For Partners, the Cloud Keeps Getting Cloudier

For Partners, the Cloud Keeps Getting Cloudier

The fight for market share is intensifying, and as a result the costs for a share point of growth are getting frightfully more expensive.

• By Mike Harvath
• January 03, 2012

We've been getting more requests of late from the partner community asking us to help them rethink and rework their relationships, both with their vendor network as well as within the broad partner network -- that is, working and collaborating with other partners. It seems that the constantly evolving IT industry is causing some angst among channel partners as they look for new ways to compete in the future.

It seems that the "the vast majority of channel partners are confused, disoriented and fearful about how cloud computing will impact their business." Of concern to the partner community is their belief that "they're not getting much help or guidance from their vendor partners."

This level of concern was brought home by a presentation I attended recently given by Peter O'Neill of Forrester Research. O'Neill spoke about some research the company conducted in which they identified an affliction they called "cloud identity disorder." This was defined as "the confusion and fear about their (and their partners') place in the cloud computing demand chain and doubt about tech vendors' abilities and intentions to help them transform their business."

What intrigued me about this research is our experience that this confusion and fear on the part of partners goes well beyond whatever they think they're getting or not getting from their vendors about cloud computing. There's a broad-based and legitimate concern about their ability to work with their vendors in general.

We're constantly asked by our clients, how do we manage our vendors going forward? How do we manage up in working with Microsoft and others? How do we better optimize our relationship with these folks? How do we get more out of them? What's the best way to work with them? How do we get our fair share of leads?

The research they did put some numbers behind these issues. For example, to the question, "What would you value most from your vendor partners?" Forty-eight percent said "protect our company's territory from other partners"; 45 percent said "finance some of the cost of infrastructure"; 34 percent said "business model training"; and 31 percent said "marketing training."

What this research reveals to us corroborates what we're hearing as well, and that is, the fight for market share is intensifying, and as a result the costs for a share point of growth are getting frightfully more expensive. This explains the desire for territory protection, business model and marketing training and, of course, financing.

It also explains why many partner firms are actively looking to extend their reach by enlisting new partners themselves, or creating a new network of their own to sell their new IP product or service. What was most revealing in the research was the finding that more than 70 percent of channel partners indicated they collaborate with other channel partners. Of these 70 percent, what many are asking of us is how do we go about finding, evaluating, recruiting, managing, supporting and incenting new channel partners? How do we find the fewer, better partners that will work on our behalf with the same focus and intensity as our own direct sales force? How do we help them become better at what they do? How do we bring value to them?

Channel management has been a staple growth strategy for IT companies from the beginning. However, like most things in the IT world, the partner ecosystem is constantly evolving, which makes managing current and new channels all the more challenging.

The old rules for channel management are just that … old. The blurring lines, the shifting priorities, the emerging new relationships are demanding new rules, new models and new ways of managing your partner network, upward to your vendor and outward to your partner network.

The partner community is quite right to be expressing these sentiments, surfacing these issues and asking these questions. As Yogi Berra is purported to have said, "The future ain't what it used to be." And, from Peter Drucker, "The best way to predict the future is to create it." It seems like some partners are heeding this advice. 

About the Author

 

Mike Harvath is CEO of Revenue Rocket Consulting Group, an IT services growth consultancy. 

So you want your M&A to fail. Here’s how to do just that!

Last month during the Microsoft Worldwide Partners Conference we hosted a panel discussion on M&A, presided over by myself and three of your Microsoft partner peers with experience in managing through what has often been described as one of the most unnatural acts in business. It was a lively discussion about the role of M&A in building a vibrant IT services company, and while we touched on some of the pitfalls in consummating a successful M&A deal, I thought the topic is so important that this would be an opportune time to highlight just how and why mergers and acquisitions can go awry.

And awry they do go if the business literature is a guide, with something like 50% to 80% of all mergers and acquisitions failing to live up to the intended goal. The reason cited most often for why M&A stumbles is the failure of planning for and implementing correctly the post-merger assimilation of cultures, people, values, attitudes and styles… what is called the soft side of the equation.

It’s an odd and intriguing twist of management fate that one of the most critical elements of a company’s long-term growth strategy is governed upside down. Most of management’s attention is focused on the upfront number crunching, due diligence phase of the project, which evidence suggests is one of the least likely areas where M&A runs afoul. The back-end—the post-acquisition assimilation phase of the M&A—where research suggests 65% of the failure occurs and where management’s experience and firm hand is needed, is what gets the short shrift.

            Let’s be fair and not put all the blame for these troublesome failure rates on post-acquisition blunders. There are other textbook culprits eager to contribute to this dilemma, and sadly we’ve seen them all, and far too often. You would think that with all the real life experiences we’ve all encountered that we could maneuver around many, if not most, of these obstacles. But alas, this is not the case, and yet executives go on making the same mistakes, over and over again.

            In no particular order, here are some of the most common pitfalls, some of which are so obvious that I hesitated to mention them, but their incidence of occurrence is so universal and so often that they bear repeating:

• Flawed corporate strategy by one or both companies, buying or selling for the wrong reason, and/or doing so out of desperation or fear.

