Organizations looking for a competitive advantage and financial gains extensively utilize Partner networks to increase their selling reach of products and services. Why Partners? Partners can provide immediate access to new markets – geographical, vertical or additional reseller networks who sell to end-customers. In addition, these partner arrangements can have lower cost per dollar of revenue generated versus selling through the Organizations direct sales force.

Partners have various roles in reaching the end customers. This combination or network of partners make up the channel network. For the purpose of simplicity the following picture depicts a commonly found channel structure:

Routes to Market (Products and Services) – Direct and Indirect Channels

Direct – Sales to end customers is achieved by the organization’s sales force
1-Tier partners procure products and services directly from organization and sell them to end customers
2-Tier partners or resellers source products and services from distributors and sells to end customers.

This blog focuses on measuring the performance of partners in selling services to end customers within high tech organizations.

Before going into the measurement aspects of this blog I want to highlight that the amount of sales delivered through the channel network needs to be determined as part of a thorough analysis of the business objectives, financial capabilities/performance, market pressures, product complexities, and more. In some cases a low utilization of a partner network is optimal, however the trend is moving to utilizing partners more and more. As the outsourcing of the sales activities increase the more an organization needs to build robust performance management systems. Measuring channels services sales performance is a two way street – it is important to both the organization and  partners: Organizations want to make sure the maximum amount of revenue is captured/delivered by the channels and the channels want to make sure there is clarity and accuracy on the measurements that determine their compensation and selling effectiveness.

Channel Service Sales performance metrics:

Organizations need to measure what matters to assure partners perform well in selling services. There are two metrics that are most commonly utilized in high tech industries: The first measures the ability of the partner to attach services to the products being sold, i.e. Attach Rate. The second one measures the ability of the partner to renew expiring service contracts, i.e. Renewal Rate.

The following section discusses the metric calculation details:

1. 1. Attach Rate metric: Measures the partner’s ability to attach service on the products sold in a measurement period. The measurement period depends on the organizations need to look back into past for measuring performance, typically 12 months.
   
   

Example, If Partner sells $1,000,000 worth of products in a measurement period and Partner has attached services on products worth of $900,000 value then the partner’s Attach Rate is 90%.

Another related metric to maximize revenue is the Install Base Coverage Rate.  This metric provides visibility into how much of the install base is covered with a service contract.  This enables an organization to tap previously “invisible” revenue opportunities and thus place goals and rewards on partners to capture this incremental revenue in their forecast.

Note: The number of units included in the install base should be adjusted for products that have reached their End of Service Life – i.e. not eligible for coverage under a service contract.

1. 2. Renewal Rate metric: Measures partner’s ability to renew service contracts which are about to expire in a defined measurement period. The measurement period is typically a quarter.

Example, if the partner has $500,000 normalized dollar value worth of services expiring in the measurement period and partner has renewed services worth of $450,000 normalized dollar value then the partner’s Renewal Rate is 90%.

There are a few additional renewal rate related metrics which measure partner’s effectiveness in renewing service contacts:
On-time Renewal Rate: measures the partner’s ability to renew service contracts prior to actual expiration of the contract. Renewal Rate metrics will only include the contracts which are renewed on or before the expiration date of old contract.
Renewal Rate with Gap: measures the partner’s ability to renew service contracts after it has expired. Renewal Rate metric will only include the contracts which are renewed after the expiration date of old contract
90 Days Report: measures the timeliness of the partner in sending out the first service renewal quote (and/or first contact with the customer) 90 days prior to the earliest expiration. This metric is a ratio of the ‘Total dollar value of all quotes that included the first contact with the customer at least 90 days prior to the  contract expiration during the measurement period’ to that of ‘Total dollar value of all contracts expiring within 90 days during the measurement period’

The above are a few of the key metrics utilized by organizations to monitor the effectiveness of their partners in optimizing service revenue. Now let’s look at the criticality of “accuracy”.

Organizations establish performance goals and compensate partners with discounts, rebates, or sales commissions based on performance. Accuracy of performance metrics depend on the ability to design metrics that take into account the complexities of a service business. It is important to identify the viable business scenarios and exception rules and include them in the metrics design. Here are some of the guidelines for designing accurate metrics based on industry practices:

Identify the products or services which should be excluded for metrics calculation

Variations around length of the service contracts and overlapping contracts should be handled as per organizations business policies.
End customers receive services from various partners, any services business takeover from one partner to another needs to be identified and the right partner should be compensated as per the rules established by the organization

After determining the suite of metrics to manage and measure the performance of the channel partners, an organization needs to focus on building an efficient reporting tool on metrics data for managing the partner’s performance, driving compensations, and forecasting of services sale opportunities. As the trend is moving to utilize the channels network, it is important for organizations to manage channels service sales performance and drive partner’s to achieve their performance goals for receiving maximum incentives. Measure what matters!

Over the last few decades, High Tech companies have experienced rapid growth. Given the pace of year- over-year double-digit growth, these same high-tech companies have not given equal priority to scale and drive operations to be closely aligned to the growing size of the business.  Instead, operations become a patchwork of processes, organizations, engagement models and technology implementations to point needs.  Most of the management attention and resources are focused on customer acquisition and retention, revenue generating activities, product portfolio expansion, and increasing production capacity.  What can develop is an “institutional sprawl,” where the number of people, processes, and systems continues to multiply unchecked and reaches a breaking-point, especially when markets make significant shifts. As an example, fast growing high-tech companies with a market domination focus and an operations backbone built for selling products may find themselves at odds with how to deal with the shift to cloud services and solutions. This is compounded by the operational complexity built over the years to support the immediate growth at hand.

Create a Common Operations Reference Model That Can Be Leveraged Across the Organization

Ask the question, “Have you ever seen an entire business operation through a single lens?” and most people will respond they have seen product definitions, architecture diagrams and process flows, but not “Business Operations.”  An innovative visualization model approach solves the challenge of having an end-to-end view of business operations for critical decision making, business prioritization and executive briefing sessions without getting lost in the myriad of details, in essence providing an ability to “see the forest from the trees.”  At the same time, this model also allows for drill-down capabilities that can prove to be of interest to architects and business process experts. The model becomes a tool that can assist cross functional teams in formulating and reaching decisions, while creating an environment for effective collaboration and reaching consensus.

Known Methods for Modeling are Generally Inadequate

Capturing and effectively visualizing an organization’s business processes, is an important step in any Operational Excellence initiative, yet one that is often underestimated. Process maps, Information Flow diagrams, Swim-lane charts, and PowerPoint documents turn out to limit the speed to improve and innovate for several reasons:

Virtual tool and the media of visualization became the limitation – Almost always, the size of the computer screen is the limit to the amount of information we can display and use to exhibit complexity. The information might be there, but cannot be easily consumed by the decision makers. As an example: one single slide can provide an end-to-end view of process.  However, in order to zoom-in to a specific area, there is a need to change slides and in the process, lose that context level view of the end-to-end process.

