IBM: We Quit Synnex To Streamline Channel, Go Global

Antoun spoke Tuesday with Scott Campbell, Assistant News Editor of Everything Channel, about the reasons behind the move and what's next for IBM. The following are excerpts from the conversation:

What were some of the reasons behind IBM's decision to deauthorize Synnex, and are there any further changes planned for IBM's channel and how will they impact solution providers?

Let's look at a really macro level first. We looked at our business performance around System x, our x86 architecture line, for the last 12 to 18 months and we have a really significant desire to become a more significant vendor to our distribution partners, more significant and more relevant to where we are today.

One way to grow the business much faster is to look at the market dynamics. We also felt another approach is to become more relevant more quickly to a fewer number. Do I need five distributors in the U.S.? If so, why? Can we capture business with less capacity to increase our relevance more quickly? There was a strong desire to become more relevant more quickly.

Our analysis looked at how many distribution partners we had in the U.S. vs. the size of the pie. Through that analysis, we felt we have excess U.S. capacity in distribution and that we could reduce that capacity without negatively impacting the business. That got us to the next decision, which was deciding who we wanted to go with. We concluded that we would concentrate on distribution relationships on a global basis, not just where we do business in the U.S. So we stayed with Arrow [Electronics], Avnet, Ingram Micro and Tech Data.

Is the Synnex decision part of a bigger change in strategy surrounding the System x portfolio?

There is a much more extensive investment in x86 going forward. We are increasing coverage for our resellers, streamlining processes around enablement, skills and education. This [Synnex] decision is part of the big picture. We are using the relationships with distributors to reach a larger number of resellers and be more effective at enabling them. We're starting to get into allowing distributors to have delegated pricing on our behalf. I don't need to have resellers call me every time they need a price to win a deal. We delegated the distributor as a way to speed up the process. We're relying more and more on [distributors] to help with reseller enablement.

Is part of that change compensating distributors for more than just sales out? For example, will their recruitment and enablement of new partners be part of their compensation now?

We all know distribution is a very important route to market, especially for [logistics] and financing for the reseller community. In our view, a third [facet] is reseller enablement around, 'Do they have the right skills and education for resellers, the right tools to get to customers?'

For example, one of the things that has been incredibly successful for us is the ability to allow [solution providers] to perform server consolidation and virtualization studies for the end user. A number of years ago we developed an effective tool for partners to get trained to put that tool on the infrastructure of the client and gather information, such as, 'You have this many servers, here's your utilization, you can reduce costs by consolidating.' That tool allows partners to come out with a recommendation for a server consolidation engagement. Now we are relying on distributors to do that on behalf of solution providers who don't have the arms and legs to do it.

That gets me to a final point, on recruitment. We believe in our world it is a joint responsibility. We can do recruitment of new partners but we also would like distributors to do some recruitment. Now we want to try to make sure we have a partner coverage map. In a given geography, is it sufficient? Are there gaps in a certain city? We can turn our attention to distributors to recruit on my behalf.

How many System x partners do you have now and is there a certain number you're trying to get to?

I don't have an ideal number today. We have our System x reseller community measured in the thousands. It's not that we're looking to go increase it by 5 or 10 percent. We are going through a process to determine if we have the right partner coverage for our team to make our objectives. For example, we may not have enough coverage in Cleveland. We will work backward from there, with our expectations of revenue and such, we may determine I need five partners in Cleveland. From there, we go back to partners to analyze their portfolios, their storage consulting, what they're doing around virtualization. Our distributors will help us do that recruit. It's not a number-targeted approach; it's a coverage model approach.

Does that mean you could also be looking to replace or upgrade solution providers who may not be meeting your performance expectations now?

Through our PartnerWorld initiative, we segment our partners into member partners, advanced and premier partners. The difference is the size of the relationship, not the size of the partner. It's based on revenue, the commitment to a certain number of IBM resources, commitment to education, how much are they investing in demand generation. We have performance metrics, and you have to commit to A, B and C. If you don't accomplish those goals, you can't move up. It is through that performance grade that we go through the process of measuring partners. There are those partners, whether jointly or not, that feel they're not providing us with what we need, or they may feel we're not providing them with what they need. Through that joint discussion, we go through that normal hygiene of gaining and losing partners.

Is there anything different to that process due to new changes in your channel relationship strategy?

The only thing that is new is a great deal of intensity and focus on our remaining distributors. If you have excess capacity in distribution, why go invest and recruit more partners? Everybody waits for someone else to do it. If you reduce capacity, you can get more disciplined and focused on the right recruitment and enablement.

How have distributors reacted to having more control over special pricing proposals that come up?

We've been doing it since the middle of the first quarter this year. Feedback, including from Synnex, we are getting is tremendously positive. They are much closer to the action of the resellers. We feel this is the most effective way to have the right pricing to win.

Some solution providers have criticized IBM this year for losing focus in the SMB market and they've wondered aloud if IBM is slowly backing out of that market. Can you address their concerns?

The volume of our small to midsize deals is huge. Using distributors allows us to be faster to the reseller. That was a topic earlier in the year, when we announced we were licensing the technology to Lenovo. We took the time to educate partners and end users. We said back then that we weren't getting out of the market and that hasn't come up to me after the Synnex [announcement]. Our message is the same today. We are very committed to this market. We still get a significant business from 1U, 2U products. It's a significant business to our partners and customers.

So the low-end server and storage market will continue to be important to IBM?

Yes. Earlier in the year, we went out to the partner community with an aggressive, bold strategy. We said for servers and storage in the midmarket, our primary route to market is through business partners. There are hundreds of thousands [of end users] and they like to buy locally. They also buy solutions that may require some non-IBM pieces, such as Cisco [Systems] networking gear or third-party software. We've elected exclusively to go to the midmarket through partners.

How are you helping Synnex's solution providers transition to another distributor?

We told Synnex, and we said the same thing to partners, the reseller community that today acquires its products and solutions, reached out to them and stressed to them that we would help them. Some of them have already asked for assistance for introductions [to other distributors]. Most have multiple relationships with other distributors already, but some required some assistance. That's what we did. We made the connections.

Your four remaining System x distributors divide along two lines. Avnet and Arrow sell a lot of enterprise-focused IBM products through a closed model, while the majority of Ingram Micro and Tech Data's IBM sales are through an open model. Can this model co-exist?

To be candid, we haven't asked if they preferred open or closed. We have decided that the right model for System x for our resellers and end users is open distribution. That is different than enterprise servers and storage for Arrow and Avnet. But we have elected to stay in an open distribution model. That's a critical part of our success.