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How do you get you direct and indirect sales force to work harmoniously and effectively together? In this article, channel consulting company, Channel Enablers discusses some Best Product Distribution Practices.

The technical and distribution strategies of a vendor usually dictate the establishment of a structure that includes direct salespeople, reseller specialists, technical resources, and often marketing support people. The exact relationships of these individuals and the resulting reporting structures are a key decision for high-tech vendors. In many cases the decisions made about organizational structure and reporting responsibilities are early indicators of channel program success (or failure).

In most some traditional high-tech companies direct sales is the dominant culture, and the reporting structure is created to support and enhance direct sales activities. As a result, it is especially difficult for traditional vendors to make the necessary transition to a more effective indirect model - which requires more flexibility and high levels of cross-functional communication. Even when the decision is made to make direct sales managers more accountable for partner success, actually changing the culture is like trying to turn an ocean liner. (It takes several miles for the ship to turn -- and not everyone will still be on board when the trip is resumed.)

Smaller and newer vendors do not have the same difficulties as larger traditional vendors. Their problems usually come from their lack of experience with partners and not having a clear direction or goal. A common attitude among smaller vendors is "let's organize the field sales force quickly to work with partners, and we can make changes if necessary." Unfortunately for these vendors, changes turn out to be difficult once the organizational structure has been established.

Observations about Organizing the Field Sales Force

1. The traditional role of direct sales is not optimum in a high-tech market where nearly 70% of all products are sold by resellers or other alternate channels (telesales and Internet). A corporate culture dominated by direct sales is not well suited for success in the mid marketplace.
2. For successful mid-market vendors the distinction between direct and indirect sales activities is blurred. Sales Managers work with both end users and partners and have mixed quotas. However, these field managers control all the resources that they need to make partners successful in their territories, including marketing resources, technical support, and sales assistance. Consequently, this structure is associated with high-growth companies that have strong partner programs.
3. The partner/vendor relationship is most influenced at the local level, regardless of the indirect sales reporting structure. The attitude of the sales manager is the most important indicator of partner relationship success. (Many corporate marketing managers do not acknowledge this important reality.)
4. Direct salespeople in traditional companies do not usually receive clear directions from their managers on how to work with partners. Since they take their cues from their sales managers, even more than reacting to their compensation plans, this lack of direction usually causes direct salespeople to try and maintain the status quo.
5. At a typical high-tech company about one-third of field sales resources are dedicated to helping resellers, i.e., 33 people are dedicated to reseller activities in a field sales force of 100 people. Hardware vendors spend slightly more field time with partners than software vendors.
6. There are a variety of reporting structures in place to manage partner business. Hardware vendors tend to bring direct and indirect sales together at the field level (district sales management) and software vendors at the regional/national level (stovepipe sales management).
7. Channel-neutral compensation plans have become a requirement in the mid market. All vendors with serious partner programs have some kind of channel-neutral compensation plan that fully compensates salespeople and their managers for sales through partners. (Software vendors are more liberal in their sales crediting policies than hardware vendors.)
8. Compensation plans for direct salespeople in companies that work with partners are usually based upon actual net company revenue -- as opposed to calculated revenue (constructs) or MBO plans. Most compensation plans allow two salespeople (usually direct and indirect) to earn 100% of net (or calculated) revenue each (200%) on the deal. In some companies, 300% or 400% is available on specific transactions.
9. Software vendors are more aggressive than hardware vendors at the local level and they initiate communications with their partners more often. Software vendors have higher expectations, achieve more, and believe there is still room for improvement in their relationships with partners. Hardware vendors are more satisfied with district-level communications and partner relationships, but they have lower expectations and do less with partners.
10. Telesales is emerging as an important supplement to district sales activities (both direct and indirect sales activities). Almost all hardware companies and a half of software suppliers have extensive telesales operation. The most common role of telesales is to support direct sales activities with a modified inside/outside sales team (long used by distributors). However, many vendors have gone further and elevated telesales to an independent sales organization.
11. Start-up companies usually begin with a direct sales force, supplemented with Internet sales and perhaps telesales, all managed out of one location.

At the field level there are usually two different kinds of salespeople: direct and indirect. The role of the direct salesperson has been well defined by traditional high-tech vendors. Direct salespeople are paid to manage accounts (or territories), close business, and deliver orders and revenue to their employers on schedule. Their job descriptions do not change substantially from company to company, or industry to industry.