Absence of common language across the organization – Different groups in the organization repeatedly create several PowerPoint or process documents to describe the same issue while using different vocabularies and views. It then becomes very challenging to distill the essence of the problem into a form that Business and IT can share. There is a constant need for translation where the details might get lost, the objectives could be misunderstood and the decision-making is delayed. Siloed knowledge leads to local optimum – In a multibillion dollar company, there may be very few business leaders that have a clear vision of the end-to-end process. Most of them have a local view of the process while, when we evaluate a decision, there is the need to look at the system holistically and globally. As a consequence, the decision making is based on partial views that do not take into account possible interdependencies across the organization. The risk is to get stuck on a local optimum that could even worsen the existing efficiency of the organization.

We explored a host of virtual 3D visualization modeling and simulation tools (e.g. from Google SketchUp to Second Life) to create a representation that would adequately capture the essence of business operations for a large global organization. However, after spending considerable time and effort, we realized that a Physical 3D Model would best allow us the sandbox we wanted to use to manipulate and experiment with this concept.

The Physical 3D Visualization Model

The Physical 3D Visualization Model represents a robust framework to address complex organizational environments and can become a powerful instrument for cross-functional teams in sharing, organizing, and visualizing the information that might influence their decisions.

It also provides a common ground for decision making across multiple organizations, groups and functions. People gather around it, quickly relate to the scenario and do not get lost in detail while focusing their energy on decision-making.

The 3D visualization model provides a series of benefits that make it superior to the traditional visualization techniques, not because of technology, but because of effectiveness:

Physical model to facilitate understanding: It is a known fact that business leaders have enough PowerPoint or Visio documents to review as a means for information dissemination and use. We do not need to abuse the technology and become constrained by it.  A certain lead time is required to get acquainted first with the media and then with issues content captured in the tool.  We found that the physical model is incredibly powerful in quickly conveying the message and engaging stakeholders in the discussion. The ability of interacting live with the model in a simplified fashion shortens the understanding phase and accelerates toward the problem solving and the decision making stages. It is a collaborative environment where people actively interact while leveraging the model as a single source of truth.

De-layering complexity: A global organization is typically characterized by a fairly complex operations environment. The 3D visualization model enables comprehending complexity through simple means by way of the “de-layering” technique.  De-layering progressively exposes the audience to increasing amounts of information in the areas of interest while always maintaining the connection and clear view of interdependencies with other components of the organization. Audiences do not get overwhelmed with information, and can move faster towards the decision phase.

Universal reference and baseline across the organization: The physical 3D visualization model becomes a common reference model which is institutionalized across the entire organization. This technique minimizes churn and the lead time needed to align people to the topic of discussion. The unstructured information and knowledge that was residing in the head of an expert, is now crystallized in a final form that is available to be consumed by everyone.

Multiple views:  The physical 3D model presents the possibility of adapting the same model to create multiple views of the  end-to-end process for different stakeholders (e.g. partner focus, internal operations focus, IT focus) providing an extremely versatile and effective communication tool while providing targeted process views:

-  Executive “30,000 foot” view
-  Operations “Process flow” view
-  IT “System” view
-  “Partner Ecosystem” View
-  “Ease of doing business” View
-  Product / Solutions View
-  Life cycle of an Order View

Multi-dimensional: Most of today’s problems are multidimensional in nature.  However, traditional techniques (e.g. PowerPoint, Visio) do not allow for visualization of all the available data. The 3D visualization model is able to embed in one single instance several dimensions:

-  Geographies and channels for sales
-  Type of products and solutions
-  Level of automation versus manual processing
-  Capability size in terms of volume of transactions
-  Capability ownership by organization
-  Cross reference with other prevalent operations reference models
-  Systems supporting each capability and offering

Dynamic model that explains the time dimension: When representing a transactional process, most people visualize a linear flow that starts from New Product Introduction all the way up to Revenue Recognition. The 3D model is able to show how this process is anything but linear, with several iterations that could take place between configuration and pricing. In the physical model there are means to incorporate the time dimension in the dynamic analysis. Through this technique we highlight the process bottlenecks that control the ultimate throughput.

The Bottom Line

The 3D visualization model has the objective of transforming the existing business process knowledge from implicit to explicit while providing clear boundaries and enabling organizations to achieve Operational Excellence. We expect it to mature over the next quarters as we gain market and client feedback through facilitated sessions. The model can be constructed for a host of scenarios and use cases in order to:

-    Align multiple organizations to the same view so benefits can be realized quickly
-    Accelerate complex decision making that usually involves many stakeholders
-    Facilitate portfolio management decisions
-    Support co-development of a solution between multiple business groups and geographies involved
-    Map operations of an acquired company to assist integration efforts

Physical 3D visualization can give users the power to get going on the path for Operational Excellence through an ability to deconstruct business operations for improvement and better decision making.

If you are interested in learning more about the visualization model please email sales@trianz.com

Piero Marcolongo, Abhijeet Khadilkar, Keshav Gupta, Will Andrews, Halim Habiby & Sanjay Shitole

The purpose of this article is not to give all the details on how to use the tools and methodology of the Six Sigma discipline. The focus is on sharing how powerful Six Sigma can be in driving tangible business results and how to create a culture in which this methodology can flourish.

First, let’s discuss the basic background of Six Sigma. Why do companies adopt Six Sigma? The answer is simple – to make money. Poor quality and a failure to focus on customers ultimately cost organizations a lot of cash. The fundamental goal of the Six Sigma methodology is to drive a measurement-based approach that focuses on process improvement and variation reduction with the goal of improving financial results and meeting customer needs. Note the emphasis on “measurement-based.”  Companies should only measure what they value – quality, customer satisfaction, and productivity.

GE was able to internalize this truth, to the benefit of the entire organization. Jack Welch, the former CEO of GE, explains “that only when GE’s Six Sigma efforts started focusing on external customers did they start to see the value of Six Sigma.” In Jack’s book, Jack, Straight from the Gut, he writes that in the 1990s GE pursued four major initiatives: globalization, services, Six Sigma, and e-business. He said that the decision to implement Six Sigma sprang out of an employee survey in 1995 that uncovered that employees felt GE’s quality was okay, but it could be a lot better.

