CEO Arvind Krishna: 10 Keys To IBM’s $1B Partner Ecosystem Bet

IBM CEO Arvind Krishna says the company’s $1 billion partner ecosystem bet is driving ’clarity’ in partner incentives, segmentation and tools. Here is a look at 10 keys to Krishna’s partner ecosystem bet.

A Win-Win-Win

IBM CEO Arvind Krishna’s philosophy on the partner ecosystem value proposition is simple: “Anything that succeeds in this world has to be a win-win-win.”

“It has to be good for us, it has to be good for the partner, and it has to be good for the client,” said Krishna in an exclusive interview with CRN.

Under a new simplified go-to-market model, put into place this year, IBM will go direct to the 500 largest customers seeking an “integrated” set of solutions from IBM, said Krishna.

Even in that direct sales large account segment there is still a “massive market” for the channel given that there is $5 for build and service on every $1 of products sold, said Krishna.

“There is a certain set of clients where we will largely go direct for the product sale,” he said. “There is a big role for partners around providing—whether you use the word ’build’ or ’service’—because not every customer has got the capacity or even the desire to do it all themselves.”

In the next segment of several thousand accounts, Krishna said, IBM will “go somewhat directly, but there is more opportunity for partners including in the resale of products.”

Beyond those next several thousand accounts, the go-to-market is completely through partners, said Krishna. “I really want to depend only on partners [there],” he said.

Krishna is determined to build a robust ecosystem of partners working hand in hand with IBM to educate customers on why the “best architecture for clients” is an IBM Linux container Kubernetes platform on-premises and in the public cloud. “If we can get that through [to the partners and the market]—which is a massive advantage, we believe, for our clients and our partners—then there is a lot of money to be made because we are going through this tectonic shift,” he said.

IBM Market Segmentation: Where IBM Will Go Direct With Product Sale

So if I step back and look at it today, I would tell you there is a certain set of clients where we will largely go direct for the product sale. There is a big role for partners [there] around providing— whether you use the word ’build’ or ’service’—because not every customer has got the capacity, or even the desire, to do it all themselves. That’s a massive market out there because there is $5 in build and service for every $1 of the product sale.

Then if I say if I go beyond and resegment it, where you have the top 500 where we will tend to want to go a lot with our people, there is a huge opportunity for build and service

Then you say there is the next few thousand, where we will go somewhat directly, but there is more opportunity for partners, including in the resale of products. And everything after that I really want to depend only on partners.

Partners Need To Move To Build And Service

When people say ‘cloud’ what they really mean to say is they are no longer doing a lot of labor and a lot of complexity on the infrastructure operations. I would like to put all my energy into applications and modernization and what really brings end-user benefits.

It’s not that this [data center] piece is not important, but it’s like you don’t worry about electricity coming into your house. I see those two lights behind you. You’re not worried that the electricity is working or not. That’s infrastructure. But you care a lot about where they are, where they are pointed and whether it works for you.

So the money is going to shift toward that. So our partners should be putting their money into build and service, as opposed to just infrastructure.

I would say come with us because if you look at who can go across public and private [cloud] with the mixture of the Red Hat and IBM portfolio, I think we have an advantage. Will we be the only ones? Of course, we won’t be the only ones. Everybody who sees the money is going to come this way. So what I would like is for our partners to work with us in winning that that [hybrid cloud] franchise.

Clarity In Incentives, Clarity In Segmentation And Clarity In Tools

If I go back [before the new sales structure moving to two groups from 50, the question was] which customer lies where? Was there a big incentive or a small incentive? Are you going to come and cut me out or are you going to let me maintain my relationship? Or how the hardware team does it is different from how the storage team does it, and different from how the data team does it, and how the security team does it, or different from how somebody else [in IBM] does it. That leads to the complication that I don’t quite know how you’re going to treat me.

[Now we have] consistency. In Segment One we really want to be direct for products. Segment, I’m calling it 2A, yes, we have a lot of direct coverage, but there is this precise role for partners.

Everything after that the partner wins. Let’s be clear. So that is complete clarity there: [segment] 1, 2, 2A and 2B. Then the incentives are clear. If you go here, that is your incentive and it is completely consistent and I’ll look at you and say, ’I am not going to rip a customer out from one to another—except for the edge cases.’ I am just not going to do that. So you can keep making money.

Now here are the incentive programs. … So based on your skills, based on how much you do, based on which point [you are at] in which segment, here is your incentive. So there’s clarity.

I am going to invest in tools also. So by the middle of this year, we will be done with our Salesforce implementation. So there will be much cleaner tools for you to use as a partner also.

So all of that means clarity in incentives, clarity in segmentation and clarity in tools so that we can begin to collaborate much better than through spreadsheets and older tools.

An IBM Internal Compensation Model ‘Highly Favorable’ To The Channel

[The IBM direct sales compensation is] highly favorable to channel, so the people who get paid in what I call Segment One, that individual cannot be paid in Segment Two. So it used to be that we often had people blended, where somebody could go across [those segments] face to face with clients. They might cover some upper-end clients and they also might cover some lower-end clients. So when that individual looked at how they got paid you ran into a conflict before because they say, ’Hey I make all my money direct.’

Now if I say you only call on my big clients, you cannot get paid for what is today a midmarket client. Suddenly that is a big plus for the partner because there is nobody who can be in there, saying ’No, no, no, let me take it direct because then I can get paid more.’ That human doesn’t exist.

Systems Integrators: The Cloud Engagement Fund

They want different kinds of things. They might actually want to build an actual application on top of some of our infrastructure. And that’s where on top of everything else I have talked about where we have our Cloud Engagement Fund. So if you are actually going to build something and we get embedded and pulled along, then we’ll actually help and invest in you building that thing to get going. That provides a little bit of fuel. I want it to be a shared investment.

