Cisco's Peres: It's About Enabling Partners To Choose

Earlier this summer, Cisco confirmed several executive changes to its channel organization, including that Edison Peres, former senior vice president, worldwide channels go-to-market, would expand his role to become senior vice president, worldwide channels, and become point man for all of Cisco's channel partnerships. That puts Peres front and center for segment and architecture go-to-market, distribution, channel programs, marketing, business management and learning partners.

That type of seat gives Peres an important vantage point when it comes to the growth of Cisco's channel community and what products, services and architectures will drive that growth. Peres sat with a group of CRN editors -- including Vice President and Editorial Director Kelley Damore, Editor/News Steve Burke, Executive Editor/Online Jennifer Hagendorf Follett and Networking Editor Chad Berndtson at this week's XChange Americas conference in Dallas to provide perspective on what lies ahead. Excerpts of the conversation follow:

You have an expanded role now. Just to be sure we're understanding the changes, can you take us through what it is?

So you know that channels and resale partners, when we think about it in the context of who sells Cisco equipment, we have 50,000 resellers throughout the world and it's a part of our community that's growing. But one of the things we're doing with our organization is forcing focus, and what we've done with my role is say, 'Let's look at resale partners and ensure we're going to innovate and address their sales channel as a primary focus area.' There is a lot of teaming going on with different kinds of partners -- consultant partners and others -- and we didn't want to take our eye off the solution providers.

With that in mind, what are you spending your time on, what are you looking at and rearchitecting? What investments are you making?

As I look at it, there's so much happening in many ways with the partner community -- I'm very bullish on the growth potential the partners have. I also fundamentally believe that our partners are really in a genuine position, and they're becoming even more relevant as all of these market transitions are taking place. No. 1, one thing we focus on is market transitions. We focus less on competition than we do with what's happening with these competitions. We did that with UC, now we're doing that with data centers and virtualization, and video is becoming much more relevant, and now there's the cloud game. That's four to five major transitions all happening at the same time. Years past, just doing one was a big deal; one drove a lot of conversation. Now we have four or five of these happening, and it's the network that's enabling a lot of these relationships and core competencies -- a lot of these are ancillary complements to the networking platform. We talk about 30 market adjacencies; [Chairman and CEO] John [Chambers] is talking 50. It's incremental opportunity and new market spaces and verticals for partners, and our thought leadership role is to help them see what they don't see today. One of the real responsibilities we have is to be able to leverage all of those.

NEXT: Hot Adjacencies, Cius And The Data Center

Which of the adjacencies do you see as the hottest? Partners hear from John a lot about these adjacencies, and hear about consumer and video and health care and say, 'I can't do all that. These are the opportunities I'm good at, but if they aren't going to be significant growth areas, I'm going to need to change my strategy.'

The high priority is helping partners evolve their services business and their solutions focus. What's happening now is the technology is evolving to a point where you can customize it in a much more effective way. If it's business-process-impacting, you need a services arm to deliver that. It's not about taking the technology and slotting it quickly; it's about taking the technology and working with the customer in a business process and changing the productivity of the company. That's a much richer value prop for the customers, and much richer because of the services content. That differentiates opportunities with the partners, but that's also where their margin is. It's about taking these new opportunities and the partners bringing their value to the table.

Just by way of example, you have a product like Cius, which a lot of longtime Cisco people who know routing and switching say, 'OK, cool, here's a client device, looks great, but do I need to throw myself into selling tablets?' Can you square a product like Cius with the rationale you just mentioned?

Cius is a complement to our collaboration strategy. It's not a product by itself, it's really a complement to the way an enterprise collaborates. It's going to be much more of a tool integrated with the collaboration system of the enterprise than it is like other tablets that are more consumer-oriented. Think about it in the context of the richness of video and the collaboration story: It's really going to empower users by using collaboration in a whole new way. Think telepresence and Tandberg and all of these that fit in as part of that story.

