When CRN last met with Rob Lloyd, Cisco executive vice president for worldwide operations and top global sales chief, Cisco was just entering a global restructuring with ambitious plans to remove $1 billion in operating expenses in its fiscal 2012 and a stated goal to make Cisco -- as a sales, marketing and partnering behemoth -- a much more agile organization.
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It was during that July 2011 interview that Lloyd, who joined Cisco in 1994, assured Cisco's global channel that solution providers would see more, not fewer, resources and that Cisco, after a period of tough-love self-examination, had a firm grip on many of the problems spelled out by Chairman and CEO John Chambers in his infamous April 2011 "lost credibility" memo. Nine months later, Cisco is in trim and fighting shape.
Lloyd, who ascended to Cisco's top executive echelon in February 2009, oversees all of Cisco's worldwide sales, operations and channels, and serves on Cisco's Executive Committee. He is often mentioned on the short list of internal candidates said to be potential Chambers successors and is admired by solution providers as a channel advocate -- Lloyd, himself, once ran a successful regional VAR.
In an exclusive discussion with CRN, Lloyd joined Senior Editor Chad Berndtson to set the stage for next week's Cisco Partner Summit in San Diego.
Take me through the major moves Cisco's made over these past nine months since you and I last spoke.
If you take a look at the things we did discuss last July, we were in the process of realigning our resources in my organization in the field to be a lot simpler -- to align much more to a geographic model where there were less requirements to come back to San Jose for approvals, or advice or opinions. Really, we took some pretty bold steps to align most of our resources, and over 90 percent of all my teams now reside in one of these three regional [geographies] we put in place.
The sales teams, the channel organization that supports that geography, the architectural teams that add expertise for customers and partners in that geography, and the marketing and services -- we created these three regional hubs, and that did two things: It allowed people to work much more in the time zones in which they lived and allowed the teams to allocate their resources and prioritize much more on a regional execution plan. That has worked very well.
Pulling people together in those regions was something our partners had asked for. The improvements we've seen are faster cycle time on pricing and getting decisions made much more quickly than previously. There is still room for improvement, and we continue to focus on ways to make our business model faster, but we've turned around on pricing faster, there's a lot less checking for approval someplace else, and we've created key methodology that says, 'Here's who makes the decision.' That's a lot of what we focused on with Cisco for the last nine months. It helps us move a bit faster and appear more agile and be more consistent in the marketplace, which is what our partners asked for.
We've seen increased market share in some of our core markets, the stabilization of gross margins on the product side and an execution we think is heading in the right direction. It's a good first step. We feel like we have a lot more to do to simplify the interaction with our partners and with our customers. So that's job one.
NEXT: Job Two For Cisco: Portfolio Alignment
Job two, and this is where you might be getting some sense from the partners, we did a pretty major realignment of our engineering organization, and did it in two phases. [The most recent], in December, we really brought the portfolio together in ways that reflected the architectural value propositions we've been describing. Marthin De Beer [Cisco senior vice president] now owns the full collaboration and video portfolio. That's the portfolio that leverages video over the network, links to applications and Telepresence, and is our video business that was in the former Scientific Atlanta. [That portfolio] led to the decision to move forward with the NDS acquisition, which fills out our Videoscape architecture for delivering media securely to consumers and businesses in the marketplace. It feels better.
It feels better in the data center, where we have the full portfolio of Nexus, from the 7000s to the virtual switches and fabric extenders, and the UCS, all under one leader and a little more tied together. What you see is fewer separate messages and engagements, and that's been well received by our partners. It took a little work to make that happen.
The other area I've heard good feedback on from partners is collaboration. WebEx has good stuff going. UC has good stuff going. I think some of the excitement [comes from] the announcements we made at Enterprise Connect about our Jabber client and how that becomes a standard soft client in addition to what we're delivering on the devices. We're opening up our communication experience onto iPad and Android clients and Microsoft clients -- this explosion of devices. That's been well received by our partners. I do believe that we can do better as a company in exploiting the role of the network.
In the area of security, I'm very excited to see the new leadership there. Chris Young, after a great career at RSA and more recently VMware, is really grabbing the bull by the horns. Our partners feel we could step up and do a much better job of integration.
