February 2012 Feature

Revenue-Based Strategic Alliances, Friend or Foe to the Channel?

by Anna Johnson

Companies are increasingly relying on the use of strategic alliances as a core business strategy to offer customers end-to-end solutions while expanding into new markets. Progressive companies realize the value of alliances to allow them to focus on their core competencies while keeping the buying process simple for their customers. In the B2B tech industry, typical alliance relationships may include one or more hardware manufacturers, ISVs, and even service or delivery partners.

February ImageAnother advantage that many strategic alliances offer is the fact that any partner in the alliance can effectively sell the same or a similar solution. As a result, alliance partners are often the fastest growing sales channel for marketers embracing strategic alliance relationships. But this is clearly a different type of channel with different needs. What’s more, many marketers are struggling with how these alliance partnerships co-exist with their traditional channel partners. Is this a new form of channel conflict?

Channel Management Insights sat down with Jennifer Kula, general partner at Granada Partners, to discuss how the current trends of strategic alliances in the tech industry are affecting the channel.

Creating Revenue-Generating Strategic Alliances

The trend of creating revenue generating strategic alliances in high tech is a relatively new one. Ten years ago, the industry was just maturing enough to determine the metrics to measure performance in all areas of its business. Collecting the data and making information-based decisions about the core areas of the business such as marketing, operations, and sales were a natural evolution from the tech industry. “It’s only in the last five or seven years that c-level executives have developed the confidence that, when executed properly, strategic alliances can provide a proven path to new markets. Before, the partnerships were loosely based; but now that metrics provide transparency, executive teams realize the potential of formalizing and investing in these relationships,” says Kula.

Commitment from executives is just one component of realizing the financial benefits of building strategic alliances. “Strategic alliances in the tech sector are best born from a culture of collaboration rather than competition, so that a win-win can be found by all parties involved, including the traditional channel partners,” Kula explains. Historically, high-tech companies have created products that fit within a customer’s complete IT ecosystem. Their products were just one of many pieces of the puzzle. But in a culture of collaboration, high-tech companies consider strategic alliances from the very beginning of the product development process so the products they are creating are open and can easily be configured or adapted to work with other brands. “When strategic alliances are considered from the product development process to sales through the channel and customer support, companies will reap the financial rewards of the partnership and commitment,” says Kula.

How Strategic Alliances Differ from Channel Partnerships

“Strategic alliances offer the co-selling model where the two companies can present the strength of their solution in combination to customers. Traditional channel partners often take the vendor’s product and turn it into a solution where the vendor has no direct relationship with the customer,” explains Kula. This distinction is important to vendors as they aim to capitalize financially on developing a solution that fits the needs of the customer. Channel partners need not feel threatened by the alliance of vendors, especially when customers benefit from the combined solutions. In fact, when companies develop products in a culture of collaboration, channel partners are considered an important component to boosting sales of the alliance solution. “The classic example of productive strategic alliances where the channel benefits is the recent partnership announcement between Cisco, VMware, and Citrix on their Virtual Desktop Infrastructure (VDI) initiative,” says Kula. She continues, “The role of the strategic alliance is to communicate and market the benefits of what the combined solution offers, have a single point of accountability, and provide integration support solutions, making it easier for resellers to sell and support.” This example demonstrates that when vendors carefully plan and execute the joint solution, channel partners can indeed benefit from the strategic alliance.

Tips to Address the Needs of Both Strategic Alliances and the Channel

“The needs of both parties aren’t mutually exclusive,” says Kula. “Instead, companies that realize that strategic alliances can support the channel and vice versa, have a clear competitive advantage in the market.” Here are a few tips to consider so that everyone works in harmony:

  1. Develop a go-to-market plan with your alliance partner that actively includes the channel. This includes marketing messages, sales training, and support. The channel can sell an alliance solution; it just needs the tools and messaging to do so.
  2. Solicit feedback from channel partners about the alliance solution and how it can best be marketed to their customers.
  3. Pilot the alliance solution with a few key channel partners to close a few deals before rolling out channel wide. Learn from and use these success stories to create excitement in the channel.

Avoid Potential Roadblocks that can Sabotage Alliance Partners and Your Bottom Line

Invest early in the promised benefit of the strategic alliance. If you don’t determine the investment early, then this will negatively impact the channel and there will be little hope of recovery from a poor execution. Here are two tips to consider when making the investment:

  1. Define metrics for success and measure against them. Joint business planning on a quarterly basis helps to establish goals and evaluate past performance.
  2. Make sure you have the right resource investments for branding, people, expertise, marketing (including lead generation), and sales so you are in a position of strength instead of having to play behind the 8-ball.

Conclusion

From start-ups to Fortune 500 companies, strategic alliances are increasingly relied on to expand into new markets and allow two or more manufacturers to focus on their core business while addressing the needs of their joint customers. Those strategic alliances that collaborate best will have a competitive advantage in the marketplace because the strength of their solution in combination will take into account the complexities of their customers’ ecosystems and the channel that helps bring the solution to market.