Indirect salespeople, on the other hand, have diverse responsibilities and many different job titles, which reflect the different roles that indirect salespeople are expected to fill in the field sales office. Some are seen strictly as salespeople -- selling products to reseller customers. Others are viewed as facilitators to provide direct sales with the best partner resources. Still others are marketing reps who deliver local sales support on demand creation. These roles are determined by how they are measured and to whom they report in the organization. (The lack of a consistent terminology in the industry may be a reflection of the lack of standards on how best to form partner relationships or it may indicate a wide discrepancy in the way vendor management views its partner operations.)

In many companies the distinction between direct and indirect sales activities has become blurred. The prevailing issues in the high-tech market today are territory maximization and market share growth, not job specialization or account control. This requires a closely integrated team at the field level working with end users, partners, and other organizations.

Software vendors dedicate a higher percentage of sales time to partners and are generally more satisfied with the results. This is indicative of their positions on the market development life cycle. Many software vendors are selling to early adopters, where direct selling is important and coordinated partnering activities are crucial. Usually, the percentage of field time spent with partners increases with the size of the vendor. The largest vendors with mature products spend the most sales time supporting partner activities.

Organizational Structure

Vendors in the high-tech market use two dominant organizational models (district and stovepipe), and all vendors are using a variation of one of them.

The district model is used to integrate direct sales and partner management activities at the lowest possible level (the level closest to the end user). In this model the partner manager reports to the local sales manager, as do direct sales, professional services, finance, and other functions. The partner manager reports in a dotted line to partner management at the headquarters/regional level. About half of all high-tech vendors have instituted this structure.

The advantage of the district model is that it encourages the local salespeople to become involved in partner activities, and it helps integrate the partner into major account selling activities with the direct sales team. The major disadvantage is that it requires a well-trained, experienced, and motivated district manager to effectively control all the district-level resources. On the other hand, unmotivated sales managers can ignore the channel program entirely if they believe that their quota can be achieved by selling only through the direct sales force - or if there is no perceived penalty for missing their partner quota. Generally, this exclusion of partners can go on for a long period. The district model is easiest to set up in a company with an established infrastructure, good measurements systems, and well-defined reporting relationships.

The stovepipe model creates a separate reporting structure for partner operations (partner managers’ report directly into partner sales management with a dotted line to the district manager). As a result, the partner organization achieves a great deal of autonomy and can react to channel issues quickly and decisively. Typically, the direct sales district manager still receives sales credit for partner results. (Software vendors implement this structure about 50% of the time versus about 33% of hardware vendors.)

The stovepipe model is especially appropriate for companies just beginning a partner program in a fast-growing market. In this environment vendors must react quickly when their internal processes do not support partner sales activities. Problems cannot be bottled up at the district level if the vendor is to establish a presence in the channel. Issues must be elevated and resolved quickly, often by executive management.

However, companies with the stovepipe structure eventually develop walls between direct and indirect activities that hamper full acceptance of the distribution strategy. Once this structure is established, companies should plan on moving to some variation of the district model as quickly as possible. Vendors who wait too long risk limiting the growth of their channels and creating a separate partner infrastructure that results in an "us versus them" attitude in many companies.

Many hardware and software vendors are currently hampered by this "us versus them" attitude and the underlying organizational problems that have caused it to develop. In companies that maintain a stovepipe model beyond its usefulness, three things are likely to happen:

1. 1. The distribution changes implemented by the vendor will cause the partner group to gain influence in the company at the expense of the direct sales infrastructure. This win/lose scenario will cause employees to eventually take sides. (Direct sales usually win these confrontations.)
2. The direct sales culture will deny the indirect salespeople required resources, thus stifling channel growth. The partner group will eventually realize that it has been shut out of sales opportunities.
3. The vendor will churn indirect management as qualified people try to change the structure (and the culture it has spawned) and are stopped from doing so. The resistance they encounter will come from all parties interested in maintaining the status quo.

Therefore, if a stovepipe organization is established, the program should be re-evaluated after 18 months to determine whether changes are necessary.

The most successful vendors have evolved into a modified district model in which the district manager is responsible for territory maximization through partners, often with the support of a direct sales force. There are only territory revenue objectives and these district managers do not differentiate between direct sales and partner sales because their results are so dominated by partner activities.

To support district sales activities, marketing people have been assigned locally to provide support with demand creation projects like seminars, direct mail, training, etc. and there is a partner enablement team taking care of partner training and certification. This allows the sales force to work on revenue maximization while creating marketing and enablement resources that can be used by partners. These district marketing and enablement resources allow vendors to communicate with partners at the local level in a more effective manner.

Telesales

Most hardware companies have implemented a telesales operation in conjunction with their local sales activities. For smaller vendors telesales is most often set up to support the field sales force by providing inside sales support. Tele-salespeople are paired with one or more district salespeople, and they are jointly responsible for taking orders and supporting customers. Both inside and outside salespeople receive the sales credit on orders.

