Optimize Your Role In the IT Channel Value Chain

Value chains are formal linkages of businesses that can foster cost reductions, improve market efficiencies, enhance customer service, and ultimately improve financial and competitive positions for the organizations participating in the value-chain relationship.

In 1985, author Michael Porter pioneered the concept of the value chain as a tool for developing a competitive advantage. It is a model for value-chain-creating activities that includes elements such as logistics, operations, marketing and sales, and service. For the buyer, value chains among suppliers can foster improvements in both the solutions they have available to them and the value they can realize from those solutions.

In the IT indirect channel, value chains are evident through the activities required to move products and services from the vendor to the end customer, using a consortium of partners that includes distributors and solution providers. Each player in the value chain contributes value to unique elements of the chain. For instance, vendors can provide R&D and product development, distributors can provide configuration and logistics, and a solution provider can forge the customer relationship, provide order management, and implement and support the product. Solution providers have always been part of the IT value chain because sales and service are two of the major activities that are part of virtually every value chain. For IT solution providers to continually grow their businesses, the challenge is how to increasingly "add value" to the components of the value chains in which they participate, and how to anticipate new roles that they can play.

Gartner Dataquest recently conducted research with both IT vendors and solution providers on a number of issues and elements that can serve to inhibit or accelerate the value chains in which they collaborate. Overall, IT vendors have made moderate progress with their channel programs relative to improving the results of the IT channel value chains in which they participate. In addition, IT solution providers have made progress with the enhanced sales and business models required to expand the value they contribute to these value chains. Much room for improvement exists for the efforts of both parties as they strive to optimize the potential of the value chains in which they jointly play.

They've Got the Power

IT solution providers must clearly define the value they add and deliver in each of the value-chain elements in which they can effectively contribute. They need to establish their value and customer relationships aside from their vendor relationships. Armed with defined value propositions, solution providers can better leverage their relationships with other constituents in the value chain, including vendors.

Solution providers must also understand that they have power in the chain, and must better leverage that power for increased opportunity. In value chains, the party closest to the customer typically assumes the power role. In many market segments, the solution provider fosters the customer relationship.

In order to solidify their positions in and optimize their contributions to the IT channel value chain, solution providers should:

* Strategize new opportunities. The ability to build an effective and comprehensive strategy for the business is critical to success. The strategy process must include the ability to regularly assess emerging technologies, markets and trends, resulting in a well-documented business plan.

* Crystallize value propositions. Determine what you want to be known for, how your value propositions remain sustainable over time and how it distinguishes you in the market.

* Build partnering competencies. This requires a commitment of resources and budget, as well as a top-down, comprehensive shift in the attitude and approach the company has toward partnering and your place in partner models.

* Narrow focus. Identify a finite and manageable set of offerings and partnerships on which to focus. By doing so, you will build competency and enhance the value you deliver.

* Conduct joint planning. Build comprehensive, multicomponent business plans focused on mutual value-chain opportunities with all of your preferred vendors. A solution provider that has narrowed its focus and defined its unique value proposition should find a willing vendor audience for this step.

* Retool sales models. A key role of solution providers in the IT channel value chain is the "sales face" for the collaborative solution. Thus, solution providers must ensure that the sales models they employ and the competencies of their salespeople are appropriate.

* Improve business operations. Gartner predicts that 30 percent of today's channel companies will no longer exist by 2007. Ineffective management will be a key cause. Solution-provider executives must either develop or recruit the skills required to ensure that the business operations of their companies are sound. *

Michael Haines ([email protected]) is research vice president for Gartner.