Change is afoot in the channel if the enterprise gets its way

IN AN INCREASINGLY crowded channel space, systems integrators (SI) and value added resellers (VAR) are fighting hard to maintain a competitive advantage. In the lucrative enterprise sector, the battle lines are fiercer still and the stakes even higher as customer expectations reach an all-time high.

The predicament for the channel is how to reduce costs, grow margin and improve profitability - while helping clients do the same?

This is a question, among many others, that TalkTalk Business sought to answer in a unique wave of research we conducted alongside industry analyst, Ovum, this summer. In polling 200 firms - ranging in size from 250 to 1000+ employees - we reveal the true state of the enterprise buyer’s relationship with the channel.

In publishing these findings, as part of a comprehensive new report, we hope to stimulate a period of careful soul searching and, ultimately, a fundamental change in the way that the SI/VAR community interact and serve British businesses.
That’s because the research supports the need for change on multiple levels. There’s no getting away from the fact that it will make uncomfortable reading for many operating in the channel - just as it should for the army of vendors that support it. But let’s not shy away from the need for change, just because it’s easier not to. The customer has spoken and it’s now incumbent upon individual SI/VARs to determine whether their current strategies are fit for purpose.

To tackle some of the themes highlighted in the research report we, alongside DCS, brought together a panel of industry experts. The aim was to collectively reach some meaningful conclusions regarding the often misunderstood and undervalued role of the integrator in our sector and the part that end-user expectations play in determining channel performance.

The following write-up sums up our thoughts on the day. But we’d love to hear yours too. We’d encourage you to download the ‘Integrate Britain Report: What lies beneath enterprises’ relationship with the channel’ http://www.talktalkbusiness.co.uk/systems-integrator and contemplate how the complete findings could and should help shape the communications landscape of the future.

Roundtable participants:

From Left: John Chapman, IT Reality – Moderator, Campbell Williams, Group Strategy and Marketing Director, Six Degrees Group,
Innes Grant, Operations Director, Avanade, Paul Reeve, Divisional Manager, Utopia Technology, Dominic Hughes, Head of Partners, TalkTalk Business, Philip Alsop, Editor, David Boyd, Glasshouse Technologies

What price flexibility?

In the second Channel roundtable event organised by TalkTalk Business and DCS, there was universal agreement that, in the Cloud era, the IT procurement and provisioning processes have to change dramatically, but just how was the subject of lively debate.

THE FIRST QUESTION posed by the roundtable chairman, John Chapman, asked: “How does the Channel tailor its offer to the enterprise when technical and procurement buyers are working to different agendas? Is it possible to appeal to both audiences at the same time?”

The resulting conversation indicated that, not only does the enterprise have to come to terms with the need for the IT and facilities folks to work closer together to ensure optimum IT infrastructure efficiency for the organisation’s business needs, but it also has to address the glaring disjoint between the IT folks and the purchasing department when it comes to sourcing new technology and services.

The Channel is pretty much unanimous in being frustrated at the situation – “We often find we have the IT guys completely on our side following negotiations with them – then procurement come in and still want to drive us down further, just for the sake of it, as it’s part of their process. What we usually end up with is us stripping something out of the solution, and meeting in the middle” – being a typical response.
There’s an acknowledgement that procurement are there to drive the buying process, but that their actions do not always underpin what the business is trying to achieve in terms of longer-term objectives (outside of purchase price), or in building trust with its providers.

Expressed more directly: “When we bid, we include what we think needs to be provided, architected in the best way. Unfortunately, down the chain, when it comes to the price negotiation, they don’t understand what you’re trying to achieve. They come in at the very end and beat you with a stick.”

Despite a suggestion from Dominic that the IT/procurement discord is healthy – ‘it keeps everyone honest and drives better value for the business’ – the Channel is far from convinced that this situation does anything other than fail the customer.
“We would like to put in the best equipment for the job, but procurement rule the roost. It’s a conflict within businesses – who is ultimately responsible for taking these decisions? Very often, procurement are prescribing the solution by purchasing cheaper equipment and the technical guys are left with having to ‘just make it work’.”

The suggestion is that procurement should not meddle with what it does not understand, with the example given of a recently submitted bid for a multi-site organisation. The brief was totally open-ended: everything had to be off-premise, OPEX only and email must never stop working. It was valid for everything – infrastructure, data centre, voice…How does procurement start assessing this, breaking down the individual parts in order to beat down price?

So, while the new breed for CIOs are looking to acquire IT products and services in new ways, procurement is still looking to buy product. Indeed, in the new IT world, procurement is even trying to beat down the price associated with an SLA. An SLA becomes a discussion because it is also a negotiation point. But if price drives what an SLA looks like, then this is definitely compromising business value.

