Management of Intermediated Channels for High Technology Marketplace
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Management of Intermediated Channels for High Technology Firms: Achieving Success in a Dynamic and Rapidly Changing Marketplace By John-Paul Gorsky B.S. Computer/Information Science, State University of New York College at Fredonia, 1986 M.B.A. University of La Verne, 1993 Submitted to the Alfred P. Sloan School of Management in Partial Fulfillment to the Requirements for the Degree of Master of Science in Management June 2005 © 2005 John-Paul Gorsky. All Rights Reserved. The author hereby grants to MIT permission to reproduce and distribute copies of this thesis document in whole or in part. A N ( / Signature of the Author ' I ' N /\ S-loan School of Management May 6, 2005 Certified by I I Henry Birdseye Weil Senior Lecturer, Sloan School of Management t-. I / , Thesis Supervisor Accepted by I-7,'>1- / Stephen Sacca Director, Sloan Fellows Program in Innovation and Global Leadership MASSACHUSETTSINSTT Ecw Sloan Schoolof Management OF TECHNOLOGY SEP 01 2005 i~1 I LIBRARIES .i 1 This page intentionally left blank. 2 Management of Intermediated Channels for High Technology Firms: Achieving Success in a Dynamic and Rapidly Changing Marketplace By John-Paul Gorsky Submitted to the Alfred P. Sloan School of Management on May 6, 2005 in partial fulfillment to the requirements for the degree of Master of Science in Management ABSTRACT One of the most challenging problems for high technology firms in an increasingly global marketplace is the effective utilization of intermediated sales channels. As product development cycles shorten, there can be a scenario where the rate of product and solutions development and introduction to the market out-pace the manufacturer's ability to sell, service, and support the new products and solutions. There are many challenges to be overcome in providing a third party organization with the knowledge, skills and tools necessary to successfully propose, implement, operate and support high technology products and solutions designed, manufactured and marketed by another company. As firms both large and small look to indirect channels to expand their coverage in existing markets and or to penetrate new markets, significant investments in channel support infrastructure and best-in-class channel management techniques are increasingly a necessity to achieve success in a global channel network. The objective of this thesis will be to closely examine the enterprise data communications equipment market segment to develop an understanding of how successful firms effectively utilized intermediated channels to attain remarkable market share at the expense of competitors who were not able to do so. From this understanding generalizations will be drawn that will provide a number of management practices that guide other high technology firms in design and implementation of their intermediated channel programs. Thesis Supervisor: Henry Birdseye Weil Title: Senior Lecturer, Sloan School of Management 3 Acknowledgements I would like to recognize my family's incredible support and unending patience over the writing of this thesis and my entire year as a participant in the MIT Sloan Fellows Program in Innovation and Global Leadership. Thank you Maria, Genevieve and Jacob! To my thesis advisor Henry Birdseye Weil I would like to convey once again my sincere appreciation for his efforts in advising me on the design and writing of this thesis. Your advice and encouragement were instrumental in making this thesis a truly valuable learning experience for me. 4 Table of Contents Chapter 1: Introduction ............................................................. 7 A Note to Readers Regarding the Appendices ............................................................. 15 Chapter 2: The Strategic Challenges and Complexities of Intermediated Channels Management ............................................................. 16 Chapter Introduction ............................................................. 16 Change Management Complexities ............................................................. 16 The Agency Issue ............................................................. 21 Potential for Shifts in Market Power ............................................................. 25 Identifying and Recruiting Intermediaries: Competing for "Shelf-space".................... 26 Marketing: Selling to and Through Intermediaries ....................................................... 30 Channel Conflict and the Alignment of Incentives....................................................... 32 Communication across Firm Boundaries ............................................................. 35 Chapter Summary............................................................. 36 Chapter 3: Developing Multi-channel Management Capability ....................................... 37 Chapter Introduction ............................................................. 37 Multi-channel Management Capability as a Complementary Asset ............................. 38 Building Multi-channel Management Capability .................................................. 40 Timing Considerations ............................................................. 40 Transitioning the Sales Force ............................................................. 42 Customer and Technical Support .............................................................................. 44 Technical Training ...................................................... .......................................45 Brand Awareness and Marketing ................ ....... 4........................................46 Financial and Revenue Reporting .............................................................................47 The Dynamics of Transition to a Multi-channel Strategy ............................................. 50 Chapter Summary............................................................. 64 Chapter 4: The Role of Technology in the Management of Intermediated Channels....... 65 Chapter Introduction ............................................................. 65 Defining Partner Relationship Management ............................................................. 66 Components of an Effective Support Infrastructure .....................................................71 An Example Intermediary Support Infrastructure from the Research .......................... 78 An Illustration of the Importance of Intermediary Support Infrastructure.................... 82 Chapter Summary............................................................. 87 Chapter 5 - Case Study: Cisco Systems, Inc ............................................................. 88 Chapter Introduction ............................................................. 88 Company and Product Origins: Cisco Systems, Inc ..................................................... 89 Cisco Embraces Intermediated Channels ..................... ..............................................101 Building Brand and Technical Training ............................................................. 110 Recent Developments............................................................. 113 Chapter 6: Case Study: Cabletron Systems, Inc ............................................................. 116 Chapter Introduction ............................................................. 116 Company and Product Origins: Cabletron Systems, Inc . .................................... 116 Cabletron Sales Strategy ............................................................. 123 Recent Developments ............................................................. 134 5 Chapter 7: Conclusions ............................................................. 136 Appendix 1: The Data Communications Equipment Market, Past and Present.............. 145 Introduction ............................................................. 145 Origins of Standards-based Local Area Network (LAN) Technology ....................... 145 The Internet Emerges ............................................................. 146 The Drive toward Open Standards .............................................................................. 149 Applications Drive Enterprise Adoption ............................................................. 151 The Evolution of Ethernet ...................................... ........................................ 155 Enterprise LANs and the Internet Collide ............................................................. 156 Cisco Systems Dominates the Enterprise Segment..................................................... 162 Trends Driving the Industry Today ............................................................. 166 Summary ............................................................. 171 Appendix 2: Market Drivers and the Emergence of Intermediated Channels for the Enterprise Data Communications Market ....................................................................... 174 Introduction ............................................................. 174 Open Standards Impact on Market Evolution ............................................................. 174 Competition in the Presence of Industry Standards .................................................... 176 Enter the Data Communications Equipment Intermediaries ....................................... 179 Summary ............................................................. 189 6 Chapter 1: Introduction For many businesses today the ability to effectively market and sell their offerings to the largest