According to FSG research, high-growth organizations (those with revenue growth >20%) tend to enact channel transitions with greater frequency than low-growth organizations. Thus, ensuring timely and appropriate transitions in your channel structure will be critical for driving higher sales, especially in a context of weaker economic growth in the region.

Here we discuss how channel transitions can help drive higher sales performance by helping to close capability gaps, while also identifying the major challenges associated with transitions in Latin America.

Using transitions to close channel capability gaps

FSG takes a capabilities approach to its channel management practice, and our vision for channel transitions is no different.

At FSG, channel transitions are a tool through which companies can fill capability gaps in their go-to-market structure. These capability gaps can either be related to a.) customer experience or b.) partnership quality. In each of these two categories, FSG has identified five proprietary channel capabilities that are essential for driving optimal performance from your go-to-market structure.

Channel transitions, either via an investment in existing channel partners, the addition or subtraction of partners, or a move to or away from a direct model, should be aimed at improving or adding capabilities where gaps exist.

Challenges associated with channel transitions in Latin America

However, companies should be aware of the intrinsic challenges associated with channel transitions in Latin America. Indeed, of FSG clients that reported having enacted a channel transition in the region, only 26% reported that it went smoothly compared to 32% at the global level.

The two main challenges associated with these difficulties are:

• Identifying capability gaps and the appropriate transition: In order to transition channels, it is first necessary to identify the targeted capability gaps. They can either be current gaps or future gaps. While current channel capability gaps are self-explanatory, future gaps are a little more abstract but even more important. While both current and future gaps are determined by a combination of the operating environment, customer demands, and competitor strategy, future gaps are the result of the expected evolution of these three factors, and will help to determine future sales growth. An example of a future gap can be found by looking at the situation of technology companies only a few years ago. Looking forward and anticipating driving an increased share of revenue through cloud-based services, it was possible to identify the need to develop distributor’s technical skills, change distributors, or move to a direct model. Likewise, looking at the B2B space several years ago, there was a clear future capability need to offer 24-hour delivery service. This might have necessitated the move to a logistics integrator, or perhaps a partnership with a producer of a parallel product to reduce shipping costs. FSG has noted that one of the most common pitfalls involved in channel transition is the failure to anticipate channel capability needs over the next 1 to 2 years. When companies fail to anticipate evolving capability needs, they will often react too late, thus resulting in missed new sales opportunities.

• Executing a transition while avoiding revenue losses: Having identified the appropriate channel transitions to be executed, companies can nullify potential sales gains by careless execution. Due to the cultural sensitivity of operating in Latin America, and the often unexpected costs generated by change, sound preparation and planning are the only way to maximize positive returns.

In the second and third posts of this series, we will dive deeper into the two challenges outlined above. While doing so, we will highlight why a sound process in the identification and execution phase is critical for ensuring optimal sales results.

For clients, the full article can be accessed here. Happy transitions!

For our latest updates and insights, FSG clients can visit the client portal. Not a client? Contact us to learn more.