When looking at tools and methodologies to address the quality issues, Jack commented that “the earlier quality programs they attempted were too heavy on slogans and light on results…or were too theoretical.” However, his investigation into Six Sigma convinced him to make this one of his top four multiyear priorities. Let’s take a look at some of the key aspects of Jack’s approach when launching the Six Sigma program:

• Leaders of every business unit championed Six Sigma, so the project was sponsored from the top.
  Six Sigma projects were reviewed quarterly at the executive level, providing visibility to leadership on what was important.
• GE’s top talent was assigned to lead every initiative, even taking them out of their jobs to become Black Belts.
• Rewards and recognition went to the Six Sigma community because they were the best, driving home the message of how important this methodology was to the organization.
• Extensive, multi-month training was provided for the leaders of the initiatives.
• Training on concepts and tools to solve problems in everyday work was provided to thousands of Green Belts, in the famous workout sessions you may have read about.
• Every project had to tie into the business objectives and the bottom line of GE, directly contributing to the company’s success.

To give you an idea of how serious GE was about Six Sigma, in the first year of the implementation they changed the bonus structure to 60 percent financial success and 40 percent Six Sigma success. In addition, by 1998 no one was considered for a management job unless they had at least the Green Belt training. They also screened management-level new hires based on Six Sigma qualifications and commitment to the methodology.

So you might be wondering – how big of an impact did this have? Jack attributes the Six Sigma implementation to driving more than $10 billion dollars of benefits at GE and also drove up operating margins from 14.8 percent to 18.9 percent in four years. Here are some specific examples of success at GE:

• In GE Capital, over 24 percent of incoming calls in the mortgage division were going to voicemail. A Six Sigma team found that one branch had a near perfect percentage of answered calls. After the team analyzed its system, process flows, equipment, physical layout, and staffing, this branch model was duplicated everywhere and the company met customer calls with a live GE person on the first try 99.9 percent of the time.
• In GE Plastics, they were shut out of bidding on contracts to provide Sony CD-ROMs due to quality issues. A black belt ran the process though the Six Sigma methodology, and implemented a change in the production process. They went from 3.8 Sigma to 5.7 Sigma and won the Sony contract.
  • 3.8 Sigma = 12,000 defects per million opportunities or a 1.2 percent probability of failure
  • 5.7 Sigma = 10 defects per million opportunities or a .00001% probability of failure
• One business unit found that by using Six Sigma it could increase the capacity of their factories and thus avoid incurring the investment to add capacity by adding factories.
• In the Power Systems division, they were incurring forced outages in newly-designed gas turbine power plants. The problem was that rotors were breaking, resulting in 37 units that had to be removed and replaced. After the Six Sigma team examined the process, no units had to be removed from an install base of about 210 units, and GE was considered to then have a lead in the technology. This fix occurred just before the market for power units exploded, and as a result, GE was able to claim a major share of the global market for new power plants just as the demand was just taking off.
• In the Medical Systems business, the first Six Sigma-designed product was a new CT Scanner called the LightSpeed that reduced the time it took to do a chest scan from three minutes to 17 seconds. The other win was that the machine could be taken out of a box and used immediately. Jack said that in 2001 51 percent of the Medical Systems revenue was from Six Sigma designs, and at the time of writing his book, 100 percent of the Medical System products came from Six Sigma.

The examples above hopefully give you a perspective of the power of Six Sigma and why it is still alive at GE today. Not all companies launched Six Sigma programs the same way as GE, and many of them have had great results while others have had less impressive outcomes. It is clear that significant focus on the culture that Jack Welch put in place made a significant difference for employee careers and shareholder value.

As Jack Welch says, “The big myth is that Six Sigma is about quality control and statistics. It is that –but it’s a helluva lot more. Ultimately, it drives leadership to be better by providing tools to think through tough issues. At Six Sigma’s core is an idea that can turn a company inside out, focusing the organization outward on the customer.”

Contributors: Kristen Pham and Sanjay Shitole

From a high tech industry perspective, XaaS is a foundational change in the value exchange between customers and sellers. Many companies are looking for growth by migrating their existing products and services to a XaaS model. There are various ways to shift to the model from selling products to selling “Xaas”, such as creating a data center and selling services directly to end customers, creating a software that is available on the web versus requiring installation on your computer, or even partnering with existing service providers. That said, if your company is moving towards a XaaS model, there are significant operational changes required, especially if you have a well-established operations model for transacting products and associated services.
 
What is Different with XaaS

Traditional high tech companies sell products which are often associated with maintenance or break-fix services. The product components of the transaction are paid for up front, and refreshed with the next wave of products in several years. The services components of the transaction are agreed for a period of time using a service contract, and paid for the term life of service. Customers are faced with a large capital expense upfront and a smaller operational expense over time until the next refresh cycle.
 
The XaaS model changes this value exchange dramatically. XaaS customers purchase the functionality traditionally provided by both the product and service. The XaaS model means that customers sign up for a service for a given period of time and for a specific volume / usage of service. Often this volume is measured as seats or the number of people using the service, but it could also be measured by transaction count or data volume. The terms can vary, but generally the customer has an ability to increase the volume of the service that they consume. This allows them to start small and ramp up as needed.  This offers great benefit to customers who are rapidly growing, since they can start using a service with minimal initial cost. Customers are also shielded from costly upgrade cycles. The customer doesn’t need to be aware of what version of hardware or software is used to provide the service; it just comes from the “cloud”.
 
From a manufacturer’s perspective, selling XaaS opens up annuity revenue streams which are easier to forecast than the traditional product and service model. Over time customers tend to add more services, keeping their volume high and paying more money.
 
While the XaaS model appears to be a win/win for both customers and manufacturers, the transition to providing operational support for XaaS business can be tricky and can have significant impact on business operations, process, policies and underlying operational systems.
 
Quote to Cash

Many high tech manufactures have evolved from selling standalone hardware products to selling products with associated services to selling various bundles and solutions. The products are discreet SKU’s and the services are associated with a product for a specific duration and service level. The XaaS model requires selling services which are not associated to a product. In fact, multiple customers may share the same physical products in a multi-tenant model.
 
Quoting XaaS requires the introduction new units of measure such as number of seats, transaction count or data volume. The unit of measure needs to be collected during the configuration or quote, passed through pricing, ordering and ultimately to service contract. Often enterprise packages provide support of various units of measure within their service capabilities. But to leverage this functionality, the quote-to-cash implementations need to be relatively out-of-the-box, otherwise requiring significant process and systems re-work.
 
Pricing XaaS requires a very different perspective. Product pricing is primarily based on the capabilities of the product. Customers are going to make an upfront investment and amortize the cost over a period of time. With XaaS the pricing is primarily driven by the units of measure. For example, price might be a cost per seat per month. Setting the price can be tricky since the manufacturer playing the role of service provider needs to invest in equipment up front while only collecting limited monthly revenue from customers. Over time the model can be successful, but it requires an initial investment and pricing methodology that also accounts for customer churn/deactivations.
 
