A Meeting Of The (Top) Minds

The best way to understand where partnering is heading this year is to hear about it directly from the source. Make that "sources." For this year's annual Partner Programs Guide, we invited three of the biggest channel honchos--IBM's Mike Borman, CA's George Kafkarkou and Sun's Gary Grimes--for a roundtable in January at New York City's famed 21 Club. We held the sit-down luncheon in the restaurant's wine cellar, where the trio of channel vets had a lot of good things to say about each other, all doused with respect and humor. You could literally see the chemistry come alive.

Together, the three embody close to a century of experience. They spoke candidly with our editors about the challenges facing their organizations, how they measure channel performance and satisfaction, and whether they see the fabled turnaround in our industry taking hold.

VB: How are you making it easier for your partners to do business with you?Borman: When you think about IBM, we have five brands in software and six brands in systems, and then PCs. Each one, in essence, competes with a different set of players out in the marketplace. And so I need to enable the brands to have some level of flexibility so that they're competitive in their channel programs. But at the same time, it needs to look like one IBM from marketing to sales.

Kafkarkou: I think there is recognition that CA as a company now is much easier to do business with than we used to be. In the past, we have abused the relationships with some of our partners, and people have long memories and don't forget these things. I haven't had one partner-complaint e-mail for technical support in North America for five months. We provide plenty of benefits and rewards to our entire channel community. We wanted to create a compensation model whereby everybody benefits, and it's amazing how much more collaboration we have. We also have rolled out a new licensing mechanism whereby partners can transact $1 million worth of business, and neither the partner nor the customer has to sign a single document. We also feel there will probably be less focus on procurement and much more focus on delivering integrated solutions with our partners.

Borman: We've reorganized our sales force into about 3,000 different clusters, so we cover business partners similarly to the way we cover accounts. We have a lead IBM salesperson covering this set of partners, with support from the software group and the systems group and PC and services. In the U.K., for example, we had 20 clusters, and in several of the clusters we determined that the software person had the best relationship with those partners in that cluster. We also have structured a number of our incentives so that they're more like IBM incentives rather than just an individual brand. We'll give them an incentive that includes storage along with systems [and] software; they can earn more money along with financing, for example.

Grimes: We are following Scott McNealy's mantra--attacking cost and complexity, building out services and mobility and security. Yes, these are complex times. There are a lot of moving parts. But our partners said we need to work on the profitability of our relationships, simplifying our business relationships and rewarding or recognizing [partners] for [their] investments, loyalty or whatever.

VB: Gary and George, you both compare yourselves to IBM and, in some cases, have hired IBMers. What do you think about IBM?Grimes: I applaud what IBM has been able to do. There's one IBM to deal with from the outside world's point of view. It's understanding what your strategy is and then executing against that strategy. Every organization has different agendas, different objectives, different measurement criteria, different metrics. It's the company that can figure out how to integrate those into the broader interest and then execute against that without compromising any of the individual things that are successful. If we could only execute as effectively as IBM. I think about our relationship with IBM. IBM supplies components to us for some of our peripherals as well as some of our processors. Their Global Services organization is a reseller of our product. They are obviously a competitor. That is a complex set of dynamics. You have to keep in mind how you address the challenges--presumably one and one has to equal more than two or there's no point in doing it.

Kafkarkou: I take my hat off to IBM here. Many vendors, they have a great channel strategy when things are not going well. But [IBM has] executed well and was one of the first companies many years ago to consistently pay attention to the channel.

VB: What have you learned from running large-scale partner organizations?

Borman: We look at four elements that are really important to our partners. One is consistency, in good times or bad. The second is they have to make money, and so in good times and in bad you've got to find a way to change enough so that they can survive. Third is the ease of doing business. If we're not easy, it costs our partners more to do business with us. Finally, we send our partners to the same classes and embrace them the same way we treat our own sales staff. It's got to be part of your DNA. Just like you treat a sales guy, you treat a partner.

Grimes: Your products have to be designed from the very start to be partner-friendly. Cost structures have to be factored in, collateral designed and everything else.Kafkarkou: Our problem is that we have a great channel program, but there is not enough support or identity of our brands, and we have not succeeded as well as we need to.

Borman: You have to design up-front your product so that it's channel-ready, whether it's software, a system or services. And we have a checklist for channel enablement that [asks]: Is the channel priced? Is it easily configurable? What education is available for the channel? Do you plan on announcing this to the channel before general availability? All of these elements have to be there before the product gets released.

VB: What responsibility do you put on the partners to generate demand?

Grimes: I think it's the manufacturer's responsibility to create demand for the manufacturer's product. Now, there are some environments, if you're fortunate enough,let's say, in the OEM world,it's a classic case. If you can get the design win, and that end product is based on your technology, then when the partner, the OEM, goes and creates demand for its product, you're just swept along with it.

