This is an article by Tiffani Bova that was originally posted on Gartner’s site on August 14th and is re-published by kind permission. (You will find the original here)
For those of you who recently attended theÂ Future of IT Sales Webinar, I wanted to respond to the question about who in the market is attempting to actually make these hard decisions and materially change their business. Since this case study was used in one of my recent research papers, I thought it only fair to share with you.
Sales models and go-to-market strategies can provide competitive differentiation â€” and there have been a number of examples to prove out that theory. In the technology space, the story of Dell is well-known. However, it is worth repeating here that, in its early days, Dell competed on a few key differentiators: selling directly to the customer (skipping the middleman) and developing a build-to-order manufacturing process to produce individual products and sell them online (meet customers where they want to buy). Dellâ€™s innovations in both manufacturing and distribution gave it a unique go-to-market approach that resulted in tremendous growth early on.
The subsequent part of Dellâ€™s history is a bit different. Dell found itself in an environment where its direct-only sales model was no longer able to provide the competitive differentiation it had previously enjoyed. The competition was able to effectively catch up and match much of Dellâ€™s online e-commerce and build-to-order manufacturing differentiation. Magnifying the fact that the direct-only model wasnâ€™t helping Dellâ€™s market share was that the competition was able to maximize customer coverage beyond Dellâ€™s direct sales efforts to include a very effective indirect sales channel. This sales channel included value-added resellers, direct market resellers and retailers at, combined, generated a tremendous portion of their (Dellâ€™s) competitors overall sales revenue. Dell had little protection here;Â and was exposed in a key sales channel that managed a significant portion of the SMB market, and it was hurting Dellâ€™s growth as a result.
Because of this, plus other factors, Dell had a change in strategy and began to embrace third-party channels in a more formalized manner, launching an entire indirect sales organization with supporting programs and distribution partners to drive incremental business and engage with an entirely new set of â€œsellers.â€ Five years later, Dell now has a leveraged sales model (seeâ€œMarketing Essentials: Setting the Foundation for Developing a Leveraged Sales Strategyâ€Â ) in place, including both direct and indirect sales channels, and it currently attributes approximately 36% of its commercial revenue from these recently engaged indirect channels.
For Dell to achieve this type of success,Â they needed to rethinkÂ their entire business â€” from operations to sales and marketing, customer support, distribution and manufacturing â€” because it was building on the direct model and it was not possible to quickly adjust without significant investments.
At the time this document was written, Dell was once again on the path of reinvention. This time, Michael Dell is trying to take his company private. In anÂ SEC filing, a presentation to shareholdersÂ Â titled â€œThe Rationale for a Private Dellâ€ says that â€œDellâ€™s transformation is necessary to navigate a rapidly changing landscape.
â€ The company founder argues that the PC market is changing â€œfaster than anticipatedâ€ and â€œthere is an emerging shift away from traditional datacenters toward outsourced and cloud-based delivery models.â€
Michael Dell argues that transforming the company is â€œmore challengingâ€ as a publicly trading entity. He argues that significant changes are needed to extend end-to-end IT solutions capabilities,expand sales coverage and compete in emerging marketsÂ to restore the companyâ€™s balance books and that the â€œspeed of transformation is critical.â€
Now whether or not Dell is able to accomplish its goal of goingÂ private or not is besides the point, here you have a very public declaration by a CEO of a large IT provider, that their current model will no longer be as effective if they donâ€™t make significant changes, and doing that while publically traded is difficult â€“ another confirmation that theÂ â€˜sellers dilemmaâ€™Â is real.
Tiffani Bova is a VP, Distinguised Analayst with Gartner Research, where she covers IT sales and channel strategies. Ms. Bova’s area of specialization includes the development of comprehensive indirect channel strategies …Read Full Bio
Stop Press: Yes, JF was due to make his w/e post today, but he read Tiffani’s piece above and wanted to re-publish it. However, you can listen in to a recording of his webinar from last Thursday, which was over-subscribed – “How to Become a Top 5% Player in the Game of Sales” – comments in so far include … “Highly motivational” “Inspiring” “Jonathan at his most witty” “JF was on top form ” You can download here