The channel has been faced with various challenges in recent years that has directly impacted the finances of those operating within it, including a tumultuous political and economic landscape, security and the need to transform business models to meet changing customer requirements. As such, it’s increasingly difficult for companies to be singular in its approach to collaborative working.
Trying to operate a business that is entirely self-sufficient rarely works. The significant strain that this places on an organisation’s time, resources and finance, to name a few has resulted in businesses proactively looking to enter into partnerships with their peers. It goes without saying that this can have significant operational and financial benefits to all parties.
Perhaps there was previously some scepticism for companies to enter into one or multiple collaborations with other organisations. The customer-sensitive and protective nature of the IT channel meant that closely working together could foster a competitive streak between two or more companies who were always looking to deliver more services under its remit, ultimately making its overall proposition more attractive.
For larger IT channel players, the level of collaboration with partners that offer a bespoke, proven and experienced solution - which the channel company did not have under its remit - has evolved considerably. As revenue from other streams of the business has increased, so has the appetite for acquisitions. In recent times, channel businesses have increasingly grown into a position of acquiring specialist companies and subsequently rebranding them, utilising the existing skills and essence of the company and offering it under a larger umbrella of services.
Yes, the competitive spirit of the channel is still healthy and strong; after all, this pushes companies to continue to innovate for their customers in order to remain relevant. However, regardless of size and from a financial and strategic point of view, adding more strings to an organisation’s bow will always make complete sense.
Whether the objectives of a partnership is to utilise an existing skill set, offer more services and solutions or introduce new revenue streams, the financial benefits are clear. Recent research has revealed that, on average, over £121,000 of a channel business’s revenue comes as a result of utilising skills from partnerships with other companies. From those channel providers surveyed, this equates to a quarter of all services revenue, on average.
When scaled up and down, this represents a significant portion of a company’s overall earnings. Clearly, without a degree of collaboration with other companies, businesses would struggle to survive, let alone continue to grow and prosper. Businesses entering into collaborative partnerships is having a growing significance, with nearly two thirds of channel businesses looking for new companies to partner with in the coming years.
Furthermore, the majority of channel leaders are entering into partnerships because it is more cost efficient, further emphasising the benefits to channel organisations of white labeling their services or entirely outsourcing solutions to third-party providers. This is all-the-more important in the current financial climate, where margins are being squeezed ever tighter and overheads are creeping upwards.
Although businesses may be taking a short-term view towards collaboration, the potential for long-term financial gain can open up a plethora of new opportunities. Recent channel collaborations have demonstrated how a single business’ network of partners can rapidly snowball once they enter into new partnerships; using existing relationships to source new business can have a profound effect on revenue generated outside of the company’s core services. This will ultimately make the business increasingly attractive in retaining and securing new business.
The best way to assess how a business can increase revenue from channel collaborations is to look at the needs of the customer. The need for firms to provide an increasingly flexible service, adapting to the way in which customers consume services, is crucial; they no longer want to be tied down in long-term fixed contracts which gives them little option to scale up and down.
Within the channel, this has largely been facilitated through an outcome-based service delivery model, necessitating an expensive transformational shift. With both existing and new-to-market providers needing to assess how they adapt and operate, ‘traditional’ vendors must develop their proposition. This could be changing the way in which they deliver in-house developed services or reaching out to potential partners.
Achieving this change and growth may leave channel businesses with no option than to enter into increasing partnerships. However, there is some scepticism in the channel to embrace this. Not every company currently collaborating with another service provider are comfortable with informing their customers that some services are being delivered by a third-party partner.
This could be due to a number of factors, such as a fear of appearing weak or uninfluential in the IT channel, or not being able to keep up with the demands of the customer. Furthermore, over two thirds of channel operators occasionally inform customers that their services are delivered through ‘white labelling’ and by another provider, depending on the nature of the partnership and the customer.
The IT channel in 2018 realises that to fulfil its agreed Service Level Agreements (SLAs), organisations must enter into multiple-vendor partnerships. Strategically, it’s wiser to utilise the existing skills within another company; customers will always recognise the advantages of doing so and how it enhances its attitude and positioning in the market.
In a channel landscape where financial pressures are always present, research shows that over a quarter of the revenue in a channel business is generated through the utilisation of skills from other companies. The channel has always taken a glass-half-full approach to delivering an enhanced, customer-focused service; it’s no surprise therefore that the number of these partnerships are forecast to increase exponentially.
Although this may provide short-term pain to a company’s finances, they should take the plunge and commit to a new way of working to reap the long-term benefits.
Donna Simpson, Finance Director at Agilitas
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