In the Enterprise Software Industry, the Software companies are promoting more and more a Partner to Partner Collaboration. This topic is mentioned in hallway conversations and board-meetings, as alliances between competitors is not a trend but a puzzle that needs to be solved.
The thing is, that it might be just one piece of a bigger puzzle.
Technology has had a big impact in business for many years, but now companies need to update continuously their business model, or they will be pushed out of the market. The irony is that the companies that support the digital transformation of other companies, the Enterprise Software Service Providers (Partners), also need to update dramatically their own business model.
The revenue model of Partners changed when the industry moved to a Software as a Service model. A big impact was on cash flow, as the licensing revenue moved from an upfront income to a 3-year monthly subscription and shorter contracts on professional services.
The Enterprise Software is now more broader as everything is connected, and new technologies keep appearing, making it harder keep up with the pace and cover end-to-end customer requirements.
And with this growth, talent is scarce and global, so there is now a need to leverage different geographies.
The good news according to Gartner 2017 Research, is that organizations have increased their spending on enterprise software “because of the growing availability of SaaS-based solutions, which encourage new adoption and spending across many subcategories that now are connected to the company”.
This trend continues in 2019 as the Enterprise Application is expected to lead every segment with an expected 10.3% annual growth, above the 2.6% average (Gartner IT Global Spending’2018).
IDC Research estimated that the Salesforce Economy will create more than $1 Trillion in New Business Revenues and 4.2 Million Jobs between 2019 and 2024.
IDC also estimates that the SAP Partner Economy will double by 2024.
“Even the best partners can’t do it all themselves”
Global VP Channel Development and Expansion at SAP
Partners are following different alternatives to update their business model, gain new delivery capabilities and access to additional geographies.
Mergers & Acquisition (M&A)
The upward activity in M&A continues as organizations look to update their business, with Technology acquisition being the new No. 1 driver, followed by Geographical Expansion (According to Deloitte M&A 2018 Trends Report). Morgan Stanley M&A Trends 2018 report, states that the No. 1 trend is Technology Convergence.
M&A is not accessible for every company, as it requires to have enough resources to buy another, plus the time and resources of a typical long process.
Also, a recent Harvard Business Review publication noted that traditional M&A is becoming less important, with traditional deal makers now pursuing alliances or joint ventures, as the business network might matter more than the actual company.
Joint Ventures & Alliances
In the IDC´s report “Partner 2 Partner Maturity Model” that is being promoted in the Microsoft Partner Ecosystem, mentions more than 10 business functions that need to be monitored to have an effective partnering.
A KPMG Research on Strategic Alliances as an Alternative to M&A, found that there is a 30-40% success rate that the alliance will work. It states that the same factors that make alliances a desirable alternative to M&A – namely their transient nature, and lower upfront financial commitment – can also prove obstacles to their success, and prevent the big strategic idea translating into operation reality.
In addition, partnering with a competitor requires trust, which takes time to develop.
Enterprise Software Partner Programs
Enterprise Software Vendors have setup programs to facilitate finding Partners with the required expertise or solution, but it leaves the Partner alone to develop a relationship with its peers.
Another Partner Program is Microsoft’s Geo Expansion, which delivers assistance to its partners for planning their entry into new markets to access the available customer whitespace and gain new capabilities. It consists on validating market fit and access to Microsoft resources and programs in a new territory where their network of contacts has not yet been formed. But it doesn’t support the local landing and operation execution.
SAP is recommending their Partners the use of the SAP Partner Finder tool that used by its customers, for finding peers to complement their offering. The ERP Market leader recognizes that the collaboration journey between Partners will take time and shares valuable resources in its PartnerEdge portal.
These alternatives are being used by IT & Solution Providers, but they are not flexible or quick enough, as the market keeps evolving at a high pace.
Subsidiary as a Service as an alternative for Partners
A new alternative that is being used since 2018 by North America Partners, is a Subsidiary as a Service. It is a Turn key Subsidiary in Mexico that can be used to gain Nearshore Delivery capabilities for USA, to enter Latin America via Mexico as a new Go-To-Market, or as a temporary office when following a customer rollout.
This Subsidiary as a Service is built on the economies of scale of a group that has supported the operation in the region of foreign companies since the 80’s. It has a framework similar of as a Software as a Service (Saas) Model:
- Gain the benefits immediately. Companies don’t need to wait months to start benefiting from the solution, they can start in days for a faster time to market.
- Less expensive. The setup cost goes down abruptly as you don’t have to install infrastructure or hire an inhouse team to support it. By sharing infrastructure and common resources, you don’t need to hire local specialists full time, you use the specialist as needed, as a shared monthly and flexible service.
- Scale when needed. Don’t need to buy the full solution and a package of users that you don’t know when you will start using each functionality and how many users you will actually use in your operation. Adjust accordingly with our economy of scale.
- Any company can use it. Saas was created so Small & Medium Enterprises could access the solution benefits that big corporations have.
When a Subsidiary-as-a-Service is recommended
- When the company is not ready to commit to a certain market for more than 5 years.
- Planning to start the operations with less than 20 employees.
- Need a team and resources quickly, instead of waiting 2-3 months.
- Prefer to pilot the region, before investing a large expansion budget.
- Need temporary capabilities in other technologies.
A Subsidiary as a Service has the added advantage that is a safer path when entering a new geography, as Everscale minimizes potential risks & liabilities of the region.
Everscale enables a unique framework for a strategic Subsidiary with full capabilities, which includes a scalable local operation team with industry savvy executives for GTM strategies. It can add delivery teams with different engagement models.
“Today’s most successful companies are able to leverage business model scalability to achieve profitable growth. Executives need to factor scalability attributes into their business model design or they risk being left behind.”
MIT Sloan Review – December 2017
“Partner to Partner Collaboration, opens doors to expand your industry, geographical and technological capabilities. Isn’t it easier and less expensive to outsource a field of expertise to a trusted partner, rather than create the infrastructure of that field of expertise internally.”
Karl Fahrbach – Chief Partner Officer at SAP
“Traditional competitive advantages of size are now turned against the bigger companies. Now, small, unscaled companies can successfully challenge large companies that are weighed down by decades of investment in scale, using platforms & shared assets.”
MIT Sloan Management Review – March 2018
“Why Traditional M&A Is Becoming Less Important”
Harvard Business Review
“How the Partner Ecosystem is Evolving in the Digital Economy”
IDC Directions 2017
“Building scalable Business Models”
MIT Sloan, December 2017
“Strategic Alliances as an alternative to M&A? Driving growth through strategic alliances”
KPMG Strategic alliances Survey, 2017
“Digital Growth Depends More on Business Models than Technology”
Harvard Business Review, 2018
“The end of scale”
MIT Sloan, February 2018
Partner Readiness Assessments
“P2P Maturity Model”
International Association of Microsoft Channel Partners
“Your Path to Build new Solutions for Customers and Prospects”
Hans Georg Uebe (Global Vice President Channel Development and Expansion at SAP), October 2019
“The Next Generation of SAP Partners and Cloud Business Models”
Interview to Karl Fahrbach, SAP’s first-ever Chief Partner Officer, July 2019
“Peer Networking as a Key to Digital Transformation”
John Scola, GVP SAP Global Channels Cloud & Strateg, October 2019