For all the talk about direct selling, 75% of purchasing still happens (opens in new tab)via an indirect distribution channel, says Jay McBain, a principal analyst at Forrester. In the technology space, that stat rings true. In fact, many tech vendors have no, or very few, direct sales people, relying instead on partners to deliver products and services to business customers in what’s called a “100% channel strategy.” (opens in new tab)
This makes sense, as I discussed in a previous column. As technology gets more complex, so does the process of vetting opportunities, educating CIOs on what to buy, then installing, integrating and training users on systems. Vendors simply don’t have the bandwidth to do that.
For your IT team, a key benefit of working with a partner, often a managed service provider, is that they can knit a pile of disparate products and services into a full solution. Consider your security systems. In 2018, McAfee estimated (opens in new tab) that there were more than 1,200 vendors selling cybersecurity products. Two years later, I’ve seen estimates that there are now 2,000-plus players in the space. I guarantee that your IT team does not have the capacity to vet even 10% of their products, much less keep up with new security technologies.
In contrast, evaluating new vendors and technologies is a core competence for managed security service providers. There are sites (opens in new tab) and events dedicated just to keeping them informed.
But what if your company is working with the wrong service provider?
CIOs and IT leads tend to engage IT services firms where they know someone, or that they heard about through word-of-mouth, often from peers at similar companies. That might be fine. Or, you could be depending on a partner that’s not up to speed on the latest developments in your industry, or worse, is selling the same basket of hardware and software to you and your closest competitors. That’s no way to gain an edge.
As a CFO, you have visibility into all the partner firms IT’s working with. You also have the emotional distance from what can be a close relationship to vet an IT service supplier. Areas to evaluate go far beyond standard procurement metrics. You’re trusting these partners with deep insights into your business and, often, access to your network and employee and customer data. You need to get it right.
This is the first in a series of articles covering what I call “the indirect partner dilemma.” I’ll address areas where an IT services firm might have conflicts of interest or limitations that are holding your company back. They include:
It’s possible that your CIO has a handle on some of these concerns. But it’s just as likely, based on my experience, that these critically important supplier relationships are on auto-pilot.
Over the next few months I will dig in on each of these dilemmas and share my thoughts, tips and tricks. Today I will address the first one, vendor agreements.
Right to Sell?
Imagine this scenario: Your preferred IT service provider, let’s call them ABC MSP, is local, delivers great service and knows your company. Your IT team trusts them. You’re ready to undertake an ambitious, hopefully transformative, IT project, and ABC is the partner the CIO wants by her side.
Let’s say you’re a local grocer and plan to use blockchain to track the origin and journey (opens in new tab) of the seafood you stock. Being able to show the entire supply chain would enable you to sell to high-end sushi restaurants springing up in your area. You know from research that this technology works, and that there are some leading vendors.
You issue an RFP, and in a few weeks, ABC comes back with its proposed solution. Interestingly, though, one or more of those leading vendors aren’t in the proposal. Instead, included in the quote is a less well-known, second-tier provider. Why?
Well, ideally, it’s because that vendor is the best fit for your needs. Too often, though, the partner simply quoted what it could because it has a vendor agreement issue.
There are three common dilemmas here:
The best way to head off this dilemma is to ask for a vendor line card from each IT services partner your company works with. A line card is a list of vendors the partner is authorized to sell, at what level and to what accounts.
The process is straightforward: The next time your IT team is ready to issue an RFP, research the top suppliers in the relevant tech space. Then conduct line card reviews with prospective services partners. If one or more top vendors aren’t listed, or they’re not “preferred” suppliers for that partner, ask to have those industry-standard options included in any RFP. That will eliminate surprises and weed out service providers that are more interested in their profits or perks than your business.
In my next article I will address the dilemma of partner profitability. A partner without a healthy balance sheet can create a very negative impact for your business. There are ways to protect yourself that I look forward to sharing.
Janet Schijns is the CEO of JS Group and a former C-Suite Fortune 500 executive with experience ranging from Verizon to Motorola to Office Depot. Her clients regularly increase their revenues by more than 40 percent and achieve high levels of market-share growth. Areas of expertise include routes to market, channel programs and solution development, and she has worked with vendors, distributors and partners in a wide range of technology areas including services, cloud and advanced solutions.