Most organizations have a “pyramid of partnerships” that reflects their relationship with multiple channel partners. Typically, this pyramid will segment partners according to either or both of the following criteria:
The amount of money that the partner creates for the organization.
The loyalty of the partner, as evidenced by the amount of training and certification that the partner has “bought” from the organization.
The problem with this kind of segmentation is that it completely misses out on one of the most important factors in channel performance management — relationship quality.
Research over the last 15 years by Alliance Best Practice has shown that relationship quality is the pre-eminent factor in predicting channel partner success. In short — the better the relationship, the better the results. “Better” in this context means relationship effectiveness and efficiency.
To succeed it’s important to do the right things at the right levels to develop the relationship type that you are looking for (effectiveness), and you need to do things right to succeed (efficiency).
Let’s illustrate what we mean by comparing a typical segmentation pyramid with a relationship segmentation pyramid.
Model A organizes partners by level of engagement, which is defined by the volume of sales and amount of training each partner achieves. Model B segments partners by the type of relationship they are looking for with the host company.
Model B organizes partners by the kind of relationship they have with the host company. The partners are organized as follows:
Stage 4 — Transactional: This is a “buy from” and “sell to” relationship. One partner has an attractive product or service, and the other partner wants to buy it from them and resell it as part of their offerings (sometimes called a reseller model). Business intimacy is low, and the degree of effort dedicated to this relationship should be low as well.
Stage 3 — Enhanced: One partner recognizes it can generate more profit and client/customer interest by “enhancing” the base product or service from the other partner. Enhancement can come in the form of key account knowledge particular industry sector knowledge, using software accelerators, and so on. This type of relationship is sometimes called a value-added reseller (VAR).
Stage 2 — Collaborative: If two partners have collaborated successfully on a particular product or service, they may conclude that working together in the future would be efficient and profitable. Consequently, they would create a collaborative relationship with an accompanying strategy, governance framework, and geographic scope focus. This is sometimes called “partnering on purpose.”
Stage 1 — Partnership: The highest level of interorganizational collaboration is a partnership. At this stage, both partners work together to develop common and joint business opportunities in areas that are new to both companies. The level of interaction, trust, communication, knowledge exchange, and interoperation are very high. This is sometimes called “shared risk and shared reward” relationships.
This is referred to as the TECP model of inter-business collaboration.
There are fundamental differences between both models.
Lessons from the TECP model include:
Matching the level to the intent of the relationship is critical to avoid wasting resources.
The higher up the pyramid, the greater the effort and commitment needed from both partners, but the greater the rewards.
It is the relationship, rather than the technology, that is the key determinant of alliance success.
It is important to know where the relationship is starting from.What kind of relationship would be the best fit? Not every external relationship will be a full-blown partnership.The pyramid is the shape it is for a reason. There will be more transactional relationships than enhanced, and more enhanced than collaborative. Partnerships are the rarest relationships of all. This is because both parties have to commit increasing amounts of time, loyalty, and resources to reach each new stage. Such commitment is not easily replicated many times even in the largest organization.
Organizations that don’t pay enough attention to growing key partners through the TECP value chain have organizational pyramids that are too flat and overly focused on a large number of partners that are transactional, low margin, or disloyal.
Transactional partners gain the most active focus from salespeople in organizations because they are constantly involved in unearthing or developing tactical opportunities. This doesn’t help in developing a “deeper” relationship.
Not enough companies can adequately illustrate the value of making the journey up the pyramid to their prospective partner.
Similarly, not enough companies have an accurate and robust understanding of their cost of sale for each level. (Hint: It goes down as you go up.)
You can test the hypothesis illustrated above by downloading the Relationship Pyramid Questionnaire at alliancebestpractice.com/questionnaire.
“Research over the last 15 years...has shown that relationship quality is the pre-eminent factor in predicting channel partner success.”