Customer Relationship
 
The relationship between the customer and the manufacturer changes when transacting a XaaS service to be more like the relationship that typically exists between a customer and a service provider.
 
With traditional products and services, the sales process leads up to a big customer decision to spend a large sum of money on initial equipment purchase. With XaaS models, the initial investment can be much lower. This enables customers to leverage “try and buy” offers foregoing long decision cycles. “Try and buy” offers allow lower levels of the customer’s organization to make the decision on the use of the service, since the required up-front investment is low or even nonexistent.
 
As customers leverage the service with little or no initial investment, they will need a seamless way to change their billing to increase the volume of usage and extend or renew the duration. Traditionally, any change in service is seen as a sales event and an opportunity to see if the customer would value an upgrade to their products or increase in service level. This type of high-touch sales interaction does not work well with the XaaS model given the number of changes that can occur during the period of service. Customers expect a no-touch mechanism to renew at their current levels and a very low touch for any change in service.
 
Sales
 
High tech products generally are sold with a high profit margin that supports a high-touch sales organization often complimented with use of channel partners to increase reach across geographies and certain verticals. Often the products are technically complex and require various types of expertise to design, configure and price a solution that meets the unique needs of the customer. Transitioning a sales organization to a XaaS model requires careful planning and analysis of compensation models, sales crediting events and the balance between new and renewal sales based on true sales influence.
 
Traditional high tech compensation models are based on goal retirements via new bookings, and the commissions are paid upon invoicing. In a XaaS model, compensation is paid on reoccurring revenue (both committed and new reoccurring revenue) and bookings are retired based on new monthly reoccurring revenue.
 
As the sale event shifts from a single booking event to a reoccurring revenue model, the sales incentives also need to shift accordingly. There is not as much revenue pull-through at the time of booking; revenue is realized over time. Incentives need to encourage the on-going annuity by focusing on monthly reoccurring revenue in addition to new revenue.
 
If XaaS services are introduced along with existing product model, harmonization of the two different compensation models is needed. Obviously when given a choice, sales teams will emphasize whatever impacts their commissions the most. XaaS comp models can be very lucrative, but often take time to build up a base of reoccurring revenue. Another approach is to have separate comp plan for traditional products and XaaS services since there are differences in the relationship with the end customer.
 
 
XaaS models are likely to be more prevalent in the coming years, requiring high tech organizations to build flexibility, scale, and develop new measurements for operations to support both traditional products and services along with XaaS offerings.  Enabling this operational flexibility will require a broad set of changes across many operations areas from sales coverage, sales compensation, pricing, quoting, configuration, entitlement, billing, reporting and customer service / support.  Ultimately XaaS will provide business stability and long-term success through annuity revenue streams for organizations that make a swift operational transition. Transitioning products from one version to another are comparatively easier than transitioning the integrated business operations of a company, and thus requires very careful planning, understanding different aspects of XaaS model and its operational impact, and balancing the customer/partner experience while driving change management of sales and support organizations.

This article looks as common virtual team challenges and provides program communications guidelines and best practices.

Global, Virtual Team Challenges

In addition to the inherent challenges a program faces in keeping multiple projects on target to deliver their respective business capabilities, virtual teams add the following additional challenges to program communications:

• Time zone / Geographical Differences – Global programs with teams working across multiple continents present a challenge to PMOs in establishing the schedule of regular program meetings necessary to drive issue resolution and decision making. The PMO has to compete for time slots that fit a narrow window of overlap in the business day between teams on opposite sides of the globe with their own set of governance meetings. PMO burnout can occur when days stretch from early morning to late evening to accommodate time zone differences.
• Team Cohesiveness – While geographical diversity within a program team ensures that regional needs are considered in program scope, team members who only talk by phone or web meeting have difficulty developing relationships and bonding with each other.
• Cultural and Language Differences – Global teams also have to be sensitive to language usage and other cultural differences that can increase the difficulty of resolving issues that crop up – especially when the discussion has to be held via web conference instead of in person.

What Is Program Communications?

Before we look at how program communications can address the challenges of the global, virtual team, let us establish the definition of program communications for the purpose of this discussion:

Program Communications is a structured approach of “communicating” with every stakeholder group associated with a project, regardless of location, giving them a clear understanding of scope, status, issues, progress, direction and expectations, as it relates to them.

Why Program Communications Is Essential to Program Success

Effective program communications are needed across the full lifecycle of any program and contribute to success in the following ways:

• Sustaining Executive Sponsorship – While there may be quick wins along the program journey to delivering new business capabilities, competing priorities and ever-changing context (client competition, the economy, corporate priorities, etc.) make it easy for busy executives to lose sight of the program objectives. 
• Expectation Management – Frequent and targeted communications keep stakeholders apprised of program progress and help foster adoption and acceptance of the change the program seeks to implement
• Program Alignment – Program communications help to maintain continued focus on program objectives and deliverables by providing the right information, at the appropriate level of detail, so that the program director and sponsors can make timely and informed decisions. This also fosters consistent messaging to all stakeholders.
• Status and Issues Visibility – Program communications provide sponsors and steering committee executives with timely information regarding program progress and relevant issues. These communications can also facilitate sharing and discussion of critical program information (i.e. schedule, issues, risks, resources, financials) downward to the program tracks or participant project teams as well as upward to executive sponsors
• Leadership and Motivation – Program communications can educate, motivate and promote sponsorship and team work. With globally distributed teams, communications become more important in motivating teams, particularly if the program has a long delivery roadmap.

Who should we communicate to?

There are several different stakeholder groups around any program, each with the ability to influence program direction, or whom program outcomes will ultimately impact:

• Executive Sponsors
• Influencing Executives
• Resisters
• Indirect Stakeholders
• Adopters of Change
• Program Members

What needs to be communicated?

The range of Program Communications includes the following:

• Program objectives and scope
• Benefits and end result
• Roadmap / plan and key milestones
• Progress and achievements
• Management issues and risks
• Changes / impacts and new / enhanced business capabilities

However, the specific content for different program communications may not always contain all of the above in a single message. Depending on the audience, program communications may be a combination of one or more of the above items where the message to each stakeholder will involve different emphasis and levels of detail.

For example, for each of the stakeholders on the client side, the focus of program communications will be:

• Executive Sponsors – Communications should focus on high-level summary of progress, achievements, and benefits, (framed as revenue increase, cost savings or other measurable metrics and what they mean to the business)
• Influencing Executives – This audience will want less detail, but should receive communications with more emphasis on achievements and benefits, enough to keep them informed.
• Resisters – Program communications to this audience need to address their objections by emphasizing achievements and benefits in language they understand with a focus on the WIIFM (What’s In It For Me).
• Program Director – Cares about program progress with an emphasis on issue and risk management, dependencies across tracks and across stakeholder groups
• Program Members – Often overlooked, communications to the project teams within the program can contribute greatly to team satisfaction and overall team cohesiveness. Messages to this audience should focus on:
  • Big picture of entire program progress
  • Where they fit in the big picture and recognition of their contribution to the program’s overall progress
• Adopters of Change – Program communications should explain how the change will affect them practically (e.g. what they will do differently, what behavior must change), why it is necessary, and the benefits. Also give them plenty of time to adjust to the coming change.

