Chambers Acutely Aware of Cisco's Channel Woes

tech sector. His presentation, well-rehearsed and choreo-

graphed, is delivered spot-on with an accent that can't belie his West Virginia roots. Chambers breezes through his theories on why recent gains in U.S. productivity can be attributed to the implementation of IT goods and services, then segues into how his company dramatically lowered its operating costs through the use of video and voice technologies on its IP network. He characterizes the current landscape as a "show-me economy" in which technology peddlers must demonstrate the cost savings associated with an implementation before customers will shell out a penny. But he believes those IT dollars will flow once again if the productivity gains can be articulated to top executives.

It all sounds good, but there's a problem: Most of the 3,000 or so partners sitting in the audience at Cisco Partner World are not making money selling Cisco gear, they're at fundamental odds with the company's specialization movement, and they're wresting with telecommunications companies that are dumping Cisco's products below resellers' cost.

This represented a humbling moment for Cisco, whose channel and growth had once been the envy of all. At one time, Chambers practically walked on water. Today, he's a roll-up-your-sleeves, back-to-the-basics executive. Following his keynote speech and a closed-door meeting with a handpicked group of partners who had the sense to bring the telecom dumping issue directly to him, Chambers stepped in and did something extraordinary. In his genteel Southern manner, he said the dumping of switches, routers and other Cisco gear on the market at prices far below what the average VAR charges had to stop. Those actions were wreaking havoc on Cisco's channel and eating into the trust and goodwill the company had built with its solution providers.

Anyone in the channel can tell you a situation is serious when a CEO has to step in to quell a dispute between partners. But it also reveals how involved that person is in the details of his company's supply chain. Could Cisco have made that bold move during the height of the Internet boom, when the telecom companies,service providers, if you will,represented a huge portion of Cisco's growth and revenue? Not likely. But Chambers knows what's at stake now, and he understands the long-term viability of his indirect sales channel, which accounts for 90 percent of Cisco's sales.

Still, listen to the spin Chambers served up on the telcos. At the end of the day, he believes, they understand the damage they were inflicting on the Cisco channel. The service providers, he said, are willing to stop dumping product because they had underestimated the value and power of the indirect channel. If product-dumping undermines those solution providers, it certainly undercuts their ability to deliver services supplied by the telcos to the customers. What a great concept. And in one fell swoop, Chambers not only emerged a hero to the Cisco partners,who desperately needed one,but simultaneously brought the service providers out of the Dark Ages in regard to the power of the indirect sales channel.

One of Chambers' adages is that his only regrets have come when he doesn't make decisions fast enough. Addressing the telco-channel dispute, once brought to his attention, took place in less than five hours.

Yet, it would be foolish to think that Cisco and its partners are out of the woods. The company's plan to force its partners to specialize in areas such as wireless networking or IP telephony seemed innovative at first, but comes at a time when partners are having difficulty financing the program's requirements. One long-time Cisco VAR said he's contemplated dropping his Silver certification. That's the bad news. The good news, however, is that Chambers and his new channel chief, Paul Mountford, are crystal-clear on the issues facing partners.

While Chambers' perspective on productivity is intriguing and could help unleash a new wave in IT spending, Cisco has yet to boil down the message so solution providers can take it to their accounts. It requires some mastery of economics and the ear of a company's top executive. Chambers can make it sound convincing, but if his channel is to regain its past glory, it will have to become as adept as he is at delivering the message.

What do you think of Chambers' pitch and Cisco's channel? Let me know at [email protected].