Case Study Of Cisco Systems Global Strategy

Published Date: 02 Nov 2017

Founded in 1984 by two Stanford computer scientists, Cisco Systems, through its core competency, IP communication helped to bridge the world through interconnected Internet Protocol (IP) systems and routers. Cisco, described by Cisco’s Chief Information Officer, Peter Solvik, as the "Internet experts: the Global Internet Company", became on March 27th, 2000 the most valuable business in the world with a market cap of $531 billion. (Nolan, 2005, p. 1)

Cisco’s strategy is a derived from a two-part methodology: focus on current technologies and a drive to grow future technologies. First, Cisco addresses its focus on current technology with its statement, "to help service providers build flexible, scalable, and secure networks that deliver profitable services for sustainable success." Second, for its importance to drive future technologies Cisco’s strategy includes the statement "Cisco’s IP Next-Generation Network (IP NGN) architecture supports medianet, mobile internet transformation, data center, and cloud computing solutions. These and other Cisco innovations encompass our Connected Life vision" ("Service Provider Strategy," n.d.).

Cisco has adhered to a simplistic three-tier innovation model, since the early 1990s: "build," "buy", and "partner". Cisco’s most evident tier, "buy" has resulted in more than 140 business and technology acquisitions over the past twenty years. Cisco segments its acquisitions into three categories: market acceleration, global market expansion, and new market entry. ("Acquisitions," n.d.) . During the 1990s, Cisco’s acquisitions were predominately market acceleration and market expansion that centered on its traditional core technologies: networking, routing, and switching. However; over the last decade, Cisco has focused its acquisitions on new market entry. Specifically, Cisco has branched into markets that are similar to its core technology of the 1990s, but shifted from corporate technology to home and personal electronics. In 2003, Cisco acquired Linksys, the leading maker of home networking gear for $500 million. Two years later in 2005, Cisco made its largest acquisition with Scientific Atlanta, provider of home cable receivers for $6.9 billion. The Scientific Atlantic acquisition was similar to the Linksys acquisition, which opened Cisco’s home and personal electronic market (Reardon, 2006).

Further evidence of its focus on new market entry, Cisco entered the Web conferencing market with its $3.2 billion acquisition of WebEx in 2009. The WebEx acquisition demonstrated Cisco’s shift to not only to acquire new technology and market entry but due to high bandwidth requirement created more dependencies on its core technology network infrastructure. Further, evidence of the shift, later in 2009, Cisco acquired Tandberg a Norwegian; a company that produces corporate videoconference equipment for $3.3 billion (Rosoff, 2011).

Cisco Core Competencies

Core competencies are those capabilities that separate businesses from one another; they are those functions that are critical for a company’s competitive advantage. Core competencies provide a company with value added in central areas of the company. Cisco Systems has five priorities that translate into their core competencies. First is leadership in their core business of routing, switching, and associated services, which includes comprehensive security and mobility solutions. Second, is Cisco’s integration of its collaboration portfolio, with the emphasis on channeling voice, video, data and mobile application on fixed and mobile networks. Third, is developing seamless data center products that are centered on Cisco’s cloud and virtualization architecture. Forth, is the introduction of video connected home, Cisco’s end-to-end video distribution systems and digital set-top boxes aimed at delivering media content to consumers and businesses around the world. Finally, Cisco is working to develop architecture for business transformation, which focuses on creating a custom multilayer IT architecture to support a wide range of applications and devices. In 2011, Cisco identified the need to refocus it core competencies to support the changing IT landscape.

Historically known for routing and switching equipment, Cisco has been a major player in this industry. They directly compete against companies such as Alcatel-Lucent, Juniper Networks, and Huawei which are both domestic and foreign competitors. Cisco’s routing technology is an integral part of the Internet infrastructure that connects both public and private Internet protocol networks (IP) and supports a number of different applications and increasing web traffic. They supply routers commercially and to consumers as well. The other half of Cisco’s core business includes its switching technology, which is fully integrated in network infrastructures throughout the world. This core competency is where Cisco’s has the most strength and experience. Their early head start in routing and switching business has provided Cisco a competitive advantage and cemented their position as the leader with 75% of the total market share. In 2011, Cisco has taken to revamping their product lines introducing better performing routers, enhancing switches to support the increasing requirement to collaborate, and the ever increasing demand of users.

