Services Shine for Cisco Channel Partners

March 15, 2006

By Charles Waltner, News@Cisco

Cisco Systems' most successful sales channel partners clearly have one thing in common: services. But not just any old services. These businesses are focused on coupling their technological expertise with consultative or "professional" services that emphasize strategic planning and place a premium on understanding a customer's business operations and needs. Such an approach elevates channel partners into conversations with chief executive officers and business managers, helping raise the stature of channel partners and creating a premium for their offerings.

Cisco's channel partners are a force of over 200,000 people in 20,000 independent value-added resellers, systems integrators and network consultancies. They account for more than 92 percent of Cisco's sales to businesses and public organizations around the world.

T.C. Doyle, a director with partnering specialists Amazon Consulting Inc., Mountain View, Calif., says a number of coinciding trends are making consultative services crucial to Cisco's channel partners. First, networking technology has moved well beyond simply using routers and switches for creating broadband networks. As organizations worldwide embrace Internet protocol (IP) for running all their communications systems, Cisco networks are becoming more complex. And network implementations are only likely to become more challenging as the pace of change accelerates. This is fueling the need for more sophisticated network implementation support. And at an estimated $145 billion, the potential of the networking services market is enormous.

Doyle also notes that offshore competition, the open-source movement, Web-based IT support models, and the natural maturation of the market are all putting the squeeze on equipment prices. "Unless you are a world-class volume reseller, there's just not a lot of money to be made from selling boxes," Doyle says. "Networking channel partners have to find a way to be something more than a parts store, but that can be done by exploiting the new intelligence in the network."

Certainly, that is the conclusion drawn by many of Cisco's leading channel partners. Scott Petty, the chief executive officer of services for Dimension Data plc, Johannesburg, South Africa, says that from $2.8 billion in annual revenue, services account for a majority of the company's profits. "Services isn't an option in a channel partner's strategy, it's a must," Petty says. "But professional services is an emerging market for Cisco and its partners, so we still have a lot to learn about how to work together to engage the customer."

Petty says the complexity of networking technology is driving the need for more-and more sophisticated—customer support. He also adds that the importance of the network continues to increase for virtually any kind of organization. These days, most companies depend on their networks for running their businesses. "Services help ensure that the quality of the network is up to the demands and expectations customers place on it," Petty says. "The network simply can't be 'good enough' any more."

Indeed, Cisco's own channel partners and industry reports underline the importance of services in profitable channel partner businesses. In a recent survey conducted by Cisco, channel partners said that professional services usually earn 30 to 35 percent profits while maintenance accounts for 15 percent margins, with products averaging just under 10 percent.

But it's not just any type of professional service that's garnering the greatest margins. A recent report by CRN magazine showed that "system and network integration" and "custom application development" peaked the list of most profitable services, with categories such as "break/fix," "installation," and "maintenance" at the bottom.

That makes sense to Brett Shockley. As CEO of Spanlink Communications Inc., he has helped guide the company to over 100 percent growth during the last three years. Shockley says Spanlink has thrived because of its specialized focus on Cisco IP Contact Center technology and its application development capability. Shockley says applications are his company's gateway to creating new, more productive and profitable business processes for his clients.

His company has used its specialized expertise to advise customers such as industrial equipment supplier W.W. Grainger Inc., Lake Forest, Ill. Spanlink's own IP-based communications management application helped virtualize Grainger's call center operations across each of its 450 retail branches, allowing Grainger to meld call center support with its stores, helping Grainger lower costs while boosting customer service.

Erick Lee, president of Metronome Inc., Irvine, Calif., says that channel partners must combine their expertise with business acumen to make the most of professional services. Such an approach has helped Metronome rise to 62nd on Inc. magazine's list of the 500 fastest growing small companies.

Lee says that by taking a consultative approach, channel partners can elevate their conversations with customers beyond the IT back rooms and into the front offices of business managers and chief executives, "The goal of consulting a customer is for channel partners to talk about business rather than talk about moving bits," Lee says. "The executive officers and the business managers are the ones that have the budgets that go beyond the IT spend."

Indeed, consultative-type services are paying dividends for all types of channel partners. Win Farnsworth, chief executive officer for ISC Inc., Casper, Wyoming, says his company's focus on professional services has lead his company to double digit growth over the last three years. "It's no longer acceptable for a salesman to try to just sell a product," Farnsworth says. "You will be run out the door. You must be able to understand the customer's issues and have the cross-training capabilities to integrate all network technologies."

Farnsworth as well as other leading channel partners note that such extensive services capabilities have long-term implications. ISC, for example, has worked with individual customers for over eight years—a lifetime in the IT industry. That has happened, Farnsworth says, because his service resources have created trust with his customers and positioned his company as a strategic expert. They are open to his advice when new technology creates opportunity for change.

Given the growing importance of consultative-type services, Cisco is introducing new training programs and certifications as part of its enhanced channel partner program to promote the skills channel partners now require for success. "Getting experience can be expensive," says Karl Meulema, Cisco's vice president of services marketing and channels. "The changes to the channel partner program are our way of helping our partners take advantage of the new services opportunity in the marketplace. By sharing our intellectual capital and helping partners understand the activities required throughout the lifecycle of our network technology, we're aiming to reduce partners' cost in climbing the experience curve."

With each new technology that Cisco introduces, Cisco will provide partners with a lifecycle services approach that outlines a coordinated sequence of activities for deploying and operating that particular technology. This will help partners broaden their traditional support portfolio and build capabilities for delivering technical and consultative service throughout the lifecycle of their customers' networks.

Amazon Consulting's Doyle, who has previewed Cisco's new partner program plans, says the changes are "a good first step" in addressing the market transitions and challenges facing Cisco's independent sales force. "The changes to the program reinforce my belief that Cisco is ahead of the curve in how it supports its sales partners. And even if is doesn't get it all right the first time, Cisco has consistently shown a willingness to tweak its programs to make them better."

Spanlink's Shockley, who has been briefed on the changes, says the new program gives him just the kind of support he's been looking for. "From our perspective, it's a dramatic improvement," he says. "The old Cisco program rewarded you more for the number of engineers you had. But now we can get rewarded for our advanced services capabilities as well as our technical expertise. I can't even say how important that is."

Charles Waltner is a freelance journalist in Oakland, Calif.