What Metrics Matter?

By |2018-09-15T23:40:37+00:00September 15, 2018|

When you ask an alliance manager “What metrics matter?”, more times than not you will hear revenue, revenue, and revenue. Revenue is the most common yardstick for measuring business value. Yet, a single metric cannot give you the insight necessary to manage all the ingredients required to manage a sustainable business. Many businesses have moved to a more holistic view of measuring performance, the balanced score card. The balanced score card has been widely adopted as a method of looking at not only financials, but strategic, tactical, and operational performance, as well as intangibles that contribute to the capacity to generate value. The balanced score card is a great tool to organize and think about alliance metrics.

Alliances should also be viewed as business entities that create value in tangible and intangible ways and while revenue matters, revenue is an outcome and as a single metric cannot alone give you the depth of view to measure the full value of an alliance or how to optimize value. It is like trying to measure the performance of car by only checking the speed.  The speedometer can tell you have fast you are going, but not where you are going nor whether you are running out of fuel – until you do.

So What Metrics Do Matter?

Research done by Phoenix Consulting Group lends some insight into what metrics matter. This study examined best practices over 185 hi-tech alliances and separated performing and non-performing alliances for comparison.  There were distinct differences in what the high performing alliances measured versus those that fell short of objectives.

Revenue was an important metric and almost universally tracked.  87 percent of all alliances in the study measured revenue followed by other aspects of revenue production:  new customer wins, major account wins, and revenue growth rate.  All of which are relevant and revealing metrics.

What separated high-performers, alliances that achieved between 110-130 plus percent of their objectives, from non-performers, those that achieved less than 90 percent of objectives? High-performers tracked metrics in the strategic quadrant.   This quadrant fundamentally measures the capability to grow future business.

Measuring Strategic Intent

Most technology alliances are formed with the intent to create incremental revenue which can take many forms. New revenue streams are created by targeting new markets, developing new products, or creating joint solutions that attract a new set of customers or introduce a technical innovation that delivers competitive advantage in the traditional customer base.  Measuring the strategic intent behind revenue production that aligns with corporate strategic objectives keeps the alliance stakeholders in alignment, holds them accountable, and maintains their focus on the strategic activities that create value as well as the tactical elements of lead generation and sales.  When alliances focus on revenue without also concentrating on strategic intent, they put themselves on a hamster wheel. They can run as hard as they can without gaining much.  The real issue behind revenue production is where and how.

According to Phil Sack, a tech industry veteran of more than two decades, “measuring the strategic intent of an alliance requires that you agree on the value you wish to create, and then identify the drivers of production required to create this value.”

 Hi-Performers measure innovative capacity

Hi-performers were also found to be more inventive than non-performers. They more frequently identified innovation as one of the corporate values created by their alliance and tended to measure the creation of innovative value such as solutions integrations, new products and services.

Customer buying changes during periods of economic stress and successful alliances adjust and adapt to those conditions by offering innovations that address the new state of customer requirements.

They also cared about the speed of innovation. This can be measured in part by new technology adoption.  How fast is the innovation being adopted?

In an environment of transformation and disruption, it makes sense that performers are measuring technology adoption.  The fast pace of innovation makes it keenly important to measure market share and rate of market share growth. While these markets are nascent today, the rate of growth is astounding.  Companies are picking partners to enable them to keep pace and to grow faster to ensure they are not marginalized in these developing markets. If you are not growing faster than the market, then you are lagging behind the market leaders.

Technology adoption for tech companies is also where the high margin lies.  As products mature, they commoditize, margins are squeezed, and margin contribution is realized through volume.  Different types of partnerships are required when markets/products commoditize as well as different types of partners and metrics.

 “Partnered innovation can take the form of new solutions and applications, new delivery and consumption models and even whole new solution categories and market ecosystems – perhaps transforming entire markets.”

Measuring Predictive Indicators

Strategic intent and financials are performance outcomes of successful alliances.  Using only these metrics is like using the rearview mirror to navigate your car.  They tell you the success of past actions. They are not predictive and are not useful in helping alliance managers in optimizing future performance.

“We have many services alliances that are in early stages of engagement.” remarked Kerri Lampard, Director of Global Strategic Services Partners at Cisco. “Revenue from these newer engagements will seem quite low if compared to our mature partnerships. We are still developing initial business models and joint strategy with these partners, so revenue is not a useful measure of value or success. Looking at revenue alone can also belie the size of these newer partners when, in fact, some are the same size as Cisco and market leaders in their categories. It could lead management to cut these alliances based on a misperception that they are less significant or underperforming.”

“Yet these new alliances will ultimately drive future revenue and potentially replace that of the current partners,” added Graham Dunn,  Strategic Partner Development Manager, Cisco.  “For all of these reasons, we focus on other leading indicators aligned with our strategic priorities when measuring the success of newer partnerships,” concluded Lampard.

Relationships Matter

One area frequently overlooked is measuring the strength and health of an alliance relationship. In a world where hard dollars and bottom line analysis dominate, measuring the soft side of the business is often unheeded and at great cost.  When an alliance is not operating effectively in the human dimension it will cost the business in time and in performance.

“I measure happiness!” says Daniele Zarka, Partners & Alliances director at EMC. “ It’s a question on our quarterly partner surveys: Are you happy working with us? We know if partners don’t like working with us, the revenue won’t come.  It’s best to know early whether you’re going to be able to work with a partner and produce results.  If I don’t feel comfortable in picking up the phone to call a partner, we aren’t going to get there and it would be the same for our partners.”

Earning a Seat at the Strategy Table

The highest performing alliances are demonstrating that they have a strategic impact on their companies and are earning their place in the strategy conversation as market makers.  This requires a different tool set than operational managers.  I’ve heard alliance managers referred to as “Those guys who set up governance meetings or track metrics”.  But in the role of market maker, you need to look beyond the day to day operations and keep an eye on trends in the technology, challenges customers are facing and spot the new opportunities for value creation and new business models to exploit.

We are moving to a state where we now ask “what are our partners delivering and how can we bring new value to customers versus reacting to RFP’s.” This gets us in first ahead of competitors –understanding what business disruptions customers are facing and what ecosystems partners we need to bring in to deliver,” noted Ron Long, Global Alliance Manager at NetApp