Protect and serve

“Add value, move into services and sell solutions.” That’s the rather ambiguous line trotted out by many vendors when quizzed about the steps that their margin-starved partners must take to build a sustainable business. Yet as myriad Middle East resellers will testify, carving out a strategy that reduces dependence on product revenue remains a daunting prospect.

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By  Andrew Seymour Published  May 9, 2007

“Add value, move into services and sell solutions.” That’s the rather ambiguous line trotted out by many vendors when quizzed about the steps that their margin-starved partners must take to build a sustainable business. Yet as myriad Middle East resellers will testify, carving out a strategy that reduces dependence on product revenue remains a daunting prospect.

To begin with, any traditional reseller endeavouring to bridge this sizeable gap must be a proponent of change because they are quickly going to have to come to terms with overhauling their internal processes and go-to-market strategy.

If you are a reseller harbouring genuine aspirations to become a services-led company, or rather a so-called ‘solutions provider’, then you need to start with an assessment of how closely your business reflects market trends. This is a model that is as much about balance as it is execution.

Take overall IT spend in the Gulf market, valued by research house IDC at close to US$7 billion a year. Of that figure, the portion blown on services equates to around US$1.6 billion, or more tellingly, 24%. Should the Gulf region eventually come to mirror the development of mature markets, such as South Africa, then we can expect the allocation of services spend to rise to 35%, possibly even 40%, at some stage in the not too distant future.

The point I’m making is that you need to establish how far your business is removed from the current vogue. Do you derive a quarter of your revenues from services and have a fixed business plan for expanding that percentage in line with market patterns to boot? If the answer is no, then it is more than likely that somebody else is snaffling that repeatable, higher-margin business at your expense.

Statistics bear out the sentiment that the Middle East remains a largely transactional environment. Resellers with sophisticated services capabilities are still very much evident, but they are in the minority. To many, services are perceived as little more than sideline RMA or basic installation activities that add some much-needed meat to an otherwise unfulfilling hardware sale.

And this is the problem. Resellers striving to move to a services-oriented model are often unprepared for the change in mentality and approach that it commands. It is all too common to see resellers lead with the product sale in the faint hope that they can attach some services at the last minute.

In my opinion, this sort of approach, which I know for a fact some vendors actually regard as ‘value add’, is nothing more than up-selling — the most basic sales principle impressed upon a salesperson plying their trade in any environment, whether flogging peanuts or enterprise storage systems.

The shift to a model inclusive of services requires the reseller to view a deal in a singular fashion and not look upon it as several disparate elements. Only by perceiving it in this context can a reseller begin to understand the bigger picture, rather than merely pining for the sale of some extra services once hardware negotiations have concluded.

This type of strategy completely switches around the way that a reseller needs to think. Rather than interpreting the products as the gateway to the customer, resellers must assess the customer’s requirements from top to bottom, generating a comprehensive understanding of the technology ‘solution’ they desire.

Yes, products remain an integral piece of the jigsaw, but in a services-inclusive environment they no longer dominate the conversation. The end-goal during this initial stage of proceedings is to scrutinise what the customer wants to achieve because that is the only way for resellers to truly size up the wider role they potentially have to play in the overall project.

From the start, the customer will want guidance in selecting the systems and processes it needs to enhance its IT infrastructure, which is where a reseller with a decent services proposition will see the opportunities suddenly unfold. With a model that encompasses a meaningful proportion of services, the sales emphasis is fundamentally different and encourages the reseller to make a firm point of positioning its consultancy capabilities.

Make no mistake about it, consultancy is the magic word for resellers possessing services aspirations because it represents the primary opportunity for them to sink their teeth into a project at the earliest available instance. The knock-on effect of this is that it increases the possibility of the reseller becoming a bigger stakeholder in the overall project.

I admit that this whole transitional process is a lot harder to pull off than it sounds. One of the reasons I made the earlier point of stating that a services culture can lead to dramatic changes internally is that it warrants a different sales mentality.

Resellers that once hired sales staff on the back of their ability to hit their targets by moving product with stealth will find themselves turning instead to individuals with experience of what a solution sale entails and the precocity to acknowledge that the product is just one strand of the project.

With a workforce better tuned into this trend, and customer engagement inevitably occurring at an earlier stage in the sales cycle, resellers should find themselves in a stronger position to dictate their profit margins.

They will be ideally placed to determine how valuable the project is to the end-user. The implementation of a business critical project with high returns naturally affords resellers more scope to name a higher price than a project with modest returns.

What’s more, in the small to medium business market, customers are often less pernickety about the cost of the project being divided out into pieces, leaving resellers to ascertain an overall price that can often be more favourable when balancing out profitable aspects of the contract with less profitable parts.

Don’t forget either, that engaging with the customer at an earlier stage is likely to foster a much tighter relationship that lends itself to the provision of more after-sales services in the future. Unlike a standard product sale — where the chapter pretty much closes once the product has been delivered and the invoice paid — a services driven model can open up long term support and asset management opportunities.

Multiple barriers confront resellers wanting to incorporate more services into their businesses, but on the whole the rewards can be much greater. Not only does this model reduce exposure to sharp downturns in standalone product margins, but it makes the reseller much more valuable to the customer than when it acts as nothing more than a procurement vehicle.

Migrating from a conventional reseller to a services expert is not a process that happens overnight. Part of the transition involves setting an achievable timeframe over which to move to this kind of model and doing it in a methodical way that does not divert resources from the run rate business.

Depending on the reseller’s ambition, it can be a gigantic and expensive step to take — one that is far more complicated than the vendors who cryptically urge resellers to take the services path may have you believe, but one which will ultimately shape their destiny in years to come.

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