Borman: First, we've actually progressed a lot in the past three years in terms of what we call opportunity identification, opportunity ownership and then fulfillment. We actually have specific targets for client reps, for brand specialists and for partners that we review every week worldwide. And we hold each group accountable. We hold the IBMers accountable for the opportunity identification and to pass the leads to partners by region around the world.The second is we've been putting more of our money into co-marketing with partners these days. For example, on our PartnerWorld Web site, we have a campaign designer to help solution providers generate demand. We can do the mailing campaigns with them and then they can execute [them] themselves. Third, you have to have a compensation plan that is neutral to the channel. Your own sales force has to be at least equally incented to use partners. That kind of equality fosters good co-work. If a partner needs a specialist to help them close a deal, I want the specialist right there. I want him to drop everything he's doing and go help the partner close the business because they get paid for it. Everybody isn't able to close everything himself. So whether it's access to the CIO or whether it's a brand specialist, our guys are compensated to help the partners.

Kafkarkou: We have systems at CA that can track any opportunity from where it came from [to] where it went within our organization. The direct-sales rep can see these opportunities; he knows the sales execs at your company on that account, and we track it and drive it together.

Borman: But your CRM system basically has to tie into your fulfillment system, then. And it also ties into the company's worldwide forecasting system.

Grimes: The issues in my mind are ensuring that the financial side of the world understands that the channel has value and at least could be a lower-cost distribution capability than the direct sales force. But it's painfully hard to prove that empirically.

Borman: Our CFO wants to know, is the investment we're making in the channel the right investment? We need to prove that. That's why we have systems that go from where the opportunity started and who should build it because we're trying to make sure that we understand. In our surveys, we have found that more than two-thirds of the opportunity in the industry is identified by systems integrators or ISVs and not the direct-sales force that the three of us have in our companies,VB: What do you do specifically to bolster the profitability of partners, and how profitable do you think they are today?

Kafkarkou: As a result of CA's profitability program, the CA partners are making more margin more consistently than they've done historically. So the indications are [that] we're on the right track. The number of partners transacting with Computer Associates in North America is going up, and we're talking double-digit percentage growth. And our partners are earning more margin more consistently.

Grimes: Last year, 120 of our partners chose not to renew their agreements with us. These were the true bottom-feeders.

Borman: They wait until the last minute, [then] go in and fax a proposal in with one point or less margin just to undercut guys.

Grimes: These 120 partners went away because they were not willing to run their businesses on two-point margins, and they represented less than $1 million in revenue from the previous year. That was a no-brainer. But the benefit of that was eliminating this burr, this thorn [under] the saddle of the partners who are worthy and a lot of end-user customers who were getting screwed by these bottom-feeders.Borman: The first priority is a financial priority, and it's to gain market share and have IBM and/or partners mutually profitable. And this is more important than ease of doing business or making sure that our partners view one IBM. Profitability is very important. But look what happened in 2000: The whole industry was oversupplied. The partners suffered in their margins, and our companies all suffered in terms of revenue growth. But look what has happened: Margins are less than they were 10 years ago, and in another 10 years, the margins are going to be less again. The model has to change. These margins are going down.

VB: Is the worst over? Are happy days here again?

Kafkarkou: Two words,cautious optimism. I think there is ample room, ample scope for our partners to provide complete value and be less threatened. The market is also getting more sophisticated. I think that's reflective of [each vendor] becoming more than just a storage or a security or an enterprise management vendor.

Borman: The industry will grow faster in 2004. The enterprise space will grow the slowest; the medium-business space next, and the small-business space the fastest.

Grimes: I have an entirely different approach to the midmarket than I do to the enterprise. There is an entirely different partner community. The traditional Sun partner doesn't have a cost structure that will allow [it] to chase the midmarket any more than GE has a cost structure that allows [it] to satisfy a volume world.VB: What do you use to measure satisfaction in your company?

Borman: We use an outside company to survey several thousand channel partners in every geography; it is a pretty extensive survey that is done twice a year. We look at ease of doing business, competitive margins, support, products, everything.

Kafkarkou: Partners care. Make no mistake. They have as much passion as we do. We appreciate that, and we're generally grateful for every minute they give us.

The PlayersMike Borman is general manager of IBM Global Business Partners, a position he assumed 14 months ago. Since that time, he has overseen a major restructuring and consolidation of the company's SMB programs and product offerings. He is responsible for 90,000 Business Partners worldwide. A longtime IBMer, Borman began his career at Big Blue in the role of a programmer, then went on to hold a variety of systems engineering, sales, marketing and management positions.

George Kafkarkou, senior vice president of world channel operations, sales and marketing at CA, was brought over from Europe, where he was general manager for indirect sales, to create programs and policies that would improve partner satisfaction. A 20-year CA veteran, Kafkarkou helped to create the "channel-preferred sales model," which aims to eliminate channel conflict. "CA needs to step up and do a better job helping VARs," he told us in an interview last year.Gary Grimes, vice president of U.S. partner management and sales, has played a leading role in rearchitecting Sun Microsystems' channel. That includes combining its various channel programs under the iForce Partner Program umbrella, changing the way Sun rewards its partners and upgrading the quality of its partner base by cutting ties to underperformers. Grimes has been with Sun since 1987, starting out as a district manager.