In your presentation, you outlined techniques partners should focus on in order to ride out the storm. How much responsibility do vendors have in helping partners in this particular climate?
Edison Peres (EP): There is a distinction between what we do to help versus what responsibility we take that’s theirs – there is a line between the two. A lot of times partners, especially smaller ones, look for that parent/child relationship and want the parent to save them from all the ills. You can’t do that. There is an opportunity for us to help educate where they should be spending their time, what we’ve learnt to be the best practices, and if there are any enabling tools we can give them that they’re not leveraging which could help. Cisco believes we should be as proactive as we can without going beyond that line and becoming the parent. And that’s what we’re doing, because it’s in our interest and builds loyalty. You do it for the right reasons: You don’t want to rebuild channel capacity because you lost a lot of partners.
Cisco is in a position, and not all vendors or partners are, that in each of the downturns, we have an opportunity to accelerate our position in the market, our market share and so on. We need partners to do that, so we’re self-interested to ensure partners not only survive, but excel.
Do you predict more consolidation in the channel?
EP: I was predicting consolidation generally before this [economic situation]. When you think about transitions in markets, consolidation always takes place. We’re now moving from a market of technology, to solutions. That in itself drives transition in terms of partners and their evolutionary state. If you look at the history of IT and all the steps partners have had to go through, with every one you’ll see consolidation and people buying each other for capabilities they didn’t have before. That’s what happening naturally in our business already. It started with the consolidation of voice and data. It’s now happening because of economic reasons. It really depends on how bad the storm is – some believe it won’t be that deep, others see it being drawn out or don’t know yet.
Do you have a position on how long the storm will last?
EP: The position is we don’t know.
If it continues, what are some of the things Cisco and its partners will need to focus on?
EP: It’s like anything else: Partners need to get very focused on their finances first. You have to manage your cash because cash is king in times like these.
Profitability isn’t even as important as cash management, because you need to cover your payroll and have enough cash coming in. If you’re spending too much to the revenue you’re bringing in, you’re going to run out of cash pretty quickly. What I find with partners is that it depends on size – the smaller and less sophisticated the partner, the less sophisticated they are in their books, and they’ll overspend. What we try and do is help with education around financial management, because you have to cut your expenses if the revenue is not there, and that’s where partners usually get into trouble. They start carrying expenses longer than they need to. They should take a page our of Cisco’s books – we had a decent quarter and exceeded expectations, but we also announced we’d take $US1 billion out of the business. I don’t know how bad the market is going to be, but why not be prepared by taking fat out of the system that doesn’t need to be there and be conservative.