“Call me in 10 years,” said Cisco Systems’ director of channel operations, Kip Cole, having just completed the first and, if he has it his way, the last Cisco distribution restructure of the decade.
One person certain to take Cole up on his offer is a disappointed Tech Pacific MD, Kerrie Baillie, whose broad-based distribution outfit was dropped from Cisco’s distribution ranks following a rigorous six-week tender process.
For the incumbents in the value-added line up, Express Data’s Ross Cochrane and Lan Systems’ Nick Verykios, the thumbs up from Cole and the tender board means indefinite reappointment and confidence that both companies are well-placed to pursue Cisco’s key business objectives.
These, according to Cole, are top-line growth, a focus on new technologies and markets, and the ability to push into the commercial (mid-market) space and achieve partner profitability.
In addition, Cisco will focus closely on regional growth.
Although one of the Cisco three is no longer in the game, Cole was adamant that the restructure was in no way a reflection of Cisco’s satisfaction with the distributors’ past performances.
“We’ve had long relationships with all three companies, all of them different kinds of distributors covering different markets,” he said. “Each of the three distributors meets our criteria but in an environment of declining margines, volume in itself was not high enough to justify an investment in all three. The strategic alignment was all about deciding who’s best placed to pursue our business objectives and has the best intentions.”
The fact that the tender, whose value is seen as running into tens of millions of dollars, was only open to the incumbent three spoke volumes about how hotly contested the tender process was going to be.
It is not surprising, then, that the vendor’s first formal distribution review was a nerve-racking affair, fuelled by weeks of intense speculation. The new line-up was leaked to the media well before an official announcement was made last Wednesday afternoon, indicating not only the high level of public interest in the tender as a premium franchise, but a general market uncertainty about the future of numerous partner relationships in the networking channel. The stakes were certainly high.
For Tech Pacific, which recently made a significant investment in its networking business, Cisco was a key vendor. In May, Tech Pacific’s sales director, John Walters, boasted that investments in sales and Cisco training had seen the distributor’s business grow by 20 per cent.
The mood of the TP management was considerably less buoyant last week, when a clearly disappointed Baillie told ARN that the loss of Cisco agency was “strategically bad”, even though Cisco represented only 4 per cent of Tech Pacific’s sales.
“Our networking business has been going for some time, and we have seven other networking vendor partners,” Baillie said. “We would prefer to have kept Cisco, but we will keep working with the vendors who support us.”
Industry analysts, however, speculate that the blow might be deeper than Baillie is letting on. Some suggest that Cisco would have represented from 6 to 9 per cent of Tech Pacific’s revenue and potentially up to 10 per cent of its overall profit.
For Lan Systems, half of whose business is reliant on its Cisco agency, the 9am meeting last Wednesday may well have spelt the difference between eating a lobster and collecting bread crumbs for some time to come. More importantly, according to Lan’s maverick general manager, Nick Verykios, the decision was about resellers who have come to rely on the service and support Lan Systems’ provides them with.
“We have historically been number two and sometimes number one for Cisco, but it was our customers who won the tender for us,” Verykios said.
“Basically, they were coming to us saying — well, who’s going to this for me, and who’s going to do that for me, and we’ve built our tender proposal around their expectations.”
Verykios may well be right in his assessment, as industry sources indicate that the tender was really won by Lan Systems, rather than lost by Tech Pacific.
For the winners, however, the outcome is all about “clearly communicating to your partners what your value and your vision is”, according to Ross Cochrane, another party to celebrate the reappointment this week.
“ED always thought that the tender was all about the future, rather than the past and we were therefore very focused on our own competency and value-proposition, “ he said.
Cochrane said that the challenge lying ahead of the two companies would be to achieve a “bigger outcome than the three partners had to achieve previously”. However, he was confident that the “very professional” tender process resulted in the right choice.
“Sometimes the market makes the decision, but this one was made by the vendor,” he said. “The new proposition is more focus on a shared outcome and our value proposition will help us deliver that.”