Bridging the Two Solitudes in a Channel Relationship
Shared values, mutual understanding and regular communication are critical ingredients in a successful relationship between a channel partner –wholesaler, agent, integrator etc – and their supplier. To managers who deal with channel issues on a regular basis, this is a self-evident truth. However, most will lament how difficult it is to cultivate a fruitful and symbiotic business relationship based on shared goals, trust and transparency.
Poor channel relationships exact a significant direct and indirect cost on both the channel partner and supplier, including: missed revenue opportunities, higher than necessary operating costs, ongoing hassle and misplaced management attention. Channel relationships can stumble for many business reasons including poor product and service quality, insufficient channel discounts or a misalignment between consumer needs and the channel structure. While business issues are important, they are not in and of themselves fatal to a relationship in the short-term. Based on my experience running a large wholesaler, the root of most failed relationships is a gap between the parties around Values, Assumptions, Beliefs and Expectations (VABEs). A lack of common VABEs is not surprising considering how different channel firms and suppliers are in terms of corporate structure & size, culture and strategic focus. To build a successful relationship, both parties need to recognize the differences in their VABEs and proactively develop strategies and processes to bridge the gaps.
Below are two of my ‘best practices’ to accomplish this.
Acknowledge and Deal with Strategic Misalignments
By their nature, suppliers and channel companies typically have different corporate strategies, cultures and goals which can hinder alignment, trust and performance. Suppliers typically want their products to have maximum market coverage, revenue and service at the lowest cost and fastest cycle times. Channel firms, on the other hand, often seek to limit risk, engagement and investment in a new product until the firm/product proves itself in terms of revenue, quality and commitment (e.g., marketing, training etc). Moreover, because of the 80/20 sales rule, channel partners will often treat a new product as secondary (i.e. not core to their offering) thereby withholding full (and promised) support. For a variety of individual and organizational reasons, strategic misalignments are often ignored, missed or buried by respective managers. This strategic denial prevents firms from: developing reasonable expectations, overcoming misperceptions and undertaking pragmatic steps to drive greater engagement levels.
Strategic incongruence can be mitigated by acknowledging the 800 lb gorilla early on, namely setting realistic and achievable performance milestones, activity levels and investment requirements. To foster greater understanding, both suppliers and channel partners should do their homework in order to better understand the other party’s history, financial context and competitive drivers.
Engage Senior Leadership
There is often a major difference in the kinds of management representing suppliers and channel companies. This disparity has a big impact on how hot button issues like channel compensation, inventory levels and sales requirements are dealth with. In many suppliers, middle managers without P&L responsibility manage channel relationships. Unfortunately, they often lack the authority, strategic perspective and internal information to develop a win-win channel relationship or troubleshoot important issues. This frequently will create angst, distrust and frustration within the channel partner who wonders why they don’t receive the attention and support they deserve. On the other hand, channel partners are often led by entrepreneurs who wreak havoc on channel relationships by personally being involved in negotiations, relationship management and sales & delivery execution. ‘Leading from the front’ can also be problematic as it reduces strategic perspective and leads to issue ‘personalization.’
Suppliers can plug the leadership gap by bringing in senior management early on in the process as well as better empower middle managers to input into channel design and have the authority to make partner-specific decisions. Channel partner owners can minimize role overlap by either focusing on deal structure and relationship troubleshooting or service delivery.
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