Welcome back to our blog series on Channel Lifecycle Management! In the first post, The Neglected Art of Channel Management, I outlined three principles of best practices in distributor performance management: measuring inputs, not outputs; scheduling collaboration, not just accountability; and rewarding with status, not just margin. The first of these principles is the most foundational. In this post, I will explore in greater detail why it is so vital to build a scorecard with KPIs that put a spotlight on improving high-priority capability gaps, not just commercial outcomes.
The fundamental problem multinational corporations need to address is that they have very limited visibility into how hard and how intelligently distributors are actually working on their behalf. Most channel managers (CM) are familiar with the following conversation with a distributor (D), taking place at a typical quarterly performance review meeting:
CM: It looks like you hit only 74 percent of last quarter’s revenue target, and only 82 percent of the sales target for our new product line.
D: Yeah. It was a tough quarter.
CM: So tell me what happened, and how are you planning to make up the difference next quarter?
D: It’s a perfect storm! As you know, the country is experiencing an economic downturn – I’ll bet sales are down for our competitors too. Also, as we discussed last time, your prices are not that competitive. Finally, my sales reps are telling me we could have used more customized marketing support from you around that new product launch.
The astute channel manager will notice that none of the reasons the distributor gave for its performance last quarter were controllable by the distributor. All of this is quite convenient if the distributor does not want any blame for the performance shortfall. Now the channel manager has to decide: do I believe the distributor? Or are they just making excuses for their organization? Perhaps they have been distracted by focusing on selling another company’s products, or not working that hard, or experiencing talent-related challenges.
The problem is, the channel manager has only limited visibility into the distributor’s internal conditions and external reality. This kind of quarterly check-in conversation is a deadlock that results in the channel manager having to take a high-stakes gamble one way or the other – threaten or forgive – or quite often, just back off gently.
This deadlock has played out for channel managers across FSG’s client base, whether in the healthcare, industrial, consumer, or technology spaces. It is a pernicious and universal challenge and a natural part of choosing to work with distributors.
Short of switching to a direct sales channel model, how can this deadlock be avoided, turning check-ins into useful conversations that drive the distributor to take responsibility for its commercial outcomes, and to continuously improve?
The answer, demonstrated across our client base, is to “measure capabilities, not just outcomes.” Capability development is unique because it is controllable by the distributor. At check-in, either they took the agreed upon necessary steps, or they didn’t.
Did they make necessary hires, conduct promised exercises, explore market reach expansion, upgrade their opportunity management approach, invest in brand-building? If not, why not? If over time persistent gaps demonstrate a lack of effort, the channel manager can start preparing a transition to a better partner. If the gaps are due to strong efforts that nonetheless fail – i.e. a skill or process design problem – the channel manager can step up targeted coaching and support.
Capability development metrics also carry the advantage of being a leading indicator of performance, while quarterly results are simply lagging indicators of past investments.
So far so good.
But how do companies actually design effective quarterly scorecards with both commercial and capabilities metrics, without becoming too complicated? And beyond design, how do companies best introduce the concept of a scorecard to their distributors?
In the last few months, we have helped FSG clients to tackle improving their distributor scorecard design in Europe, the Middle East, ASEAN, and Latin America. We have identified five principles of effective scorecard-building, including how to prioritize which capabilities to focus on first, and how to convert qualitative needs into concrete metrics – we will be happy to share more about these lessons learned in a conversation with anyone who is interested.
Furthermore, we find that while many distributors appreciate the added attention and support, others respond with distrust over perceived intrusiveness into how they run their business. We help our clients roleplay how the channel managers can best introduce the scorecard to their partners and articulate it in a way that shows how the scorecard will be beneficial to them, not threatening.
Those of our clients who have launched new scorecards have found them to be powerful performance management tools, building a habit of continuous improvement, with more sustained growth over time due to the improving capabilities of their partners, rather than just the ups or downs of the market.
If you would like to learn more about the library of scorecard metrics FSG is developing, or the ways in which we support our client teams with scorecard-building workshops and engagements, please don’t hesitate to contact us at firstname.lastname@example.org.