Cisco, Channel Partners Collaborate to Boost Profits, Customer Satisfaction

February 9, 2004

by Charles Waltner, News@Cisco

When its channel partners spoke, Cisco listened.

Channel partners -- the value-added resellers, systems integrators and network consultants that sell Cisco equipment -- account for 92 percent of Cisco's enterprise and commercial revenue. When Cisco's 40,000 channel partners faced unprecedented hardship as the Internet bubble burst, the company realized it needed to forge a new approach to working with this essential sales force.

After listening to channel partner concerns about the challenges of commoditized equipment prices, reduced profits, higher customer expectations, and increasingly complex technologies, Cisco set to work on a plan in 2001 to revamp its role with channel partners.

While the networking services market continues to be highly competitive, channel partners note Cisco has become demonstrably more proactive with them, supporting their businesses through a variety of formal and informal efforts to share the burden of marketing, sales, implementations, and financing.

Last year much of Cisco efforts came to fruition. On the eve of the 2004 Worldwide Channel Partner Summit, these organizations as a whole are experiencing an increase in profitability for the first time in 18 months. Such a change of fortunes has been spurred by a host of initiatives and programs that aim to help channel partners succeed in the new market environment (see sidebar on Channel Partner Programs). Cisco's efforts include everything from improved coordination between channel partners and Cisco's sales staff to rebate programs, online education and sophisticated information sites.

By working closely together and sharing more resources, both Cisco and its channel partners report greater success with customers, particularly for advanced technologies such as wireless, IP telephony, security, and storage. And happy customers mean good things for both Cisco and its channel partners.

"It was a question of moving our emphasis from volume to value," says Paul Mountford, vice president of worldwide channels for Cisco. "These days, customers are not concerned about how many routers or switches they can buy at discount but about the quality-or value-they get from their money spent. And with this in mind, Cisco has restructured our support for channel partners to make it easier for them to deliver high-value networking services-in the process making them, Cisco and our mutual customers more successful."

Marty Lindenbaum vice president of North American alliances with Cisco channel partner Dimension Data, Reston, Vir., says both channel partners and Cisco have had to change their ways to adapt to the new market conditions.

"During the Internet boom it was a tornado market," Lindenbaum says. "Equipment was flying off the shelves. But today, customers want a lot more than just equipment. They want a solution. Cisco has great gear, but they've realized that that isn't enough anymore. They have recognized the need to work with channel partners to provide a complete solution to customers."

The new Cisco relationship with channel partners has resulted in such high-profile project successes as the wireless network Dimension Data and Cisco created for the historic Boston Public Library, allowing patrons secure Internet access anywhere in the building.

Other Cisco channel partners are also finding benefits from changes in Cisco's channel partner strategy. Robert Keblusek, senior vice president of business development for Sentinel Technologies Inc., Downers Grove, Ill., credits Cisco's recently implemented Value Incentive Program (VIP) with helping his organization further its expertise in IP telephony, IP call centers, and IP storage. The VIP program provides rebates to channel partners who successfully implement IP telephony and security technologies.

"As the saying goes, 'The pioneer takes the arrows.' So it's nice to see Cisco stand by us when we are working on implementing these advanced technologies," Keblusek says. "The advance technologies are a little more difficult to implement since they are new. Often in the past we were stuck with a profitability issue, but the Cisco VIP program helps address that concern."

Just as importantly as profitability, the VIP program helps Sentinel differentiate its business by offering higher-value services and avoiding lower margin commodity sales.

"Our goal is to be good at technology implementations that customers can't do on their own," Keblusek says.

He adds that the Cisco Partner E-learning Connection (PEC) has also helped Sentinel by providing effective online training, which his employees can do when and how it suits their schedules.

"We're a better educated company because of PEC," Keblusek says. "And dealing with advanced technologies, education is crucial to staying ahead of our competitors."

Cisco has grown to 20 percent of Sentinel's business, up from 2 percent in 1999. Keblusek partly credits the new Cisco channel partner programs for this change.

Mike Fong, CEO of Calence, a Cisco channel partner headquartered in Tempe, Ariz., grew 70 percent last year. Fong also credits Cisco's support as an aid to his company's exceptional success.

"Cisco's attitude toward channel partners has shifted from a sort of neutral, hands-off approach to one of partnership and collaboration," Fong says. "And that's really exciting because the new programs reward partners who offer the skills and resources that Cisco does not have internally."

Cisco, for example, has worked in close cooperation with Calence on recent projects, providing consulting support and financial assistance for advanced technology implementations involving one of Calence's specialties, IP telephony.

"In the past, Cisco might have said good luck," Fong says. "But this new approach to joint business development has helped open doors with clients. Together, we make a much more impressive pitch and clients are responding by giving us more business."

Though Fong says Cisco still has more work to do before all programs run as smoothly as he would like, he is pleased with Cisco's efforts.

"The biggest story here is that Cisco said they were going to do something and they are following through," Fong says. "In a short time the boat has been turned around and it is now moving in the right direction."

Channel Partner Programs

Since 2002, Cisco has been developing new programs to help channel partners become more profitable in the current market environment. Below is a list of some of the most prominent programs launched over the past year.

Value Incentive Program (VIP): Provides partners a rebate for selling Cisco IP telephony and security networking technologies. Program has sparked growth for Cisco and its channel partners in these markets.

Partner E-Learning Connection (PEC): An online training portal for channel partners. Cisco estimates it has saved $350,000 per certified partner in training expenses while helping partners increase productivity and improve technical skill level. This equates to an FY03 total savings of $1.09B.

E-Agent: Allows channel partners to receive compensation for acting as a sales agent.

Partner View: Single-source Web portal for channel application data and related Cisco information. Fifty-six percent of partners estimate a weekly time saving of two hours by using Partner View.

Demo Lab Leasing Program: Program lets partners lease demonstration lab equipment at reduced rates. Partners are saving an average of 30 percent from standard purchase prices.

Neutralized Service Sales Team Compensation: Implement August 2003, Cisco sales employees now receive equal compensation regardless of whether sales goes through channel or direct. This initiative is prompting double-digit growth in channel partner shares of Cisco annual services revenue.

Service Contract Center: Web-based system eliminates need for physical contract packages by capturing customer registration information and providing advance notice of a contract's expiration date for renewals. Program has helped Cisco eliminate $10 million in physical inventory while providing double-digit increases in distribution efficiency for supply chain partners.

Charles Waltner is a freelance journalist in Oakland, Calif.