Directions

Microsoft Partners and the Language of Incentive

• By Paul DeGroot
• December 01, 2010

The buzzword in Microsoft partner relationships these days appears to be "incentives." Cloud Accelerate partners get incentives; LARs will get significant new incentives in late 2011; various other partner types or programs will offer incentives.

This term doesn't represent a substantial change for what partners have often encountered when selling Microsoft-related products or services. Fees, rebates, margin points and their ilk are all some kind of incentive that a partner gets for performing in a particular way.

But when a language has many words for something similar, it often signals that this "something" is culturally significant, and each word offers a different nuance on the subject. This lets speakers of the language address the subject in many different ways.

In this case, fees suggest performance of a service. Rebates suggest a benefit related to a financial transaction and margin points suggest a channel or agent relationship.

Incentives suggest a reward for being a good boy. The recipient can earn a benefit if he acts the way the giver desires. The desired recipient behavior may be a transaction, but it can also be a service, or even something quite intangible, such as putting in a good word for the giver.

Microsoft puts enormous effort into getting incentives right internally, carefully studying how its own managers, employees and sales teams met their goals and the impact incentives had on their success. Incentives are regularly tweaked, either to better align behavior with a goal or to meet a new goal, such as targeting a new competitor.

The incentives are tied to scorecards that determine bonuses and promotions.

Incentives have a few obvious problems. Carelessly designed incentives might drive a different behavior than intended. I heard of one incentive based on moving customers past a particular mark, based on before-and-after surveys. Employees quickly learned that if the "before" survey put the customer just below the mark and the "after" survey put them above it, they could earn a bonus -- even if the customer had not moved at all, but simply gave slightly different answers to the questions.

Another problem: incentives are designed to promote predictable behavior, when unpredictable behavior may actually be better. For example, imagine that a Microsoft developer comes to a colleague and suggests a novel and promising product. But helping the developer will not affect any metric on his colleague's scorecard. His options are to do something worthwhile that won't budge the scorecard or pass on the developer's project and spend that time on work that will affect his own prospects for promotion or a bonus.

For a company struggling with its cred as an innovator, such gaps in incentives can be a killer. The more incentives drive predictable behavior, the less likely they are to reward innovative and original behavior.

From the partner perspective, this can be both promising and problematic. Keeping track of incentives and pursuing the opportunities they offer can deliver not only revenues and new customer contacts, but friends at Microsoft whose employment incentives are likely aligned with the incentives that partners get.

On the other hand, chasing incentives requires having the right skills and products in place. Because these change every year, they can be hostile to business continuity and long-term customer relationships.

If your chosen line of business isn't blessed with financial bonuses in a given year, you have the option of choosing another line of business, but often without certainty as to how long Microsoft will pursue it.

Some have learned the lesson the hard way, such as accounting partners who backed Microsoft small business accounting products against Intuit, only to have Microsoft precipitously exit the category, leaving customers with accounting systems that wouldn't be supported in the long term, and partners with egg on their faces.

I admire the discipline with which Microsoft approaches incentives, but partners need to be careful in following them too closely.

Next Time: DeGroot's Marching Orders for 2011