How Can We Best Manage Program Communications?

Develop a Communications Plan

First and foremost, every program should have a communications plan. The plan must consider all the stakeholder groups and different levels of detail as discussed above. Use available templates and tools to develop the plan. A typical program communications plan will include:

• Key Messages – Summarizes key theme or content of the messages
• Audience – Identifies which stakeholders (internal and external) should receive the messages
• Timing – When should the program deliver the message
• Frequency – Is the message an on-going recurring item, or a one-time event?
• Medium – Indicates the message delivery vehicle: email, voicemail, presentation, web site, meetings. Consider audience or client preferences. For example, use a wiki site to post broad-based communications that must reach a large audience.
• Owner – Indicates who is responsible for ensuring proper message content and delivery
• Messenger – Person who should deliver the message
• Localizaton – With programs impacting geographically dispersed audiences, you may need to factor in time for local communications teams to translate messages prior to delivery to their stakeholders

Establish a Feedback Mechanism

Determine how the program plans to measure the effectiveness of the communication, such as direct contact, survey, focus group, etc. Also provide an automated means for program stakeholders to provide feedback and suggestions. Programs frequently set up an email alias which the PMO monitors to respond to inquiries. Avoid excessive administrative overhead of such program feedback by directing stakeholders to a program wiki site which houses key program information (status dashboard, timeline, overview, frequently asked questions, access to training documents or job aids, etc.).

Program Communication Best Practices

• Identify Key Stakeholders Early – Identify sponsors, influencers, and resisters at an early stage of project and manage their expectations. Never assume you have all the impacted stakeholders strictly on the basis of high level scope or program charter documents. The list of impacted stakeholders may expand and evolve as the change management team completes impact assessments. It is better to start with a larger cross section of business capabilities, business processes, organizations, as well as geographical groups impacted and narrow it down as scope is finalized, than to miss stakeholder groups and find a major pocket of resistors with undetected “show stoppers” close to a major release.
• Involve, Not Inform  – A common mistake is to focus strictly on informing stakeholders of status, issue resolution, or key decisions. When appropriate, involve others in the resolution as well as in determining what content needs to be communicated to their audiences. (This is where change ambassadors and a change network can be very useful to the PMO). Be sure to include both an “outside in” (e.g. voice of customer, field, etc.) as well as “inside out” viewpoint to communications. Involving impacted stakeholders promotes ownership of the program and makes them feel like a necessary part of the program.
• Use Trusted Messengers – The messengers of program communications should be persons in the client organization whom the impacted audiences trust and respect. The trusted messenger lends credibility to the message. In global environments, you may need to plan for localization of the messages and delivery from a trusted messenger for impacted geographies.
• Ensure Consistent Messages – Inconsistent messaging not only confuses the target audiences but can also cause the program to lose credibility with the organization. Directing people to a program wiki site can assist in delivery of a consistent message.
• “Pull” is better than “Push”’ – Provide information which audience wants, not just what you want to tell them, and make it readily available where people can consume the communication content when they want or need it (pull) versus strictly employing an outward only (push) approach. Many busy client managers and executives experience daily information overload, and too much information can lead to recipient confusion and irritation. Balance the message delivery vehicle, frequency, size and level of detail with the audience needs and criticality of the message content.
• Repeat Messages and Vary Mechanisms – People often need to hear a message 2 to 3 times before they understand it. In addition, some people understand a message better in written form, while others comprehend more easily when they see the message as a graph or picture. In the global program and / or virtual team environment, Video on Demand (VoD) is an excellent way to use a trusted messenger to effectively get the word out. Back up a short VoD with a brief email communication which can then direct the audience to the program wiki site for further detail. In the case of large scale change or critical communications, employ traditional vehicles like town hall meetings supported by webcasts or telepresence to reach a global, virtual program team and stakeholders.
• Plan Communications – Successful communication does not happen by accident. Fail to plan, and you plan to fail. Build, then execute a comprehensive program communications plan. This will increases the likelihood of success, and also provide a means to build audience adoption over time.

So What’s the Bottom Line?

• Often ignored or underestimated, Program Communications is a critical aspect of Program Management
• For large programs of 20 plus members, the stakeholder groups and outcomes are usually large – therefore, have a communications lead
• As a program manager, oversee the creation of a clear, effective communications plan and the delivery of communications
• With today’s globally distributed, virtual program teams and cross-functional and interdependent stakeholder groups, leverage technology like video, wikis, web sites, telepresence, and webinars in conjunction with the traditional program communication tools of email, newsletters, and face-to-face meetings, to deliver the message.

The choices above are better known as Extract Transform Load (ETL) and Extract Load Transform (ELT) in data warehousing parlance. In this article, we will explore these two approaches and discuss the pros and cons to consider in order to choose the right strategy and tool for your needs.

Option 1: Extract Transform Load – ETL

ETL stands for Extract Transform and Load. The diagram below illustrates the ETL process:

A few years back, ETL was the preferred data integration strategy because databases then did not have the processing power to handle complex transformation. In the case of ETL, data is moved to an intermediate platform where the transformation is done before loading the data into the warehouse. Instead of manually coded ETL systems, advanced ETL tools like Informatica PowerCenter, IBM InfoSphere, and DataStage are leveraged for this transformation.

PROS:

• No transformation workload is required on the data warehouse server
• Separate ETL hardware for scaling and load balancing
• Choice of many third party ETL tools is available
• ETL systems are independent of source and target systems
• Modular and structured ETL design with reusable components handling specific operations
• Row by row processing, leading to easier integration with rules engine and data quality tools
• ETL tools provide visual IDE with built-in data cleansing and transformation functions along with graphical data mapping and lineage
• Only the relevant data is included in the extraction process, thereby avoiding transformation of unnecessary data

CONS:

• Additional hardware investment is needed for ETL engine
• Extra cost of building ETL system or licensing ETL tool
• Reduced performance of row-based approach
• Specialized skills and learning curve required for implementing ETL tool
• Reduced flexibility due to dependency on ETL tool vendor
• Data needs to travel across one more layer before it lands into Datamart

Option 2: Extract Load Transform – ELT

ELT stands for Extract Load and Transform. The following diagram illustrates the ELT process:

With the advent of hardware and new database technology (e.g. mpp systems, columnar db, flash memory), Extract Load Transform (ELT) is now a viable option. ELT uses the native data warehouse tools (e.g. sqlloader, fast load, multi load) to optimize loading, and then structured query language (SQL) is leveraged for the bulk transformation of data. Synposis, one of the data integration tools, is built using ELT architecture, which offers superior performance and scalability compared to traditional ETL products. Even industry standard ETL tools like Informatica added an ELT option in Power Center 8 (Power Center 8 Pushdown Optimization), which suggests that this approach is gaining momentum in the marketplace.