Revenue Rocket Consulting Group

Redmond Channel Partner Magazine

September, 2011 Column Copy

8/04/11

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• Executive hubris – thinking the buyer and/or seller key executive is bigger, more important, and more powerful than the act.
• False, rosy-eyed, wishful expectations of a savings bonanza.
• Too little focus and effort on building a relationship with the seller and understanding/empathizing with their position and why they are selling. Remember it’s all about them, not you.
• Flying solo, trying to manage a long, complex, time-demanding process that novices never believe is long, complex or time-demanding.
• Relying too heavily on your lawyer, who in his or her role as counselor will often surface demons that are not really there in an effort to manage every risk.
• Not vetting a deal carefully for Strategic, Cultural and Financial fit, in that order, and only in that order.
• Getting cold feet, which is a natural reaction, and completely understandable, which is all more the reason you have to undertake an M&A for the right reasons and stick to a proven process.
• Surprises in the last 3-5 days before closing, when emotions are most fragile, and when a steady hand on the tiller is required to cross the finish line. This is the time to find middle ground. It’s not the time for a “my way or the highway” message.
• Getting deal fever as the buyer, again when emotions are high, or getting the deal done at any cost, will be deadly in the end.
• Talking yourself into believing you can build it for what you would pay to buy it. This is simply not true.

            The consequence of failure for small-to-midsize IT services firms—without the financial reserves of their larger brethren, who can withstand an M&A miss or two and emerge humbled and bleeding but not broken—can be devastating. The question for these executives should not be whether to embark on an M&A strategy, but how to do it right, which is the topic of our next column, or for those can’t wait, you can always contact us.

Mike Harvath is CEO of Revenue Rocket^sm Consulting Group, an IT services growth consultancy. You can reach Mike at 612-298-7737 or at mharvath@revenuerocket.com.

Next topic: So you want your M&A to succeed. Here’s how to do just that.

IT Services M and A, like the auto industry?

We were having a lively conversation a few weeks ago about the calamity that struck the auto industry last year and whether there might be some early warning signs that we in the IT industry might heed; some lessons we might want to learn, some thinking we may want to revisit, some strategies we might want to embrace.


While these two gargantuan industries, with combined global sales of $6trillion, are sufficiently different in many respects, they do share some broad similarities that bear considering as IT executives plot and plan the future of their companies.
Chief among them is the business model that defines how they go to market. In both industries there is a cluster of global manufacturers, (GM, Ford, Chrysler, Toyota, VW, Microsoft, Oracle, SAP, etc) that sit atop the pyramid, selling their products and services to a vast network of dealers and partners/resellers.
In the automotive industry, the number of dealers now stands at about 18,800, having been pruned from 30,500 in 1970. In the case of the IT industry, the number of partners/resellers that make up this vast network in the US is in the hundreds of thousands. Therein is the "aha."
The $2.6 trillion automobile industry couldn't sustain itself with the number of dealers it had, so last year the industry had to shed thousands of dealerships as it sought to find a more profitable marketplace equilibrium. What does this say, or portend, about the $3.4 trillion IT industry and the hundreds of thousands of partners and resellers that make up this market?

We think it portends, in a word, consolidation.
We also think it means that IT executives who want to flourish will have to acknowledge the inevitability of consolidation and arm themselves with a well-defined M&A strategy. Many executives are doing just that, which explains the red-hot M&A market that is reshaping the industry.
While it was the credit crunch that ultimately broke the back of the auto industry, the calamity also revealed one of the industry's underlying fault lines. There were simply too many GM dealers selling the same Chevys and Caddys to the same customers, and too many Chrysler dealers selling the same Town & Countrys and Sebrings to the same customers, wreaking havoc on profitability as dealers were forced to compete with each other primarily on price.
So, you have to ask yourself, is the prologue for the IT industry to be found in the past of the auto industry? Will the IT industry of the future have to have fewer, stronger, larger, more profitable partner companies that can withstand the agony of a calamity like that which befell the auto industry? It seems the industry is heading that way.

As the 19th century French politician Alexandre Auguste Ledru-Rollin is supposed to have said, on seeing a crowd marching through Paris, "There go my people. I must find out where they're going so I can lead them."
Today, in America, you'll find a number of IT executives who see where the industry is going and have smartly, courageously, and tenaciously decided to get ahead of the trend and lead their companies to a more commanding position in the market, where they will prosper fewer, bigger, stronger, and more profitable.
We interviewed three of these leaders to get their insights and experiences on the role and value of M&A as a growth strategy component, warts and all. They are:
Rick Born
CEO
RBA Consulting



Seth Henry
Founder and President
Arcadia Solutions



Dave Friedline
Director, Business Development
NWN Corporation

For the full content of this article please see it at
http://www.revenuerocket.com/enewsletters/july10_1.html
We'd be interested in hearing from you about your views on and experiences with M&A in the IT Services space. You can reach me at 952-835-2333 ext. 101, or contact me via email at mharvath@revenuerocket.com .

Thanks,

Mike