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New Tools for Driving Partner Profits

A conversation with Microsoft VP Allison Watson.

One of Microsoft Corp.'s main initiatives for 2006 is an effort to raise profitability for the company's partners. In short, Microsoft commissioned and is releasing research into Key Performance Indicators (KPIs) that determine how profitably its partners operate.

Allison Watson, vice president of Microsoft's Worldwide Partner Group & Worldwide Small Business Group, explained the thinking and the methods behind the plan in a recent discussion with Scott Bekker, editor in chief of Redmond Channel Partner.

On other topics, Watson raised the possibility of new customer reference requirements, and she advised partners on Windows Vista and Office 2007 planning. Following are some highlights from their conversation:

RCP: What is Microsoft doing that's new to drive partner profitability?
Watson:
While I can't commit to taking accountability for a third-party company's profitability, what I can commit to doing is understanding what are the levers that drive their profitability and how [Microsoft investments] should be driving it. [I can] help have a dialogue that's very driven about profitability so we can be mutually beneficial in the marketplace.

We went out to research what are the real levers that drive profitability besides just the facts of "What is your contribution margin at the bottom of your profit statement and is it positive or negative? What are the levers that help you get positive numbers at the bottom?" We realize that in any complex business, it's never just one. In the channel partner business, there may have been a reliance in the early days, that still exists, on a margin-based relationship with a vendor that was driving [just] one aspect of a partner's performance.

Sometimes a partner might measure a vendor and a vendor might measure a partner on that alone. We're introducing some excellent framework thinking that says, "Hey, these 14 KPIs that you see listed here all are relevant and they interrelate to make up profitability."

Make mo money, mo money!
[Click on image for larger view.]
Microsoft's 14 key performance indicators (KPIs) for profitability

Where did the data for those KPIs come from?
[IDC] conducted research [for us] across 830 channel partners in Germany, the U.S. and the U.K. We did that to determine if there were significant differences or not. And what we found was that the KPIs are consistent. Not only are the KPIs consistent, but once you get to the specificity of line of business, the actual business results are similar. So we feel good that we've got a consistent model.

What are you doing with the results?
We're taking this model and applying it to our competencies. We are introducing research that will show for an Advanced Infrastructure competency and for an Information Worker competency, what are the KPIs that partners in those competencies have against these dimensions. [For example,] they'll see the average sales speed for business velocity for Information Worker. So we will be launching for the first time the data that not only shows that we have a profitable business opportunity, but also creates a benchmark for partners to [measure] themselves against on all of these KPIs.

We will also then take the data and publish guidelines and blueprints that say, "If you want to get into a new market, here are the things that you need to do to. Hire, build a practice and potentially price, etc., to then put it into action so that you can achieve these KPIs." So we're releasing, for example, in the Small Business Specialist area, which ties up with our infrastructure competency area, a set of six white papers -- [such as] how to build a Small Business Server business for managed services. We walk through what are the indicators of building all of that and what KPIs you need to set up and you should expect, and how much you have to invest and what your return should be over time. And we have six [sets of] guidelines and best practices like that.

A Booming Program

Microsoft is in the midst of re-enrolling partners for the largest partner program in the industry. Partner ranks continue to grow. Figures were provided in February:

Partner Level 2006 2005 Increase
Gold Certified 7,000 3,500 100 %
Certified 30,000 25,000 20 %
Registered 325,000 205,000 58 %

Source: Microsoft

We are changing the industry with our approach to partner business performance. We believe it requires understanding what the metrics are in the market, understanding how our partners perform relative to those, or could perform, and then helping create guidelines and best practices for partners by competency and by area.

Microsoft recently added some specializations and competencies to its Partner Program. How is the current mix working out?
[Right now we have] 14 horizontal areas of focus. There are specializations underneath it. So if you're looking for hosting, or Exchange or CRM, they fit underneath these competencies. These were designed to help partners tell us where they're focused, and to help us drive our investments in a focused way. This was a very mindful selection of competencies designed from partner feedback, customer feedback and good research that we believe is meant to last, but we also believe will change and grow over time as the technology industry changes.

Partners do have a bar to be in the competencies and specializations. That bar is unique in the industry in that it requires technical competence as measured by certification of individuals, it requires customer references in the specialty on an annual basis and it requires a customer satisfaction index. So in addition to having a reference customer, we ask for an index of the satisfaction of your base of customers, which is handled by a third party. It's fairly industry differentiating in this respect. It creates a higher bar, but it's also based on the feedback that our partners gave us about how they want the bar to be set.