Larger vendors use telesales more often for incremental sales, and provide telesales with its own territories and management structure. While there is some pairing with district sales on smaller orders (the cap is usually between $40,000 and $100,000 per order), these telesales groups also have quotas that are independent of the district sales quotas. In many cases, high-tech vendors have proven the telesales concept, and there is a strong trend in the market to increase telesales activities instead of expanding the local sales presence.

Communications between Direct Salespeople and Partners

No matter which organizational model is implemented, communication between partners and salespeople at the district level is a key determinant of channel success. Many vendors have attempted to increase communication from the national level, which is not an effective strategy. National communication activities should only be used in conjunction with district-level programs - never as a replacement. (The concept of "think globally, act locally" is important with partners.)

The most common ways for direct sales management to communicate with partners are:

• Regularly scheduled meetings (an absolute requirement)
• Regular personal emails
• Conference calls
• Social events and gatherings (food and drink-based reseller management)
• Full integration into district sales activities including sales meetings and territory plans

About 10% of all high-tech vendors do nothing to establish formal and ongoing communication with their important reselling partners. All communication is reactive and generally unproductive in terms of growing the business. Improved communication (and revenue growth) is the result of regular meetings, conference calls, social events, and even full integration of partners into district activities. These communication activities can be facilitated and measured at a headquarters level, but conducting them locally should be an important MBO for all district organizations.

Changing the Sales Culture

Field salespeople learn how to work with partners in many ways. A small number of vendors provide formal training to their salespeople on partnering, programs and responsibilities. This kind of sales training is an indication of a well-developed partnering plan and an early indicator for vendor success with their partners. Good channel training, funded by headquarters, sends a strong message to the field that partners are important.

However, the most common way that salespeople learn is from their sales managers "on the fly." District sales managers have a high impact on local sales activities. They usually decide the extent to which all partner programs will be carried out, and they set the tone for the overall partner relationship. Even the compensation plan is less important than management support in getting salespeople to support changes in the company distribution strategy.

Many companies overlook the influence of their sales managers when they set up new partner operations or change their distribution strategies. Rewriting their compensation plans is not enough to get the full attention of most salespeople. They must also receive clear and firm direction from company executives about the reasons for the changes and the new behavior needed.

When district compensation plans are changed, quotas must be re-examined to compensate for the double crediting that channel-neutral compensation programs require. A small quota increase will not change behavior. Usually a quota increase of 200 - 300% is warranted if direct sales behavior must be changed significantly. This kind of increase forces sales management to change its operational style and begin working with partners in a different, more serious manner. Companies that have increased quotas by 300% over 24 months usually report that desired results are achieved and that the percentage of salespeople achieving their quotas stayed the same or increased, even after the huge increases.

Best Practices for Organizing the Field Sales Force to Work with Reselling Partners

• Provide absolutely channel-neutral compensation, including a minimum of paperwork for salespeople and their management. Credit must be received quickly.
• Compensate field sales managers who work with partners at a higher level than those that do not. Provide sales managers with more credit on partner business than the salespeople who report to them.
• Use the district model for sales organizations selling established products through established channels, but double or triple the quota of the sales manager in the first year. Minimize the importance of revenue objectives for indirect salespersons, and emphasize objectives that promote future business opportunities (training, new accounts, certification, and demand creation activities).
• Use a stovepipe model for new channel organizations or new technologies with a review of its effectiveness after 18 months. At that point it may be advisable to move to a district model.
• Compensate only on end-user transactions, not prepayments or stocking orders. Ensure that there is not excessive pressure to take prepayments, and review the reseller approval process to ensure that unrealistic promises are not being included in the agreement.
• Use telemarketing, telesales  and the Internet to complement direct sales activities. Create an outbound telesales operation that operates independently of the current sales structure and sells to new accounts or addresses new opportunities in established accounts.
• Force communication and training activities to the field level even if that means transferring marketing resources from home office to the field.
• Set management objectives to ensure effective and formal communication between resellers and local sales management (meetings, conference calls, mailings, etc.).

Distribution strategies and field sales reporting structures are one of the easier things for a vendor to implement in the beginning and are very hard to change once they are in place. Thus many vendors are forced to stay with inefficient and non-competitive sales organization structures too long because it is impossible to reorganize the field sales force without influencing short-term results. Unfortunately, the market has a way of making necessary changes happen eventually, even if the vendor finds them too difficult to implement in a timely manner.

By Channel Enablers - http://www.channelenablers.com/