nullJune 03, 2009
June 2, 2009
Cisco's worldwide channel may be considered a kind of "canary in the coal mine" for detecting how the economic downturn is affecting customers in every industry. Cisco has long aimed to help partners build a strategic relationship with their mutual customers, which can give them a great deal of insight into changes in customer behavior under economic stress. And, of course, when customers tighten their belts, spending slows, partner revenue falls and Cisco's channel organization is the first to hear about it.
Keith Goodwin, Cisco's senior vice president of worldwide channels, spoke with News@Cisco about customer responses to the recession, their impact on Cisco partners and how Cisco is helping partners deal with economic stress.
Q: Overseeing Cisco's channel gives you a high-level view of customer concerns as relayed by partners. What's top of mind for customers during this economic downturn?
Basically, we're seeing customers viewing the situation in one of two ways, and taking very different directions as a result. There are some who are very challenged by the economic downturn. They're seeing a significant impact on both their top and bottom line, but they're not starting from a strong financial position so they're having difficulty weathering the storm. These customers are hunkered down in survival mode, with practically their whole attention focused on cutting costs.
But there's another class of customers who, like Cisco, foresaw the coming stormalthough I don't think anyone anticipated its full extent. They battened down the hatches last year, and so are having an easier time dealing with the downturn. Companies in this category are certainly feeling some pain and are focused on controlling costs, but not to the exclusion of the opportunities to be found in a time of economic turmoil. They're willing to invest in processes and infrastructure that will help them gain market share from less well-prepared competitors, to move into new markets and to be ready to move fast when the economy turns around.
Q: What does this mean for Cisco's partners? What are the key challenges they are facing during this economic downturn?
Cisco partners fall into the same two categories, of course. There are over 60,000 worldwide, and many of them are small businesses for whom the key challenge is survival. But every partner faces the same two basic challenges: managing their own business efficiently despite economic stress, and adapting to the change in customer attitudes towards IT investments.
Everyone, partner and customer alike, is paying more for moneythat's the basis of the downturn, when you come down to it. Some companies can't afford the credit that's available to them. So money is scarce, placing a premium on a partner's ability to maintain financial discipline. Customer spending is slowing, and IT budgets are for the most part flat; projects are cancelled or delayed, and partners' top lines suffer.
"We're here with the tools, the programs and the support you need to not only survive the downturn, but take advantage of the opportunities it offers for a closer relationship with your customers."
Even companies that are still investing in IT are looking to shift their spending from capex to opex as much as possible. So not surprisingly, customers are much more open to considering new consumption models that can reduce costs and increase productivity. It's easier now for them to see the benefit of outsourcing peripheral capabilities so they can concentrate on their core business values.
The fundamental challenge for all our partners is adaptability, both in terms of addressing customer concerns and in reinventing themselves in preparation for the turnaround. Because existing customers are the quickest route to increased revenuesgiven the leverage of an existing relationshipit's important to be able to go to them with new, meaningful value propositions that cut through the noise of the economic storm. A partner not only has to show customers what they can still afford to do, but more importantly, what they can't put off doing. And, of course, once you've honed your value with existing customers, you're even more strongly positioned to reach out to new customers, and even new markets.
At the same time, partners face the challenge of getting ready for the turnaround, realizing that once the "green shoots" really start poking through the snow, it's already past time to make the changes needed to be able to respond and prosper. When you consider it all together, our partners need to keep their eyes on quite a few different balls, and it can be an overwhelming prospect.
Q: So what is Cisco doing to help partners weather the storm?
A year back, we saw the clouds gathering. We went to our partners with the message that we were pretty sure there was a storm coming, and asked them, if it gets bad, what can we do to help you? From those discussions emerged the Navigate to Accelerate initiative that we announced in November, once the dimensions of the economic crisis were clear. This initiative represents a shift in all of our priorities within Worldwide Channels to helping our partners not only survive the downturn, but position themselves to thrive in the upturn.
