by Paul Kunert

15 September 2008

Michael Dell will stand before a congregation of resellers later this month at Dell’s first partner advisory council in Europe, demonstrating just how far the company has travelled since he lost the faith in a direct-only sales engine.

A dozen years ago Dell canned its hybrid model and told customers they could only buy its computers through the company’s website or its direct sales team. The strategy helped forge the world’s largest PC maker.

But somewhere along the road the company started to lose its way. It conceded the PC crown in Europe to arch-rival Hewlett-Packard, missed out on the consumer notebook boom, became bogged down in bureaucracy and saw operating expenses soar.

These faith-crushing moments forced Dell – then chairman – to show CEO Kevin Rollins the door early last year and concede that those pesky resellers he once denounced as an unnecessary link in the chain might just offer a valuable route to market.

Assuming the role of CEO in February 2007, Dell set about creating a new religion that was all about customer choice, buying the company’s technology online, from its direct sales force or through a global network of partners. A year later the company unveiled its Partner Direct channel programme.

It has been seven months since that launch and Dell now has 13,000 partners in Western Europe (40,000 worldwide), with an annual run rate of more than $12bn. So resellers must have put their ill feeling toward the company to one side.

“We had a very encouraging start when we weren’t really sure what the reception from the channel would be,” says Josh Claman, vice-president of channels EMEA at Dell.

“There was some cynicism toward Dell entering the channel as we had been promoting ourselves as a direct organisation. Partners were confused and wondered if it was an experiment. We don’t get that any more.”

Even the company’s founder must be a little surprised at partners’ appetite to work with his company, but he obviously has enough confidence to cross the Atlantic to meet with them at the first reseller advisory forum.

“There will be a small group of people that will help us shape our strategy,” says Claman. “There will be a number of UK partners and Michael is very excited. This will be the first closed-door dialogue he has had with them.”
In a relatively short space of time, Dell has unveiled a two-tier scheme, and signed up the vast majority of resellers as Registered partners. Dell says it listened to partners when coming up with the scheme, something often overlooked by vendors.

“Partner programmes are complicated,” says Claman. “We brought a lot of simplicity but we need to be responsive to partners to understand their needs.”

Tiny top tier
Out of the thousands of EMEA partners, only 20 resellers have achieved the top-tier Certified accreditation – although more applications are in the pipeline – aligned with an enterprise architecture specialisation.

As exclusively revealed by Microscope on 23 June, Dell is to pilot a software-as-a-service (SaaS) specialisation for partners in the next month and is mulling over a number of public sector specialisations.

“Resellers will see more layering on that Certified programme to build additional types of specialisations,” Claman says.

The scheme has bedded down and Dell is still getting to know partners better but, as is to be expected, there have been a fair share of teething problems and the vendor admits it has not always been as responsive as it could have been.

Some resellers have told MicroScope that Dell was a swifter, more dynamic animal before they became official bedfellows. The longer time needed to secure special bid pricing exemplifies their point, as Claman acknowledges.
“We needed to put controls in place because as we formalise a partner channel, we need to protect partners,” he says. “When a partner registers a deal for special pricing, we need to ringfence that opportunity.

“There is a certain process overhead in terms of doing that and that has in some cases slowed our responsiveness. We are working hard to make sure those controls don’t slow the velocity of the sales process.”
Some partners have complained that Dell can take up to two days to turn around special bids. A business process engineering team at the company is working to ensure that it takes hours.

One area Dell has managed more successfully is in minimising conflict with the direct sales force. When it first outlined plans for channel partners, the company said it would set up deal registration, calibrate EMEA pricing and neutralise compensation for direct and indirect sales.

There has been the odd grumble from partners that Dell’s direct sales have approached customers behind their back when they went in with a multi-vendor solution, undermining the relationship.

But building a hybrid model must have been a massive cultural change internally.

“It was,” says Claman. “Holding the hands of my counterparts who run the direct sales team was extremely important.

“Deal registration is working well [from a conflict perspective] but where we see it has not worked – where the direct sales team or the channel partners has not followed the process – it has been escalated.

“We are working to close those holes but we have had much less conflict to the point where we don’t even talk about it any more.”

When Dell neutralised compensation for direct or indirect sales some industry watchers believed the company should have gone further to motivate the internal teams to embrace the channel.

This is now happening in pilot form, says Claman. “We will create a channel advocate in our direct sales team to see what the next model is in terms of bringing more power to the channel.

“We are running some experiments, so instead of a salesperson being indifferent to selling direct or through the channel they will not make their targets without cooperating with the channel.

“Salespeople are meat eaters and focused on what brings immediate value. If we change compensation so that they won’t hit targets or go into the accelerator bonus without the channel, they get very excited about the channel.”

But while Dell resellers promote its hardware, analysts are suggesting the IT services market will be a safer bet in the downturn. Can Dell harness its partners in the services space?

“As we progress with the channel we are constantly looking at ways not just to displace other vendors, but to drive incremental revenues for the channel,” says Claman, although he gives no further details.

Scary
“Things are going to get quite scary. There has been a crunch on credit which may impact partners’ working capital and there will be some pressure on pricing and some consolidation. Partners need to think long and hard about their sustainable value.”

Dell could help make its partners’ lives a little easier if it moved out of stealth mode and actively marketed the benefits of partnering and the resellers it works with.

Since it launched its channel programme, Dell has been coy about the resellers it has signed. Its refusal to name them is undoubtedly meant to prevent rivals from influencing partners but also to make sure its direct sales team is not alienated.

“We are six months old here,” says Claman. “Partners and Dell need to get to know each other better. Once that happens you’ll see us advertising partners on the web with their specific functionality.”