Are there any changes on the way in terms of specializations and competencies?
Our industry and vertical approach thus far has been: "Tell us what solution areas under a product or service you sell in the marketplace, and we will help you market with that solution." We do not have a bar in the program for these areas, with some exceptions in that we are starting to ask for customer references as well. So it's one thing to say, "I have customers that do Information Worker," but if you really want to market Information Worker into financial services, we'll ask you to [provide customer references that match that combination]. It's not really a bar, but it's a recommendation and we may make it a bar, I don't know. But we will take feedback before we would do that.

Windows Vista and Office 2007 are scheduled to ship later this year. What should partners be doing to get ready?
We will be very concrete at the Worldwide Partner Conference with the set of assets in local languages to have training and development tools ready.

We encourage our Gold and Certified partners, through our Partner Program membership, to participate directly in the [Community Technology Previews].

In the May-June time frame, we should have all of the readiness assets for broad partner sales, marketing and technical readiness available through our Partner Learning Center.

Because Vista and Office are so fundamental, I would anticipate that a large percentage of every channel organization should go through basic readiness of the products and we will have good online ways to get them there. [The online resources] will be chunked down to what I'd call manageable [blocks] of time. So in 20-minute segments, or maybe for an hour at a time, everybody needs to do something [online]. And then we'll have a plan that will bring levels of readiness for your technical staff ... both IT pros and developers.

You mentioned that Microsoft is looking at how many employees it has if you count the partner ecosystem. What are you finding?
We could have as many as 20 million employees when you look at everything from [partners] the size of Accenture all the way down to the small businesses. We're going to refine and understand better our employee population to our partners, because it's a really interesting thing about the dynamics of the marketplace. So we end up with our program, if you will, or the relationship Microsoft has in the economy, [which not only involves] hundreds of thousands of companies, but also impacts the lives of many, many individuals. We're kind of proud of that, and we also realize we have to be concerned with that.

Postscript: SAP Makes a Hosted Thrust, Salesforce.com Seeks Client Trust

By Lee Pender

Another giant has entered the software as a service (SaaS) game.

Enterprise software developer SAP AG jumped into the SaaS arena in February with its announcement of its SAP CRM on-demand offering. SAP, which brings IBM Corp. in as its hosting services partner, joins Oracle Corp., with its Siebel CRM OnDemand line, and Salesforce.com in the growing market for hosted enterprise applications. (As RCP reported in March, Microsoft, too, is on the SaaS bandwagon.)

SAP's first hosted application is the SAP Sales on-demand offering, a sales force automation and analytics package available now. The German juggernaut plans to roll out other elements of the full CRM suite throughout 2006.

Like other SaaS offerings, SAP's will let companies implement CRM technology without large investments, Robert Bois, research director at Boston-based AMR Research, noted in a recent "AMR Alert Highlight." However, he wrote, SAP isn't necessarily aiming for Salesforce.com's target market of midsize companies. In fact, Bois said, SAP is shooting for larger companies and current SAP ERP customers that haven't yet implemented CRM.

The IDC eXchange blog asked whether SAP will equip its hosted offering with full CRM functionality or hold back some features to prevent cannibalizing its traditional offering. Framingham, Mass.-based IDC recommended that SAP go all out: "If SAP holds back, it risks badly damaging its standing in this expanding model of software [and business service] delivery," Frank Gens, IDC's senior vice president for research, warned in the blog entry.

Meanwhile, Salesforce.com, the San Francisco-based CRM provider, has been busy soothing frustrated clients.

Last fall, the company completely overhauled its hardware and software stack just before releasing a new version for winter 2006, says Bruce Francis, the company's vice president for corporate strategy. The upgrade and release led to some well-publicized system outages in December and January. In February, in an effort to reassure nervous customers, the company launched a Web site providing system status updates. "We realized they needed more information both when [the system] is great and not so great," Francis says. The site provides users access to current and historical performance information and updates, incident reports and maintenance schedules. A color-coded system categorizes service status: for instance, yellow dots denote "issues that last longer than 10 minutes" while red indicates "disruptions that last longer than 30 minutes."

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