Pressure, Pressure

Chris Pyle, president and CEO of Champion Solutions Group in Boca Raton, Fla., one of the top VARs in the country, has seen a troubling trend lately: increasing margin pressure on complex IT services.

STEVEN BURKE Can be reached at (781) 839-1221 or via e-mail at sburke@cmp.com.

Pyle is seeing CFOs or purchasing agents in large deals applying intense pressure not only on hardware, but on complex IT consulting—including design of a central reservation system and application infrastructure. "It's some really intense stuff," said Pyle, calling it the "Wal-Mart school" of purchasing. "It's pretty amazing." Pyle said he has seen purchasing step into three large deals recently, pitting competing solution providers against one another on what has typically been viewed as high-value-add solutions. Pyle, by the way, is not alone. Other VARs are seeing the same trend.

Pyle's experience is a clarion call for solution providers and their vendor partners regarding partner profitability. Clearly, the profitability issue is a two- sided coin. VARs have to make sure their costs of sales, services utilization rates, etc. are in line, while vendors must make sure they are building a profitable channel that can deliver a high level of customer satisfaction.

CRN's sister division, the Institute for Partner Education & Development, is doing its part to help drive partner profitability by teaming with solution providers on a series of Profitability Benchmarks aimed at showing them how they stack up against best-in-class solution providers. The project arms them with a free personalized profitability benchmark with specific recommendations on how to drive their performance in key areas of their businesses.

The partner benchmarks are a start. There also is a need for vendors to look more closely at the profitability of each and every sale that goes through their partners and through their direct sales force. The dirty secret is that the real profitability problems are coming from vendors competing with their own partners in every nook and cranny of the market. That is why a rush of solution providers are transforming their businesses to provide complete managed services for their clients on a monthly subscription basis rather than the old-world IT project school where they face competition from so-called vendor partners.

Are you seeing services margin pressure? Let me know at (781) 839-1221 or via e-mail at sburke@cmp.com.