Rattle and hum

Networking giant Cisco demonstrated the power of partnership to thousands of channel partners from around the world

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By  Stuart Wilson Published  April 25, 2005

Channel harmony|~|ciscochambers200.jpg|~|John Chambers, CEO at Cisco|~|When you are sitting pretty at the top of the tree it is easy to become complacent and believe that the good times will go on forever. That accusation can certainly not be levelled at Cisco, a vendor that is doing everything in its power to sustain its strong sales growth and pull its committed partners along for the ride. At its recent global partner summit, the networking giant revealed a host of new channel initiatives and senior executives took the time out of their hectic business schedules to reaffirm a long-term commitment to partner-led sales If you’re looking for a template for running a successful partner conference, look no further than Cisco’s recent global channel summit attended by more than 2,000 partners around the globe. Based around two key themes — rattle and hum — Cisco managed to produce an event that was fresh, informative and, dare I say it, fun. In the world of vendor partner summits, that is a pretty impressive achievement to pull off. Too many vendors continue to roll out the same tired old themes year after year at these events and leave partners wondering if it was really worth the expense and the time required to attend. Put simply, if a vendor cannot whip up enthusiasm for its partner conference and come up with innovative ideas and themes, then there is very little chance that partners will go away fired up by the breadth of opportunity that awaits them. With the two central themes of rattle and hum (the title of a U2 album) embedded in every keynote presentation, Cisco executives took every opportunity to indulge their rock star fantasies at the event. This even included a few covers from a band made up of senior Cisco executives — including worldwide channels supremo Paul Mountford on guitar — at the closing party. In fact, the only blow to Mountford’s rock star credibility during the event stemmed from the rumour sweeping the convention centre that Cisco’s channel boss had been booted out of his preferred suite at the hotel to make way for movie star Harrison Ford, who fancied a few days vacation in Vancouver. So what were the rattle and hum concepts all about? According to Cisco, rattle referred to the need to disrupt, stimulate and cause change that creates growth. Hum referred to the synchronising of two frequencies — namely Cisco and its partners — creating a resonating sound as they move together in harmony. ||**||MEA opportunity|~|ciscoexecs200.jpg|~|Cisco's channel dream team strut the partner summit stage|~|Mountford explained the rationale behind the concepts: “Our partners are [Cisco’s] extended sales force and we want to inspire and motivate them. Yes, we want them to know the direction we are moving in, but we also want them to feel good about being part of the Cisco extended supply chain.” “Rattle is disrupting something to make it grow because growth is the number one priority for our partners and also for us,” continued Mountford. “1% or 2% difference to our top line makes a big difference to our stock price and makes a big difference to our partners. The hum is all about two sound waves coming together, synchronising and resonating and this refers to the ease of doing business with Cisco. We want to make it an easier experience for partners by making the process of doing business with Cisco simpler, cost-effective and productive for partners.” Cisco is clearly a gorilla in the networking sector. Its domination is there for all to see and it maintains its position — and pursues its growth objectives — through a selective acquisition policy and the expansion of its product portfolio to embrace emerging technology areas. Given this position, the onus lies on the vendor itself to drive its channel towards new opportunities that offer increased sales potential. Cisco did this with aplomb at its partner summit and also backed up its commitment to the channel by giving them some tangible benefits to take away from the event. These included the launch of a solutions incentive programme (SIP) to complement the existing opportunity incentive programme (OIP) and value incentive programme (VIP), the launch of a new trade-up scheme that rewards partners involved in making the sale, as well as the injection of US$750m additional financing into the global channel courtesy of Cisco Capital. Taking a step back from the announcements and tub-thumping that characterised the event, it is clear that Cisco wants to establish network technology as the foundation of wider IT solutions that involve the deployment of applications and the provision of related services. In other words, Cisco wants to do everything possible to ensure that the network leads the sale in the eyes of the customer while simultaneously providing partners with the financial benefits and soft incentives that persuade them to move in this direction too. Put the network at the very centre of the IT solution and make it synonymous with the Cisco brand. As well as promoting the uses of network technology, establishing itself as a powerful force in emerging regions around the world is a top priority for Cisco. It was a theme touched on by CEO John Chambers. “Many people look at the Middle East and Africa and believe that it is not a fast-growing market,” said Chambers. “We have found the reverse to be true. When you look around the world the emerging market opportunity in South East Asia is huge, India is huge as are Eastern Europe, Russia, the Middle East, North Africa and Latin America. There are probably eight or nine geographies that I would view as very strong emerging markets.” ||**||Advanced networks|~|ciscomntford200.jpg|~|Paul Mountford, worldwide channel boss at Cisco|~|For many IT vendors at the top of their game, positioning their particular offering — be it hardware, software or services — as the leading edge of the sale is a top priority. In other words, Cisco wants the solution to be built on its network products. It does not want companies leading with an application or service and remaining ‘vendor neutral’ when it comes to any related network implementation. Chambers believes that Cisco is heading in the right direction in terms of building commitment to its product portfolio: “Well I think it will be dependent on how solution providers deal with a preferred partner. I differentiate between software companies and systems integration companies who combine software and hardware to provide a solution. With the second category, they will look at how the majority of the market makes decisions and what is the area that gives them the most leverage to work with.” When a vendor leads a market segment and holds significant market share, it becomes the vendor’s responsibility to drive the evolution of the segment it serves in order to create incremental revenue opportunities. It is a tactic that Intel has pursued in the CPU space, especially in terms of its efforts to accelerate the deployment of mobility solutions around the world. Cisco has been moving forward in a similar fashion in recent years. Part of that focus is moving deeper into specific industries by creating solutions tailored to individual vertical markets. “It is not only how people buy their technology architecture, but how they are beginning to buy their business architecture,” said Chambers. “How do you look at a whole industry, be it banking, healthcare, retail or education. The specific area of focus this year is verticalisation. We are beginning to get our partners thinking where profitability exists and where customers will pay a premium.” This focus on solutions is also being closely tied to the deployment of advanced technologies and incentive programmes that persuade the channel to push Cisco’s presence outside its core product areas and into new and exciting domains such as security and voice over IP. ||**||Margin maker|~|ciscomeulema200.jpg|~|Karl Meulema vice president of services, marketing and channels at Cisco|~|The purpose of VIP, SIP and OIP is to bolster the margins of partners heeding Cisco’s advice and moving into these new areas, despite the added sales cost they incur. Edison Peres, VP advanced and core technologies worldwide channels at Cisco, explained the difference these programmes can make to partner margins. According to Peres, a partner focused on order fulfilment with 85% of sales from product and 15% from services could expect gross margins in the range of 15% if it also received basic VIP rewards on offer. That gross margin estimate climbs to 20% for partners with a 76:24 product to services sales ratio assuming they are participating at a basic level in VIP, OIP and SIP. And for Cisco’s technology rabbits using VIP, OIP and SIP to their full potential and achieving a 60:40 product to services sales ratio, Edison reckoned that gross margins could climb as high as 27%. Service remains important to Cisco and partners alike — especially the delivery of contract services to customers. Cisco is currently rolling out programmes that will allow partners to check the contract status of customers and ping them for renewals when appropriate, although the formal launch date of the scheme in the Middle East region has not yet been finalised. Karl Meulema vice president of services, marketing and channels at Cisco, explained the benefits of these programmes: “All the research we have done externally has shown that customers with support contract coverage are always more satisfied and more loyal to Cisco than those that do not have a support contract.” “From a partner point of view it gives them the growth in revenue and profitability and it leads to customer satisfaction,” he added. “The primary goal of our customer advocacy team is to drive up customer satisfaction. When you look at total cost of ownership, it is not just the price of the product and the services contract, it is about the total management cost including the time that internal employees have to spend on managing the technology.” ||**||Growth opportunity|~|ciscolloyd200.jpg|~|Rob Lloyd, president EMEA operations and senior VP at Cisco|~|With Cisco’s partner team firing on all cylinders, the Middle East and Africa region will become a key theatre for the deployment of both new and existing schemes. The regional operation, which has undergone radical changes involving the restructuring of its distribution channel and the creation of a single Cisco organisation to cover the whole territory, looks poised for significant growth. “I am actually very proud of our business in the Middle East and we have tonnes of room to keep growing,” said Rob Lloyd, president EMEA operations and senior VP at Cisco. “We are increasing our [Middle East] headcount at the fastest rate of any of the regions in EMEA. The only places that are getting a similar level of investment are Russia and Central and Eastern Europe. We will really be dramatically increasing our headcount over the next two years if the business continues to go in its current direction.” The message to partners is clear: opportunities abound for those prepared to specialise and invest in their own skill sets; and Cisco has the programmes in place to support those prepared to move in this direction. For those still concerned about margins, Lloyd has a strong message. “My message is that — and I am ex-channel, I used to be principal of a channel company — we will over time continue to work with partners to segment their capabilities and business models and distribute them against the opportunities,” said Lloyd. “I think the journey started with VIP and we are now expanding OIP to the midmarket, which will cover a massive amount of the Middle East opportunity. This is huge for our Middle East partners; the expansion of OIP from SMB and unnamed into the accounts that we do touch with the commercial sales force. SIP is a further segmentation so that we can have partners that are focused and we can reward them.” Cisco certainly rattled and its partners were definitely humming at this year’s event. The task for Cisco now is to follow through on its announcements, build on the enthusiasm that was stirred up within the channel and keep driving into new technology areas and emerging markets. The networking gorilla needs to keep on dancing despite its size. ||**||

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