With more than 20,000 channel partners selling everything from pocket calculators to computer networks, Hewlett-Packard Co.'s Small/Medium Business Organization had a staggering array of functions to perform and track. There were qualifying and enrolling partners, training and certification, qualifying and distributing leads, updating product and pricing information, filling requests for collateral materials, managing co-op funding, and assessing the effectiveness of marketing campaigns. The situation called for a major coordination effort, and thus in late 1998 HP began its partner-relationship-management (PRM) journey. Starting with a promise made to its partners to provide them with sales prospects, HP developed a system to fax out leads generated from various marketing campaigns. That covered everything from business cards dropped in fish bowls at trade shows to requests for product information from HP's Web site. Once the program started, the partners wanted more. "We wanted to streamline it to have fewer bodies involved," says Scott Miller, an MIS/IT manager for HP's Small/Medium Business Organization. "It's been evolutionary from a fax-based system to this fully automated system. The whole system is run by one person." InfoNow Corp., Denver, provided HP's system. Through a secure Web site, HP's partners can log on at any time to obtain leads that have been generated for them, based on either defined business rules (for example, sales volume or certification) or geography. If they don't respond within a certain time frame, the lead is passed to another partner. The partners use the Web site to order literature, obtain product specifications and pricing information, and check their co-op funding -- "all the things that are a constant headache to keep up with and keep fresh," Miller says. The immediate benefit to HP is that it knows every lead is followed up, and it can track the ROI of marketing campaigns. Prior to adopting PRM, "We would generate a mass-mailing campaign, send it off to who knows where, out it would go, and we'd hope it would work," Miller says. "Now we can generate a targeted campaign, see when the opportunities start coming back, and see what happened. The channel partner tells us what happened. We can feed that back and see the ROI. It's changing the way we do campaigns." Automating Alliances Manufacturers have known for decades that automation and streamlining processes on the factory floor can reduce costs, increase productivity, and shorten time to market. Supply-chain management applies the same principles to the acquisition of raw materials, while customer-relationship management (CRM) helps companies focus attention on acquiring and retaining customers. But in manufacturing the vast majority of sales are made through indirect channels. It is a system fraught with inefficiency. Sales managers have long complained about the difficulty of measuring the ROI of marketing campaigns. What happens to the leads that are passed along to resellers? How much time and money could be saved if a new memo or fax didn't have to go out every time there was a rebate, a price change, or a new-product announcement? PRM, defined by consultant Bob Thompson as "an e-business strategy to develop and sustain long-term, profitable partner relationships in the distribution web," is poised to help manufacturers automate a host of time-consuming functions and build strong alliances with their demand-chain partners. With 70% of major companies' sales completed or influenced by channel partners, analysts place PRM applications and services at a $1 billion market in 2002. "At its highest level, PRM is a strategy that has existed forever," says Christian Heidelberger, president and CEO of ChannelWave Software Inc., a Cambridge, Mass., PRM solutions provider. "It can be significantly augmented by technology. There are two dimensions to it. You save money because you're doing these things anyway. You've got to recruit partners and you've got to train them. Then you make money. Through the loyalty I'm creating, we'll sell more effectively and drive more business." Several trends mark the emergence of PRM as a strategic tool: increased competition, cheaper technology, the access to information created by the Internet, globalization, and consolidation. "All of these factors have converged to make the best companies realize they can't go it alone," says Ben Crawford, senior vice president at Bay-Group International, a Larkspur, Calif., global consulting and training company. "You need to have durable relationships based on mutual advantage and mutual gain." Consultant Thompson, president of Front Line Solutions, Burlingame, Calif., calls the current market environment "a competitive battle for mind share. "Partners can choose with whom they're going to work," he points out. "The manufacturer understands it needs those partners for certain roles. Channel partners will respond to manufacturers that help them." Valued Partners It has become apparent that, in spite of the recent spate of business models based on using the 'Net to sell directly to consumers, manufacturers need their channel partners to complete sales. "Everyone thought the direct route was going to be it. [They thought] Dell had the right idea -- who needs all these channel partners?" says HP's Miller. "They began to find out that if you build it, they don't necessarily come. We've invested millions of dollars in our channel partners; we didn't want to give up on that." Michael Ferro, a former division president of heavy-equipment manufacturer Pettibone Corp. and now CEO of PRM provider Click Commerce Inc., sees the force behind PRM as sheer necessity. "To [determine] co-op marketing status, partners are having to make seven phone calls," he says. "To do warranty returns, you've got billion-dollar companies still using the fax machine. They're being forced to do this. Remember public marketplaces? Last year, we were all going to build public marketplaces. What happened is these big corporations already have channel partners. Their partners call up and say, 'Great that you want to get new distributors to buy your stuff, but we buy your stuff, so why don't you use the Internet to help us before you go out and start new businesses?'" In essence, that's what PRM does. Like CRM, PRM is a strategy that heavily leverages technology to build value into a relationship. At Littleton, Mass.