Outourcer/MSP Partner Programs – New Market, Old Principles

April 10, 2008 at 8:40 am Leave a comment

Ingrid Krivin

Ingrid Krivin

The market buzz around managed services seems to be growing daily, and many of Amazon Consulting’s clients are testing the waters here with partner engagement programs.  However, some would argue that end-user IT buying patterns for widespread adoption of IT outsourcing and managed services are still 3-5 years off, and many remember the late 1990’s and early 2000’s MSP trial models where many investors met with fiscal disaster.

As these new delivery models are evolving, one might argue that the fundamental principles of building a strong partnering value proposition and program are the same as they’ve ever been.  Segmenting your partner community, looking closely at desired business models, and building compelling and profitable programs for partners aren’t new ideas.  Let’s think it through..

Global Systems Integrators seem to be a great litmus test for market readiness in this managed service space.  As the utility or phone company giants of the IT world, they are outwardly  the perfect partner’s global services organizations, with deep, trusted relationships with Fortune 500 accounts. If one could only persuade them to take on your technology, build it into their fundamental service offering and extend it to their clients as a managed service and what a great way to add incremental, recurring revenue to the bottom line and accelerate your time to market. Right?

The reality is a lot different. First, the IT outsourcing/managed services landscape is highly segmented. Most of us only think about the Big Four: Accenture, CSC, EDS and IBM Global Services. But there are two other strong and emerging tiers of outsourcer/MSPs to consider, both offering significant advantages to the vendor. Tier two consists of mostly national players —  think in terms of $300M – $2B revenues. Tier three are localized — think Los Angeles-based or some other key city or market, with anywhere from $100M – $300M in revenues.

But before approaching any of these companies… how do you ensure that you’ll get past the first phone call? What compelling reason should you present to make them sit up, listen and, most importantly, take you into their portfolio? The first step is to understand the business model of the partner. How do they present themselves and their services to their end-users? Are they a Managed Services Provider? An Outsourcer? Or do they brand themselves as Consultants? Semantic differences? Sure. But all falling under the ubiquitous  IT Services  banner and necessary for you to understand when tailoring the relationship for mutual success.

Next is the financial value proposition. No partner will give you the time of day without a clear understanding of how they stand to make money and drive strong gross margins. It doesn’t matter how leading/bleeding edge your technology and how passionately you talk about it. Partners want to know how, by incorporating your products into their portfolio, it will round out their offering, add a competitive edge, enable a solution with improved uptime (these guys live and die by service level agreements), or lower the cost of ownership (the savings not necessarily passed onto the end-user).

Let’s take a look at some specifics. To develop a successful, and tangible, partnership with Accenture, for example, you’ll ideally look at the current offerings in their Business Process Outsourcing group. You must be able to identify a big, hefty value proposition for their target clients in a specific practice area such as their Data Center Practice, working with the blessing of the Accenture Practice Leader.  The IT into the Accenture practice area can take many, many months to achieve and will be subject to stringent lab and testing criteria, and the ability to provide highly specialized support and immediate response times.

And you’ll need to develop the end-user business case, as well as fleshed out Accenture-focused business case. i.e. present the expected ROI and hurdle rate financials to back up your proposal. Don’t expect them to do all the hard work. Lay it all out on the table for them and show them the money. You will also need to work out an appropriate financial model user or volume-based pricing. The simpler the model, the better. Usually the end-user will hold the license, so it will be up to you to track the usage rate so you can bill accordingly.

So who will do all the hard work — who will sell the deal? Accenture will typically expect you to own the client sales and management aspects and have a clear definition of the services that they will be wrapping around the solution. Some of the big global outsourcers will resell and others, like Accenture, only will influence the deal. Others, like EDS and CSC, will employ both a reseller and  influencer relationship, depending on the client demand. EDS traditionally likes to bundle third party offerings into a single EDS solution or managed service and have been very successful with their collaborative EDS Agility Alliance launched in November 2004 with Cisco, EMC, MS, Oracle, SAP, Sun and Xerox aimed to take on IBM Global Services.

Accenture will usually opt to act as an influencer but will expect influencer of anything from 5 to 15 percent of the overall deal value. All will expect deep technical knowledge transfer so be prepared to open up and share complex information about your technology. Without exception, they will also want to see how your technology enhances the service offerings that are hottest and most profitable to the partner. Play to the partner’s bottom line and determine what is most critical to their business. For the big guys a good starting point is their SAP or Oracle practice.

It’s a lot to consider in crafting a business proposition with the tier one and tier two SIs investing heavily in outsourcing and managed services. But the payoff can be significant. So if you’re still up for the challenge, and are able to provide the training and support that a deeply demanding partner can and will require then go ahead. But test your program with a small number of partners before any formalized launch. And do the necessary legwork upfront before facing your partner targets. The payoff could then be major.

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Entry filed under: Industry Perspective.

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