[One example is] there is a company called Schlumberger. Forget their oil services side, which is people that go onto rigs and all of that. They also have a very big software portfolio. They help clients by doing all the analytics to figure out where you should drill a well. They agreed that they wanted to port all of that software onto our technology.

So we stand up and say, ’OK, we’ll help you with people and dollars to do the porting.’ But then at the end we get a victory because then whenever you sell we come along with our technology embedded inside the solution.

I can do the same thing with [Cyprus-based] ATL Solutions or [France-based] Atos.

We will invest. Basically we provide a capital infusion to get it going. That is part of what we talked about by investing $1 billion over the next few years into those things. By the way, as we see the return, we could increase that amount if we have to.

IBM’s Midmarket Commitment

When you talk about incentives, if you talk about the midmarket, I want to be clear.

You belong there. I want to give you consistency. I commit we are not going to rip you out and say—’No, no, no, you got a $10 million win there, I am going to take you out and offer it to my direct [sales organization].’

I want to be clear: You stay there, which means if that if you go get that footprint, you can keep making money there for a long time. I want to invest in your skills. which is why we talk about the tens of thousands of certifications we are doing. We will provide the training and we’ll give it to you.

We’re being clear about where we’d like partners to invest and where they can make money. By the way, it’s not that it’s hard to make money here. Everybody is looking for how to leverage AI in their workflow. Start easy. Everybody has a contact center. Everybody has emails they are replying to. Go use Watson.

Let’s be straightforward: taking half the cost out of those things at higher quality. What’s an example? The work we did with partners back in March and April when COVID-19 first hit. Hospitals began to say, ’I can’t handle the volume of calls.’ So at Children’s Hospital in Atlanta we took their process and trained Watson to answer calls. So as parents called the hospital over 80 percent of them got filtered out by Watson so only the last 20 percent had to go to the nurses and doctors.

That’s a simple example of how to get going. You can apply that to every midmarket client.

If a customer is interacting over a phone, email or chat, you can go help your clients succeed. That is an AI example. If you are looking at a hybrid cloud example, you are now looking at how to modernize applications and get it to run on a public cloud or a private cloud. The user has to go get there with a technology base that gives them full freedom and flexibility. That is what I think is exciting. We are clear about what we do. We are clear about how we would like partners to work with us, and we are clear about how we would like you to make a lot of money in the process.

IBM’s Global Business Services Strategy

There are these big ecosystems. There’s an SAP ecosystem. There is a Salesforce ecosystem. There is a Microsoft ecosystem. There is an Amazon [Web Services] ecosystem. There is a ServiceNow ecosystem. So there are these big partners on whom I want to grow multibillion-dollar GBS [Global Business Services] practices in implementing the ISV at a client. You might say, ’Why would the other one be interested?’ Because if we have the skills to implement faster, they get to revenue faster. By the way, if they get to revenue faster they can sell more there.

For my teams that establishes a lot of trust with the client. You can get other projects outside that ecosystem. And, by the way, in almost all cases, those ISVs have agreed that technologies from us will not usually get embedded but will often be bolted on side by side.

With ServiceNow we agreed that our Watson AI Ops technologies integrate with how ServiceNow does ticket management. That means for the clients previously they could do ticket management. Now they can also do problem triage and get an answer to where your issues might lie. That is a massive advantage.

Once we do the technology integration that is not confined to Global Business Services, any partner gets access to that.

That’s an expansion. As opposed to just being IBM technologies I am adding to the ecosystem.

I am getting a flywheel going that says I will be one of the most open companies, not just bringing myself, but also bringing my technology ecosystem to help with my partners.

We now have huge practices in Global Business Services. We have become from a standing start the biggest Red Hat partner in terms of certified skills. So that’s a pretty good flywheel.

Easier To Work With, Easier To Do Business With

Are we trying to be a lot more nimble? Absolutely. But the nimbleness is all around easier to work with, easier to do business with. So I want to make it more straightforward. If you are a partner, I want you to have one person you deal with as an example of being nimble, but try to tie it to something that is operational. Let me be clear in writing so you know how you are going to get paid. That makes it a lot easier for you to deal with us. Let me help you with skills and certifications so that we are again much easier to deal with. So that is the reinvention side. So what it should lead to, it should lead to a lot more opportunity for our partners to sell and to make money.

That results in the outcome we all want, which is a bigger footprint, more happy clients and that results usually in more revenue.

I think it is a really important step, though, to face up to that we can improve dramatically on our channels. You need to acknowledge it first. Otherwise you just keep trying to make incremental innovations.

Open At Every Level: ISV Commitment And The No Applications Pledge

We’re open at every level. That’s why we talk about other ISVs. Example: We have our databases, but we are deep friends with Mongo.

I am not going to favor our own over Mongo. If the client wants Mongo, so be it and we put that in. If the client wants Cloudera, so be it. You have got to be more open because being more open lets you get more at the platform level. And that drives a lot of goodwill towards our technology stacks. So that is the strategy to say I am going to work with all partners, I am going to work with all ISVs and we are not going to do applications.

A ‘Maniacal Focus” On Hybrid Cloud And AI

I picked those words carefully—a ‘maniacal focus’ on hybrid cloud and AI—which means as a partner I’m asking you to invest in those two areas, as opposed to: Should you do marketing? Should you do asset management? Should you do accounting? Should you go do fraud management?

You can get really distracted by us saying, ’No, no, no, it’s not those. It’s also and, and, and, and, and, and.’ So if you are a partner should you focus on bringing some of those verticals?

I am much more straightforward. I want these horizontals. You as a partner get all those verticals and you can own the solutions, sometimes they will be custom. Maybe you’ll bring another ISV into the mix and run it on top.