Playing to a packed house of over a thousand, the heavy rock guitars of AC/DC's Back in Black kicked off Cisco's recent partner summit in Honolulu, Hawaii.
This was the resounding cue for channel supremo Paul Mountford, Cisco's senior vice president of worldwide channels, to take centre stage.
Speaking to all the old rockers in the room, Mountford, who appears equally at home on a platform addressing the company's partners as he does sitting behind a desk, declared Back in Black to be "the musical theme for this year's conference".
It was an upbeat start to the event. Earlier in the year, company executives reported Cisco's share price had doubled since the same period last year, and that the company had posted seven consecutive quarters of profits above the $1bn mark.
Rocking and rolling
Early this year, Cisco's chief executive John Chambers added to the air of optimism by saying that as the economy improves, companies will start to spend more on IP telephony (IPT) and storage.
These are two technology sectors the company intends to actively promote as important growth areas for partners.
In contrast, the mood of the previous couple of partner summits was more black than Back in Black. When CRN UK exclusively interviewed Chambers in 2001, Cisco's stock had plummeted. For the first time in its history, the company had made staff redundancies.
The following year did not fare much better, as partners reported that the erosion of margins and lower profitability were seriously hurting their business.
Cisco also announced that it was to slash the number of its certified partners from 6,000 to 3,000, and that it would consolidate its distribution strategy around a handful of global distributors.
Last year, Mountford acknowledged the pain the company's partners were feeling and announced measures to counter margin erosion and improve their profitability.
This year, he used the summit not only to update partners on Cisco's current channel programmes but also to listen to the needs, concerns and problems facing the company's resellers.
Speaking of the importance of the partner summit, Chambers said it provided an important forum for Cisco to "listen, share ideas and opportunities, and to explore what is possible".
And, unlike some so-called channel-friendly companies, listening to its partners is one thing that Cisco appears to do well. At its partner summit, rock and roll, slick presentations and fun may be important elements, but Cisco works hard and a lot of business gets done.
Speaking to CRN UK before the summit, Mountford said partner profitability was still a major issue at the company.
He also outlined the new Opportunity Incentive Programme (OIP), the third wave of new developments for resellers that have been introduced during his time as the head of Cisco's channel.
OIP is intended to "fuse the elements of success" of Cisco's other channel programmes and are geared to taking advantage of the upturning world economy.
"There is an inflection point in this industry, and it's time to get growing," Mountford said.
Cisco's partner profitability strategy now has three prongs designed to foster three angles of attack: hunting with OIP; growing, with the Valuem Incentive Programme (VIP); and adapting, with the Solution Incentive Programme (SIP).
Cisco has been at pains to devise the right compensation model to reward partners that align their business models to these elements.
"If you take the three partner summits that I have been involved in, the first one was really just evaluating where the partners were and what their issues were," Mountford said.
"The second initiative, last year, was to develop a set of tactical programmes that would drive partner profitability.
"Now we are in a position where we have done the regional planning, the value engagement, understood what the issues are, and we have put together a strategy which generically will drive partner profitability on the basis that they drive customer value.
"This summit is about building it all into one strategy. If you hunt, if you grow, if you adapt, Cisco will reward partners."
Under the OIP scheme, qualified Cisco reseller partners will be offered a discount of between three and eight per cent, or an equivalent rebate, on an entire deal, providing the new business is registered and verified by Cisco. Resellers will have six months in which to obtain deal approval from Cisco.
"It's about hunting," said Mountford. "We want to grow in advanced technologies, and that's the obvious place to go and hunt. It's the highest-growth market, it's the most complex and it has the highest margin for services."
Cisco categorises IPT and communication, optical, security, storage and wireless as advanced technologies.
When the scheme was announced to Cisco partners at the conference, Mountford also hinted that OIP could complement the company's Value Engagement model.
This aims to get reseller partners earlier into a deal, and means that Cisco may take more of a back seat in the sales cycle.
Mike Harris, managing director at Cisco Gold Partner Total Network Solutions, said he was "waiting with bated breath" to see how OIP would work and be policed.
He thought the OIP scheme sounded similar to an earlier 'traffic light' programme Cisco introduced but has "died a death".
The challenge for Cisco, Harris said, is that despite assurances from vendors, customers will always be able to use the internet, or may be approached by other partners quoting a different price.
In his experience, he added, customers also sometimes change their minds, or forget who they first dealt with for a purchase consideration.