When you first announced the data center strategy, it was thought that would be a narrow group [of partners]. Is that still the case?

When we first started in the data center, it was for you to be successful you need to understand storage, you need to understand the server world and the networking world, and understand the network, basically allowing the collaboration of all these digital worlds together. The partner who had skill levels in all of these had the profile that was ideal. What we're finding is that it's a much hotter marketplace because we talk a lot about cloud, but the path to cloud is virtualization, and you can't get to that virtualization without the network. We're seeing fast-growing specializations, and the data center has been the fastest growing in the last 10 years.

NEXT: Cisco's Commitment To Services Talk about BPO.

What are you going to provide there to allow these guys to do BPO? Is it new channel programs?

That's a good question. Empowering them to understand how to grow their services business is in our agenda. We just got back our annual profitability survey, where we ask [partners] about their Cisco practice, margins, equipment, what percentage of their business is from services. About three to four years ago, we were in a space where VARs had 20 [percent] to 25 percent of their revenue coming from services. In the last year, it's been about 50-50 -- we're seeing now, on average, a 50-50 mix, and of that we're seeing about 30 percent to 50 percent of the services coming from professional services.

Technology is evolving such that the need for professional services is becoming much more relevant and partners are jumping in. The profitability of the partners, from 10 years ago to now, has more than doubled because of that services component.

What kind of investment are you going to make to take this to the next level? What specific things can partners expect?

One thing we announced at Partner Summit was our sales and services go-to-market strategy, and one key thing we announced there is that we'd be working much more diligently in our advanced services organization to blueprint. We do a lot already around 'Steps to Success,' which is a blueprinted technology view of how to implement and support the technology, and we look at the partners and the data moving along that path. We also announced, for the first time, a business-architecture-oriented training program, partnering with the [Cisco] Learning Partners, where we put an offer out there and said we'll pay 50 percent [of training costs] if you pay 50 percent. We filled that up in 40 to 60 days. There are a number of things that will happen, but it will continue to be a major focus of ours.

Will there be a BPO specialization? Maybe a Value Incentive Program incentive?

I don't think we've moved toward a financial incentive just yet because it's hard to pay on what you're doing if I can't validate you're doing it. All I can do is enable you through training and support and access to intelligence that we're making available to build your own practice. We also do audits: For a service organization, we audit services businesses and make recommendations to help make it more efficient and effective. There are not too many manufacturers I know that'll help them audit their business like that. Services have also become a component in every one of our specializations. Every time we do a new specialization, there's a new element that's technology and services.

Will you continue to morph [the programs]?

We will continue to morph it. We're evolutionary vs. revolutionary. Nothing spooks a partner more than changing everything on them and saying, 'Today it's yellow and not black,' or whatever. I think one of the beauties of our program is that we're always putting that carrot, that motivation, out there and nine out of 10 times when they go there they've benefited. We have credibility from the partner organization and they ask, 'What's next?' Cloud is going to drive a whole new business model for the partners: not selling cap-ex, it's about op-ex and selling services. That's going to change the profile of the partners. There's time for that. A lot of partners are very worried but I'm not worried that it's not an evolution they can make.

NEXT: Specializations,Vertical Focuses

You mentioned data center as the first one of fastest-growing specializations. What are No.s 2 and 3?

The fastest growing is the data center practice, but a larger one is collaboration and UC. We are still seeing a lot there. We're moving now to more of an architectural view vs. a technology view and we've done a lot with borderless networks. That's actually one of the beauties of Cisco's approach to cloud; in Cisco's view, cloud is a consumption model delivery approach. What's going to fuel that is, 'Can we buy data and voice architectures via cloud' or 'I want to buy data center and virtualized end points through the cloud.' What'll happen is that with Cisco's approach, we take these borderless networks and architectures and morph into being able to deliver that capability on-prem or cloud-based. We give partners a lot of options.

