the previous three years, Dell’s indirect broader business market. This measuredchannel revenue significantly, bringing channels had grown at a compounded approach helped Juniper make significant it in line with industry leaders and—as annual rate of 16 percent without a inroads into the networking technologiesnoted by industry experts—streamline its formal program structure and generated market and attain a more dominantoperations and improve market coverage 15 percent of Dell’s total FY07 revenues.9 position in the overall market.14in spite of workforce reductions made This success prompted the company toprior to launching the program.7 unveil a new indirect sales program in Telstra Incorporated December 2007 to increase sales. By July Service providers typically use direct salesNovell channels to sell and support complex 2007, the indirect channel was generatingNovell, owner of SUSE Linux Enterprise, 20 percent of Dell’s total revenues.10 offerings. Increased focus on solutionsaw its 2008 first-quarter revenue selling has prompted providers to exploreincrease by 69 percent and its 2008 Avaya options for leveraging their suppliers’second-quarter increase by 38 percent. Avaya, a leading provider of high tech indirect channel capabilities to offerNext year, corporate spokespeople communications products, is currently joint solutions. In August 2008, Telstrareport, more than half of Novells SUSE transforming itself to become a strong Incorporated launched an indirect channelLinux Enterprise revenue is expected to communications contender in the small- program to expand international sales.come from the indirect channel.8 The to-medium enterprise market. To acceler- Telstra Incorporates is the US-basedchallenge for companies with emerging ate this transformation, Avaya recently arm of Telstra International—a divisionindirect channels is to rationalize and appointed a new senior executive with of Australia’s leading and largest tier-1scale their programs and then to identify successful indirect channel experience telecommunications and informationand incorporate new partners in a at several companies to lead its global services company, Telstra Corporationstructured way. indirect channel division. Currently the Limited. In the company’s indirect indirect channel accounts for 55 percent channel program, resellers maintain direct of Avaya’s total sales.11 The newly control over relationships with Telstra appointed channel lead set a corporate Incorporated clients and manage all target to achieve 85 percent of total sales aspects of Telstra Incorporated services through the indirect channel by 2011.12 as if they were their own. Conversely, the One of Avaya’s senior executives reported program relieves referral providers of the that a main challenge concerned auditing infrastructure requirements that come and analyzing the performance of its with reselling, supporting and billing for existing indirect channel and revamping an international telecom service. Referral it to meet its very aggressive corporate providers share in the revenue based on goals.13 prices that they can command; they have no responsibility for service delivery or troubleshooting.15 Developing Indirect Channels: A Structured Approach to Reaching New Customers and Growing Revenues 9
  10. 10. To help clients achieve high performance by meeting the challengesof reaching new customers and growing revenues in uncertaintimes, Accenture offers insight, experience and a distinctive,structured approach—for developing indirect channels. We havedeveloped leading practices for each activity in our approach,based on our extensive experience as a leading provider ofmanagement consulting and systems integration services, and asa channel partner for more than 200 partner companies. We alsoprovide access to third-party resources to help identify and screenprospective partners using established evaluation criteria, which wecustomize to specific client needs.For more information about out how Accenture can help yourorganization on the journey to high performance, please contactone of the authors, or call us at +1 (312) 737-8290 or send e-mail and reference this document.To read more about Accenture’s Sales and Channel Services, more Accenture insights on customer acquisition and retentionin uncertain times, visit Dan Neel, “Positive Growth and New Market Perspective Paint Health Outlook for Pervasive Technology Channel,”, May 2, 2007. Accenture analysis.2 Global Technology Distribution Council, “Cost of IT Distribution,” September, 2008.3 Lawrence Walsh, “HP Welcomes Proposals That Target Non-HP Customers,” http://www.Channel, October 6, 2006.4 Craig Zarley,”2008 Channel Champions,”, April 25, 2008.5 Accenture and the Economist Intelligence Unit, Innovation and Profitable Growth Survey, 2006. Accenture and CSO Insights, “Sales Performance Optimization,” 2006. CMO, “CMO RealityCheck,” June, 2005.6 Rivka Little, “Cisco Worldwide Channel Chief: Partners Are about More than Fulfillment,”, July 10, 2008. Accenture analysis.7 James Niccolai, “Sun Moves to Indirect Sales for Most US Customers,” IDG News Service, July 23, 2008.8 Colin Steele, “Enterprise Linux Growing but Still Far behind Windows and Mac,”, June 2008.9 Tiffani Bova, Mark Stahlman and Mikako Kitagawa, “Dell Shifts Global Sales Strategy to Gain Back Market Share,” Dataquest Insight, January 30, 2008.10 Chris Gonsalves, “Dell Getting Partner Raves for Evolving Channel Program,”, July 2008.11 Allan Sulkin, “Avaya CEO Giancarlo Talks to Industry Analysts at Avaya Conference,”, October 23, 2008.12 Brian Riggs, “New Faces in Basking Ridge,”, October 22, 2008.13 Andrew R Hickey, “Avaya Looks to Channel for SMB, Services,”, July 2008.14 Sean Michael Kerner, “Cisco Dominates in Routers as Juniper, Nortel Gain,” Datamation, November 21, 2007. Mikael Ricknäs, “Nortel files for Bankruptcy,” http://www.NetworkWorld. com, January 15, 2009. Company sources.15 Telstra Incorporated. “Telstra Incorporated Launches Indirect Channel Program through Comprehensive Reseller & Referral Partner Programs,”, August 19, 2008.10 Customer Acquisition and Retention
  11. 11. About the Authors companies optimize their channel Ramesh Venkataraman is an partner relationships and in enabling experienced manager with Accenture’sSenior executive Kevin Bandy is the e-business strategies, business processes Strategy service line. He has a broadglobal lead for the Sales and Marketing and change efforts for channel sales range of experience helping several highTransformation practice of Accentures and marketing initiatives. He is based in tech companies create and implementCommunications & High Tech industry Phoenix. their go-to-market and operationalgroup. He oversees the development of strategies. Prior to joining Accenture,strategies, assets and tools that help he held senior-level positions at severalcompanies in communications and high Adrian Sawczuk is a senior manager startups and Fortune 500 companies,tech industries improve sales capacities, with Accenture’s Strategy service line. which included developing, launching andpursue large-scale transformation He works with companies across a wide managing sales and marketing initiativesof sales organizations and enter new range of industries, helping them develop for three major technology product and geographic regions. He is and implement strategies for growth, He is based in Reston.based in Atlanta. new business development, and channel development and new market entry. Prior to joining Accenture,Ron Ref is a senior executive with he cofounded a telecommunicationsthe Accenture CRM service line, and infrastructure management company,leads the Electronics & High Tech Sales where he also served as vice presidentand Marketing service line in North of business development. He is based inAmerica. He has extensive experience Atlanta.helping electronics and high tech Developing Indirect Channels: A Structured Approach to Reaching New Customers and Growing Revenues 11
  12. 12. Copyright © 2009 Accenture About AccentureAll rights reserved. Accenture is a global managementAccenture, its logo, and consulting, technology services andHigh Performance Delivered outsourcing company. Combiningare trademarks of Accenture. unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. With more than 186,000 people serving clients in over 120 countries, the company generated net revenues of US$23.39 billion for the fiscal year ended Aug. 31, 2008. Its home page is