Cisco's Bold Channel Experiment

It was late 1999 when N2N Solutions president John Freres got the call that would test the strength of his company's exclusive partnership with Cisco Systems. The Chicago-based networking solutions company was contacted by Lucent Technologies, which was making a push into the converged voice/data space and recognized the benefits of a strategic relationship with a company like N2N. For Freres, a second partnership in that space seemed to make sense, considering Lucent's lead over Cisco in voice technology. So N2N went ahead and signed on with Lucent. That relationship lasted less than six months.

"It was obvious that Lucent didn't have a clue as to how to do a partner program. It was a nightmare," says Freres, whose $40 million company has since gone back to Cisco-exclusive status. "The one thing Cisco has been able to do is continually invest in this program on a regular basis. That's something other companies haven't quite figured out how to do."

Now Cisco's looking to make another investment in its channel--with a strategy to help partners like Freres create sustainable business models based on value-added services, specialized technology expertise and a stronger focus on customer satisfaction.

More noticeably, Cisco has wiped out product volume requirements for partner certification--a notion some company insiders scoffed at only a year ago. The drastic move shows how seriously CEO John Chambers is taking the future of Cisco's channel. And he has good reason. Last year, close to 90 percent of the company's $18.9 billion revenue was driven through partners,up from 36 percent four years ago. That strong channel tie also helped Cisco win the networking infrastructure category in the 2000 VARBusiness Annual Report Card.

Now that Cisco has set its sights on reaching $50 billion in revenue in the next three to five years, the company's reliance on partners will only grow stronger,as evidenced by a ramped-up Partner Summit opening this week in Las Vegas.

"Channels are key to this goal; there are no two ways about it," says Tushar Kothari, vice president of channels. "The focus now is on making significant changes to our certification and specialization programs to further gear up our partners."

Cisco is not alone in its thinking. A number of large vendors such as IBM, Microsoft and Sun have recently made new overtures to their channels,helping partners enhance their skills in the hopes of increasing their overall market shares. In doing so, these vendors have also been cozying up to a new generation of "influencers" who don't resell products, but play a larger role in the technology decisions made by end users.

New Program, New Goals

But where Cisco may be unmatched, industry watchers say, is in the scale at which it is changing its program to embrace new solution providers. "It looks like the right thing for Cisco to do," says Ken Presti, an analyst with IDC. "It is trying to help the channel move to the next level of emerging technologies, both in terms of voice/data convergence and some of the other specialization categories."

The first step, announced last month, includes the reengineering of the popular Cisco certification program. It will be followed by a number of additional changes to the program over the course of the year.

In the past, Cisco awarded Gold, Silver and Premier status to partners based on whether they met predetermined sales criteria. The new program changes that by using a point system based on the combination of specialization areas, number of certified sales staff and customer satisfaction goals.

With the new program, Cisco will require partners to specialize in at least one of seven technologies,WAN switching, IP telephony, VPN/security, SNA/IP, network management, voice access and wireless LAN. Solution providers will gain points toward their Gold, Silver or Premier badges for each area mastered. Meanwhile, Cisco channel managers can introduce new technologies without having to architect a whole new program.

And because partner certifications will now be based on their engineering capabilities and services, not hardware resale volumes, small integration companies will have the chance to enjoy the same strategic relationships as larger resellers and distributors. "We are the only company in the industry that is actually removing that [volume] requirement from the certification process," says Surinder Brar, senior director of marketing for worldwide channels. "We are unique in that aspect."

By scrapping that requirement, Cisco hopes to solidify a more strategic and viable channel contingent in a market increasingly dominated by professional services. That's the case with Select, a Boston-based networking VAR that generates a large chunk of its $70 million revenue implementing Cisco products.

"The need for specialization is almost analogous to the medical business. You can't do it all," says Bob Norton, vice president of Select. "We're trying very hard to pick areas of specialization, while paying close attention to the dynamics of the market,like the convergence of voice and data, as well as Cisco's need to maintain profits in a down market and what that means to a channel that is only doing fulfillment."

Since Norton's company already focuses much of its internal training efforts on Cisco certifications and programs, he considers the new program a "significant payback for that effort."

