Risks of on premise resell partner relationships by Karl Michael Popp

A practitioner´s view on determining risks of on premise resell partner relationships

About six months ago i started to investigate which risks are relevant in on premise partnering models. In a pragmatic approach i started to collect and leverage potential risks that are usually analyzed in a due diligence for an acquisition [Popp13] or in an audit of supplier relationships.

Soon i found out that the model, due to the number of risks and the number of assignments of risks to the business model,  might not be easily managed. So i decided to create a Prolog based application for defining and managing the business model as well as the attached risks. Although this is work in progress, i would like to share some details and results:

Description of the risk model for ecosystems

Goal

Based on a list of 102 potential risks, a model of risks related to on premise resell is created.

Approach

Based on an interaction model of on premise resell partnership business models, risks are assigned to entities, relationships and relationship types. Using this approach, the effort results in on premise resell risk as a collection of all risks assigned to entities and relationships of the on premise resell partnership. Interaction models are used as defined in [FeSi97].

Example: on premise resell

Let us have a look at on premise resell. Three entities are involved:

  • the software vendor, who provides software to the reseller and
  • the reseller, who provides the resold software to customers and
  • the customer.

Relationships between the entities can be of the relationship types payments or products/services. This is a simplified view of the resulting relationships.

In practice, there are much more relationships, if you look at the details. Between software vendor and partner, there are more products/services relationships beyond Supplied software to reseller, like Provide maintenance to reseller, Provide support to partner and Supplied on prem resell rights to partner. There usually are payments compensating for the different products and services.

The same is true for relationships between the partner and the customer, which results in the following picture.

With that detail model i started to attach risks to entities, relationships and relationship types. Let us have a look at some examples.

For the entity partner, i have attached the following risks:

Partner
Credit worthiness of partner
Partner culture
Partner engagement
Partner engagement models
Partner operations
Organizational change management
Relationship risk
Weak management of partner
Inexperienced staff of partner
Lack of partner organizational learning

For the relationship type service the list of attached risks is as follows:

Type related risks for Service
Service level agreements violated
Service level agreements not defined
Service levels offered unsatisfactory for customers
Contract with non-standard terms
Loss of resources to other party in the relationship
Hold up risk (demand higher share of value while threatening to exit relationship)
Spillover risk (lose key knowledge and decrease competitive advantage)
Opportunistic behavior

For the relationship Supplied software to reseller of type product the list of risks is listed here:

Supplied software to reseller
Software not provided
impact on software vendor´s existing partnerships
changes in partner´s existing partnerships
Software provided late
Software provided has bad quality
Reputation risk for software vendor at partner

Results

The resulting list of on premise resell risks is listed in the appendix. From a practitioner´s perspective, the model is useful, since it creates the risks to be mitigated in an on prem resell relationship. The mitigation can be done for many risks by contracts, but for a reasonable number of risks that can occur over time the tracking of risks and the mitigation of these risks should be done by alliance management activities. Alliance management is of utmost importance for early detection of high impact risks, which creates the chance for preemptive measures to mitigate risks before the impact occurs.

Outlook

I plan to add a model of the risk of cloud resell partner relationships to determine the difference in risks between on premise and cloud resell relationships. Other extensions of the model could be to add impact and likelihood of certain risks.

In addition, i am looking forward to your comments and proposals for further research at karl_popp@hotmail.com .

Dr. Karl Michael Popp

Literature

[Popp13] Karl Michael Popp, 2013. Due diligence of software companies - A holistic, systematic approach for sustainable growth through mergers and acquisitions in the software industry.  Norderstedt: Books on demand, 2013.

 

[FeSi97] Ferstl, O. K., Sinz, E. J. 1997. Modeling of Business Systems Using the Semantic Object Model (SOM) - A Methodological Framework. In: P., Schmidt, Bernus. Handbook of architecture of information systems. New York : Springer, 1997.

(C) Dr. Karl Michael Popp 2016

Appendix

On premise resell risks

******************** Entity risks ********************

Software vendor********************
  Attrition (loss of resources in general)
  Commercial Risk
  Weak management of software vendor
  Inexperienced staff of software vendor
  Lack of software vendor organizational learning

Partner********************
  Credit worthiness of partner
  Partner culture
  Partner engagement
  Partner engagement models
  Partner operations
  Organizational change management
  Relationship risk
  Weak management of partner
  Inexperienced staff of partner
  Lack of partner organizational learning

Customer********************
  Credit Worthiness
  Culture of the customer
  Customer engagement
  Customer engagement models
  Customer operations
  Customer Organizational change management
  Business continuation

******************** Relationship risks ********************

Provide Support to Customer********************
  Customer issues due to insufficient enablement of partner support
  Reputation risk at customer
  Customer relationship risk

