Building an Ecosystem That Rings C-Notes

Posted By: Jon Lavietes Member Resources, Collaborative Connections,

How do we devise the right ecosystem strategy, and how do we get the entire organization to buy into it? It’s the million-dollar question in tech. Nay, it’s a multimillion- or billion-dollar question for many vendors, integrators, channel outfits, and other service providers. Everyone at least pays lip service, acknowledging ecosystems as the main sources of revenue in the present and future, but many are still trying to actualize ecosystem-driven models. 

Greg Sarafin, principal global managing partner of EY’s alliance ecosystem, took center stage in the latest Collaborative Connection Monthly (CCM) fireside chat and roundtable series, “Adopt and Master an Ecosystem Strategy to Ignite Innovation and Growth,” to share how he and his team answered the question for his employer. 

Sarafin is a builder at heart. In fact, in his Atlanta and Florida homes, “I have massive amounts of tools [with which] I spend every weekend doing projects around the home. I can’t leave a room untouched at least multiple times,” he shared, before adding that had he not discovered personal computers in the 1970s, “I probably would have ended up in building and trades because I really am at my core an engineer. I like to build stuff.” 

More recently, he’s been busy building EY’s ecosystem operation. Over the past seven years, he has spearheaded the transformation of the Big Four global accounting firm’s business model to a point where 20 percent of its revenue now comes from partnerships, up from 3 percent at the start of that run. Partners have contributed to just about half of EY’s revenue growth in that period.

How? Sarafin spent most of the Q&A portion of the CCM session breaking down two main keys to making this shift: 1) fostering alignment on the new ecosystem model from the top down and throughout the organization, and 2) devising a system to measure “the value we get from partnering in a very precise measure”—i.e., so executives can see that the dollars invested in partners are delivering a concrete monetary ROI. 

An Abundance Mindset: More Than Just Blowing Your Own Horn

Sarafin broke down the first of these principles by contrasting the old “scarcity” mindset with the new “abundance” mentality that characterizes ecosystem pursuits. The former rests on an us-versus-them posture, in which companies strive for better capex and opex figures than their competitors and best foes one-on-one in their go-to-market execution—“we’re going to take our share of a finite market with finite capital,” as Sarafin summarized.

An “abundance” outlook is one in which EY or one of its partners orchestrates several parties to produce an “outcome,” not just a technical solution, on behalf of the customer. In this context, EY is “using not just our capital assets but the capital assets of other companies and stitching that together,” said Sarafin. To put it another way, instead of delivering a product or service, “we’re talking about creating something fundamentally new for the customer.”

In this abundance outlook, companies aren’t solo acts, they’re part of a larger group of merry makers, and the onus is on them to figure out where they fit in.  

“You’re conducting an orchestra now, you’re not just playing the saxophone for the client,” Sarafin said.

Change Management Is a “Scary Hard” Walk to Walk

Internally, getting the rest of the organization to adapt to a new partner-driven ecosystem model is a heavy change management exercise. First, alliance management needs to be an “‘L-0’ function” equal to marketing, finance, sales, product development, and other major departments—“not a subfunction but an actual function of the company that sits at the C-suite table.” 

From there, the C-suite and the other upper-level stakeholders they trust have to advocate for this new emphasis on ecosystems. However, just because the CEO decides to “flip the script,” it “doesn’t mean the rest of the conversation is going to follow,” Sarafin warned. In other words, senior leadership backing alone won’t produce a successful transition. Every function will have to do things differently. Legal will have different challenges around IP to think about, finance will have to reevaluate revenue recognition principles, salespeople will have to sell with multiple parties in several different ways, marketing has to consider multicompany branding, and so on.  

“Everybody’s job changes,” said Sarafin. “It’s a massive amount of change.”

Sarafin continued, “It is all those people in all those functions changing what they fundamentally do every day, and that is scary, and that is hard.” 

For his part, Sarafin said his role wasn’t to tell people to make the shift, but to “help people figure out how to do it in a way they can absorb” and try to paint the picture where they can see the rewards. After seven years, he said the ecosystem model is mature now, but it does take “a generation” to make that change. 

“It is not a light walk, but it is a walk you need to start. Because if you never start, you never get there,” said Sarafin.  

Sheath Ledger: Paring Down Costs, Illuminating Revenue

The second part of the plan, establishing hard metrics that illustrate partner contributions in hard dollars, entails a revamp of partner selection philosophy, innovative financial modeling, and good old-fashioned number crunching. 

Sarafin recounted for the audience how EY has tabulated all of the deals that included partners and those that didn’t over the years. Company stakeholders can now see total revenue and growth rate for partner-driven deals versus straight direct sales transactions side by side, and sort these figures by vertical market, geographic region, and other variables. 

EY has also spent a good deal of this decade reducing the costs side of the partner operations ledger. Sarafin revealed that his team outsourced many of the non–revenue producing but vital activities—he listed updating and localizing commercial agreements, regulatory duties, and communications related to QBRs as examples—offshore. EY further whittled down costs by using some emerging technology tools now at everybody’s disposal. 

“We’ve digitized it, we’ve defined all the processes all the way down to the ‘nth’ degree, we’ve put in AI,” he said, before revealing the impact to the company’s bottom line. “We have driven the costs of partner operations non-revenue-producing activities in seven years down to less than 10 basis points of the revenue we generate from our partnerships.”

(For more details of EY’s partner attribution methods, please see the Q4 2023 Strategic Alliance Quarterly story “Partner Contribution? What Partner Contribution?”)

Fewer, More Effective Partners? I’d Buy That for a Dollar 

The EY alliance team also brought efficiency to its partner portfolio, which put the alliance operation further in the black. Sarafin sought to correct a folly in the old “scarcity” model, where companies tended to expand their partner portfolios as far and wide as possible.  

“‘I just need to partner with more [companies], and that’s better.’ It’s very much a ‘more surface area to market means more product pushed through the channel [approach],’” he said. 

Instead, alliance and ecosystem leaders must prioritize the partners that provide more bang for their buck. 

“It’s not ‘more partners are better.’ It’s ‘What is the fewest number of partners to drive the sales motions that matter—that are going to most directly impact our clients, that are going to drive our earnings and revenues higher?’ It’s less is more, not more is more,” said Sarafin. “What is the outcome I need to get to and who can help me get to that outcome with the least risk, the least cost, and the highest speed?”

Taken together, the top-line partner-driven metrics, the reduction in cost of important administrative tasks, and the pruning of the portfolio has resulted in $5 of earnings growth per every dollar spent on partner-driven sales per year. After lamenting that few alliance leaders “can report in a way that is believed by their C-suite even the incremental revenue impact of their function,” Sarafin urged listeners to follow a similar model. 

“Not everyone is in that position, but you need to work your way into that position because you need to show what is your impact on earnings growth. What is your cost to get to that earnings growth?”