We have the enterprise networking group and the service provider networking group -- it all makes more sense. Engineering has its clusters that align almost perfectly to the architectures we present to our customers in the field. We can do business more quickly and simply.
That is a big part of what we've heard from a lot of the partners who are familiar with Cisco at a strategic level and play in a bunch of these different areas. Can you drill down a little bit more on how these changes translate to ease of doing business for the channel?
The primary advantages so far have been being really clear on who's making a decision. At the end of the day, if we have to make a decision on something in distribution, or be more agile in what we do with a service provider and partner with them in a unique way, we have to be more effective. With the complex portfolio and broad portfolio we have, sometimes you just need to look at the factors and make a decision.
Nine months since the last time we spoke, we're much better at making decisions faster. There are less people showing up with our partners having dialogue and discussion. There are more people who can make the call, and less people who are just listening. Before, there were a lot of people showing up, but not enough of them empowered to make the decision. That became very frustrating.
We're moving that empowerment much closer to the edge of the business in the countries we operate in, and that's the direction we're headed. We've seen good things happen so far, but we've got more work to do. That's what our partners want from us and what we're committed to delivering.
NEXT: It Was Internal Council Overload
A lot of what partners don't see are internal meetings and as part of the restructuring effort, I understand Cisco is spending less time and emphasis on internal councils and boards -- that's been streamlined. How does that help the whole process?
So that process changed a lot. We went down to three fundamental councils where we needed a tight degree of ownership, quite frankly. [There's] the enterprise segment council, which comprises public sector, the verticals we touch and the commercial markets, and the portfolio of technology and services and partnerships. Then there's the service provider [council]. Those two councils represent primary access to market. Instead of five, we have two. Then there are the differences we see in the emerging markets, and that's been streamlined around a council, where we've made substantial progress in the last nine months driving local execution capabilities to get us to become more local in those emerging countries around the world -- countries where a lot of future growth is going to be.
But only three councils, and the real operating goal is the right degree of accountability for market share, and growth based on our partners and our go-to-market in these new engineering groups and in these geographies. The difference from the past is that instead of a loose coalition of councils and boards, we have a very tight operating model. We know market share matters; we know that growth and competitive intensity matters. It's a much simplified model.
[Cisco COO] Gary Moore has been driving a lot of that new execution model. He's got the credibility of having built out our collaborative services business over the last eight to 10 years, and he's done so in a way that has always maintained that collaborative nature with our partners. Nine months into it, we're improving, and Gary and I are committed to making progress.
What are the additional areas where Cisco needs to improve? What substantial changes are left to be made?
You know, I think now it's a matter of optimization and really listening to the big trends in the market, and this is where I think it's pretty exciting what's going on.
It's clear the devices are changing. There's this massive shift from client/server [technology] to the new mobile, consumer-oriented device. That was a conversation I was just having with one of our partners -- a massive change in the market, which creates opportunities. Applications are changing from monolithic, heavy, every-three-to-five-year upgrades to a much more SaaS-based model. Think of the implications of moving to SaaS-based delivery. Mobility is exploding. Video is exploding across not only consumer applications at home and in terms of our entertainment and in social networks, but it is exploding in the enterprise -- really hitting mainstream government and enterprise networks.
Think of the data center and private cloud. A year ago, we talked about private cloud and we saw so much energy in the transformational architecture. A year into this, it's just going faster -- the massive opportunity to bring that kind of architectural perspective in the data center and the enablement of private clouds so our customers can save money and move more quickly. There's so much change in that, and with it comes opportunity.
What's next? Probably trying to tie those changes together and help our partners understand that. after all, the network touches all of those changes. Partners recognize the business models are shifting, and this does introduce some risk into their model and their service delivery models, but this is a very exciting period of time and I feel as much change now as I've ever felt in 18 years here. That always leads to opportunity. Get ready for a landscape shifting ever more quickly, and billions of dollars changing buckets.
I think the next stage for Cisco is work with our partners to connect those changes together and then help our partners actually bring solutions to these areas. The description is less 'whole offer,' but more about an integrated solution that allows them to capture a larger percentage of wallet share. If you sell an architecture, you expand wallet share, you're more relevant with customers and you expand services. The network touches everything. We said it a year ago and it's absolutely true today. One job in the next few years is to show how the network sits under all of these changes.