The second of the five core competencies includes the collaboration portfolio that is central to the idea of creating the Human Network. In white paper published by Cisco, they state that, "57% of workers use social media for business purposes at least once per week, and 15% …use a consumer tool instead of the corporate-sponsored one." Cisco’s position is to incorporate the tools necessary to collaborate effectively using one integrated package. The collaboration portfolio core competency includes solutions that enable the collaborative use of software, hardware, and web-based technologies to communicate through various mediums. As stated by Cisco these technologies include "IP phones, mobile applications, customer care, web conferencing, messaging, enterprise social software and Cisco TelePresence Systems." These various technologies enable Cisco to develop IT architectures that support collaboration regardless of platform, device, or location.

Data center virtualization and cloud services are important for businesses that require collaboration over networked and web applications. This core competency strives to support the development of the collaboration portfolio by creating an architecture that allows collaboration to occur. According the Yankee Group, "The shift to a virtual data center will be the single biggest transition in the history of computing." Cisco’s wide range virtualization and cloud services provide organizations with fundamental computing, network, storage, and virtualization access or capabilities through a cohesive system. This is supported by Cisco comprehensively designed Application Networking Services that consist of networking solutions that enable secure, high performance, and reliable delivery of applications across an organization’s networks.

Video connected home concepts have been primarily focused on delivering media from service and content providers to consumer and business. This core competency was originated through acquisitions of several set-top box manufactures, companies such as Tandberg, and other digital media technologies. The conceptual framework for video connected home is aligned with Cisco’s vision of borderless networks; video connected home allows individuals to use and enjoy digital media, entertainment, and communication resources in their homes or on the road with any device. Most people have multiple media and communication resources that work separately, Cisco’s response to the problem is video connected home. This core competency is aimed at developing home, business, and commercial media networks (and hardware) that interact seamlessly and efficiently.

Architecture for business transformation is the last of the five core competencies. This competency incorporates many of the previous four to develop custom IT solutions for the commercial sector. The architecture for business transformations includes developing multilayer business architectures that foster the environment necessary for efficient and successful collaboration. The integration of multiple assets creates costing saving that can be directly contributed to less manpower and highly efficient IT systems. Additionally, the convergence of digital systems has emphasized the need for organization to develop a system that meets the needs for the organization.

Assessment of current operations and tech strategies

Cisco’s mission is to shape the future of the Internet by creating unprecedented value and opportunity for its customers, employees, investors, and ecosystem partners. (Chambers, 2011) Cisco’s leadership position is robust in all segments of the market in which it competes. Changing the way we live, play, work and learn and providing solid profits to shareholders throughout the company is our focus and lifelong vision of John Chambers, CEO of Cisco Systems.

Len Bosack and Sandy Lerner founded Cisco Systems in 1984 while working for Stanford University. The couple needed technology that would connect their computer systems and offices across campus. This desire to share information created the multi-protocol/multi-language router. (Cisco.com, 2012) Cisco Systems is the worldwide leader in networking that transforms connectivity and collaboration via, data, voice, video, wireless communication, datacenter virtualization, and network security solutions.

Cisco currently operates over 475 offices in over 165 countries around the world (Corporate Overview, Cisco.com, 2012). Cisco has secondary headquarters in Amsterdam, Netherlands and Singapore. Cisco has primary headquarters in San Jose, California and has become a publicly traded company on the NASDAQ under the symbol CSCO as of February 6. Cisco ended Q2 Fiscal Year 2012 with $11.5 billion in revenue and 63,870 employees. Cisco ended fiscal year 2011 with over $43 billion in net sales, and $6.5 billion in net income. Cisco holds $44.6 billion in cash and cash equivalents and total assets of $87.1 billion. Cisco continues to see solid quarter over quarter growth across all segments and geographies (Annual Report, 2012).

Cisco’s focus is around five foundational priorities: core networking, including routing and switching, security, mobility solutions, and associated services; collaboration, including voice, contact center, and telepresence; datacenter, including routing, switching, server virtualization, cloud, and virtual desktop (VDI); video, including show and share and digital media service; and architectures for business transformation and growth (Chambers, 2011). To complete the technology offerings, Cisco has a robust service offering to complement each of the five foundational priorities. Services at Cisco start with foundational SMARTnet maintenance providing day two support through the worldwide technical assistance centers. To support customers growth needs, Cisco services offers a full range of focused technical support offerings, and remote operations management services, providing customers with a true single point of contact. Cisco services builds upon a world class technical support with a robust offering of advanced professional services ranging from planning and design to business critical consulting and advisory services. Cisco services offerings are tightly focused to the companies five top priorities listed above.

