System Implementation and Digital Transformation is a team effort. When you are implementing a new system, selecting the right partner to work with is critical to your project success. Partnering with your VAR (Value Added Reseller) is different than hiring a vendor to perform services.
Vendors are paid for time or services. If you choose to hire a vendor the relationship becomes transactional. You pay money they provide services. Alternatively, if you work with a partner, both parties are seeking to create a win win scenario for each other.
Partner Engagement Models
Partnering is not monolithic. On the contrary, each partnership must be unique to create the greatest synergy between the two organizations. Two key dimensions or partner engagement are:
- Roles of partner and company
- Compensation models for partnering
Partner and Company Roles
Each organization plays a role in the relationship. VARs live and breath system implementation and have the processes, tools and product knowledge. Regardless of the partner’s industry expertise, the customer always knows its business processes, personnel and culture better than the partner. There is an intersection of the company, industry and technology that create the optimal deployment.
We recommend a balance between partner services and the effort put forward by customer personnel to provide the knowledge transfer required for the customer to own the system. Typically, the partner will provide an implementation methodology, training and the deep technical expertise to a project. Process design, systems configuration, and change management are often shared responsibilities. The balance for each project, and within phases of a project, will be different based upon the nature of the work performed. However, in all cases, the company should own all critical business and system configuration decisions.
A simplified model for partner roles is:
- Advisory – The VAR is there to advise the customer who will perform the majority of the implementation services. An advisory role is appropriate for customers who have, or hired, staff with recent implementation experience and the technical competencies to complete the project.
- Team – Each entity provides resources throughout the project to perform required activities. With knowledge transfer for systems ownership as a goal, partner and company representatives share responsibilities. For example a VAR Project Manager takes on responsibility for engagement planning, risk identification, etc. while the company Project Manager marshals subject matter experts, manages open items and approves deliverables.
- Implementer – The partner is hired to perform work and takes responsibility for completion. As an implementer, the partner would expect specifications from the client for execution. This is most common for highly technical tasks such as building an integration between a web site and an ERP system.
Your form of partnering with a VAR may vary from engagement to engagement.
There are four primary compensation models for VARs, each with its own considerations.
- Time and Materials
- Fixed Fee
Time and Materials
Time and materials (T&M) is the traditional billing method where a customer pays the VAR based upon actual hours spent working on a project at one or more billing rates, and also reimburses the partner for any out of pocket expenses. This method provides the partner direct correlation between staff and revenue. However, T&M but does not always provide the customer the same association of cost with value. As consultants are human, not every individual billing at a certain rate has the same knowledge, skills and abilities to make their services fungible.
We consider Time & Materials to be a confrontational compensation model. Customers are forced to consider whether specific time is worth the cost charged. Contractually, the customer is legally bound to pay within the parameters of a Service Agreement or Engagement Letter. Partners are required to track, record and evaluate whether time is billable before they generate invoices. T&M is very capitalistic as billing rates and costs are linked to capacity and availability and well established by the market over a long period of time.
The key to success in a T&M model is having the right consultants assigned to the project an the right time. In today’s complex world no consultant can provide optimal service in all areas of a transformational engagement. T&M may be very applicable for smaller, custom and exploratory type engagements.
Fixed fee engagements have a pre-determined price for a particular scope of work. Customers typically remit a down-payment prior to starting the engagement and my be billed periodically or at the end of the engagement based upon the nature of the project. In this regard, the customer can place milestones associated with payments and have shifted the performance risk to the partner with respect to the defined scope of work. Fixed fee engagements are beneficial to the partner by reducing the administrative burden of tracking time for billing. Some fixed fee engagements do not include out of pocket expenses such as travel, software subscriptions or other direct costs.
A successful fixed fee engagement will have a very well defined scope of work in order to reduce potential conflict between customer and partner. The customer should have a clear understanding of what is included versus what would constitute a “change order” and the related additional costs. Partners who frequently perform the particular service will have a better understanding of the approximate time and variability within the scope of work to develop a fixed fee that provides fair compensation to the partner and value to the customer.
Value based compensations are typically a sharing of the anticipated benefit. Although often confused with fixed fee, value billing is very different. Sometimes a value based billing arrangement is “fixed” to a perceived value for the service, but it can also be linked to the outcome. For example, if the engagement is to optimize distribution capabilities with an anticipated benefit of inventory carrying value reduction without sacrificing fill rates and on-time delivery, the value could be a percentage of the cash generated.
A higher level of trust from both parties is required for value based compensation. The customer must trust the partner enough to share information regarding value and believe the partner can deliver results. Conversely, the partner must believe the customer can make the required changes to create the value and that they can deliver in the environment.
The subscription model has expanded from software to a huge variety of services. A subscription relationship includes periodic billing on a schedule based upon a service level. Most subscriptions also have a term over which the partner is expecting to recover the initial costs which are typically spread over the term of the subscription. Customers and partners get a predictable cash flow over the subscription period and the company gets the benefit of spreading costs resulting in a quicker return on investment. A service level can range from very limited to all inclusive, so it is important to have a clear understanding of what is included and what results in additional charges.
Subscription based services have also typically required a higher level of trust, especially for long term subscriptions that “lock-in” customers. The model has also matured with fewer companies offering low-up front subscriptions and then surprise increases when the initial term is over and the cost of change has risen. As partners have become more accustomed to charging for subscription, many have also eliminated objection to subscription by not requiring any term. Although it shifts risks from cancellation to the partner, mature partners are confident in their ability to provide value in excess of their subscription costs. No-term subscription arrangements are the deepest type of partnering with a VAR.
Selecting the Right VAR Partner Model
There would not be so many business model choices if there was a clear answer for partnering with a VAR for all companies. However, we believe your optimal partner model can be determined based upon a variety of factors as discussed in our blogpost and in the video on our System Selection Services webpage. When we help companies select systems, we not only consider the technology and its capabilities, but we include factors of style and culture as we help companies partner with a VAR. Whereas traditional partners remain exclusively time and materials, some mix and match compensation models, while others have fully embraced and use only subscription models.
Partner culture includes more than the two dimensions included in this article. For example, some partners swear by multi-tenant clouds, some offer choice and others shun the cloud. Implementation styles also range from vanilla at any cost to heavily customized. In general choice and understanding the impacts and compromises associated with those choices are the key. To have a deeper discussion, schedule a no-cost Systems Selection Explore or Digital Transformation Assessment with one of our executives!