‘Silver Bullet’ Incentives Rarely Produce What You Think

By Larry Walsh

Channel teams are under constant pressure to drive partner performance, which is why they often seek ‘silver bullet’ incentives to address their challenges. Unfortunately, no one factor can resolve all channel problems.

While working with a global channel management team, a senior member of the group posed an intriguing question: How can you measure the effectiveness of an individual incentive? This question is particularly interesting because the channel is filled with companies and individuals who promote the notion that “their thing” is “the thing” that will solve all your problems. The technology industry is predisposed to chase the “low-hanging fruit,” or the problems and issues that have the simplest and fastest solutions with measurable impact.

In some circles, this is seen as the pursuit of the 80/20 rule (formally known as the Pareto Principle), where you resolve 20% of the issues that will yield 80% of the benefits. Once this is accomplished, you can repeat the process, identifying the next 20% of the problem.

The shortfall, however, is that the tech industry and the channel often don’t view problem-solving as a continuous improvement process, but rather as a quest for quick fixes, akin to “set it and forget it.” In the channel, this often manifests in the form of incentives. The belief is that if a vendor can offer partners “that one thing” that will lead to increased productivity, everything else will fall into place.

Not only is this belief a fallacy; it’s never been a truism.

All partner programs are built around a series of “gives-to-gets.” The vendor “gives” partners something — discounts, rebates, market development funds, free training, sales support — in exchange for the “gets,” a return on that investment in the form of revenue and profitability. From a vendor’s perspective, the channel’s purpose is to provide the scale of market coverage and resources to increase sales capacity and generate revenue at a lower cost than required with direct sales. The “gives-to-gets” are the fuel that powers that engine.

Consider this scenario: A vendor has successfully operated a partner program with common incentives and resources for several years. Then growth slows and sales slip. The solution must be another incentive to stimulate partners to take action. So, the vendor offers a rebate, and sales start to climb.

Is it reasonable to infer that the rebate is responsible for the sales growth? Perhaps, but consider these other questions:

• Did the economy pick up steam around the same time as the rebate went into effect?
• Did the time of year (seasonality in sales) coincide with the rebate?
• Did you also offer other incentives and support to partners?
• Did a team outside the channel organization offer partners an additional incentive to stimulate sales?
• Did competitors have a supply chain or inventory availability issue that made your products more attractive?

We know that ease of doing business and the relationship between partners and their respective account managers have a greater impact on channel productivity than financial incentives and performance rewards. That’s not to minimize the importance of partner program benefits. Rather, it’s recognition that rarely is just one thing responsible for driving partner productivity.

The dilemma that channel managers face is time. Despite persistent talk about addressing market needs, delivering high-quality customer experiences, and demonstrating value through consultative sales and engagement, most companies are bound by quarterly revenue performance. Nothing else matters if you don’t make the number.

This means channel teams often don’t have the luxury of time to address the big issues — policy changes, process management improvements, resource automation — that stand in the way of their partner productivity. If an improvement that results in a 15% increase in channel productivity takes 12 months to implement, a rebate that could deliver results in the next quarter will often be seen as a more attractive solution.

Looking at channel management and performance holistically is difficult and taxing, but it’s worthwhile over time. Vendors that commit to a continuous improvement lifecycle that produces meaningful change, such as process simplification, clarity in partner expectations, open lines of communication, and access to effective resources, will realize the performance, productivity, and consistency they seek.

Silver bullets that address all issues and challenges exist only in movies, not the real world. Optimizing channel programs takes persistent evaluation, commitment to improvement, and a recognition that nothing works the same forever.

This article was first published on Channelnomics.com

Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert on the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide.