Supply Disruptions: Progress Made, but Not Solved

By Lawrence Walsh

Cisco Systems has never been a company that sat idly by as the world around it evolved. In the past 18 months, Cisco has embarked on radical departures from its networking legacy to embrace emerging technologies such as video, consumer electronics and, of course, virtualized data centers. The evolution of Cisco has put it on a collision path with longtime partners such as Hewlett-Packard and Microsoft, and the best friend of new allies, most notably EMC and VMware. Some market and financial analysts have pegged Cisco for becoming the most valuable and best brand in technology.

The Cisco evolution has a tremendous impact on channel partners. As Cisco adds new capabilities and competencies, partners must adapt and invest to capitalize on Cisco's strategy. This means earning more certifications, reaching new customers and partnering with peers. Cisco is mindful of the role channel partners play in its evolution, and is including its channel in every step of the evolution strategy.

Ziff Davis Enterprise's Larry Walsh recently sat with Cisco's global channel leader Keith Goodwin for an intensive, exclusive interview about the direction of Cisco's evolution, the missteps and adjustments Cisco has made along the way, and the role channel partners will have in Cisco's virtualized and cloud future.

LARRY WALSH: Cisco has been talking about the network as the platform for many years. Now it seems that rivals are picking up on that message. Is that message still applicable to the entire virtualized data center strategy?
KEITH GOODWIN: We think that the network as a platform is relevant to all of the major market transitions that we're positioning with our partners. I talk about four market transitions with the network central to all four, and so the four market transitions I talked about were collaboration, of course. That's one we've been working together very successfully with our partners for a number of years. Now, we were the first to kind of get out ahead of that one with the partners and lead that one. The network is absolutely at the center there.

The second transition—and this was a new one in a sense that it really positioned it as a market transition is—of course, is video. Video and collaboration go hand-in-hand. I believe we have the inflection point with video. We're seeing video pervasively across many market segments, and it's driving network.

The third market transition is virtualization and data center, and this one is really exciting for Cisco and our partners. I reminded our partners that the success we had together in voice; remember in voice there were a lot of skeptics about Cisco's ability in voice and selling telephones. Together with the partners we really changed the rules of the voice market. It became voices and application over the network. Again, back to the network is the platform. The same thing applies with the data center. What does Cisco know about the data center? What does Cisco know about selling servers? It's not about selling servers. It's about next-generation data center and virtualization with our view that the network is at the center of that. The network—the virtualized network—along with compute and storage are defining the next-generation data center.

The fourth transition is cloud and cloud-based services. Again, it's a very close tie with the virtualized data center. The network is very central to all of that.

I positioned the four market transitions, and then the borderless network relates central to all four of those. The borderless network, obviously, being the concept of anyone, anything, any time or anywhere securely, seamlessly and reliably. Those, you know, kind of capture the essence of the borderless network, and that's really the enabler to the four market transitions that we have talked about, and the network as a platform becomes more relevant than ever.

LW: When Cisco talks about video as a driver, how does virtualization play in the strategy? How does virtualization help in the performance of data center operations in terms of that increase in video traffic?
KG: I think it's about more efficiently using data center resources to deliver a given capability. In the world of cloud, cost-effectively delivery of services through the data center as we know it today really doesn't scale to do that in a cost-effective way. So it's really about the virtualization of those resources, enabling new scale and new cost-effectiveness, addressing power and space and all of those other things to allow the realization of the cloud.

LW: The migration of cloud in the enterprise, it's primarily about applications, accessibility and availability. Video seems more consumer-oriented, and many Cisco critics agree. What do you say to that?
KG: I think it's both. I'm not positioning that video is the only driver. In fact, the two, again, go hand in hand. Those business applications, those business services that will be delivered from the cloud will have a significant video component in the future. Everything is going video. Business applications are going video. At Cisco, for example, 60 percent of our network traffic is video, and that's driven from the business application video and that's increasing every day.