With the discussion moving on to how one deals with the power that procurement still wields, the picture of a chaotic evaluation and purchasing process was reinforced. SLAs again – end users can be given any amount of guaranteed uptime – it’s more than possible to build 100 per cent resilience into a solution – but the Channel does not believe that customers (read procurement) are willing to pay for this.
Perhaps more frustrating, it seems that, all too often, purchasing still happens in towers – procurement of a data centre, procurement of some applications, procurement of infrastructure. The end-to-end ‘Holy Grail’ just doesn’t exist right now, end users buy technologies separately and then try to overlay governances. Frequently, what they end up with is a mish-mash of suppliers to manage.
However, there is some suggestion that this situation is starting to change, depending on the dynamics of the project and whether the brief includes things like scale and convergence. For example, if the Channel is delivering an application running from a data centre over a big network, chances are that it will have to deal with different project teams for each element. Introduce convergence, eg voice is added, and it’s tough to separate the elements, as the solution just won’t work if everything is managed separately. In this case, end users are learning that they need one partner to manage convergence.

In this converged world, SLAs are a much more interesting conversation point for the Channel – ‘Mr Customer, are you willing to risk losing telephony at one site because you don’t want to pay for a back-up circuit?’ And, if service credits are given on the circuit, the systems integrator can back this off to the operator. Such transparency is what end users demand, but, for as long as they, in the main, continue to separate out each IT tender, they are destined to remain frustrated – a sentiment shared by the Channel as it knows that it can provide the desired transparency if it is allowed to tender for, and subsequently manage, one end-to-end solution.

A tender subject
Key to resolving the situation outlined above is the tendering process. And here the IT department has to step forward and accept its share of ‘blame’, alongside procurement, in the present inefficient, opaque tendering process. The Cloud era seems to offer end users a wealth of technology choices and flexibility, but access to these is only as good as the tender document itself. As far as the Channel is concerned, the best tender document is the least prescriptive. Something along the lines of a good old-fashioned exam question: “We need a new data centre. Discuss.”

In reality, the tender document is invariably full of so many conditions and caveats that the bidders’ hands are tied – sometimes not too tightly, but others to the extent that it seems the customer has only one solution/supplier in mind.

“Procurement processes often forbid you speaking to people around the organisation – the only thing you have to go off is what’s prescribed in the tender. If the SI was able to speak to different stakeholders about what they are trying to achieve and what the end goal is, they would be able to propose different options and innovations,” is a typical summary of the predominant status quo.
Sometimes, the situation is even worse, and edges into farce: “Some tenders specify specifically that nothing beyond the tender request should be added in to the responses. The end user then blames you for not being innovative or for simple coming up with the solutions they had expected from you. This situation then results in whole tenders being re-written and re-issued because none of the suppliers offered anything different.”

CIOs are frustrated that the systems integrators don’t understand their businesses properly, but enterprises need to give them more time with key stakeholders to help them understand their businesses. Seems like a problem that shouldn’t be difficult to solve.

Ah, but how does this closer relationship and transparency between customer and The Channel work in practice? First up, who bears the brunt of the extra work required to better understand the customer’s business needs? End users don’t want to pay for consultancy, but neither does the systems integrator wish to invest more time and effort in the early stages of the tender process when the value of the deal and the likelihood of winning it are virtual unknowns. Then again, any time spent on understanding the customer’s business needs could well provide additional sales opportunities. Sometimes, end users do pay for a consultant, who then writes the tender document. But is the consultant’s definition of the business needs, and subsequent tender document, any more accurate or helpful than the end user’s?

As if all this chaos were not bad enough, there’s the additional spectre of the ‘fair procurement process’ hanging over the tender process: “All the bidders receive an email back from the end user with a list of the questions that the bidding parties have raised. If we’ve put in huge effort to questioning, understanding and thinking about the tender in order to offer differentiation, then we don’t want every other bidder being handed this on a plate. Telling everyone else levels the playing field.”

Frustrating for the systems integrator, maybe, but one can understand why the end user chooses to act in such a way. Key to bypassing much of the procurement cycle pain are relationships – whether with new or existing customers, neatly summarised by one of the roundtable attendees: “With our bigger customers and where we have big converged solutions in place, we talk on a daily basis. I won’t deny that we have lost repeat business when we were expecting to win it, and this has come as a surprise, but we have never won where a relationship did not exist. Winning has never come as a surprise.”

A part of this relationship building is the willingness to share details of a solution – right now end users feel they need to know what names are behind the technology, even if they don’t understand exactly how the solution fits together/works. The suggestion is that this is more down to role justification rather than any desire to influence choice of component parts of, say, an end-to-end solution. And the time is coming, if the Cloud hype is to be believed, when end users won’t want to know about the architecture or the names, after all, no one cares where their electricity or gas comes from, just so long as it’s available whenever and wherever required.

For the time being, the Channel likes to think that, when required, its transparency to share architecture and brand names can be a differentiator, although the procurement department comes under fire once again for eliminating this opportunity from the tender document: “Unfortunately, tender processes do not always allow you to show differentiation. Instead of procurement forcing service credits if you mess up, the emphasis should be on why you won’t mess up because of the way you’ve architected the solution.”