Navigate to Accelerate comprises four key strategies partners must adopt to respond to today's dynamic and difficult economic environment, along with the tools, resources and information they need to do so. We talk in terms of focus: on finance, on the customer base, on changing customer needs and on the futurethese areas are where our partners asked us to concentrate our efforts, and we're following through.
Q: Let's talk about finance, since the credit squeeze is at the heart of this recession. What is Cisco doing here for partners, and what does that enable them to do?
This was the number one concern that came up during our discussions last year. Partners wanted to know that they could get help with their finances. They need tools and programs to help them with credit issues, cash flow issues and all the details needed for an effective management strategy that will help them survive the challenging credit environment we're in.
A key part of that is making more credit available. Since October, while other companies have reducing credit to their channel, Cisco has added $2 billion of credit capacity through extended-terms financing for our partners.
We're also making it possible for partners to help their customers with more affordable credit. For instance, in some regions Cisco partners can offer zero-percent financing to end users. This is a huge piece of leverage for the second part of Navigate to Accelerategetting closer to the customer base. So are other programs we've initiated to help partners save money, such as reducing onsite audit requirements for certified resellers.
Cisco is also funding customer network assessments through our partners. Partners are finding these assessments to be an incredibly valuable tool for showing customers where they should be investing infrastructure or service dollars, which helps overcome the impact of flattened IT budgets on partner revenue.
Q: Where are partners finding room in their customers' budgets these days?
As I mentioned, your existing customer base can be the best place to go in a challenging business environment, and despite the recession, there's a huge opportunity out there for infrastructure upgrades that we're helping the channel cash in on. We have a $23 billion installed base that is more than five years old. So customers are facing an imperative to upgrade their core routing and switching, and we're arming partners with significant rebate programs to take advantage of this.
Of course, given the focus of many customers on what you might call "operationalizing" their spendingthat is, moving from capex to opex wherever practicalit's not just a matter of trying to sell them hardware. The downturn combined with an aging infrastructure opens up the opportunity for partners to open a higher-level business discussion with their customers, to move into a more strategic relationship with them. For Cisco Partners, the motivation is to take advantage of these incentives, which enable new business models that will give you new routes to market to drive revenue and reduce your cost structure. Security, mobility and collaboration are typical areas where partners are getting traction with this approach.
The growing openness of customers to managed serviceswhich is really about acquiring technologies in new waysis where the third component of Navigate to Accelerate is helping partners: changing customer needs. The big news here is Cisco's next-generation Managed Services Channel Program that's much simpler for partners to manage and transact business in, enabling them to come up to speed with a basic managed services program in as little as six months, compared to the two years or more it might have take earlier. And of course with this more agile structure in place, a partner can move into managed services much more aggressively as the upturn comes.
Q: Finally, how is Cisco helping partners prepare for the return to a healthy economy?
This is really what the whole Navigate to Accelerate initiative points to: helping partners not only survive, but actually get ahead of the game so they're prepared to accelerate their business when the economy turns around. There are a number of areas where Cisco is working with partners to position them right, with two key elements in particular.
The first is not a new focus for Cisco and its partners, but it's one we think can really have an impact moving forward. We want partners to embrace Web 2.0 and collaboration technologies to fundamentally change the way they work with Cisco, our mutual customers and with other partners. And of course they should not only adopt these technologies to improve business processes, but also take advantage of the $34 billion market opportunity they offer, because customers are beginning to see the same benefits for their own businesses.
The second key element is services, which are a critical component of what our partners do today because they drive both top and bottom line. I'm not talking just about managed services, but services across the full life cycle, everything from basic maintenance and support, to implementation, to operations, and up to advanced level services that relate to consulting and business transformation. We're strongly focused on providing partners the programs they need to more aggressively deliver all these kinds of services in the future, to take advantage of improved conditions when they arrive.
In the end, the bottom line message from Cisco for partners is pretty simple. We're here with the tools, the programs and the support you need to not only survive the recession, but to take advantage of the opportunities it offers for a closer relationship with your customers. . We're helping you position yourself to offer customers new service models and new architectures to support them nowand when the economy comes back, to emerge from this stressful time even stronger than before.