Type related risks for Service
  Service level agreements violated
  Service level agreements not defined
  Service levels offered unsatisfactory for customers
  Contract with non-standard terms
  Loss of resources to other party in the relationship
  Hold up risk (demand higher share of value while threatening to exit relationship)
  Spillover risk (lose key knowledge and decrease competitive advantage)
  Opportunistic behavior
  Conflicts

Reseller support Fee********************

Type related risks for Payment
  Credit Worthiness
  Revenue recognition
  Wrong payment provided
  Payment provided late
  Payment not provided

Provide usage rights from partner to customer********************

Type related risks for Intellectual Property
  Intellectual Property Compliance
  Unclear Ownership of intellectual property
  Rights from patents violated
  Pricing arrangements
  Contractual
  Contract with non-standard terms

Customer Support Fee Payment to Reseller********************

Type related risks for Payment
  Credit Worthiness
  Revenue recognition
  Wrong payment provided
  Payment provided late
  Payment not provided

Provide maintenance service to partner********************
  Reputation risk for software vendor at partner

Type related risks for Service
  Service level agreements violated
  Service level agreements not defined
  Service levels offered unsatisfactory for customers
  Contract with non-standard terms
  Loss of resources to other party in the relationship
  Hold up risk (demand higher share of value while threatening to exit relationship)
  Spillover risk (lose key knowledge and decrease competitive advantage)
  Opportunistic behavior
  Conflicts

Provide support to partner********************
  Reputation risk for software vendor at partner

Type related risks for Service
  Service level agreements violated
  Service level agreements not defined
  Service levels offered unsatisfactory for customers
  Contract with non-standard terms
  Loss of resources to other party in the relationship
  Hold up risk (demand higher share of value while threatening to exit relationship)
  Spillover risk (lose key knowledge and decrease competitive advantage)
  Opportunistic behavior
  Conflicts

Supplied software to reseller********************
  Software not provided
  impact on software vendor´s existing partnerships
  changes in partner´s existing partnerships
  Software provided late
  Software provided has bad quality
  Reputation risk for software vendor at partner

Type related risks for Product
  Intellectual Property Compliance
  Quality risk
  Technology risk
  replacing open sources, leaving too many holes in the product
  replacing open sources, leading to bad quality of the product
  scope limitations of existing products
  scope creep (unplanned extensions of scope)
  overlap with software vendor solutions
  missing integration of existing products with software vendor solutions
  missing enterprise readiness of acquired products
  high number of high risk security issues to be removed
  high number of high risk open sources to be removed
  disruption of markets, products by competitors
  getting, keeping the competitive advantage with acquired products
  commoditization of acquired products
  wrong assumptions about market development
  broadening the scope of the solution geographically
  changing the scope of the solution, e.g. Extending scope to other industries
  heterogeneity of Shipment processes
  heterogeneity of Go to market process
  heterogeneity of Sales process
  heterogeneity of Software Development Processes
  Business continuation
  Brand risk
  Loss of resources to other party in the relationship
  Hold up risk (demand higher share of value while threatening to exit relationship)
  Spillover risk (lose key knowledge and decrease competitive advantage)
  Opportunistic behavior
  Conflicts

Supplied on prem resell Rights to Reseller********************
  Reputation risk for software vendor at partner

Type related risks for Intellectual Property
  Intellectual Property Compliance
  Unclear Ownership of intellectual property
  Rights from patents violated
  Pricing arrangements
  Contractual
  Contract with non-standard terms

Provide Maintenance to Customer by reseller********************
  Reputation risk at customer
  Customer relationship risk

Type related risks for Service
  Service level agreements violated
  Service level agreements not defined
  Service levels offered unsatisfactory for customers
  Contract with non-standard terms
  Loss of resources to other party in the relationship
  Hold up risk (demand higher share of value while threatening to exit relationship)
  Spillover risk (lose key knowledge and decrease competitive advantage)
  Opportunistic behavior
  Conflicts

Reseller Maintenance Fee********************

Type related risks for Payment
  Credit Worthiness
  Revenue recognition
  Wrong payment provided
  Payment provided late
  Payment not provided

Reseller License Fee********************

Type related risks for Payment
  Credit Worthiness
  Revenue recognition
  Wrong payment provided
  Payment provided late
  Payment not provided

Reseller Software to customer********************
  Software not provided
  Software provided late
  Software provided has bad quality
  Reputation risk at customer
  Customer relationship risk

Type related risks for Product
  Intellectual Property Compliance
  Quality risk
  Technology risk
  replacing open sources, leaving too many holes in the product
  replacing open sources, leading to bad quality of the product
  scope limitations of existing products
  scope creep (unplanned extensions of scope)
  overlap with software vendor solutions
  missing integration of existing products with software vendor solutions
  missing enterprise readiness of acquired products
  high number of high risk security issues to be removed
  high number of high risk open sources to be removed
  disruption of markets, products by competitors
  getting, keeping the competitive advantage with acquired products
  commoditization of acquired products
  wrong assumptions about market development
  broadening the scope of the solution geographically
  changing the scope of the solution, e.g. Extending scope to other industries
  heterogeneity of Shipment processes
  heterogeneity of Go to market process
  heterogeneity of Sales process
  heterogeneity of Software Development Processes
  Business continuation
  Brand risk
  Loss of resources to other party in the relationship
  Hold up risk (demand higher share of value while threatening to exit relationship)
  Spillover risk (lose key knowledge and decrease competitive advantage)
  Opportunistic behavior
  Conflicts

