Cisco Systems Essay

1. How have Cisco’s channels evolved in the last 10 – 15 years? Why have they evolved that way? What does the future look like? Cisco is the leader in the switches and router market. Cisco was described as a classic start-up fairy tale. Indirect sales and distribution through resellers was responsible for the small percentage of products delivered in the early 1990s. Cisco model was praised as a successful indirect sales and channel strategy. In 1995, Chambers (CEO) took the helm and the company played a leading role in the internet revolution. Market capitalization exceeded $500 billion in 2000. Cisco’s sales had crossed $18 billion and it boasted relationship with 600 VARs worldwide. The company’s sale took a hit after the telecom and dot-com crash in 2001. The company reported $1 billion loss in the same year. Due to the disaffection and dissatisfaction among the resellers the company was forced to review and revamp the go-to market strategy. Routers and Switches are the key components of Cisco. Its explosive growth and the growth of Internet were inextricably intertwined. Its router technology was a crucial component of the rapid internet buildout in the 1990s. This success was achieved from basic high-end connectivity, multilayer intelligent service switching solutions. The company has to evolve the goto market strategy and implement the customized pyramid so that new strategy doesn’t create inter-channel conflict determines the future of the company 2. What grade would you give Cisco for managing that evolution? Good or bad? Why? I would provide an A grade to the firm for managing the evolution. It was good implementation, when started the company sold whoever had an application on the technology however with the market exploded in the 1990s, the company relied on channel partners who added unique value, cost effectively. The company followed divide-and-grow policy, doubling the number of sales territories by cutting each in half and expecting the same business from each half. 3. Against the background of your answer to the above two questions, how should Cisco distribute VoIP products? Through voice VARs? Data VARs? or both? I would recommend the distribution of VoIP products through both voice and data VARs. Even though voice channel was considerably more consolidated than the data channel however it is agreed that voice needed to be added to the mix of already existing data VARs. In the data market, margins for the resellers where in the region 12%to 20% due to the channel competition. On one hand, it makes sense to stay with existing margin structure because the new technology delivered huge cost advantage for the end user. But the Voice VARs were entrenched with PBX firms and it would cannibalize introducing new product line. The maturing nature of the networking market and opportunity provided Cisco to expand their business and needed to the keep the productivity with the existing data VARs. 4. What are your reactions to the Pyramid model advanced in Fig.C of the case? What is the core concept of the model? Is there an alternative evolutional model that Cisco should adop? It was a completely different strategy adopted by Cisco when healthy profit margins on routers and switches were the norm in 1990s. This offered value addition to the resellers and sales volume was the key which showed Cisco’s intention to improve the market share. â€Å"Gold†, â€Å"Silver† or â€Å"Premier† status was awarded to the certified resellers who would in-turn get discount of 42%, 40% or 38% in the products for the categories respectively. The core concept of the model is higher the sales, greater discount and increased profit margins. Even though resellers could make 40% margin, in practice, because of intense competition, the gross margin boiled down to 5% to 18% across the industry depending on the product. Adding to the above, Cisco sold equipment through resellers that fell outside the pyramid structure but specialized in particular markets, on a sale by sale basis and through resellers that acted as product-fulfillment houses. This helped Cisco to quickly increase its share in the switch and router market to high extent. I don’t think there is an alternative evolutional model that Cisco would have adopted.