The Changing Channel

Microsoft's Channel Chief to Partners: Up Your Game with Us

Phil Sorgen talks to RCP about his first Worldwide Partner Conference as head of Microsoft's Worldwide Partner Group, the evolving direction of the partner channel and Microsoft's role in it.

• By Howard M. Cohen
• July 11, 2014

Microsoft Corporate Vice President of the Worldwide Partner Group Phil Sorgen has been with Microsoft for more than 18 years serving in various roles, including district manager for the Gulf Coast, general manager of Enterprise Partner Group National Sales, president of Microsoft Canada and, for the last 10 months, corporate vice president for U.S. Small & Medium Solutions & Partners (SMS&P). As Sorgen proudly points out, "Every job I've had at Microsoft has been through and with partners."

Commitment to Partners
In an earlier article about the February introduction of Satya Nadella as the new CEO of Microsoft, I expressed great concern about the fact that Nadella only used the word "partner" twice in his first Web broadcast interview -- a session where a Microsoft employee questioned Nadella in front of an audience of Microsoft executives, customers and partners. I questioned his commitment to the channel, and by extension, what it means for Microsoft's commitment.

Sorgen takes a different view. On the very day Nadella's session was held, Sorgen posted a blog entry headlined, "Satya Nadella talks about partners on day one as CEO," and he referred to Nadella as "a longtime partner advocate."

Sorgen makes his own commitment to Microsoft partners no mystery whatsoever. In an April 30 blog post, Sorgen categorically states that, "Meeting with partners is the most important part of my job and the most meaningful aspect of what I do. However much we innovate in Redmond and map our vision for a new cloud-first world, the reality of the marketplace rests squarely on the shoulders of partners."

Channel History and the Need To Be Deliberate About Change
I got a chance to interview Sorgen last month in advance of his first Microsoft Worldwide Partner Conference as Microsoft's channel chief. In addition to reaffirming Microsoft's commitment to the channel in the Nadella era, Sorgen's main theme is the channel's need for change.

"Over the course of the past 10 years or so there have been a couple of monetizers for the business channel players are in. There are four core scenarios that exist today: companies that resold product, companies that provided project services, companies that provided managed services and companies that provided IT solutions. And they're not mutually exclusive. Many companies did multiple of those things," Sorgen says.

"The cloud is enabling companies to move the value they provide, their value proposition, further up that stack. Companies have to be deliberate about where they're going to drive value in their P&L and valuation of their company," he says. "One partner told me that annuity is the new measure of value for their company, and annuity increases as they're moving up to IT solutions and managed services they provide."

Sorgen goes on to define how partners must go about doing that. "I tell partners that the most important thing is to be deliberate about what the value add is that you and your company bring to customers and then build all the components of your company to align to that. It's too easy to say you want to move into managed services. [It won't work] if you don't train your people, make the right investments [and] build the right marketing capability. [It won't work] if you don't go into your customer base and really assess from a propensity analysis who's the most likely customer you can upsell and bring incremental value to, and then how you're going to expand that to get the return on investment by entering that new business model. That's the shift that channel companies have to make and they have to be very deliberate about what they're going to be great at."

Stressing the need for change, Sorgen observes, "The challenge facing the channel is business model transformation. Partners have to have a foot in two worlds: the things that have made them successful in the past and the things that will make them successful in the future."

Rudy Rodriguez, president of the International Association of Microsoft Channel Partners (IAMCP), agrees, but cautions that the changes may be more difficult than even Sorgen's numerous caveats suggest: "Telling partners to move into managed services is the correct advice up to a point. It is not only a new way to do business, you have to figure out which customers are best for your business model, your customer acquisition processes change, cash management becomes even more important, compensation programs have to be redesigned, and all these are difficult for small partners to change. They can adopt the Microsoft strategy but regardless of the marketing, they'll still need to undergo a two- to three-year period to successfully transition and the cash requirements and cash flow management issues loom large in the partner success story. When you throw in the uneven economic recovery, the challenges for partners are great."