NEXT: The Cloud Uptake For Partners
Something that's come up quite a bit is that going back to Partner Summit a year ago, you rolled out the cloud badges -- Cisco put a stake in the ground and showed partners a path toward playing in the cloud as builders, providers and resellers. It sounds like a lot of partners went down that path. A year later, are you seeing the uptake you thought you would?
Yes, and I'll be very candid, I think the acceleration of private cloud has allowed many of our partners to capitalize on that as cloud builders -- integrators who are there to help customers lower op-ex, increase speeds and service. That's been hugely successful. Cloud providers, what we've seen with our hosted collaboration solution and what we're working on with MSPs has been, quite frankly, a home run. We've seen our ability to build relevant communications and collaboration offers as a service, not just with telecommunications companies but with others that have been building managed services practices for years.
The third plank of our strategy is now we're beginning to see some of the next-generation cloud offers from some of those cloud providers coming to market. That's a place we may start to see some increased momentum -- the cloud reseller plank. Unless you have a lot of people with cloud builders -- who have built those enterprise- or government-class cloud services -- you don't get the cloud reseller model leveraged just yet. But if you look at this shift in mobility and what's going to happen with the importance of the mobile network, you're probably going to see some opportunity to open up some new ideas in the reseller program and take that to the next level.
I believe the cloud provider program has been absolutely successful, we have great momentum with cloud builders, and we're probably just seeing the start of even more activity for the cloud resellers now. I think the program has been well received and makes even more sense now. We have seen competitors introduce competing cloud offers, and that continues to create opportunity for Cisco.
Since the last Partner Summit, we've seen quite a bit of consolidation among a lot of the bigger national solution providers, most of whom are Cisco partners. Do you expect that to continue, especially when partners want to go both deep and broad with these capabilities and get there via acquisition instead of organically?
If you're in a market where the trends are moving toward a network-centered approach to solving problems in IT, then clearly, we're going to see a growing level of interest in quality partnerships and the rich services our partners have built, and that goes all the way back to the NTT-Dimension Data alignment a few years ago. There are important moves that have occurred in the U.S. space, but they are happening around the world. The market is coming to the network, and increasingly, those in IT are looking at systems integrator capabilities to solve customer problems.
I'd anticipate the consolidation trend will continue. I'd anticipate that because we're the market leader, many of those companies that will become part of bigger organizations will be in the Cisco channel. We're the market leader. We're very supportive of making this happen relative to the role we can play in making the right things happen. So the answer to your question is that we will see a constant drumbeat of consolidation as the market becomes more relevant and companies serving these customers look at expanding their capabilities.
Do you think midsize to large solution providers, and by that I mean regional players about $100 million to about $300 million or $500 million, are they almost forced at this point to look at that option? Is there a future for me based on all this consolidation if I only do one or two things really well?
The way we architect our relationship with our partners is to allow them to be deeply specialized. I was the CEO of a regional VAR, and my execution strategy and differentiation was how specialized I was. And then there are those who can be more general and cover global accounts or entire market segments. But I don't think that paints anyone into a corner, and I think we're going to see some people do very well by maintaining specializations and differentiation. That could be geographic, it could be in vertical markets, it could be a unique way of helping customers transition to private or public or hybrid clouds. The messages are services matter, capabilities really matter and knowing your place in the market and continuing to invest in that differentiated strategy is the key to success. I think people can do very well as midsized regional VARs.
But the message remains, 'Specialize.' Be good at whatever it is you specialize in.
That's been the message for years, and is more true now than at any point in the past.
NEXT: Cisco Acquisition Pace Picks Up Steam
You mentioned NDS and the acquisitions earlier, and Cisco does seem like it has come back to a pace of M&A that we'd been used to in previous years. A lot of the recent acquisitions seem to address the service provider business, NDS being the biggest example. Are these relevant to your enterprise-focused partners and customers too?
A lot of the acquisitions we've made, especially in the areas of mobility and video, are very relevant across the marketplace. NDS is as important to content providers and media companies as it is to broadband providers and telcos and cable companies. A lot of what everyone is thinking is, how do they unlock digital media content and secure its intellectual property and at the same time present it across multiple access devices. That's what Videoscape does. There is lots of opportunity for partners to advise customers and help them in transitions to access technology, and accessing content across multiple networks.