Customer Maintenance Payment to Reseller********************

Type related risks for Payment
  Credit Worthiness
  Revenue recognition
  Wrong payment provided
  Payment provided late
  Payment not provided

Customer License Fee Payment to Reseller********************

Type related risks for Payment
  Credit Worthiness
  Revenue recognition
  Wrong payment provided
  Payment provided late
  Payment not provided

List of all risks

  1.   Credit Worthiness
  2.   Culture of the customer
  3.   Customer engagement
  4.   Customer engagement models
  5.   Customer operations
  6.   Customer Organizational change management
  7.   Business continuation
  8.   Credit worthiness of partner
  9.   Partner culture
  10.   Partner engagement
  11.   Partner engagement models
  12.   Partner operations
  13.   Organizational change management
  14.   Relationship risk
  15.   Weak management of partner
  16.   Inexperienced staff of partner
  17.   Lack of partner organizational learning
  18.   Attrition (loss of resources in general)
  19.   Commercial Risk
  20.   Weak management of software vendor
  21.   Inexperienced staff of software vendor
  22.   Lack of software vendor organizational learning
  23.   Credit Worthiness
  24.   Revenue recognition
  25.   Wrong payment provided
  26.   Payment provided late
  27.   Payment not provided
  28.   Intellectual Property Compliance
  29.   Contractual
  30.   Unclear Ownership of intellectual property
  31.   Rights from patents violated
  32.   Intellectual Property Compliance
  33.   Quality risk
  34.   Technology risk
  35.   replacing open sources, leaving too many holes in the product
  36.   replacing open sources, leading to bad quality of the product
  37.   scope limitations of existing products
  38.   scope creep (unplanned extensions of scope)
  39.   overlap with software vendor solutions
  40.   missing integration of existing products with software vendor solutions
  41.   missing enterprise readiness of acquired products
  42.   high number of high risk security issues to be removed
  43.   high number of high risk open sources to be removed
  44.   disruption of markets, products by competitors
  45.   getting, keeping the competitive advantage with acquired products
  46.   commoditization of acquired products
  47.   wrong assumptions about market development
  48.   broadening the scope of the solution geographically
  49.   changing the scope of the solution, e.g. Extending scope to other industries
  50.   heterogeneity of Shipment processes
  51.   heterogeneity of Go to market process
  52.   heterogeneity of Sales process
  53.   heterogeneity of Software Development Processes
  54.   Business continuation
  55.   Brand risk
  56.   Loss of resources to other party in the relationship
  57.   Hold up risk (demand higher share of value while threatening to exit relationship)
  58.   Spillover risk (lose key knowledge and decrease competitive advantage)
  59.   Opportunistic behavior
  60.   Conflicts
  61.   Intellectual Property Compliance
  62.   Unclear Ownership of intellectual property
  63.   Rights from patents violated
  64.   Pricing arrangements
  65.   Contractual
  66.   Contract with non-standard terms
  67.   Service level agreements violated
  68.   Service level agreements not defined
  69.   Service levels offered unsatisfactory for customers
  70.   Contract with non-standard terms
  71.   Loss of resources to other party in the relationship
  72.   Hold up risk (demand higher share of value while threatening to exit relationship)
  73.   Spillover risk (lose key knowledge and decrease competitive advantage)
  74.   Opportunistic behavior
  75.   Conflicts
  76.   Software not provided
  77.   impact on software vendor´s existing partnerships
  78.   changes in partner´s existing partnerships
  79.   Software provided late
  80.   Software provided has bad quality
  81.   Reputation risk for software vendor at partner
  82.   Reputation risk for software vendor at partner
  83.   Reputation risk for software vendor at partner
  84.   Reputation risk for software vendor at partner
  85.   Software not provided
  86.   Software provided late
  87.   Software provided has bad quality
  88.   Reputation risk at customer
  89.   Customer relationship risk
  90.   Customer issues due to insufficient enablement of partner support
  91.   Reputation risk at customer
  92.   Customer relationship risk
  93.   Reputation risk at customer
  94.   Customer relationship risk
  95.   Reputation risk at customer
  96.   Customer relationship risk
  97.   Reputation risk at customer
  98.   Reputation risk for software vendor at partner
  99.   Reputation risk at customer
  100.   Reputation risk for software vendor at partner
  101.   impact on software vendor´s existing partnerships
  102.   changes in partner´s existing partnerships