"Crawl, walk, run"
Spend a lot of time at the beginning on thinking through what numbers you want and why. Test the validity of numbers as you go and check that what you are doing is really meaningful to account managers. Build simple systems that work before spending a fortune on complex IT.

Beware accountants!
Beware a dependence on accountants as scorekeepers. Both Julian Dent and Pat Bailey felt it was essential for the exercise to be driven by, and owned by, senior sales managers. "It is after all the sales force who are going to be the users," says Dent. Bailey reckons that, left to their own devices, accountants tend to measure output, rather than the drivers that account managers need to keep an eye on.  "Accountants act as recorders in the old-fashioned model with functional cost centres that don’t relate to how the business is really run."

Identify institutional resistance early on
Most large suppliers are siloed into product divisions, all measuring profitability their own way.  This makes measuring front-end profitability all the more difficult. For Dent this simply highlights the importance of getting senior management buy-in. "These initiatives are still-born if they don’t have powerful backers who are prepared to cross divisional lines."  At one large supplier, the concept has been adopted by the group’s chief executive, who now demands reports from national managers showing these numbers.

Give channels management some power
Channel-profitability measurement schemes are almost bound to fail unless channels people have some weight and importance.  If they are simply seen as staffers tacked onto national or product divisions then it will be impossible to develop consistent profitability measurements.  At HP, vice president Jos Brenkel now heads up a commercial channels organisation with $12 billion in sales.   Etienne Rouvillois, HP’s commercial channels financial director says: "This means we have some clout. When channels management is split up into different product divisions and national subsidiaries, then any sort of initiative to measure channel profitability is almost bound to fail."

Confront complacency
These institutional issues tend to express themselves as complacency.  A channel-profitability evangelist relates how he asked national managers to rate their control over channel profitability. "They all gave themselves 3 or 4 out of 5," he relates.  "We then looked at their systems and it quickly became apparent that they were very basic. Most were simply looking at gross margin – so 1 out of 5."

To make progress, he had to shock the general managers by showing them the real situation. But channel-profitability champions often find themselves swimming against the institutional tide. 

Reward value creation
If senior sales directors are rewarded purely on the basis of sales levels or market share, then it can be difficult to get them to pay much attention to value creation and to measuring real channel profitability.

This, of course, is a chicken-and-egg situation.  Until you can measure profitability, you can’t reward those who attain it.

Percolate the new ideas throughout the organisation
Electrolux held high-quality training during the year for a picked European Èlite of account managers.  Having trained them in the new approach, and given them the new tools, the hope is that they will then go back to national subsidiaries and start asking the right questions. Slowly the new thinking will start to percolate through the organisation. Bailey, an accountant by training himself, says: "I knew I was winning when I started getting calls from local controllers in the national subsidiaries complaining that they were getting a host of new data requests from their sales teams."

Beware complex IT systems
Bailey stresses that whatever system you come up with has to be simple and easy to use. That means avoiding complex IT systems, especially when you are first setting up new ways of measuring channel profitability.

"Over and over again you see situations where people think that by deploying some expensive piece of software they have solved the problem. In practice, you shouldn’t deploy customer-relationship-management systems until you understand precisely what you are trying to measure.  Complex software creates its own imperatives."

In fact, Bailey advocates that sometimes using simple spreadsheets is sufficient. "It is vital that account managers really understand the tool you are giving them."  He adds: "They need to be able to take the systems and immediately use them in their jobs.”

As people develop their expertise, so new and more robust systems will have to be deployed.

Train and empower account managers
The key here is to give account managers the tools to do the job. One of the most effective is a solid understanding of how the partner across the desk from them actually makes money at a business level.  This allows them to position their channel value proposition effectively.  It also enables them to move away from the fight over margins.

You also need to look at how account managers are incentivised.  No matter how well they are trained, if account managers are paid purely on quota they won’t develop a relationship that generates business, as opposed to one that simply fulfils business.