-based iTouch Communications Inc., a manufacturer of communications equipment, every segment of the company uses the PRM system, which was designed by ChannelWave. Vice president of sales Charlie DeMers explains it this way: "We have a sales order today from a brand new customer. When that goes on the system, I see the product they want, we make sure they get literature. The credit department gets a beep to make sure to do a credit check. We make sure manufacturing has the product available. Order administration gets a response from the system that says we can meet the quote in three weeks if they get their PO in. Senior-level staff is looking at it, seeing how the rep is doing and how to address a new customer. Marketing knows they have another opportunity to talk about if it ends up being a good case study." For DeMers, the bottom line is that he knows the status of every lead and has an accurate view of his sales forecast. "Any given day, I can look at what's in the pipeline," he says. "I can log on and look by rep, by region, by partner, by product, what's being forecast. We've got the correct parts on the shelf, which is a big deal because you don't make revenue unless you ship parts. The ability to forecast revenue makes your life on Wall Street and with your board of directors very happy." Despite the availability of PRM tools, their use is not yet widespread. In the summer of 1999 Boston-based business research and consulting firm Yankee Group reported that about 50 organizations were using, or in the process of installing, PRM. As of February Yankee Group program manager Sheryl Kingstone hadn't updated the report because, she says, not much is happening in the field. One of the fundamental obstacles to making PRM work is getting partners to use it. "You're talking about a channel that inherently likes to do things on paper," Kingstone says. "I once had a conversation with a distributor who said, 'What's wrong with the pencil? Why do I have to do everything electronically?'" An issue that looms large for PRM users is the lack of integration with systems of numerous vendors. But Eric Hills, chairman and founder of PRM firm Partnerware Inc., Austin, dismisses the notion that partners are put off by having to use a different system for every vendor. "They may have to work with five or 50 vendors," he says. "Those 50 are more manageable from the partner's perspective than filling out 50 different forms or remembering 50 different phone numbers. You'll see more system-to-system integration into the partners' internal system. That will be the next phase." As independent companies with their own business goals and issues to address, partners also need to be convinced that sharing sales information with the manufacturer isn't cutting their own throats. "I was at a conference and heard a speaker say that working with partners is like herding cats with paranoid delusions," Yankee Group's Kingstone says. "They think, 'You want to know my customer so you can [sell] direct.'" Steve Schwartz is facing the trust issue now. Senior vice president of the protective systems group at Lion Apparel Inc., Dayton, Schwartz is in charge of sales for the country's largest manufacturer of firefighter apparel and depends on a network of dealers to reach the nation's 30,000 fire departments. He has involved them since the design phase of the company's PRM program, explaining how the 'Net-based Partnerware system will give them instant access to technical bulletins and training and give Lion Apparel the information it needs on the status of sales. "They are interested in it, but the two immediate responses are 'It's too complicated' and 'I don't know how to use computers.' And [there is] the paranoia issue everybody talks about -- you want to learn about my business so you can take over my territory and make more money," Schwartz observes. "In the last two years, that anxiety has been amplified by all the talk of disintermediation. . . . The bottom line is our relationships are everything. You just have to work through that. Our position has always been that this system is not about taking away power from distributors. It's about using this wonderful technology to make this relationship between us and our distributors more powerful, seamless, and faster." ChannelWave's Heidelberger says that the solution is for manufacturers to use the information they get for their partners' benefit. "If partners believe that by sharing certain information they can get higher-quality sales and marketing support, they'll share it," he says. "If you help someone grow their business, they'll give you what you need." Notes Partnerware's Hills, "The performance improvements the vendor wants will show up on the partner side as well. They'll be able to make more money and increase market share." 'Holistic Perspective' PRM can drill deeper into the sales process with functions such as partner profiling and integrated revenue management. Partner profiling pulls together information about partners, including sales-performance data, the use of joint marketing funds, training, and certification, and aggregates it into a performance scorecard. That helps companies decide whom to enroll as partners and how to distribute leads and co-op funds. "You can't hire enough business analysts to sit in front of Excel spreadsheets for hundreds or thousands of partners," Hills says. Integrated revenue management provides the tools to measure, manage, and monitor revenue-generating activities, including lead distribution, deal registration, and sales forecasting. "That is where people are going to be focused in the future," Hills says. "How can I really understand the relationship from a holistic perspective. How can I use it to generate the top- or bottom-line relationships?" Experts are quick to point out that for all the emphasis on technology, it's only a part of the equation. PRM is a strategy, not just a software package. Companies need the technology, but they need business rules, too. PRM requires a company to understand its partners' needs and to have a commitment to help them succeed.