Charting Cisco's Progress

Editor's Note: extensively covers top vendors' annual partner conferences and the strategies outlined there, regularly reporting on initiatives launched by the likes of Cisco, IBM, Hewlett-Packard and Microsoft. To gauge our readers' take on the health of those programs, this week is launching a series of special reports we call "Reality Check." The first vendor considered is Cisco, which is planning its next gathering of worldwide partners in April 2005.

For some solution providers, Cisco Systems is a puzzle.

In CRN's exclusive survey of 150 Cisco partners, they praised the company for successfully leveraging its clout as a household name in the routing and switching markets to establish leadership in IP communications, wireless and security—pushing more than 92 percent of its enterprise and commercial sales through channel partners along the way.

At the same time, however, the research conducted in September and October shows some partners continue to struggle with profit margins, harbor distrust for the company's Enterprise Sales Organization and grapple with cumbersome training and certification requirements. Partner profitability, in particular, was a major theme of Cisco's partner summit in February and continues to be the driver behind the vendor's numerous new incentive programs. All in all, the partners surveyed by CRN gave the company an average overall satisfaction rating of 4.25 on a scale of 1 to 7, where 1 indicates extremely dissatisfied and 7 indicates extremely satisfied.

Chuck Robbins, vice president of U.S. channels at Cisco, San Jose, Calif., would be the first to admit that the vendor's program is—and always will be—a work in progress. "Three years ago, we started redefining the foundation for partnership," he said.

He's also keenly aware that to deliver on Cisco's aggressive corporate mission this fiscal year to become a bigger player in small and midsize accounts, the company must engage with more partners that drive demand in that market. An overhaul of Cisco's field-sales organization undertaken over the past 90 days will be critical to both the SMB effort as well as Cisco's ongoing ability to keep growing revenue, Robbins added. Under the new structure, area vice presidents are measured on their ability to include more partners in their regional sales planning. Quite simply, they won't make their sales goals if they don't align more tightly with a greater number of solution providers. "They can't get home without the channel in front of them," Robbins said. (For more on the reorganization, see sidebar on page 20.)

The first step toward connecting with more partners has been for Cisco to take its advanced technologies strategy more broadly into IP communications solutions including telephony and call-center applications, wireless and security—all areas where Cisco partners rated the vendor positively in the survey. Moreover, solution providers said Cisco's extensive line card gives them the opportunity to build complete solutions and branch out into new technology areas.

"When we go into SMB accounts, we're typically selling a soup-to-nuts solution, not just going in to sell point products," said Jay Kirby, vice president of sales at Troubador, a Houston-based Cisco Premier partner that focuses on networking, security and storage.

One area where Cisco has unquestionably made a convincing argument this year with partners is in establishing itself as a leader in IP communications. Indeed, survey respondents agreed strongly about Cisco's dominance in this area, which is hardly surprising given that Cisco hit 4 million shipments of its IP handsets in October.

Partners also said Cisco over the past year has staked a credible claim as a leader in wireless and, to a lesser extent, security. John Breakey, CEO of Unis Lumin, a Cisco Gold partner in Toronto with about 105 employees, said security solutions are becoming more and more integrated into overall network concerns, especially as customers adopt voice applications, and that gives Cisco an edge. "Customers' expectations are higher when you move to a converged network or when you do security. They want an expert. When you have a heart attack, you want the best cardiologist," said Breakey.

Alex Thurber, director of security and wireless strategy, worldwide channels, at Cisco, said the recruitment of high-end, boutique security specialists that can bring their perspective to the company's infrastructure offerings is being ramped up in coming months. "This is one area where product brand preferences are really being driven by the partner," he said. (For more Cisco security news, see page 14.)

However, an area where Cisco's advanced technologies team has its work cut out for it, according to the survey, is storage. The company's current strategy—selling its SAN switches through original storage manufacturers (OSMs) such as EMC and Hitachi Data Systems—essentially forces Cisco's solution provider partners to buy from their competitors, Troubador's Kirby said.

"I have to buy from an OSM, but these are also the guys building SANs, of course, so I may be buying from Hitachi but competing against EMC," he said. Kirby expects Cisco to stay the course for at least another 12 to 18 months until it gains a stronger foothold in the SAN switch market.

