Cisco: Fast Track, Compensation Program Changes Coming

It's been about a month since Cisco Systems' Dave O'Callaghan was promoted from the head of the vendor's distribution relationships to vice president, worldwide commercial sales, as part of a significant reorganization within the vendor's channel group.

CRN's Scott Campbell recently spoke with O'Callaghan at Tech Data's TechSelect conference in Las Vegas to get his take on Cisco's new organizational changes, cloud strategy and the pilot of a new compensation program that should be good news to VARs. Here's what he had to say:

First of all, congratulations on the promotion. What brings you to TechSelect? What's your message for VARs here?

I've come to talk cloud strategies, new business models. It's an exciting time for partners from TechSelect. We are on the forefront on business models that can augment their business around cloud and the expansion of managed services. The stats we've seen show that 60 percent of end users now believe cloud and managed services offerings are now valid. That's from Yankee Group. In addition, 70 percent are planning in the enterprise to use cloud in less than two years. That comes from Savvis.

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What are the opportunities you see in cloud?

What we see in the cloud opportunity is three business models that the VAR can consider. They can be a cloud reseller, a cloud builder or a cloud provider. The first is really the VAR who says 'I want to be a cloud reseller.' I believe if they go that route, they'll look to a distributor to vet those thousands of cloud offerings out there. We will bring offerings that are consumable through a Tech Data. The next step up is the cloud builder. That is someone, more of the systems integrator, larger services business model. They're going to build the Vblock, the multi-tenant cloud for a managed service provider. The last guy, the cloud provider, he is the MSP or the large SI that wants to do hosting on their own. For those three models we see, we plan to create offerings.

What sorts of solutions offering are you guys building around the cloud?

I can give you an overview of that. It's based on those three pieces and we have three or four offerings we're building that will be exciting. We have the Vblock architecture from VCE [VMware, Cisco and EMC]. That whole architecture is for the high-end cloud provider or SI. You've got a desktop virtualization capability coming out that leverages our technology. That'll be a great offering for the VAR to take to their customer base. Virtual multi-tenancy and secure multi-tenancy are the others. Look for systems integrators to build that for MSPs and for MSPs to be the public cloud provider of multi tenancy. Those offerings will really fill the VAR's appetite for now in terms of what they go out and do.

Next: Fast Track 2 Products Coming

What's the fastest-growing product segment for SMB these days for Cisco?

In the cloud, one of the statistics we use is that by 2013, 30 percent of the addressable market in [unified communications] will be in the cloud. That's from McKinsey. That's a big chunk. That's hosted voice solutions. Hosted voice is pretty small at this point but I think that will grow rapidly.

In terms of products doing well in the two-tier reseller base, we launched Fast Track 2, our core set of low-end routing, switching and security products. We've had exceptional growth over the past few quarters, faster than the market in those spaces. FastTrack2 is an effort across Cisco to design products, manufacture products and create the right partner pricing through distribution and a suggested partner price list to easily configure, price and sell our products.

If you consider the supply chain ramifications for us, it's a simplified set of products for that are designed to be in inventory for the distributor. It's going to facilitate a smoother future for the delivery of these solutions. They're very high volume, small and midmarket products priced right, with promotions at the end user level and at the reseller level. It's exciting. I think it'll be a great boost.

What are some examples of the Fast Track 2 products?

The [Catalyst]2960 [switch], security products like the ASA [appliance], the 3K [VPN 3000 Concentrator]. All those products are more easily priced, configured and sold through distribution. It's something [VARs] have been asking for some time: price and ease of doing business.

Your new role includes responsibility for the midmarket. What is Cisco doing around that segment?

In commercial, we've studied for the first half of the fiscal year and asked, should we put together a worldwide commercial sales group? The first thing we noticed early in the calendar year is that innovation occurs first in the midmarket and small business. It's where innovation happens. Innovation happens in the adoption of technology. We were delighted to learn that. Now we can position our architecture for the reseller base, relative to cloud. We do see midmarket and small [business] as already using managed services and cloud services.

Can you explain the recent organizational changes made in Cisco's channel? What is the company hoping to drive with the changes?

Cisco has raised the visibility of the partner organization by creating worldwide partner organization under Keith Goodwin with three components. The first is the naming of Edison Peres as channel chief. His job is to continue to evolve the channel organization and programs and innovate upon that. Wendy Bahr was the longtime U.S. channel chief. She's now in charge of global and transformational partners to look at creating new business models for cloud and other models that Cisco will need to embrace for future success. And then there's me. We've strategically placed commercial sales, midmarket and small segments within the partner organization for two reasons.

Number one, we're completely partner led in commercial sales. One hundred percent partner-centric. That takes a mindset change in a company around how you invest and how you augment your resellers, as opposed to having an account focus. We have a partner focus.

The second piece is commercial sales sits within the partner organization also because we want to work shoulder to shoulder with Edison and Wendy to shape the business models and programs to augment our partner-led model. We formed a worldwide commercial channel organization because we saw tremendous opportunity. There's a $20 billion total addressable market by 2013. Our share today is low in a very fragmented competitive space.

Wait, Cisco has tremendous share in many product categories. What do you mean low share?

If you look at our core technologies, we have greater market share, but in advanced technologies it's very low. The opportunity to sell additional products with our core is tremendous. The growth of advanced technologies is a huge opportunity for us. Number two, this is where innovation actually occurs in the market.

Next: Sales Compensation Changes

With Cisco now having a partner-led organization instead of an account-led organization, does that change compensation models for your sales force or your partners?

We've built five go-to-market models, all theatres aligned on those selling motions. Underneath that is the functional alignment of inside sales, partner programs, an entire investment in partner relationship management and customer relationship management systems. We're doing pilots on partner compensation right now. We're going to pay people on the success of partner as opposed to the transaction. We're really focusing on the success of the partner.

That's a big change. How long before that gets rolled out?

It takes us about a year to completely build a compensation system that has the rigor of Cisco's IT system. That's going on in Canada right now. We're also piloting how we can virtualize an engineering staff to lower the cost of sale to the reseller, so they can use that virtualized engineer to augment their staff.

When you make the mental, behavorial change from being end user transaction-focused to truly partner led, the behavioral difference in the investment model to create the behavior is very different. And we're on that journey.