Cover Story
Changing the rules of Engagement
Learning from the past mistakes, IBM has formulated a new channel engagement policy to win channel confidence back
By KR Nambiar
Probably, 2008 was a year that IBM India’s channel team would rather forget. The company saw a substantial dip in channel satisfaction owing to a convergence of issues that led to a loss in marketshare in the x86 server category.
That loss was evident in the recently-conducted CRN Channel Champions Survey wherein IBM lost its server crown to HP, and was ranked behind EMC and HP in enterprise storage. IBM partners had expressed dissatisfaction over a range of issues including poor distribution practices, a confusing go-to-market strategy, favoritism to benefit select partners, and the poaching of accounts by IBM’s direct sales team. Overall, IBM lacked aggression in the market, and lost out to Dell and HP on several large deals. This led to the alienation of a number of loyal IBM partners, who then switched to HP or Dell.
And this wasn’t just in India but across the world. According to Gartner, IBM lost 18 percent marketshare in the x86 server space in Q32008, globally.
To IBM’s credit, its channel team isn’t hiding behind excuses and has admitted its mistakes. Says Anoop Nambiar, Country Manager, Business Partner Organization, IBM India, “There have been some execution problems on the ground for our x-series server business in 2008, not just in India but globally, and this affected our business. However, we have recognized the issues and are taking cognizable action to set things right.”
 True to his word, Nambiar and his team recently announced a comprehensive channel engagement policy titled ‘Principles of Engagement’ (PoE), laying out fair and transparent partner engagement rules. Explains Nambiar: “The POE framework has been drafted based on feedback from a majority of IBM partners. It aims to address all the major issues highlighted by them. It is intended to provide a framework that will lend transparency to our channel engagement, and lay down a set of rules for how we conduct business with our partners.”
Broadly, the PoE focuses on fair and transparent deal registration processes and customer account management, faster and transparent special-pricing policies, and fair lead generation and management for partners. And in order to address the growing perception of direct selling into partner accounts, for the first time IBM India has come out with a list of named accounts that it will do business with directly.
Nambiar promises that IBM will streamline its channel policies and make investments in its channel business over the next 12 months. “Unlike the competition, we are not talking of adding or doubling partners. We have doubled the numbers of partners with whom we do business from around 800 in 2007 to around 1,600 at the end of 2008,” he explains.
Vendor-channel conflict
Many IBM partners believe that the company has come out with the PoE at the right time because channel dissatisfaction was growing. The PoE will help provide clarity to partners in engaging with IBM and will lower vendor-channel conflict.
One of the loyal partners who switched to HP because of IBM’s inconsistent policies is Microclinic. Says Diwakar Khatri, CEO of Microclinic, “We were an exclusive IBM partner for 10 years till late 2007, when we decided to switch to HP due to IBM’s unfair and inconsistent policies. The issues ranged from preferential treatment for a few partners to a lack of transparency in deal registration and special pricing. The vendor wasn’t even willing to listen to our grievances.” As a result, in 2008, Microclinic began focusing on HP’s business. “Somewhere we lost confidence in IBM, moved away, and aligned with HP. It was all about their policies and people. Nearly 70 percent of our business in 2008 came from HP. We converted a number of customers from IBM to HP.”
According to Khatri, a strategic mistake IBM made was to appoint sub-distributors to sell x86 servers in 2006. “This sent a wrong signal to solutions providers like us. The charm of selling servers disappeared when traders started getting better prices and started bringing down market operating prices.” Also, there was a growing perception among IBM partners that the company was increasingly selling direct, and many even accused the company of poaching their customers.
A common misgiving among IBM partners in 2008 was that due to the vendor’s lack of price aggression, they lost several large deals to Dell and HP. This resulted in a number of partners aligning with Dell for bagging large deals. “While we aligned with Dell because of a shift in our strategy to become more customer-centric, there is no doubt Dell and HP were more price-aggressive than IBM last year,” comments B Pasupathy, Regional Manager at Frontier Business Systems.
“Price clearance became a huge problem in the first half of 2008 because in many large deals IBM took 10 days to clear the special pricing,” says Sameer Mathur, Director of Delhi-based QuantM. “Also, there was significant confusion regarding their SMB strategy.”
To make matters worse, IBM’s announcement in early 2008 that it would license its x86 technology to Lenovo fuelled speculation that the vendor might exit the x86 business. Even many loyal partners of IBM admit that the competition used this opportunity to their own advantage by telling prospects and customers that IBM might soon move out of the x86 server biz. Further, the company did not act in time to communicate the right message to customers and resellers regarding its long-term commitment to the x86 business.
What added to the confusion was the reorganization of the systems business that IBM undertook in early 2008. Resources were realigned to focus on the more profitable p-series and high-end AIX business, as a result of which there was a defocusing on the x-series.
Wooing partners again
Realizing the growing confusion and dissatisfaction among its channels, IBM began a campaign to win back its partners. In the latter half of 2008, the company conducted a series of partner meets in eight major cities, and spoke to 400 partners to convey its commitment to channels and its x86 server business.
