November 17, 2003

By Jenny Carless, News@Cisco

Cisco Systems revenue, generated with or through its strategic alliance partners, rose 12 percent year over year to approximately 14 percent of the company's total revenue. The technology leader accomplished this through a company-wide effort despite a challenging business climate and despite the fact that, across industries, most partnerships and alliances fail to live up to expectations.

Dan Scheinman, senior vice president of Corporate Development at Cisco Systems, and Steve Steinhilber, the company's vice president of Strategic Alliances, addressed attendees of the Association of Strategic Alliance Professionals (ASAP) Alliance Summit in Seattle, Washington recently, where they discussed how Cisco has successfully unlocked the magic of strategic alliances. ASAP is the leading association for business executives involved in partner or alliance development and management. Cisco was recognized by ASAP at the Summit for the second year in a row for excellence in alliance management, as evidenced by its double-digit alliance revenue growth.

The Value of Alliances

Every alliance has its own particular flavor based on the companies involved and their intentions. Still, most are conceived with some common goals in mind. These include creating new or accelerating existing markets, delivering a more complete or customized solution to customers, and/or reducing complexity - both for the end user, by simplifying technical solutions, and for the enterprises involved, by facilitating technical development. The ultimate goal of an alliance is to create a sustainable, preferably unique, core competitive advantage for each company.

Today more than 20 percent of the revenue generated from the top 2,000 U.S. and European companies comes from alliances, according to a Booz Allen Hamilton study. HP/Cannon, Intel/Microsoft, Yahoo!/SBC, PepsiCo/Starbucks, Sony/Ericsson and Cisco/IBM are some well-known successful alliances.

"Well-formed alliances share a number of characteristics," explains Scheinman. "For example, strong executive management relationships across the two companies, based on a clear understanding of the mutual goals, are vital. Cisco has also found that it's important to bring metrics and accountability into the process and to maintain a focus on customer satisfaction."

To Boldly Go

Convergence of technologies, industries and geographies is dissolving borders and intensifying competition among companies that had little to do with one another in the past. At the same time, most enterprises today appreciate that they can't "do it all" and still get product out in time to lead the market.

In this climate, alliances become ever more important. And increasingly, creating new value requires crossing competitive boundaries.

"We're all tasked with finding new value - for customers, investors and employees. Our professional success depends on it," says Steinhilber. "And unless we're willing to think of new frontiers for finding that value - including working with companies with overlapping interests - the job's just going to get harder."

When should a company consider engaging with a competitor? There are a number of considerations, according to Steinhilber:

• The competitor should be a leader in an adjacent or complementary technology.
• Both enterprises should see an opportunity for sustainable profit growth.
• Look for situations in which the competitive overlap has largely different channels to market and/or serves different segments and where combining strengths will enable both companies to address an even greater strategic threat.
• The alliance must have strong executive support in both companies.

Perhaps just as crucial as recognizing when it makes sense to ally with a competing company is recognizing when it doesn't. "Although we've often chosen to work with competitors, making the leap across the competitive chasm isn't always the right decision," says Steinhilber. "In fact, if you don't make the jump at the right opportunity and at the right time, you could end up falling off the cliff instead."

Successful Alliances

Cisco has successfully crossed that chasm numerous times by partnering with companies that have partially overlapping interests and creating new value for both sides. This includes Motorola, HP and IBM.

The alliance with IBM is illustrative of the mutual value that an alliance can create. In the late 1990s Cisco realized that customers were asking for more network integration services and related support than made sense for the company to provide directly. At that time IBM, the leading player in this services business, competed with Cisco in many core routing and switching areas.

However, the two companies defined a mutually beneficial strategic alliance. In August 1999 Cisco purchased IBM IP components, PCs and training and invested in training IBM personnel. At the same time, IBM invested in Cisco technology, committed to training and competency centers and enhanced its global capacity to integrate networking technology. The two companies built go-to-market solutions around combined technologies.

As a result, Cisco revenues from related solution sales have grown more than 400 percent since the strategic alliance with IBM was founded. IBM has experienced a similar increase in revenues. The two companies now offer a broad range of joint solutions, including in IP telephony, digital media delivery, storage, mobile office, wireless LANs and a joint vertical application for the banking industry.

Whether with a traditional ally or a competitor, successful alliances require at least the same level of due diligence and business discipline as acquisitions. "Evaluate whether a potential partner fits your strategic map, ensure there's a good balance of short- and longer-term wins for both sides, and take the time to do detailed business planning up front," Steinhilber advises.

"We still have a lot to learn, though," he adds. "And we wouldn't have seen the results we have without the active involvement and support from other functions across the company."

Jenny Carless is a freelance writer based in Santa Cruz, CA.