Some solution providers believe changes to the storage channel strategy may come too late, given the market leadership positions of other players. "In the sense that it seems to me like they are in a great position to address it and be a leader, the market has just not accepted them there. They may have been too late to the table with IP storage," said David Hall, senior vice president and CTO of Dallas-based CompuCom Systems, a Cisco Premier partner.

When considering core business issues, solution providers gave Cisco mixed marks on its efforts to ameliorate channel conflict over the past year, with 24 percent agreeing that the company has reduced it, 37 percent disagreeing and 39 percent neutral. Survey results also showed that Cisco's extensive efforts to build more profitability into its channel programs aren't resonating throughout its entire partner base. Only 30 percent of respondents agreed that Cisco is genuinely concerned with the profitability and success of their business, while 45 percent disagreed and 25 percent were neutral.

Anecdotally, the question of profitability elicits strong opinions.

"Honestly, I think they're more concerned about the profits of their own business. But they are a lot more channel-savvy than they used to be," said CompuCom's Hall.

But Tim Burke, CEO of Quest Technology Consulting and Management, a Cisco Silver partner in Sacramento, Calif., that generates about $80 million in annual revenue, said, "Cisco is the only vendor that cares about my profitability."

"I think they've traveled a tremendous distance over the past 12 to 18 months," said Andy Shulman, regional vice president at ePlus Technology, a Herndon, Va.-based Cisco Gold partner that is building a national coverage footprint and boasts 15 Cisco Certified Internetwork Experts.

Said Mike Fong, CEO of Calence, a Cisco Gold partner in Tempe, Ariz., with close to $1 million in annual revenue: "We're very happy. We've made big investments in the relationship with Cisco, and we've gotten the return. For the partners who have executed well, it works."

Multiple partners pointed to the rolling Value Incentive Program (VIP) back-end rebate initiative and the Opportunity Incentive Program (OIP), the deal-registration plan Cisco unveiled in February at its partner conference, as clear evidence of the vendor's commitment to their profitability.

"Their efforts to put a deal-registration program in place were a vast improvement from a year ago," said Marty Andrefski, vice president of sales and operations at Integra 1, a Cisco Premier partner in Allentown, Pa.

Pat Grillo, president of Atrion Communications Resources, an $18 million Cisco Premier partner in Branchburg, N.J., said initiatives such as VIP are helping improve margins on Cisco security products, closing what once was a much larger gap vs. competitive products such as Juniper Networks' NetScreen portfolio. "The back-end rebates bring margins more in line with Juniper, and they are Cisco, so sometimes you might make a point or two less but it's easier to sell it," Grillo said.

However, the burden Cisco places on partners in training and certification programs can be heavy to bear, Grillo said, echoing the sentiments of survey respondents who said the programs take too long to complete and offer mixed results when it comes to return on investment. "We've got [industry certifications], we've been doing VPN/firewall for a long time and we understand security. To have to go through six or seven tests and pass them to become Cisco-certified is silly and time-consuming," Grillo said.

Pete Busam, COO of Decisive Business Systems, a Cisco Registered partner in Pennsauken, N.J., that regularly reconsiders its Cisco relationship, said even though the vendor has made plenty of noise lately surrounding efforts to broaden its footprint in the SMB market, he's not convinced that he should make what he estimates is a $20,000 to $40,000 investment to move forward. "They're not coming in to get my share or influence," he said.

Still, other partners said they plainly see the value of Cisco's extensive certification requirements and the badges they earn by achieving them.

"The Gold badge is not just about making investments in training. It means you have a very strong service organization, it means you have good operational procedures. It also means you have people who are skilled," said Unis Lumin's Breakey.

Joseph Aldrich, director of sales and business development at inSync IT Services and Solutions, a Cisco Registered partner in Laguna Hills, Calif., with seven networking engineers, said the time and monetary investments required for Cisco certifications are necessary. He also downplayed the idea that a vendor-neutral certification would be adequate. "My engineers need to know specifically about their technology," Aldrich said.

Overall, regardless of their program status, there is one thing on which many Cisco partners agree: The vendor is realizing that its own success is inextricably linked with the health of its solution provider partners.

"There has been more interaction between their folks and mine. We're seeing them at least once per month, whereas it used to be couple of times per year," said Jeff Dixon, president of IT at R.K. Dixon, a Cisco Premier partner in Davenport, Iowa, that does less than $1 million in Cisco business per year. He said the newfound consideration has helped increase his loyalty to Cisco. "We felt a little neglected there for a number of years, and it's nice to see that attention come back around."