N2N's Freres says the new program will also help Cisco VARs distinguish themselves in the marketplace. "With [the old program], it became very hard for end users or the Cisco sales organizations to really understand your focus as a company," Freres says. "But by moving into the whole specialization area, we have invested heavily in those areas, and it has given us a competitive edge."

In fact, N2N has refocused its entire engineering base around Cisco's specialization areas, with separate practices in place for Avvid (Cisco's IP telephony offering), security solutions and network applications. That lets N2N market itself to clients as well as potential hires who may be looking for Cisco certification, but want to become an expert in a given area.

"Because we have the specialization program, we can get them on that track, and they can spend the majority of their consulting time and engineering focus developing themselves into that," Freres says. "That has allowed us to win business against some other larger partners. My company is 50 people and $40 million in revenue, but I have actually beat out companies like AT&T, IBM and other multinational companies on deals because I had these specializations. The client looked to me more as a focused provider than just a big provider."

Increasing Revenue Through Partnerships

The transition from reseller to solution provider has also been fast and complete for Skyline Computer, a Silver Certified company based in San Jose, Calif. In fact, the company says its relationship with Cisco has been a major factor in increasing revenue from $10 million in 1997 to $35 million in 2000.

When the company started in 1989, it resold IBM boxes to connect mainframe customers to the rest of the world. But that all changed once Cisco introduced channel-card connectivity to its routers, in essence overthrowing the importance of the company's product base. "At that point, we were just a pusher of boxes with no value-add or technical talent at all," recalls Mike Zanotto, managing director at Skyline.

Skyline, realizing the threat at hand, made the move to embrace Cisco, starting out as a base-level reseller, then moving up to become a Cisco Certified Channel Partner and, ultimately, achieving Silver certification.

"As we got more and more into it, we realized there was a need for certain specialties within the Cisco product lines," Zanotto says."We saw that if you had a real value-add, you could surpass a lot of the people that had been in the Cisco business market,in some cases for years."

But Skyline didn't stop there, going on to earn certifications as a Cisco Learning Solutions Provider and a Professional Services Partner. That means it can design Cisco training programs for customers and help manage customer accounts on-site. The Cisco certification has made Skyline an attractive ally to other Cisco business partners as well.

The solution provider says that by quickly embracing new technologies, including optical and IP telephony, it was also able to get its foot in the door with new customers looking for training support and services.

Cisco is also reducing the Cisco Certified Internetworking Expert (CCIE) revenue-scaling requirement for partners,down from one CCIE on staff for every $10 million in Cisco business to one CCIE for every $40 million, and balancing the technical talent requirement across the range of associate, professional and expert certified individuals to give partners more flexibility in how they can leverage their Cisco-certified consultants.

The customer-satisfaction aspect of the program will include new end-user satisfaction targets for partners,in line with Cisco's own internal targets,that will be announced in August. To help its partners achieve those goals, Cisco will share its best practices tools with partners, while giving them access to customized data so they can identify their strengths and weaknesses. The targets will be distinguished by geographic region and will be based on data provided by an outside research company. The partners will have access via the Web to their company's customer satisfaction scores, aggregate data and client responses.

While Gold and Silver partners will be required to participate in the customer satisfaction program, Premier partners will still have the option of participating. That may change as the program progresses, say channel managers.

But analysts such as IDC's Presti wonder if the move to emphasize partners' efforts to increase customer satisfaction will ultimately help or hurt Cisco, depending on how its solution provider partners react to the new requirements.

"It will be interesting to see how that effort plays out in terms of tying the channel closer to customer satisfaction," Presti says. "On the one hand, it should work quite well, but on the other hand, there may be some sensitivity on the part of the channel in terms of exactly how they go about making that happen."

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Cisco's Partner Program Specs

1 CCIE revenue-scaling requirement has been reduced from one CCIE per $10 million to one CCIE per $40 million.

2 Emphasis is now balanced among associate, professional and expert certified individuals, of which there are more than

150,000 worldwide.

3 Extensive Web-based training is available for individuals to get certified and for companies to get specialized.

4 More than 6,000 Cisco networking academies exist, with more than 55,000 students in 106 countries.

SOURCE: Cisco

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