But I have to tell you, I don't think the acquisitions have been solely in the service provider space. A lot have been about building components, either a platform play like NDS, which augmented Videoscape, or giving us a broader set of optics. We've been pretty balanced, but you're right, we're back in the acquisition market, we addressed our own internal operating deficiencies and achieved the cost reductions, in three quarters, what we said we'd [have in four quarters], and we've told our shareholders and customers that we'll augment our internal innovation through acquisition. That will continue to be a part of our playbook.
Are there particular areas or segments where you might look to acquire?
We will acquire and build our capabilities in alignment with the company's top five priorities: core networking, collaboration, cloud and the data center, video and architectures. That's about all I can say. But NDS fits squarely in No. 4, video, as well as No. 5, architecture. I think that's the best way to leave that.
Those priorities do include security, yes?
Security is absolutely part of our first category: routing, switching, security and mobility, which is the foundational part of the relationship we have with our partners and, of course, with our customers. Chris Young has done a great job helping us continue to reaffirm how to the network plays a really important role in helping our customers [with security.]
NEXT: The Competitive Picture
Shifting gears, let's talk a little about the competitive landscape. I wanted to ask you specifically about three individual companies germane to this discussion, starting with HP. No secret your office circulated a memo to Cisco's sales force last fall describing how to look at HP as a competitor while it was playing defense. HP's management team has made it clear there's a long way left to go in terms of when they get their house in order, so how is Cisco taking advantage of that?
If you want to take a step back to any way we're looking at our competitive position right now, I'd start with innovation and end with innovation. The essence of what differentiates Cisco and HP today is that we have continued to invest in innovation, R&D and new technologies and architecture, and that's a challenge for HP, which I think they've recognized under their most recent leadership. All that was cut back under their previous leadership, and it's a longer-term task to reintroduce innovation to a company of that size and scope. That's a challenge.
Along the way, the various moves that HP looked at very much confused their partners, and that broke some of the significant trust that existed from the Compaq days and all of that. The challenge is a little bit of a lack of trust, and that the innovations have been lagging in the last five years.
We're just going to keep doing what we do. We're going to double down on these big changes we see happening. We focus on making new markets, and we have a very trust-based relationship around our strategy for the cloud. Again, when we mentioned confusion, when HP announced their cloud strategy to go more directly and build direct cloud offers, that's just another confusing part for the partners to understand. When we talked about our cloud plans last year and this year, we are enabling our partners to participate in cloud. HP is going to compete more aggressively with partners in delivering the cloud. That's another confusing message.
Some analysts over the past year had HP Networking in particular as making a few market-share gains against Cisco, but more recent reports from those same analysts show a lot of that shifting back in your favor. Was HP overhyped as a competitive threat to Cisco?
I never take anyone for granted as a competitive threat, and that's what makes it so much fun around here -- we have so many competitors. Right now the opportunity for Cisco is to gain significant market share and continue to expand our relationships with our partners. I meet with partners every week, every month and every quarter both here and when I travel, and their confusion [with HP] is allowing them express a greater interest in our data center strategy. The opportunity for Cisco right now is to do very well against HP, especially with our partners because of the current state of confusion and a lower trust level then we have seen in the past.
The second company is Huawei. John Chambers has publicly described Huawei as Cisco's most formidable long-term competitor, and Huawei is attempting to recruit enterprise channel partners here in North America. Why do we keep hearing about Huawei in the context of Cisco?
This is a company that's kind of like no other company in that they have built a very large presence in emerging markets and a very large presence in telecommunications. It seems now that some of their recent growth has slowed in these markets, maybe because cheap doesn't seem so cheap three years later. Now that we're seeing that, the logical shift to growth is into the enterprise.
The company has a reputational issue in terms of its history of integrity and is looking to enter those markets through the channel. That's the play. The problem is it also has an equally irregular pattern of partnering. Trust is relative to everything in the channel, and when partners look to Cisco, they see us deliver what we said we would deliver. They want us to be predictable, they want to know the plan of three to five years and feel the value of the business will be enhancing the business they're into.