Microsoft's channel chief is telling you that you need to up your game. You won't achieve success simply selling software. Innovate new value propositions for your customers, because the return from the old ones is rapidly disappearing. Your real profit opportunity going forward will be more about what you and your company do, not what you resell for Microsoft or other vendors.

On Microsoft's Role in the Changing Channel
Reading his blogs and speaking with Sorgen, it becomes immediately apparent that he's someone who thinks through things carefully and prepares extensively to assure consistency of message. He describes a mental model he built when he came into the role of channel chief. He is careful to differentiate it from a scorecard or a P&L, being very specific that it's his mental model for balance in the Worldwide Partner Group's promise to partners, consisting of four pillars:

1. Product: "Microsoft invests $9.5 billion-plus every year to drive innovation. If we stop creating products our customers want and [our] partners can build a business around, the next three pillars don't matter. We partner with the product groups to better understand the route to market through partners."
   
   
2. Creating Markets: "We do business in 152 countries around the world. We have partners doing business in all those and it's not efficient for partners to have to create brand awareness and enable knowledge of the capabilities of our products. That's our direct responsibility on a global basis. When a partner introduces a solution, the customer should not be asking what Office 365 is. It's our job to drive unaided brand awareness. If we do that well, it drives down cost of sales for our partners. In addition, how do we extend those marketing capabilities so our partners can draft behind that? How do we make sure that as we're building brand, that we're creating a partner call-to-action for them so that we're driving demand generation, pipe and reducing cost of sales for our partners?"
   
   
3. Enabling: "This is a very important time for us to help partners re-tool some of their people around sales, pre-sales and technical, including architecture. It's where the investments we make, the programs we drive, the campaigns, the incentives all fit here."
   
   
4. Sales & Marketing Engagement: "This is where I think we're uniquely positioned in the industry. We have one of the largest sales and marketing organizations that span the globe that are local in country. That's different than being regional or global. We have an opportunity to be local and personal with our partner ecosystem in the markets that are doing business. We can take global ideas and global programs and make them local to each given market. We have to make sure that our team is enabling -- without starting from scratch in 152 different markets -- those teams to take global access and make them personal and local in the market so we can get the greatest execution for our partner ecosystem.
   
   "We're very deliberate that we deliver a platform that partners can be successful on in delivering their solutions," says Sorgen.

Again, Sorgen punctuates the distinction between Microsoft as provider of the platform, and partners as the providers of the solutions. Partners must set their expectations accordingly if they haven't already. If all you're providing to customers is the platform, your anticipated return from that will continue to become smaller to the point where it will not sustain your business any longer. To continue to play successfully, you must innovate and deliver real business value in real business solutions.

A Transforming Channel
"Partners have always been our core as a company," says Sorgen, "and everyone in the executive team of Microsoft believes that our success in this transformation happens only with a successful partner ecosystem. That gives me the charter to go execute on my job as channel chief."

Rodriguez agrees that it's a transformation. "We are all going through a huge transformational period in the history of IT," says Rodriguez. "Only time will tell if the Microsoft strategy will work. It seems to be working for partners like Conquest [Technology Services], Catapult [Systems] and Sogeti. These were all early adopters and they made a commitment which worked for them."

For Microsoft partners, the transformation is visible in other ways. "The cloud makes license revenue completely traceable and that can be tied to partner IDs and that's where Microsoft seems to be completely focused," Rodriguez says. "The days of the broad partner base are going away as the market has matured and they've faced more competition from more credible competitors than ever before."

Why should you put your company through transformation just because Microsoft says to? Sorgen's response is this: "Many times partners think we're talking to them about transformation, and they don't always appreciate or recognize, perhaps because we don't communicate it well, the extent to which we're transforming as a company ourselves. During a time of transformation you have to communicate more, not less. We have to be open and transparent in our dialogue, and it has to be a dialogue, which means listening and talking. And hopefully the listening is proportionally greater than the talking."

More Columns by Howard M. Cohen:

• For Partners, Where Are the Microsoft Alternatives?
• In Nadella's Microsoft, Uncertainty About Where Partners Fit
• Column Archive