General Managers in emerging markets understandably agonize over which countries deserve their scarce marginal dollars – especially when times are tough. A related question that often gets less attention is which role or function within their regional organization should be prioritized for additional investment – Marketing? Sales? IT? Finance? Strategy? Government engagement? A very good case could be made for each.
After advising over a hundred multinational corporations for more than half a decade, however, I am convinced that most regional organizations are likely to see outsized-ROI across all major commercial indicators (faster growth, higher profit margins, sustainable market share capture, more predictability and greater capital efficiency) by investing in one role in particular – a role that is not on the list of usual suspects.
My investment pick is the role of channel manager. Channel managers frequently oversee 30 to 70 percent of a regional organization’s revenue. Yet all too often channel managers are selected from the ranks of sales managers and given the new (or sometimes additional) role of managing distributors, without significant guidance. (Distributors are independent companies that sell on behalf of the supplying company in a defined market.) These new channel managers carry outsized top-line responsibilities without the proper tools, processes or systems to make them successful.
Managing distributors and their sales reps is very different from and significantly more complex than managing one’s own sales team because one cannot directly control and oversee them. Yet one relies on them to do so much: represent one’s brand, overcome regulatory hurdles, set reasonable pricing, manage an opportunity pipeline, build relationships, conduct market intelligence, navigate the local culture, expand access, be financially disciplined, comply with Foreign Corrupt Practices Act (FCPA) and close deals. To further complicate matters, most distributors are distracted, splitting their time between selling on your behalf and selling for other companies in adjacent product categories.
This leads to the two fundamental challenges of channel management:
- Performance Management: How do you get distributors to continuously put forth their best effort and finest skill on your behalf, regardless of market ups and downs?
- Transition Management: How do you decide when it is time to leave a partner and switch to an alternative, and how can you transition smoothly and painlessly?
Unfortunately, most organizations do not really equip their channel managers to tackle these challenges with confidence. They do not provide an effective process for how to manage a distributor, what KPIs to measure (beyond backward-looking commercial results), how to run a quarterly-check-in meeting or what kind of support to provide. They do not explain how to set effective tone, how to encourage information sharing or how to discuss underperformance in a way that generates more than just excuses and polite promises to do better.
Asking a direct sales manager to be a channel manager with no further guidance is like asking a an old-school, battlefield military general to drop their uniform, put on a tuxedo and be a diplomatic envoy. They might do quite well, but if so, it will be due to fortunate circumstances or strong internal instincts, not because you set them up for success.
The good news is that there are strong answers to these “how” questions, based on sound principles of channel management that are proven in the real world. Across our client base, we have seen and helped our multinational clients implement these principles in every region of the world and in the B2B, B2C and healthcare spaces. As a result, they have more consistently outperformed their competitors, have grown steadily even when markets are stagnant (by grabbing market share), and have grown faster than competitors when times are good.
So what works? In our experience, each of the two challenges has three main principles, as follows:
- Performance Management:
- Measure inputs, not just outputs: Build a scorecard with KPIs that put a spotlight on improving high-priority capability gaps, not just commercial outcomes.
- Schedule collaboration, not just accountability: Commit to a transparent calendar of interactions with your partners across the year that includes various forms of partner support and interaction, not just quarterly performance reviews.
- Reward with status, not just margin: Give distributors higher partnership levels to strive for (and lower ones to fear) with commensurate privileges and consequences, not just deeper rebates or bonuses.
- Transition Management:
- Plan months ahead, not just weeks: Prepare for transitions well in advance based on a forward-looking timeline, not just as a response to crisis.
- Evaluate how candidates act, not just what they say: Examine the detail with which potential partners tailor their proposals to your needs, not just the lip-service they pay to your goals.
- Treat outgoing partners graciously, not just efficiently: Avoid turning a former ally into an enemy by taking their concerns into account even during an exit, not just abiding by contractual rights.
These six principles may seem straightforward. In fact, many of them will sound familiar from a different field – that of HR (e.g. how to hire, fire, motivate, develop, reward, plan, promote). Talent management practices cannot be imported directly to guide the channel manager, but they are cousins of what works for channel managers.
Intrigued? To really unpack these principles, we need to go beyond their slogan to their substance. Therefore, this is just an introductory blog post in a series. In subsequent posts I will unpack each of these principles one at a time with detail and examples. Stay tuned!
Finally, if you are saying to yourself, “This is exactly what my commercial organization needs to work on. I cannot wait for a series of blog posts. We need some assistance now!” then please feel free to contact me at email@example.com. I’ll be happy to discuss FSG’s resources and advisory support that we deploy across the channel management lifecycle to help our clients drive superior and more reliable commercial results in tough markets.