When we last left our action heroes, we hypothesized that the channel must modernize its model. But why? The channel appears to be doing just fine, thank you. So why is there a need to modernize the model that has worked so well in getting products to market; that is, deployed, financed and supported in data centers across the global?
Three reasons – 1) customer needs have changed; 2) as a result, the pace of technology development has accelerated; and 3) all this taken together has started to negatively impact channel profitability. Let’s take a look at each of these more closely.
Customer needs have changed. In the words of Michael Dell at Dell World 2018, “Every customer I meet is reimagining how they use technology in every aspect of their operations to drive growth, new business models, customer relationships and new products and services. Technology is now at the very top of the agenda for business leaders everywhere. Because today, technology strategy is business strategy.” Customers have bought into the promise of Digital Transformation and their IT strategies and processes must adapt accordingly.
Rapid changes in technology. With customers demanding anytime, anywhere access to data and rapid deployment of applications that generate the business outcomes they want, legacy architectures and traditional app dev models have given way to software-defined hybrid cloud architectures and agile development models. This has prompted the emergence of many Emerging Technology solutions, many of which the channel doesn’t know about, nor does it have the time to find out.
These changes have begun to impact channel profitability. As sales of legacy hardware/software products flatten out, it is a challenge for distributors and resellers to organize, enable and incentivize its sellers to sell business outcomes vs. products. While the channel has done a commendable job of developing practices and capabilities to support higher margin business, it has yet to show up in their income statement. A quick spot-check of a handful of distributors and resellers reveals that gross margins declined an average of 40 bps in 2017 as compared to 2016. That is telling – and impactful – when legacy revenues begin to flatten.
Technology strategy has now become business strategy. Customers are demanding rapid time to benefit for new solutions. And new, more complex technologies have emerged to drive these business outcomes. So the race is on. How fast can you go? Talk to us at Vation. We can help with strategies that leverage Innovation at scale.