Moving forward, the Channel would love to see a tender process that, as a matter of course, allows a dialogue between itself and end users before procurement becomes involved – the suggestion being that procurement can only think in very straight, non-technical lines. Ideally, IT taking on more and more of the purchasing role, forming and developing good relationships with its supply chain.

Network neglect?
Next up for discussion was the role of the network in terms of how end users perceived it: dismissed as a basic building block, or appreciated as a vital asset, putting greater priority on its speed, resilience and availability. Theoretically, customers are looking for more control over their network, but, on closer inspection, it seems that they want the best of both worlds – to have the illusion of greater control, but to leave the decision-making and management to the systems integrator. As one participant put it: “The problem is that you can’t be half pregnant. Do you want us to manage or do you want us to manage?”

The reality is that the systems integrator is much more likely to spot if something goes wrong before the customer – after all, it’s unlikely that the end user has sufficient resources to monitor each network at every point of the day. Where the end user does want to become involved, and for more than reasons of looking at ‘pretty pictures’ of the network, is when it comes to predictive control – seeing indicators showing that if the applications continues to run/expand as at present, then capacity will become an issue in the future. Nevertheless, a systems integrator armed with the same information is well-placed to address such an issue. Yes, there’s more and more to manage around the network – bursting capability for example – but do end users really want to deal with this? Anecdotal evidence suggests that end users make a bit of a mess of dynamic network control. Underlying all of the network discussion is the understanding that the network is still undervalued and under-considered – it is seen as little more than ‘plumbing’.

Which begs the question as to why end users, despite their indifference to the network’s capabilities and management, are generally so keen to specify the network provider. In most cases, end users want to stick with their incumbent supplier. Other input specifies ‘the cheapest’ or diverse – a multi-functional, resilient network. Ironically, although end users want to choose the network supplier, they still expect the systems integrator to provide the transparency and performance!

Contract chaos?
The final part of the roundtable presented a certain amount of déjà vu – while the discussion was about contracts, the issues were much the same as for the tender process. As far as the Channel is concerned, the end user wants the best of both worlds – the cheapest cost with the most flexible terms. But, be careful what you wish for is the Channel message: “End users can’t determine SLA, price, other conditions and then also expect Pay-As-You-Go (PAYG), short-term contracts. Short-term contracts mean unpredictability for everyone.”
Feeling sorry for the Channel might not come easy, but there was a general feeling around the table that, having already been beaten up by procurement over price, agreeing to short-term (one-month notice) contracts as well was a step too far for most systems integrators.

In particular, the cost of developing the infrastructure to provide the desired level of flexibility is seen as a major issue for the Channel. Creating such an infrastructure does not come cheap, yet if customers expect to pay only as and when they use capacity, how is the initial build funded? There was a suggestion that CIOs might move towards risk and reward contracts, an idea in which some vendor communities are investing. But this type of contract doesn’t suit end users, who want predictability (price/performance) for cash flows and balance sheets. End users don’t want to negotiate month-on-month, it’s not their focus. All conceded that end users are asking questions around new ways of buying, but adoption is much slower as ‘end users want to put the risk on the supplier, but there’s no reward…’

Or is there? Can systems integrators take less margin up front, build the customer’s infrastructure, get a three year contract commitment and, hopefully, the level of usage at the end of this period has more than paid for the initial risk? If the expansion doesn’t happen, the integrator takes a hit, and has to re-negotiate for the next three years.
The crux seems to surround the price of flexibility, and who pays it. Renting a car is, long term, much more expensive than leasing one. It may be more expensive renting, but, if the car is no longer needed, then you’re not committed to a three year leasing contract. This makes perfect sense in most industries, but in the IT space right now, it seems to the Channel that end users want to pay the leasing price for a rental agreement.

Who controls the future?
We might be in the era of managed services, Cloud and BYOD, but predictions of the IT department and the Channel’s demises seem greatly exaggerated. More and more application specifying and spending might take place outside of the IT department, but enabling a complete, company-wide IT free-for-all will provide anything but the efficiency, dynamic IT environment required by more and more businesses. The IT department needs to become a broker or enabler to the business, and, in order to do this, it will need systems integrators to help put everything together. It’s no secret that many IT departments are struggling to come to terms with the brave new IT world, and the Channel has a great opportunity to play the leading role in helping them provide what their businesses require.

For as long as IT exists, an organisation’s employees will need advice on how, when and where to source the compute resources they require – whether on an hourly, daily, weekly or longer term basis.
Furthermore, their corporate organisation will need advice on issues such as data protection, security controls, industry accreditations and the like. There seems little doubt that IT departments and their Channel partners will fulfil this role. Less certain is the level of flexibility they will be expected to provide at any particular price point.