Partners are cash-flow-tight, and they have to make these transitions at a tough time. How much are you guys investing to make sure these guys are going to cross the next chasm? What's your channel budget for 2010 and is it up?

I don't want to be out of integrity by giving you a percentage off the top of my head. One form is the op-ex budget of people in the channel, and that's 10 percent year over year. The other is what we call contra -- discounts -- such as that we do $1 billion in VIP alone. We do a billion in investment of profitability back into the partners. When we look at all the other contras, it continues to go up and is a very significant part of our budget. We do training and infrastructure support and all the things we do that we don't charge partners for. Another of the real beauties is our collaboration with our direct touch organization: They're not in competition [with partners], but that's 16,000 people out there building Cisco demand and in every one of those deals, partnering. That's the value that's sometimes very hard to put a dollar amount on top of.

Probably another area where you're going to see more energy from Cisco is vertical solutions. Before, it used to be, let me take this vertical off the shelf, and now you have the ability to build a verticalized practice and do more around building competencies. Education is a great opportunity, health care is a great opportunity, and another one you'll hear a lot about from Cisco, especially if you're in China, is smart connected communities. I invite you to dig into that.

What percentage of partners will be vertically focused within five years from now vs. today?

It's interesting, I remember asking four to five years ago who has a vertical practice. Now, I would say, many of the partners either have a small practice or a major practice around certain verticals and we're starting to see the larger ones build that out.

NEXT: Supply Chain Update

We heard from John on the most recent Cisco earnings call that while supply chain constraints have improved, we're not out of the woods 100 percent. That's obviously still a source of frustration in the Cisco channel, so what do you want partners to know, as of August, on the progress you're making?

I think the frustration has diminished dramatically from six, seven months ago, and so No. 1, I want to have the partners know that we really do appreciate their patience and acknowledge the frustration they've had. We've done a lot of process improvements, but I think it's important to go back to the cause and that it's been a good news, bad news story. The good news was that it was a complete miss on the acceleration of the marketplace after the worst recession we've ever had, by not just Cisco but the entire industry-oriented impact. It was caused mainly by oversupplying inventory, shutting it down, waiting for it to come back and forecasting a much longer recovery than what we got. The good news is it's a great recovery, we've all started to see growth and if you look at partners' growth rates in the last few months, there's been a very large growth year over year.

The downside was that this was very frustrating because we couldn't predict all of what was happening. It was a lack of being able to predict and manage the communications caused by the frustration. Anyone can deal with anything if they know it's going to happen. But if you say it's going to happen on Monday and they rely on you and then it happens on Tuesday, well, the unpredictability was such that it caused frustration. We're much more in the norm. While there are pockets of products causing challenges for us, we're much more in the realm of manageability and I think partners do appreciate that we tried to work with them. Our style was kind of a one-to-one approach: Your level of need might be different than his, so there was a prioritization process to help manage, and not a generic communication. It really required a high level of individual communication. The good news is that we're more in the norm.

How were they prioritized?

By customers. It was looking at customers and the ability to say, 'We know that you want this Friday, but can you deal it with it next Monday?' We expedited things by putting them on planes, using trucks, all the things you'd expect us to do.

As partners move to that 50-50 split and the architectures and solutions, what do you worry about?

Having bigger eyes than what you can eat. There's so much opportunity that you can't do everything, and with the 30 market adjacencies and which ones you are choosing to play in, the choice of partners is going to become more realistic for the future. My worry is only that their appetite is so big, and how can they consume everything?

How do you help them make those choices?

Well there's two angles: one is making sure they understand the opportunities, and the other one is a mutual planning process, done at a regional level, making sure they know what's available. You want partners to choose; we don't want to choose for them. We want to help guide them whenever we can, which will force us to be much more disciplined in our planning process. If you have several partners in an area that are all going after one vertical, you may have an overdistribution. We want to help partners understand what's in the game and let them choose.