Cisco Helping its Independent Sales Force Tap Expanding Opportunities

April 04, 2007

The networking business ain't what it used to be. Long gone are the days of router "boxes" and volume sales. Now, as Cisco Systems steadily expands the variety of technologies it creates and the breadth of customers it caters to, Cisco's channel partners face ever-greater options in how they manage their businesses. Cisco's channel partners are a global force of more than 35,000 independent value-added resellers, systems integrators and other companies expert in designing, installing and managing modern communications networks. These businesses account for more than 80 percent of Cisco's sales, and channel partner success is vital to Cisco's success.

Keith Goodwin, Cisco's senior vice president of worldwide channels, spoke with News@Cisco about the state of the networking business, the opportunities for its channel partners, and the ways the company is helping them increase their revenues and profits. (The following is a modified excerpt from a News@Cisco podcast interview with Goodwin.

Please tell us briefly about the history of Cisco's channel partner program. How has it evolved and where is it at today?

Keith Goodwin: When I came into the role a year and a half ago, it was at an interesting time in the history of our channel program. Our existing program had been in place for about five years. In 2001 we implemented what we call our "value-based" channel strategy, as opposed to what had been prior, which was volume-based. Value-based simply means that we reward partners based on their investment in developing expertise in Cisco products and the value they can deliver to customers. It was a critical change because we needed partners to begin investing in new "advanced" networking technologies, such as wireless, security, and IP telephony (unified communications).

Prior to that our channel partners primarily sold routing and switching equipment, and it really was a volume-based sales business. During the build-out of the Internet in the 1990s, there was an insatiable demand for basic networking gear, and the way we recognized partners was by their sales volume. The more, the better. But after the bursting of the dotcom bubble and the natural evolution of networking technologies, it was important for our channel partners to start investing in new technologies.

That value-based incentive approach is now the foundation of our channel partner program and over the last five years it has really been the enabler to the growth that we've seen with our partners in advanced networking technologies. So it absolutely worked. Partners started investing in IP telephony and unified communications at the right time and that has been a tremendous growth market. Other advanced technologies, such as wireless and security, have also been key areas. Recognizing that more than eighty percent of our business flows through partners, it was critical to get our channel partners to invest in those technologies.

What are the biggest challenges facing Cisco's channel partners these days?

Keith Goodwin: The biggest challenge-and the biggest opportunity that Cisco and its channel partners now face--is the growing breadth of our business. We are no longer just "plumbers" as our CEO John Chambers likes to say. The network is becoming a lot smarter and it can do many more things, which is leading to many more technological options. If you go back to the "good old days" ten years ago, channel partners basically sold only routing and switching equipment to corporations and larger organizations. Today our channel partners sell routing and switching gear, plus an ever-expanding range of advanced and "emerging" technologies.

On top of that we're asking our partners to address many more types of customers. Previously, we focused on larger businesses. Now, we have grown to include smaller businesses, vertical industries, telecommunications service providers, and even consumers. That's a lot of market segments. Plus we are asking our channel partners to provide holistic support for their network deployments through what we call lifecycle services. Clearly, the world is much more complex for our channel partners but also full of much more promise. Our partners can invest in many more new business opportunities with us. However, the challenge for them is to not only grow but do so profitably.

How is Cisco working with its channel partners to address these new challenges?

Keith Goodwin: First, we have changed our mindset. Given the breadth of opportunities now available, partners can no longer do it all. And we can no longer expect them to do it all. So we now recognize that it's okay for partners to selectively invest in the types of products they sell and the types of customers they focus on. That's a change for Cisco. In the past, we almost had an expectation that all the partners would invest in every new product, market, or program. But now with the greater range of opportunities, our expectation has to be that it's okay for partners to selectively invest, to focus and specialize.

With that in mind, Cisco is approaching its role with our channel partners much like a financial advisor with an investor. Our sales partners need to pick and choose investments that make the most sense for their businesses and capabilities. We need to be able to sit down at the table with information that's relevant for helping our channel partners invest wisely.

A year ago, for example, we put in place around the world a tool called Regional Capacity Planning. This tool allows us to determine within a country or sales region Cisco's market opportunity and the potential demand for all our various categories of technology. Then we map how much partner capacity we have in that area against the market opportunities. This tool helps us identify the gaps in market opportunity and partner capacity. We have instances where we have plenty of channel partners in a market but they are all going after the same slice of the market. That means that they are all competing against each other while many of the customers in the area are underserved. This type of situation is inefficient for everyone involved, especially our mutual customers. Market gaps mean opportunities for our channel partners, and this is one way we can help them identify their best opportunities.

What are Cisco's long-term vision and goals for its channel partner program?

Keith Goodwin: We're taking a very structured look at where we want to take our channel program and how we want to work with our partners three to five years out. We're in the middle of that effort but there are clearly some things we need to think about as we look longer term. We need to think about what are the potential channels of distribution that don't exist for Cisco today and what are the new emerging potential channels. We need to think more about software, services, and specialized markets, especially as Cisco moves more and more towards selling communications systems rather than just networking parts.

One of the things that has really struck us as we've been going through this longer-term look at things is the need to have a more flexible and adaptable channel and channel programs. Cisco and its partners are in an extremely dynamic and rapidly evolving business and technology environment. So, agility will be an increasingly important theme for both Cisco and its channel partners.

It's clear Cisco and its independent sales partners have many opportunities as well as challenges ahead of them. What do you think will be the keys to ultimate success for Cisco's channel partner program?

Keith Goodwin: We believe it comes down to three fundamental factors. One of the issues that's clearly on John's [Chambers] mind is: "How do we scale for the kind of growth we expect over the next few years?" So crucial to the partner program is for us to retain and recruit partners that can grow with us. We're going to need plenty of good channel partners. The second fundamental is capability. We have to continue to invest in helping our partners build their capabilities to address all the existing, new, and yet un-thought of technologies and services we will offer to our ever-expanding base of customers. We need to make it profitable for them to expand their capabilities as they expand their businesses. The final fundamental is execution. At the end of the day this is really the important issue. We can have great channel strategies, great channel initiatives, and great support programs, but unless we crisply execute on those things, Cisco's channel partners, as well as Cisco itself, will not be able to take full advantage of all the opportunities before us.