LW: Cisco's partnership with EMC and VMware is developing a data center virtualization strategy that leverages Vblock, a process for incrementally virtualizing legacy data centers. How do your partners plug into the Vblock strategy, and how do you help them reach the market with Vblock?
Our vision for the virtualized data center is all about virtualizing storage, compute and the network. This coalition is really about accelerating that to market by working together with the best-in-class partners who can then take Vblocks to market and allows us to accelerate that vision of that virtualized data center. In other words, to deliver it in a more integrated, more seamless fashion for the customers. Partners still have the opportunity to put a lot of value around that in terms of the services associated with successfully selling and implementing those Vblocks. It allows us to prove the value of proposition and to deliver value more quickly to the customers. But, again, we're very partner-centric in our go-to-market approach.

LW: How is Cisco going to bring its virtualization strategy to its midtier partners and get them on-board with Vblock and Acadia (the virtualization joint venture with EMC)?
KG: It's interesting how this has played out. When we first started to talk to the partners about the vision and direction, many partners have been in the data center for many years with other vendors; I really felt like we were going to have to spend a fair amount of energy convincing them that our vision was the right vision so they would invest in our vision. What's interesting is we thought some of our first wins would come in the larger enterprise space. Some of the first wins are coming from not our largest partners with large enterprise customers, but really from some of our midsize partners in the commercial space where those commercial customers immediately get the strategy and vision.

LW: When Cisco announced the unified computing strategy a little more than a year ago, its position was it would sell its servers and architecture direct, establish the road map, establish the implementation process, and then migrate through large partners and down into the rest of the channels. Did that change your strategy? How did you adapt to it?
KG: I'm not sure that our strategy changed. The original intent was to focus on those partners who had a strong investment in Cisco networking. It also had a strong investment in or knowledge and experience of the data center space. The sweet spot was for those partners who also had presence in storage. Some of those first opportunities were our largest partners, but some of them were medium-size partners who have had a lot of success in the data center in that commercial space. So it wasn't like we changed the strategy so much; it just played out a little bit more quickly in that kind of middle space than we originally expected.

LW: Some Cisco rivals say that they are better positioned in the market and with products because they are more focused on their core competencies. They point out that Cisco has made 44 acquisitions in the last five years ranging from enterprise-class technologies to consumer technologies like the Flip camera. So how does Cisco maintain its focus and its leadership across all of these various segments?
KG: At the center of everything we do is the network, and the network is a common platform. For years people have been saying certain segments of our market have been commoditized. From a product technology perspective, we continue to innovate to provide differentiation around what a lot of people would position as non-differentiable products—routers and switches. From a partner perspective, we look where partners can add value, and value always equates to profitability. The ability to position with a customer, the borderless network architecture enabling mobility, for example, in connecting that to the kind of the business architecture that's where the customers deliver value, then it becomes a discussion not about routing and switching but about the ability of a borderless network to enable new business transformation. So whether it's borderless network or virtualization at the data center, it's that architectural approach that really brings home the value.

LW: A reseller of one of your competitors recently said that aside from Cisco's brand strength and marketing power, it's exceedingly difficult to compete with Cisco in a deal because Cisco will pull CEO John Chambers and other executives in to help close the sale. How much of an asset is it to have an executive team, as a general practice, that is engaged in customer retention and competitive sales activity?
KG: That's one of the things that I love about Cisco and the Cisco culture. John Chambers established a culture within Cisco that we are customer driven and partner driven. If there is an opportunity to help close a deal or to help a customer, that should always take precedent over anything else we have on our agenda or on our calendar. Chambers sets that bar and he personally believes in it, so any executive in Cisco, not just in the field organization, but any executive in Cisco, is always looking for opportunities to jump in to help with customer situations.

LW: On a similar note, some partners of competing vendors have said that they get creamed every time they walk into a Cisco shop and pitch alternatives because they are talking to a Cisco certified engineer, and it's paramount to threatening that Cisco engineer's job. What is Cisco doing to maintain the value of its end-user certifications and that sales advantage?
KG: It's a huge competitive advantage for us. I think you have hit on one of the reasons why I believe that our channel, our partners are not only one of Cisco's biggest competitive advantages but our most sustainable competitive advantages. Even if someone wanted to replicate our corporate and channel strategy, and they had unlimited investment to do that, it's very, very difficult because we built a brand around those partners and individual certifications. The Cisco Certified Internetwork Expert (CCIE) brand is very valuable in the marketplace. One of the things that I think over the last few years that we as a company have come to recognize is the value of that and continuing to invest in those individuals and those individual specializations. It's all about continuing to make those individual certifications more relevant in the future by evolving the content associated with achieving them, and we're investing heavily to do that.

