It is essential, at both the channel and the company level, to take a balanced view of performance. To achieve such a balance, four dimensions of performance fitness are required: financial, strategic, operational, and relationship. Financial and strategic metrics show how the alliance is performing and whether it is meeting its goals, but may not provide enough insight into root causes of performance gaps. Operational and relationship metrics can help uncover the first signs of trouble and reveal the causes of problems. Together, the four dimensions of performance create an integrated picture to measure the health of the channel partner and portfolio.
- Financial fitness: Metrics such as sales revenues, cash flow, net income, return on investment, and the expected net present value of an alliance measure its financial fitness. Most companies should also monitor progress in reducing overlapping costs, achieving purchasing discounts, or increasing revenues. In addition, financial fitness can include partner‐specific metrics such as transfer‐pricing revenues and sales of related products by the parent companies.
- Strategic fitness: Non‐financial metrics such as market share, new‐product launches, and customer loyalty can help executives measure the strategic fitness of a deal. Qualitative metrics can be developed to track competitive positioning and access to new customers or technologies resulting from the partnership. Such metrics are not easily designed; expertise in this area comes from experience, creativity, and continual assessment of efficacy.
- Operational fitness: The number of customers visited and staff members recruited; the quality of products and manufacturing throughout are examples of operational fitness metrics that call for explicit goals linked to the performance reviews and compensation of individuals.
- Relationship fitness: Questions about the cultural fit and trust between partners; the speed and clarity of their decision making, the effectiveness of their interventions when problems arise, and the adequacy with which they define and deliver their contributions all fall under the heading of relationship fitness.
Companies must create an optimal economic model, deliver the maximum value to the right target markets, and implement a “joint venture” partnership framework to bridge the Channel Gap. Managers must address the differences between their economic models that drive partnership formation in order to optimize channel performance. Understanding the economic model that channels are operating under and where both companies can apply their resources will drive sales success.
Additionally, technology companies must avoid applying their direct sales strategy to their channel strategy. Rather, they must create a new blended direct/indirect strategy that capitalizes from cooperation between the direct sales force and the channel. Finally, financial fitness, strategic fitness, operational fitness, and relationship fitness are required to achieve a balanced view. Together, they create in integrated picture to measure the health of the channel partner and portfolio. Through each of these elements, management can restructure channel strategy and optimize performance.