IBM blames its competitors for carrying out a disinformation campaign and telling customers that it was exiting the x86 business. Complains Ajay Mittal, Vice President, Business Systems, IBM India, “The competition did immense damage to channel and customer confidence, and we had to restore it. IBM is committed to the x-series business. We are not even getting out of the single socket tower server business. Around 58 percent of the global server market is on the x86, and it’s poised to grow. Do you think that as the biggest player in the IT infrastructure business globally we’ll exit the server business?” he asks, adding, “We have announced huge investments in developing the x86 server technology.”
Nambiar stresses that IBM’s sales of entry-level servers have not dropped even after Lenovo entered the Indian server market. “On the contrary, Q42008 was our best quarter last year, and we have regained the server market crown as per IDC reports. The Lenovo licensing deal has not really affected our numbers even after Lenovo entered the market. We are trying our level best to change the wrong perception of partners and customers.”
Responding to partner accusations of increased direct-selling by IBM Nambiar clarifies, “We admit there was confusion a year or two back regarding this. We have a direct business model, and we have accounts where we do commercial transactions directly and not through partners. However, our direct business is a small proportion of our channel business, and is much less than the direct business many of our competitors conduct. What led to the misconception was probably the lack of a clear named account policy. But with a clearly defined PoE now, this misconception should be addressed. Today, IBM sells directly to just about 210 accounts across the territory. Some of them are jointly shared by partners, and many of these are our global accounts.”
Adds Jyothi Sathyanathan, Vice President, IBM.com India, “There is also a strong but wrong perception that IBM.com is aimed at going direct in the SMB space, when actually it is a lead-generation team for our channels. We track almost 45,000 potential customer leads, and a majority of these enquiries are passed on to our partners, except those from named accounts.”
IBM.com has a 60-member team comprising tele-calling agents who call prospective customers for business, and other agents who validate these opportunities and nurture them. “The IBM.com team also co-ordinates with other teams to ensure that partners get the necessary pre-sales inputs to close the business,” informs Sathyanathan.
Apart from this team, there’s also a Partner Sales Service Center (PSSC) team that consists of 10 agents who support partner enquiries and handhold them. “PSSC has a toll-free number, the mobile numbers of agents are provided to partners, and these agents assist partners in all aspects of the business. Currently, 15-17 percent of our x-series and blade center business is managed through the PSSC team,” reveals Mittal.
Sathyanathan categorically denies favoritism in sharing leads with partners. “IBM.com generates around 70-80 leads everyday. These are validated and handed over to partners based on our Lead Pass Decision Engine, which is an automated system. This doesn’t leave any scope for favoritism. Under this program, partners are expected to report back on the lead passed, and the sharing of future leads depends on their success ratio.”
To make the deal registration and special pricing process fair and transparent, IBM says it has set up a Web-based Online Price Request Application. “Partners can use this tool to register deals and get special pricing. The response time is usually less than two days. Initially, partners had difficulty in using the tool, but now it has been made user-friendly,” says Nambiar. He further stresses that “all special price requests are responded to through a documented process and no verbal commitments are allowed. This further negates any possibility of local managers showing favoritism.”
2009 roadmap
The company is betting heavily on a new mantra—Dynamic Infrastructure. “IBM has taken on the mandate for change, and one of these mandates is the creation of dynamic infrastructures to help enterprises reduce cost, improve service and manage risk,” explains Mukul Mathur, Director, Systems & Technology Group, India & South Asia Region, IBM. “We are assisting some of our partners to manage business opportunities, and are equipping them to handle technologies such as virtualization and cloud computing through this initiative.”
Five partners have already been signed on, and Mukul Mathur stresses that the numbers are going to grow. The SMB focus is expected to increase, and building awareness of IBM’s product offerings among small business remains important.
“Our SMB initiative, which was launched two years ago in smaller cities, is bearing fruit now. IBM today has sales and support staff to cater to the needs of partners in 13 cities. This SMB push has resulted in better acceptance of us among partners in smaller cities,” informs Nambiar. Agrees Mathur of QuantM: “The SMB focus has definitely increased, and the recall for IBM in places like Ludhiana is much better now.”
In Bangalore IBM had set up a solutions center, but Sathyanathan feels that this was perhaps not best utilized by the channels. “We have this state-of-the-art center where a customer can experience and feel best-of-breed technology. We wish that channel partners invite more of their customers to experience and utilize the facilities. The conversion rates of our solutions center guided tours are above 60 percent.” IBM is welcoming partners with customers with definite opportunities around $100,000 and above to use the solutions center.
Software and services are also going to be focus areas in the coming fiscal. “We will have a dedicated person to handle opportunities in selling services through channels. Initially, we are looking at our security and data migration services,” says Nambiar. “Software is again a key area, and quite a few partners have shown interest in selling the Tivoli, Lotus, Websphere and Rational product range.” Integrated Server/Storage, and Modular Data Centers (less than 2,500 sq ft) are other solutions which are being packaged for sale through channels.
Meanwhile, the IBM team is wary of the threat from HP which is increasingly empowering its partners to focus on enterprises. Dell is also reported to be offering special prices to its partners.
IBM is countering these challenges by investing in more people to address channel issues and beefing up some key teams such as PSSC. “We are recruiting more people for the PSSC. We’ll have more people on the field listening to partners and supporting small transactions,” says Mittal. |