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Show Me the Money Part 2

Intuition Consulting's Kevin McGrath outlines the paths solution providers should travel for success

Kevin McGrath’s presentation at the recent CDN Channel Elite Awards entitled “Show me the Money,” highlighted some of the challenges facing IT channel partners. The main discrepancy within the IT channel, the president of Intuition Consulting of Singapore pointed out, is that half of the companies are doing well, while the remaining 50 per cent are not.

His presentation aimed to solve the critical question, “how can the remaining 50 per cent improve their cash flow and their business models to be more lucrative?”

By minimizing their successes, IT channel organizations hold back their growth opportunities.

McGrath profiled some well-known organizations with respect to their areas of differentiation:

Dell’s success stems from its mastering of the “upselling process.” Its advertising entices purchasers to contact the company, then as a needs assessment is completed, chances are, the customer purchases more than initially intended.

From there, “they have the best sales process in the industry,” according to McGrath. From a resource management standpoint, Dell has mastered the art of the just-in-time delivery system. Products are built according to demand and in many cases, on the consumer side, the customer has paid for the machine before the parts have even entered Dell’s warehouse. In McGrath’s opinion, Dell has a very different business model from many organizations.

In contrast, McGrath said, Hewlett-Packard’s (HP) differentiation model is based upon the mantra of “optimize the bottom line”. In words that might be slightly more familiar, HP CEO Mark Hurd can often be heard chanting, ”attach, attach, attach.”

By combining HP products with other HP products and/or HP services, the company is able to optimize its bottom line in an efficient fashion.

Hurd also instils the mantra that HP has “lots of room for improvement”. This helps to rally the team around continual improvement, which is the realty of a successful business, McGrath explained. Staying the same does not make for a dynamic and ever-changing organization, as we know.

Ingram Micro runs a “very, very tight business” with the “ultimate mature cost structure,” according to McGrath. Providing inventory and credit services to resellers and vendors is their value proposition. As a result, Ingram operates with less than one per cent operating margin in a product-based business selling to resellers. The “value added business” is a hard game to play. McGrath echoed a similar message for Tech Data’s business practices.

Microsoft “is doing it” properly, McGrath argued. With 81 per cent of gross market, what drives its business is the ultimate form of differentiation. Microsoft is “not really a monopoly, it spends money,” McGrath said.

Intellectual Property (IP) is one of the main differentiations between the vendor and the channel community. The vendor community has intellectual property, while the channel relies upon the vendor community’s IP.

The challenge McGrath extended out to the channel community was “make up your own IP.” That challenge is exactly “why services are important,” He argued. The channel community “can never build IP on hardware,” which is the property of the vendor, “but you certainly can with services.” That arena belongs to the channel community. Your service to your customer is what distinguishes you from your competitor.

Defining your value proposition, knowing your addressable market, and managing your resources are all critical to the success of your business. Ask yourself, “What makes me different from my competitor? What distinguishes me from other organizations?” Ask your customers, “Why do you purchase from me and not others?” Look at your audience and ask yourself, “What do they have in common? What are they looking for in a supplier?”

Finally, examine how you manage your resources. How long do products sit in your warehouse before you pay for them? How long does it take for you to receive money from your customer, once the products have shipped? What are your carrying costs?

Once you are aware of your current situation, then planning for the future is possible. Once the plan is in place, then you can echo McGrath’s message, “Show me the money!”

Michelle Warren is a market analyst for Partner Research Corp. of Toronto.