PROS:

• Better performance leveraging database technology
• Leverages DBMS engine hardware for scalability
• Simple transformation specification using SQL
• Utilizes existing skill set
• Less network traffic due to data movement
• Extract and Load processes are isolated from Transform, helping make the process more manageable
• Data cleansing is done at the staged area, thereby ensuring only the checked data is loaded for transformation
• Changes to ETL routines involve less cost, time and risk, since the processes are independent

CONS:

• Limited tools available with full support for ELT
• Loss of detailed run-time monitoring statistics and data lineage
• Loss of modularity due to set based design for performance
• Transformations would utilize Database resources potentially impacting BI-reporting performance

To summarize, both approaches have their own advantages and disadvantages, so a hybrid approach is often suggested to distribute the load between the DBMS server and the ETL server. Hence you may see various combinations of ETL and ELT being used, for example TELT, ETLT, TETLT. Ultimately, you may not need to choose between the two strategies, as most of the major ETL tools vendors have already started providing support for ELT architecture.

Contributors: Prashant Bhavaraju, Sujit Sahoo, Sekar Satagopan

• Globalization has expanded beyond the initial phase of simply focusing on global customers and now encompasses the whole gamut of manufacturing and distribution processes. Organizations are realizing the value of outsourcing processes in the supply chain lifecycle.
• There has been a fundamental shift of power to the customer as a result of the commoditization of many markets. Consequently, it has become critical to emphasize real-time collaboration with end customers.
• The Top 500 companies in the world continue to get bigger through mergers, acquisitions and international expansion. As their revenues grow larger, their quest for efficiency grows stronger.

The few points highlighted above call out two major trends – globalization and operational excellence. Traditionally, information technology was implemented to automate processes within an organization and make it efficient in its operations.

Let’s take a closer look at the statement above (in bold). The key take away is the phrase “within an organization”. Now, if we revisit the bullets above, we can see that they address global challenges which span across organizations, industries and geographies. To operate efficiently in a globalized world, we need to go beyond process integration within an organization. Going beyond organizational automation requires more than traditional IT systems.

B2B (Business–to–Business) – Understanding the Need

Before we start to solution, let’s understand the need for process automation between organizations in detail. Historically, we have had buyers and sellers complete a business transaction. As business processes became more complex, organizations started to outsource parts of their processes. Initially, they carried out interactions with their partners without the use of IT systems, using manual methods instead.

FACT: The U.S. automotive industry buys parts and services from more than 30,000 suppliers annually. The paperwork involved in procurement can add as much as $100 to each transaction, exceeding $300 billion in total cost per year.

As these businesses grew, so did the volume of business transactions. Organizations could no longer afford the delay or the human errors that occurred during the processing of these business transactions. To address the increasing collaboration needs between their customers, suppliers and other trading partners, organizations started to integrate their systems with those of their partners (resellers, suppliers, etc.). This involved custom integration layers to support, understand and share process artifacts.

Now, with a fast changing global economy, we have multiple trading partners (such as retailers, distributors, manufacturers, logistics  providers and financial institutions) spread across the world taking part in the lifecycle of a business transaction.

FACT: By one account Wal-Mart had about 60,000 suppliers in 2009!

Hence, organizations are confronted with managing multiple vendor relationships, each with unique processes required for doing business electronically. This resulted in a multitude of custom integrations with each trading entity, resulting in increasingly complex and costly IT infrastructure.

As we look to automate processes across organizations, the first challenge that needs attention is that of managing a diverse set of processes, applications and technologies which are dependent on not just industrial differentiators, but also geographic and hence legislative constraints. To address the challenge of achieving a single, standard process of integration across varied business entities, standards-based B2B (Business–to–Business) as a concept was proposed.

B2B (Business–to–Business) – Automating the Globalized World

The business-to-business (B2B) concept can be defined as a process aimed at publishing products and services on the Internet, linking buyers and sellers, and facilitating the flow of information between the parties involved in the negotiation of a transaction.

B2B standards provide a consistent process across industrial, geographic and legislative boundaries for organizations to source, interact and distribute process artifacts with their trading partners without the need of maintaining a custom solution for each partner.

Let’s take a look at the two most widely used approaches used to implement the concept of B2B.

EDI (Electronic Data Interchange) – EDI was the first set of standards that was created to address the challenge of standardizing communication channels across organizations. Its first format – EDIFACT (EDI for Administration Commerce and Transport) originated in Europe and was predominantly used within the automotive industry. Organizations in the US came out with another set of standards called as ANSI (American National Standards Institute) – X12. The most commonly used EDI documents include Purchase Orders (850 in ANSI X12), Change Orders (860), Ship Notice (856) and Invoice (810).

FACT: Purchasing a book on Amazon.com can involve up to 4 EDI transactions!

RosettaNet (XML) – RosettaNet is both a set of standards (based on XML) and a global consortium of more than 400 electronic components, IT and semiconductor manufacturing companies working to create, implement and promote open e-business process standards. Majorly used in high-tech companies, implementation of RosettaNet PIPs varies with different business models. The commonly used PIPs (documents) include Purchase Order (3A4), Order Status (3A6), Shipment Notification (3B2) and Invoice (3C3), although RosettaNet addresses the whole series of enterprise business processes in the areas of Collaborative Forecasting, Manufacturing and Logistics in addition to Order-to-Cash processes.

In addition to EDI and RosettaNet, OAGI (Open Applications Group) is another B2B standard frequently used to carry out B2B transactions.

B2B (Business–to–Business) – Benefits

There are a variety of benefits associated with implementing a B2B integration solution with partner organizations involved in the lifecycle of a business transaction. Some of the key benefits include:

• Fast, Secure and Error Free Transactions: How many times have we heard about companies losing customer data and ending up paying huge settlements? Enabling B2B processes automates the capture, processing, and transmission of data and reduces human intervention; thereby enabling a secure and error free transaction. Reduction in manual touch points also help speed up the entire commerce life cycle.
• Increased Revenue, Lower Costs and Improved Margins:  Standards-based B2B integration makes it easier to on-board new trading partners with a low and predictable cost model, thereby increasing revenue streams. Providing operational support for a single set of standardized processes across the organization simplifies the operational structure, drives down the costs and improves productivity.
• Easy scalability and flexibility: Business integrations based on B2B standards allow for flexible platforms which can be used for multiple industries with different processes. This, coupled with lower incremental costs associated with adding partners, makes it easier and more cost effective to add and do business with new trading partners.