Huawei is absolutely not part of their fabric. We have a culture of partnering here. Huawei has a culture opposite partnership. Look at some of the technology partnerships -- Symantec, got up and got disassembled, 3Com, got up and got disassembled. The differentiator here is how much trust would a partner put in this part of their business. Huawei presents a story that doesn't have the credibility; they do not have the culture of partnering when it comes to trust and integrity.
The third company I wanted to ask you about is Dell. They've made a lot of acquisitions targeting converged infrastructure. Do you consider Dell a major competitor to Cisco the same way you would HP as an end-to-end player?
No. Again, I think this goes back to the conversation we had about innovation. Dell was in a tough place where their business model had become that of an assembler. It didn't look sustainable. They entered the service business, they began to build a portfolio that was more complete based on customer requirements, and that was very logical for them to do. They've expanded their portfolio in areas where spending is existing, and that spending category is called networking.
So you don't consider Dell a major threat to Cisco?
NEXT: Committed To VCE
Talk about VCE. A number of partners have had success with Vblock and the VCE company model, it seems, but more often, they like the Vblock model of selling converged architecture and what that has accomplished, and still have some problems with VCE the company. The big question I have is that based on what's publicly available in your various filings, VCE is continuing to be operated at a loss. Cisco has a share of that loss, obviously. So how long do you keep funding VCE?
We went into this relationship, and I was part of the original team that investigated how we could bring value to customers by bringing together the industry-leading technologies from three great companies. We had concentric circles in many of the customers we each serve. We have preintegrated three leading technologies and their road maps, added value around automation and security, and actually, I think that's why we've been successful with the UCS platform and why our market share is increasing.
The answer to your question is, this is an investment we made in building a unique value proposition that is second to none. The success of VCE, going past $800 million in annualized run rate, that's clearly going to drive $1 billion in data center infrastructure at the high end, and has been well worth the investment. We are extremely committed to the VCE model and extremely committed to the value we brought to customers. We think there's a whole runway to expand the reach of VCE and our capabilities much more through the data center partnerships we share. We are committed 100 percent and achieved exactly what we wanted to, which is a unique model that no one else has. You will see announcements from others beginning to emulate the model that VCE established, and that adds credibility to the fact that we did the right thing.
But do you really need VCE? You've had astounding success with UCS and you get it as part of a package with the FlexPod model and other configurations, too. So why does Cisco need VCE at all?
There is a part of the market here that absolutely wants to know the commitment behind converged infrastructure, and oh, by the way, put that commitment to a multiyear road map, the integration of vSphere with our evolution in the Nexus OS, and keep those road maps aligned. The cost savings we generate for the customer is actually the value proposition. How do we then help our partners pass those cost savings on is the opportunity to scale. There is always a role for the three of us to play. The long-term future role for VCE, I think we just look at the automation. There's lots of opportunity for us to go further, especially with enterprise-class workloads being optimized.
The things you accomplish with VCE, the tightly integrated stacks. You couldn't accomplish this with the three separately operating companies in much the way you do with FlexPod?
I know what the difference is, and it's a different value proposition. We are committed to that value proposition and expanding the options we have for partners.
What is the big difference? Partners get the model and there's no question they like the idea of the integrated stack, but why do you need the VCE company at all considering all the headaches VCE caused in the channel? Why do you need them when you can have a similar relationship to what's there with NetApp for FlexPod?
The committed resourcing we put behind the level of integration with multiple platforms. The level of automation we're trying to drive here is a differentiated offer, and I'll come back to it one last time, the uniqueness of the Vblock offer is that customers are asking us to commit to that long-term integration and that's reflected in the investments in VCE that we're all going to continue to make and opening up that experience more in the future to offer options of consuming that. That's why we're going to mainstay the investment.
So Cisco will continue to fund VCE?
You told me last summer that you had been personally involved in fixing the logistical headaches we'd seen from VCE, especially regarding the channel execution. What work did you do there?
You know, I think they solved a lot of the problems that existed themselves. We provided the feedback we heard from partners, and there has been huge progress. The No. 1 progress area has been the huge turnaround in Vblock delivery, the level of partner engagement, and we have some very successful stories we'd love to follow up with you on about how partners have been building VCE Vblock capabilities right into their core offers.
VCE is a success?
VCE is a huge success. We made a market and achieved all of the objectives we set out, and achieved them probably faster than we expected.