The Money Crunch

In addition to having a credible product line, which boasts new Wi-Fi enhancements and a commitment to increasing product sales through organizations like yours, Symbol has something to offer that may be as valuable as anything in its product arsenal or partner program: an internal, behind-the-scenes compensation program that works on your behalf.

Symbol, which once generated almost all of its sales directly, now does half its business through partners. Its stated goal is to generate 75 percent of its revenue through allies by the end of this year. To make that happen, the company has radically altered the way it pays its internal sales personnel. For every sale they help funnel through a Symbol business partner, they get 125 percent of normal sales compensation. That's right: They get paid more when other companies help close and fulfill any deal.

Without such a plan, there would be no way the company's sales force would change its ways, explains Symbol CEO Bill Nuti, a former Cisco senior vice president who witnessed firsthand what a similar plan did to transform the San Jose, Calif., networking-products company's sales mix. Like Symbol, Cisco once generated the overwhelming majority of its sales directly. Now 80-plus percent of its business is done through partners. Granted, several other changes at Cisco helped lead to that reversal, but internal compensation has had one of the most profound impacts at the company, says Paul Mountford, a former colleague of Nuti's and Cisco's current senior vice president of worldwide channels.

In this feature, we examine the little-understood world of vendor compensation plans and how obscure and often ambiguous policies you may never have considered impact you. We look at which executives and sales forces are compensated to work on your behalf and how far across an enterprise that commitment extends. What we found may surprise you.

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A New Bottom Line
Internal compensation plays a vital role in determining whether a company is ultimately channel-friendly. Like the little-understood role that government and law often play in a national economy--what famed economist Adam Smith referred to as "the invisible hand"--compensation policies are silently and invisibly working either for or against you at the major vendors your company depends on.

At Cisco, Doug Dennerline, senior vice president of enterprise and federal sales, has mandated that members of his direct-sales management team attend meetings to better understand Cisco's go-to-market channel strategy, including its return-on-investment capital-profit enhancement program. This quarter, he also implemented a sales-incentive bonus for direct-sales personnel that is tied to Cisco's regional-planning initiatives involving partners. To his colleague Mountford, that's key to making teams work with sometimes differing agendas.

"Unless the underlying math tallies in favor of business partners, it's nearly impossible for a vendor to present itself as a truly partner-friendly organization," Mountford says.

Microsoft realized that as well, more than a year ago, and it did something remarkable. For the first time in the company's history, it decided to factor channel commitment and satisfaction into executive compensation. And not just for those who worked in and around channel sales and marketing, but for executives far removed from day-to-day partner operations.

The move coincided with the appointment of Allison Watson as vice president to run channels. In the time since Microsoft CEO Steve Ballmer appointed Watson, partner satisfaction has increased across the board, according to our own Annual Report Card (ARC). Last October, Microsoft garnered more wins in our ARC survey of partner satisfaction than any other company save for IBM, which competed in several more categories than Microsoft. In all, Microsoft was recognized for having the best partner satisfaction in enterprise operating systems, Web- and application-development tools and database software.

Watson says the compensation plan will likely help keep the company focused on winning more awards. Recognizing that they will not qualify for maximum compensation without partner buy-in, product managers and software developers are thinking about channel strategies like never before. They are instructing their teams to begin making partner concerns a higher priority. The company has even created a "heat map" that tracks the number of technical support calls from solution providers. If those calls don't decline, these managers will feel it in their wallets.

Similar goals have been set by other companies.

"In our case, Bill Nuti sent a message throughout the company that our channel wasn't just an extension of our sales force, but also an extension of our product-development and logistical capabilities," says Jan Burton, vice president of worldwide channels at Symbol.

Case in point: At the end of the fourth quarter, Symbol's management team monitored the earnings calls of all its publicly traded distributors. Turns were up, the team noted, thanks, in part, to a decision by the company to simplify its product portfolio--a decision reached after the channel-sales team impressed upon product development that they needed to simplify the portfolio.

Unfortunately, not all vendors are getting the message just right. This year, two lucky Qwest direct salespeople got to go to the SuperBowl. But that's only the half of it. Turns out the two--who were showcased recently at the company's partner event--won the trip for two deals they sealed with partners. The partners, however, were not invited to Houston.

The point of the story? Some companies still need to work on baking partner concerns into their total strategies. After years of trying to increase sales, Qwest's indirect business is still just a fraction of its overall revenue. One big reason: Channel sales are simply not coordinated with internal compensation and senior management thinking to the degree they could be.

It's that way at many companies. At Oracle, for example, Rauline Ochs, whose channel pedigree runs deep, didn't even meet CEO Larry Ellison prior to being named group vice president of channel efforts. So is it any wonder Oracle routinely rates low? Hopefully, Ochs can change that.

In contrast, Cisco is baking in channel concerns into everything it does. Take the company's Value Incentive Program (VIP), which rewards partners for helping to accelerate the adoption of Cisco IP telephony (IPT) and security technologies. In the second half of 2003, VIP sparked a surge in IPT products of nearly 30 percent and a jump in security-product sales totaling nearly 15 percent.

As a result of these and other changes, Cisco partners have seen a jump in profitability of more than 10 percent, according to the company. Mountford, for one, says the program would not have been possible without management buy-in.

So far, the program is getting positive feedback from partners.

"Cisco's VIP added the boost resellers needed to justify greater focus on selling advanced technologies in 2003," says David Stelzl, president and CEO of Stelzl Visionary Learning Concepts, a Cisco VAR. "This program has brought greater profitability to the sale of security products and services that are commoditizing."

Treating Partners Right Is Key To Success
When Samsung's Gregg Prendergast became vice president of sales for the commercial channel last fall, he was sure he would need to control channel marketing and programs. Partners made up 95-plus percent of Samsung's sales, so he was surprised to learn that Rey Roque, the vice president of channel marketing, was not a direct report.

"Ninety days ago, I would have said channels report to me--not out of ego, but out of a matter of practicality and accountability," Prendergast says.

What he's learned, however, is that it's how individual business groups are incented through internal sales policies that matters. In Samsung's case, which hit the highest level of partner satisfaction ever in the 2003 VARBusiness ARC, compensation is tied to how many VARs generate at least $10,000 in sales per month.

Conversely, Sun Microsystems found that cutting partners during the dot-com era was a bad move. So it replaced its worldwide head of sales and reinstituted channel-friendly policies. Sun's partners say things are improving. "Every organization has stovepipes," says Gary Grimes, vice president of U.S. channels at Sun. "The company that can integrate those without compromising individual things is successful."