Final Thoughts

B2B integration solutions remove the pain of traditional business integration methods while delivering substantial value to business and IT. They provide a standards-based integration framework which can be used between organizations and across geographic and legislative boundaries. Beyond the transaction, B2B provides visibility into business processes, partner operations and customer needs. B2B bestows benefits across and beyond an organization, from business units to IT to the CIO, providing predictable costs, greater operational efficiency, higher margins and revenues, and automated business processes.

FACT: More than 30% of Cisco’s Revenues come through B2B Channels!

Business-to-business integration will need to be a critical component of any company’s overall strategy for business process automation across the supply chain, procurement, operations, eCommerce and other business areas.

I would like to end this blog by adding another facet of B2B usage. Most of the B2B transactions today take place between corporations / organizations. However, a critical domain area yet to be unlocked is the application of B2B standards and processes to integrate various information systems within an enterprise. One of the biggest challenges organizations face after undergoing a merger or completing an acquisition involves the integration of IT systems and their associated business processes. Using B2B standards for integrating applications within an enterprise would create a reusable platform which can be leveraged for easier and quicker integration of the systems associated with the acquired business entities.

FACT: Google has acquired nearly 100 companies in this decade, including 40 in 2010!

We will publish a follow up to this blog in a few months to discuss the implementation and adoption aspects of B2B processes and systems.

FACT: San Francisco Giants are the 2010 World Series champions!

Contributor: Will Andrews

Now, with an uncertain world economy, as well as shorter product lifecycles, intense competition, and contracting margins, high tech companies have been forced to protect their customer base. Customers who experience poor post-sales service coordination will leave and never return. Companies that sell and service short lifecycle products have a limited amount of time to lock in customer loyalty, and now, more than ever, cannot afford to lose even a single customer.

Opportunities have shifted from manufacturing a product to providing services related to the product. Companies can regain 50 to 70 percent of lost revenue with service lifecycle management. Developing and maintaining profitable, long-term customer relationships is essential, because keeping an existing customer costs a company approximately one-tenth as much as acquiring a new one. Companies may seek to keep customers through competitive pricing, discounts, and special offers, but excellent service is a very powerful incentive. Increasingly, it’s service, not products, that provides competitive differentiation.

Product Lifecycle Diagram

Renewals are essential because they provide a low-cost way for a company to maintain its revenue stream – the cost of managing a renewal is much lower than the cost of selling a new service contract. In addition, renewals provide an opportunity to sell both product and service upgrades. However, in order for renewals to be an effective revenue generator, they must be supported seamlessly and with minimal errors. Some of the common challenges that companies face in supporting renewals include:

• Loss of revenue
  • Identifying valid renewal opportunities
  • Inability to effectively track:
    • Asset location
    • Asset owner
    • Asset end user
    • Visibility to contract expiration date
    • Returns and replacements
• Lack of business efficiency
  • Managing third party/channel relationships (may include system integration for channel partners)
  • Inability to provide customers with proper support
  • Properly defining and configuring major and minor products and services
  • Improper item serialization

Track and Manage Contracts, Assets and Renewal Opportunities for Greater Cost-Effectiveness

Integrating contract, asset, entitlement, and opportunity management systems help high tech companies transform their relationships with customers. It assists them in expanding their customer base, tracking equipment and contracts, improving the efficiency of their organizations, and building customer loyalty by helping them:

• Improve multivendor customer support
• Increase revenue
• Offer multiple points of access
• Improve customer retention and loyalty
• Provide prompt field service at low cost
• Manage depot repair and spares inventory efficiently
• Track and manage contracts and assets for greater cost-effectiveness
• Track renewal opportunities
• Use analytics to improve services

Since many high-tech manufacturers outsource service to third-party providers, contract management and entitlement tracking are essential ingredients for profitable service delivery.  High tech service providers must include planning for service level agreement (SLA) terms and workforce capacity to ensure they have the resources to meet commitments and satisfy customers.

Use Analytics to Improve Your Services

To stay competitive and profitable, high tech companies must differentiate themselves by the quality of service they provide and focus on retaining their most valuable customers. Customer intelligence capabilities enable companies to gather customer information from every touch point throughout the enterprise and then use that information to effectively tailor products and services and provide personalized care. These service intelligence capabilities help decision-makers quickly identify lapses in performance so that they can implement appropriate measures to streamline customer service operations.

Conclusion

In the current business environment, sales margins are increasingly small. Customer retention is more important than ever. Customers who are unhappy over late spares shipments, out-of-stock products, and equipment failures are only part of the problem that companies face. The damage can extend to sky-high inventory carrying costs that can seriously erode revenue and profits.

However, with a comprehensive service solution, high tech companies can transform their relationships with customers. Companies must support the full service cycle – including logging the initial service request, verifying contractual coverage, sending out field engineers, depot repair, and billing customers. Ultimately, it assists companies in expanding their customer base, tracking equipment, contracts and assets, improving the efficiency of their organization, and building customer loyalty.

Contributor: Mark Mazzara

However, as these smaller innovative companies grow and scale, they are unable to keep up with the needs of their operations and IT infrastructure. A similar reality holds true behind the firewalls of the more established leading organizations – a continued lag of operations and IT infrastructure to support faster time-to-market and lower cost of operations limits how many innovative ideas can be funded and brought to the market. Conventional wisdom suggests that customers see less than 10 to 20 percent of the ideas that could have been brought forward had these organizations solved their internal operations challenges.

This article analyzes the underlying realities that force high-tech organizations to operate in such sub-optimal fashion, including the dichotomy of innovation, external versus internal perspectives, simplicity of use, operations transformation, and finding a proper balance between operational excellence and employee morale.

Dichotomy of Innovation

As a general trend, many high-tech companies are unable to take advantage of their product innovations. Let us take the example of companies engaged in the business of storage technologies. While these high-tech organizations are directly or indirectly benefitting from an unprecedented surge of storage business, they struggle internally to make a case for how to better leverage storage technologies within their own business. As a result, they are not able to take full advantage of better managing large amounts of data around their customers, customers’ technology assets, legal contracts, service contracts, partner contracts and intellectual property contracts.

The irony is that these same companies are the ones who have shown many successful businesses the path from the early days of 64kb of storage to the present 100 terabytes of storage. One might argue that having something in abundance doesn’t really solve the core problem – in this case the availability of more efficient storage technologies has not really solved the problem of managing enterprise-wide data for business decision making.