LW: Over the past year, Cisco has said that it was interested in being the platform for cloud, very interested in providing infrastructure as a service, but not application as a service or software as a service. However, Cisco owns Webex and launched Webex e-mail services, and it recently acquired ScanSafe e-mail security service. So is Cisco involving its cloud strategy where it will deliver more software and applications?
KG: Our cloud strategy continues to evolve, and it's one of those four market transitions that are going to be huge for our partners. There is a great opportunity for us to help customers build clouds. Service providers are building private clouds. Many of our large partners are going to build their own private clouds. The opportunity for our partners will be in hybrid environments. Customers will have certain on-premises solutions, and they will have certain solutions and services that will come from the cloud. The partners can deliver a lot of value in helping to integrate hybrid environments. And there's opportunity in the services themselves. If we do create our own service, we're going to take that to market through the partners. So there will be some limited opportunity to do that for our partners, but we want to enable partners to create their own services and then take those to market together as well.

LW: A lot has been made about Cisco's growing rivalry with Hewlett-Packard. In fact, there's talk about Cisco's rivalry with a number of companies. At the same time, there are a number of vendors who are stepping up competition against Cisco. What do you make of the competitive environment, and how do you advise partners to operate under these competitive conditions?
KG: It's definitely competitive, and the competition intensity is increasing. There are a lot of new competitors in our environment. There are new kinds of competitors in our environment. Many of those competitors are going after our partners, our existing partners. The approach I have taken with our team—and I message this internally to our team everyday—is that it's up to us to earn our partners' loyalty and investment every day. Even though they may have historically been loyal to Cisco, we have to have the mentality of earning that loyalty every day going forward because there are alternatives out there. Competition is a good thing. Competition makes us better. Ultimately we will be better for the customers, and we respect that. At the same time, we are not focused on a given competitor. We're really focused on these market transitions (collaboration, video, virtualization, cloud).

LW: We hear this sentiment about earning partner loyalty all of the time. However, there are a fair number of people out there—warranted or not—that criticize Cisco for zealously punishing disloyalty. Are you aware of that perception? If so, what are you doing to shake that image?
KG: Most of our partners work with multiple vendors. We're very comfortable in a multivendor partner environment. That's the business model that's most successful for our customers. Our strategy, the messaging to our field teams, the training we give to our field teams is the attitude of earning partner loyalty and not expecting it, not demanding it, not positioning retribution for partners who aren't loyal. Now, in the field in a sales organization there's always the challenge of getting a 100 percent consistency out there, but we're certainly working on that.

LW: A lot has been made out of that over the last six months in terms of your ability to deliver products, either a result of a lack of raw materials or a supplier coming up short. Has Cisco resolved that issue, and what has it done in terms of making sure that your partners don't experience that same disruption going forward?
KG: This has been a big one for our partners. The recovery happened sooner and much more quickly than we thought it would. It accelerated a much higher rate than we thought it would. So that was on the demand side. On the supply side, quite frankly, the suppliers have gotten very good at ramping down capacity very quickly, and a downturn takes longer to ramp it back up. We got out of sync there, and we have been working hard to recover. We have made dramatic progress. We're not out of the woods on all of the products, but we are continuing to work hard on it.

LW: Have you readjusted your forecasting?
KG: We have done a lot with our forecasting. It's difficult, but where we had to get better was being able to be more granular in our forecasting down to the product levels. We started to recover from a product availability standpoint. Some products continued to suffer because we kind of missed the forecast on those specific products. We've put a lot more rigger in place to not only do the macro-forecasting, but to really be more accurate down at the product and skew level.

LW: Did the supply chain disruptions have an effect on the gray market? Did it cause a shift into the secondary or unauthorized channels?
KG: That's one where it's hard to distinguish the hype versus the reality. There were clearly some gray marketers out there positioning their ability to deliver products that had challenges, but how successful they really were in doing that could be questioned. We haven't seen a significant uptake. There's been a little bit of hype, but we haven't seen a significant uptake or upturn in gray marketing associated with that.


This article was originally published on 2010-06-21