Council of despair
Offering an example of a public sector pitch, Harris said that a reseller could approach a council for a comms solution, for example, only to find it is eventually put out to tender and that 10 or 15 firms are pitching a similar Cisco solution.
In this instance, Harris questioned who will be accredited with hunting for the business and how it will be policed by Cisco when the rebate is handed out.
"If Cisco can make OIP work, I'd be a keen advocate," Harris said.
He added that he was happy with Cisco's VIP programme, acknowledging that a company such as TNS, which has strong market specialisation and managed services capabilities, can do well in the programme, as long as Cisco sets the right targets and expectations.
He also welcomed the fact that Cisco has taken on board the fact that in some cases the bar was raised to a level that was out of step with market growth, and that it is now looking to address this.
Harris also hoped that Cisco would finally lock down the rules for some of its accreditation programmes, which have changed a number of times.
"Companies are more critical about what returns you can get for your accreditation investment and vendors can change schemes on a knife-edge," he said.
It is very frustrating for partners if, after they have made a big investment in training and positioning, the rules are changed, Harris added.
Edison Peres, vice-president of advanced technologies at Cisco, said that OIP was also an acknowledgement that the cost of finding new customers is higher.
Peres added: "With the upturn in the market, there are also going to be a lot more opportunities."
In addition to the OIP programme, Mountford said Cisco is actively investing and monitoring brand protection to prevent grey marketers and others taking business away from authorised partners.
"Cisco wants to stop people who are cheating in the marketplace and help really good partners to deliver profitable business and customer value," he said.
At Cisco's summit last year in Las Vegas, Mountford outlined the company's VIP programme, aimed at addressing partners concerns about profitability.
In this year's report back to partners, Mountford said profitability had improved by 12 per cent since the last partner survey six months ago. But he said that Cisco still wants more profitability for its partners.
Pointing to a typical example of where partners' profitability should grow, Mountford said that resellers can participate in both the OIP and VIP programmes at the same time.
For a reseller with a 'conservative' mix of 10 per cent new business, 15 per cent IPT and 10 per cent security, he claimed margins can grow by as much as 23 per cent.
He also said that cutting the number of certified partners in half means that there is now less competition, but more partner specialisation.
This year, Cisco has announced that it will double the IP Communications rebate by 10 points and resellers will get an additional two per cent incentive rebate for beating specific sales targets.
It has also made enrolment more flexible by including in the scheme, which focuses on IPT and security, the Cisco Security Fast Start or security specialisation. The vendor has also capped the number of surveys being sent to customers.
Mountford gave a sneak preview into SIP, which forms the final part of its three-pronged strategy. Dubbing it channel R&D, he said SIP was all about moving customers to solution practices services.
In the future, this approach will glean more margin from installation and professional services and operations than from the traditional maintenance from which resellers derive the bulk of their service revenues.
Hunters and farmers
Andy Buss, senior analyst at Canalys, said: "It is an upbeat move to solution provision, but it won't be an IBM Global Services in terms of breadth of offerings. The challenge will be the migration of the existing channel and reseller base to the necessary services expertise."
Outlining his e-learning plans, Mountford said Cisco will offer resellers learning credits that end-users can use at the point of sale to add more margin. "When resellers sell a solution to a customer is the best possible time to sell education," he said.
Once the credits are passed on, the learning partners can create a syllabus that is tailored for the end-user customer. Cisco will then create SKUs to enable resellers to to gain a 10 per cent margin.
Commenting on the Cisco announcements, Keith Humphreys, managing consultant at EuroLAN Research, said: "Last year, Cisco identified the fact that its partners were hurting and said that it would look at additional discounts. My concern is, will partners be satisfied that Cisco has kept its promise?"
Instead of looking at discount for 'farmers', (or generic Cisco resellers) Humphreys said the company has taken the decision to reward 'hunters' of new business. "Farmers have been a protected species long enough," he said.
In other announcements, Cisco said the Project Distie programme it launched last year will bring better service levels to its partners. Last year the vendor announced that it would synchronise its systems from top to bottom with those of its three global distributors, Tech Data, Ingram Micro and Comstor.
Its aim, according to Mountford, is to provide much better back-office systems, reduce returns and drive the right inventory profile. Mountford claimed the company has invested $30m in the scheme, and although it is still early days, it believes it will bring significant benefits and consolidate Cisco's business.
"This is important because eventually Cisco can build to virtual inventories and have less inventory out in the market place, providing better profiles and a better service to partners," said Mountford.
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