External vs. Internal Perspectives

Leading high-tech organizations are extremely competent in creating a compelling case and selling proposition to their corporate customers and evangelizing the advantages and benefits of using new technologies to their consumer segments. However, it is a completely different story in terms of how these firms run their internal operations as they cling to old processes and legacy systems for years. It is paradoxical that the same technology company that wants its customers to buy new technology is internally stuck running their operations on legacy ERP systems, out-dated and siloed processes, and lagging IT infrastructure. One would be surprised to know that most large, multi-billion dollar enterprises have operations that are at least three to five years behind where their business should be and at least five to ten years from their goals based on their view of market opportunity.

Simplicity of Use

“Simplicity of use” is a much abused term in business and is easier said than done. While the salient selling point of most technology solutions is its simplicity of use and ease of adoption, the internal operations of these firms are exactly opposite – very complex and difficult to learn or change. Most operations leaders would tell you their operations are highly unique and complex and require years of knowledge to make significant change. They firmly believe that the option that has most merit is making incremental changes so they don’t fundamentally break things.

Operational Transformation

This concept is often talked about as a way to get operations in-line with or ahead of the business needs. The problem is that most transformational initiatives are multi-year journeys, and if they are not successfully delivered, they can set the firm even further behind. The key reasons for the time and complexity required for transformation are:

1. These programs make a quick case of stopping a lot of incremental operational improvement projects
2. The best and brightest talent is moved to transformation change programs instead of supporting immediate business opportunities
3. Sales, marketing and engineering organizations had already planned programs assuming they would have those transformation capabilities ready for them to leverage for new product / service offerings.

So while transformation is definitely a great endeavor, companies must acknowledge the consequences of not completing the journey, especially in recessionary times. Don’t launch a rocket if you don’t know when and where to land it.

Balancing Operational Excellence an Morale

Finally, companies must deliver operational excellence without killing the morale of operational leaders by making the only measurement of success how much operational costs were reduced. Operational improvement has to directly tie with innovation, customer experience and employee satisfaction and productivity. The goal of an operational improvement program cannot be tied only to cost savings, rather it should be seen as a means to stay competitive and support the business need to innovate. Every time an operational improvement program is undertaken, it needs to recognize the operational leaders who enable new business.

A commonly held business view is that Internet expansion and innovation up to 2000 was led by enterprises and corporate users, while in the 21st century, it is being driven by people who haven’t yet been exposed to the intricacies of corporate know-how or even earned their first paycheck. The innovative use of technology in last 10 years has been driven by consumers who are untrained but still can figure out ways of improving productivity and provide rich experiences of using technology in unconventional ways. The question that today’s generation of business leaders needs to answer is how can the same principles of innovation be applied in the realm of operations and IT infrastructure, where new technologies and ideas can find equal adoption and usage among people who are highly trained, experienced and knowledgeable.

Contributor: Keshav Gupta

“Path or ‘pipeline’ through which goods and services flow in one direction (from vendor to the consumer), and the payments generated by them which flow in the opposite direction (from consumer to the vendor). A distribution channel can be as short as being direct from the vendor to the consumer or may include several inter-connected (usually independent but mutually dependent) intermediaries such as wholesalers, distributors, agents, resellers, retailers. Each intermediary receives the item at one pricing point and moves it to the next higher pricing point until it reaches the final buyer. Also called channel of distribution or marketing channel.” 1

To summarize, distribution channels are the process by which products and services are transferred or sold by a producer to an end customer.

Forms of Distribution – Direct and Indirect

Direct distribution is as simple as it sounds. It is the direct selling of services or products to an end customer. The direct selling model is often perceived as optimal because of the lack of an intermediary or a broker (usually a reseller or distributer). It is an effective distribution method when the manufacturer has a range of services and products that entice the customer to engage them or their retail location (depending on industry). Direct distribution also takes the risk out of distributors or resellers learning details about the manufacturer’s various products and trying to evaluate them against another manufacturer’s line of similar products. Though direct distribution can be less complicated and risky than indirect distribution, it can make reaching the maximum number of end customers very difficult.

There are many versions of indirect distribution, but we will concentrate on 1-tier and 2-tier channels. In a 1-tier distribution channel, manufacturers engage a third party vendor to help sell and distribute their products and services. 1-tier channels usually flow from manufacturer to reseller to consumer or from manufacturer to wholesaler to consumer. In either case there is an intermediary that helps the distribution of products and services to reach the end customer base.

In a 2-tier distribution channel the manufacturer effectively engages two vendors to help sell and distribute their products and services. The 2-tier distribution channel primarily flows from manufacturer to distributor to reseller or wholesaler to consumer. The distributor receives the products at an adjusted price and then sells them (with a negotiated mark up) to the reseller. The adjusted price and mark up then drives the price that the product will be sold at to the end customer. The manufacturer usually stays out of negotiations between distributor and reseller.

Figure 1

Incentivizing Resellers

In order to motivate resellers it behooves the manufacturer to take into account the needs of the channel partners. To encourage the third party vendor to push the targeted products through the distribution channel, manufacturers take certain measures to incentivize resellers. The most important criteria for resellers is the profit margin (the difference between price sold to end customer and the price acquired from manufacturer) that is accumulated from each product sold. If the profit margin meets the resellers’ financial objectives, they are naturally more inclined to push the manufacturer’s product rather than their competitors.

Aside from profit margin, the manufacturer can offer other incentives in the form of additional market development funds to the reseller’s teams within the third party that meets or exceeds sales expectations. These extra incentives entice the vendors’ sales force to put extra efforts into selling the targeted product. Other incentives come in various forms ranging from performance-based commission, volume-based discounts, and a higher level of training and support to sell complex units of the products that have higher margins. These extra incentives motivate the reseller to push products.

Other ways that manufacturers take into account channel partner needs is by offering targeted training and making sure ordered products are delivered in perfect condition. When a reseller orders products, it is imperative to guarantee timely delivery and fully functioning products to build a good working relationship with the channel partners. As far as training is concerned, some products require deep subject matter expertise to display the product to potential clients that is not a part of the resellers’ skill set. By offering training in these specific products, the manufacturer builds a partnership with resellers, as well as ensuring that their demonstrations to prospective clients are accurate and knowledgeable.

Conclusion

Whether utilizing direct or indirect distribution, an efficient and successful channels program should satisfy the needs of the company’s maximum end customer base. Manufacturers that do not optimize their channels distribution strategy may struggle to get their product into the hands of their end customers. By incentivizing, motivating, and partnering with resellers, the manufacturer increases its chances of running a distribution channel at high efficiency and profitability.

Resources:

1. http://www.businessdictionary.com/definition/distribution-channel.html

Contributors: Carolyn McDonald and Sanjay Shitole

PDF of Article: Distribution Channels