How a diversified network of distribution partners can put your business at risk

how a diversified sales partner network harms your company

by lucca kallenberger

In the automotive, consumer products, and most other industries, outsourcing business process steps for sales is common practice. Customer service centers, online shops, and brick & mortar chain stores are typical examples of service providers to partner with in sales. But can a diversified sales partner network be dangerous for your company?  

Too many service providers in sales?

According to the 2017 Ethics & Compliance Third-Party Risk?Management Benchmark Report by NAVEX Global, only 29% of all companies named in the report work with fewer than 100 partners, while 57% work in a network of more than 100 partners. Note: not limited to sales partners, includes all third parties. Outsourcing and specialization offer numerous advantages as well as opportunities to increase efficiency or maximize revenue in almost every process. For 45% of the companies interviewed in the report, partners are responsible for 10% or more of their revenue.

Imagine that you’re in the industry for consumer and home electronics like Sony:

Working with sales partners who provide sales channels allows you to create synergies, invest more in research and development instead of your own sales channels, and reach larger customer groups compared with a direct sales system. All this in return for losing a certain amount of margin per product. Sounds good, right? Unfortunately, it’s not that easy. There are hidden dangers that may result in real threats if they are not taken care of. The following points illustrate why companies should not give themselves a false sense of security:

Customer centricity without market access?

Reaching a larger customer base and therefore creating a better customer experience by using external channels may sound tempting in the short term. However, from another perspective – and especially in the long term – the manufacturer loses direct access to the end customer. This means that an essential amount of data is missing and using data and predictive analytics is almost impossible since it is not owned by the manufacturer. Data is a retailer’s most valuable asset and the willingness to share it is therefore small. While competition with direct sales or the means to bypass this problem can drive customer centricity forward, your company is already struggling with the first step – identifying customer developments, requirements, and preferences. Considering today’s short product lifecycles and rapidly changing customer expectations, such a disadvantage can be the key factor in a company’s long-term competitiveness. 


The customer journey

Now it’s time for the CX talk. Most marketing and sales departments want to improve customer experience from the first contact across all touchpoints of a company in order to design a unique, personalized, and entertaining customer journey. But is this even a realistic goal if parts of it are defined, designed, and executed by external parties? 

Well, if your selection criteria and process guarantee that only cooperative partners who have similar goals, mindsets, and state-of-the-art technologies/processes are chosen, there might be a chance. But sadly, these dream partners are quite rare. However, in most cases, the problem is already there during initial selection of partners, since exact needs and requirements are unclear and permission to control the design of the customer journey is not requested or established in a contract. Customers end up with journeys that are not ideal or too uncoordinated.


Ability to control and adapt

Markets – and therefore sales volumes too – are more volatile than ever before. The international export volumes are declining, trade conflicts might become full-on trade wars, and BREXIT is approaching. The more flexible companies are able to react to spontaneous changes, the more successful they are in meeting new requirements and limiting damage to themselves. They might even maximize their yields. 

One of the biggest advantages of partnerships is that less of your capital is tied up in your own sales channels. But at the same time, this is directly linked to a loss of control and adaptability. Therefore, guiding sales partners and considering extreme cases when designing the contact is essential in order to secure a certain degree of flexibility.


Data and cyber security

Focusing on the GDPR in 2018 made companies in Europe very uneasy. But even before the release of the latest legislation, data protection was already a topic that got a lot of attention in Europe. Working with an external partner is always linked directly to relying on its IT security and data protection. If they have a security breach, your company and all data exchanged are also in danger. 21st century hackers are searching for weaknesses like these to gain access to your network via partner access points – and they are shockingly successful. The potential negative impact of such damage is huge. In 2017, 46% of all companies were affected by cyber crime  and, based on a representative study by the German Federal Office for Information Security (BSI) 82% of the interviewed industrial companies expect a further increase. Handling all business processes internally would lower this risk – provided that your own security practices are sufficient. But is this really the right way? In fact, your management tools should project and implement your own high standards to your partner(s), so no additional danger comes from external interfaces.


Negligent handling of preventable risks

“A ship in a harbor is safe, but that is not what ships are built for”, said John August Shedd 90 years ago. As a company, you have to take risks in order to be successful. But this does not mean that no risk management strategies should be implemented. Working with partners may be a risk, so how much risk management is useful? Is minimal risk tracking that is commonly used for projects and within departments sufficient? Approaches such as Coso’s “Enterprise Risk Management” say no. There are a lot of risks for which standard tracking is not enough, especially when cooperating with external partners and excluding topics such as timeline shifts or poor offer fulfillment. The risks to reputation are much worse. Even Apple, the world’s first trillion-dollar company, suffered due to a scandalous supplier like Foxconn. Now compare Apple’s budget for keeping stories like these out of the media to yours.

It is time to implement an adequate level of risk management to make sure the probability of misconduct is reduced to a minimum. Looking more closely at the details, you will find that modern tools and practices for managing risks have a lot more advantages than just prevention. Examples may be the identification of trends, critical areas, and strategic implications in general.


Overview: challenges and solution approaches for sales partner networks

Partner and Risk Management


Advantages from partner networks and cooperation still outweigh disadvantages and risks in most cases, so demonizing them is definitely a step in the wrong direction. However, for  sustainable development and partnership you need to implement certain measures: 


1. Have clear requirements for partnerships.

2. Challenge and update your retail standards and partner selection criteria.

3. Optimize management processes, e.g. your customer experience management and risk practices for working with partners. 

4. Assign resources to partners and create a risk management plan.

5. Do a quantitative and qualitative assessment of partners.

6. Identify critical areas and define corresponding measures.

7. Continuously track performance, risk measures, and risk management.

8. Establish a long-term partner management process.

9. Use modern technologies:

a)  Collaboration tools: Allow productivity gains via data exchanges, ordering, planning, and communication etc. and simplify the work in partner networks.

b)  Controlling tools: KPI tracking and management systems organize cooperation and performance measurement in large partner networks.

c)  Risk management tools: Transparency over potential risks, evaluating and tracking them is key to adequate strategy and resource planning.

d)  Risk prevention measures: In case of an incident, you should have the right solution on hand. This allows a fast reaction, adequate handling of the situation, and limits potential damage. 

10. Seek to work with your partner on a friendly basis. A cooperative business relationship on an eye-to-eye level is more likely to result in a win-win situation.


Implementing these steps and processes may require some resources in the beginning and for maintenance, but this expense is outweighed by the advantages.


This article is also pulished on LinkedIn.

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Stephan Pauli
Stephan Pauli
Head of Business Development & Marketing