Cisco’s has created the Corporate Development Technology Group (CDTG) to evaluate enhancements Cisco needs to maximize their technology and their strategic value. "Cisco's Corporate Development Technology Group evaluates innovative new technologies for the correct fit and suitability in the Cisco portfolio". The CDTG team works with Technology Group and Business Unit teams and other corporate areas to develop long term strategic planning for building, investing and partner strategies, which enable the company to react to these needs. (Cisco, web)

Cisco is focused on staying ahead of major market transitions. In order to stay in front of these technological transitions Cisco senior managers have taken time to listen to its customers, and understand their key needs and concerns (Blair, 2012). Cisco has developed a very robust Advanced Services offering focused on the latest trends and key customer needs related to datacenter virtualization and optimization. The business brief is focused on addressing the key cost factors related to providing datacenter optimization, virtualization and application modernization services, as well as key revenue factors driving demand for Cisco professional services in the datacenter and application modernization arena.

Technology-based Opportunities for Cisco

Cisco faces the challenges typical of a global corporation; language and time constraints associated with geographical dispersion. To overcome this, many businesses use communication in its typical static context such as email, collaboration tools such Microsoft’s SharePoint and IBM Lotus Notes, and chat sessions. This technology is effective but lacks the ability for efficient real time information exchange and the anywhere and anytime availability demanded in today’s global market. Unified Communications solves the problems typified by the constraints of static communications. Unified communications is "an integration of communication methods such as e-mail, instant messaging, video conferencing, phone calls, rich presence, and other online conferencing tools" that facilitates a business’ ability to communicate more effectively while improving productivity. ("Unified Communication - Technology Trends," n.d.)

Unified communications employed by the Cisco organization has tremendous utility at all levels of its organization including its Technical Assistance Center (TAC), sales, manufacturing, operations, and management. Unified communications considered multi-purposed, facilitates a seamless transition between email, instant messaging, voice and video conversations, delivery email, voicemail, and facsimiles into a single inbox, anywhere access from mobile devices, and facilitates audio, video, and web conferencing from within the Microsoft’s Office Suite. Additionally and significantly, the technology provides rich presence which instantaneously identifies the location and status of users though a desktop application that integrates seamlessly with Microsoft’s Outlook and SharePoint. Unified communication allows Cisco to bring together its geographically dispersed teams. ("Unified Communication - Technology Trends," n.d.)

In 2010, Cisco, through its voice, video, and collaboration acquisitions Jabber, Tandberg, Vovida Networks and IPCell Technologies, was recognized by Gartner, a technology research and advisory firm, as an industry leader in unified communications. Cisco, as the number one user of its own Cisco Unified Communications Tools, touts that it provides, "shorten sales and customer service cycles, reduce time-to-market, adapt more quickly to market changes, and encourage innovation. ("Unified Communications," n.d.). Cisco as a provider and user of the unified communications technology is in a superior position to continue to improve and effectively and efficiently implement this emerging technology.

Cisco Systems Global Technology Strategy

Cisco’s strength has been in expansion and acquisition "After overseeing 75 acquisitions in seven years at Cisco in the 1990s, then-CSO Mike Volpi helped the company become a role model for tech M&A and an acquisition-as-growth strategy" (Gigaom, online). It is the researcher’s belief that acquisition should be the continued technology strategy for Cisco Systems based on the success of the business to date. In 1998, Cisco successfully reaches the coveted $100 billion landmark and over the next two years, Cisco continued to expand and "acquired more than 20 companies, including wireless network equipment maker Aironet. With a market capitalization exceeding $500 billion, Cisco enjoyed a turn as the world’s most valuable company in 2000" (Hoover, 2012, p.1.) Cisco’s product’s mix includes; security systems, IP telephony equipment, Internet conferencing systems, set-top boxes, optical networking components and network services (Hoover, 2012, p.2). Presently, Cisco operates in a broad target market. The company targets enterprise and service providers, small businesses, and homes (Cisco website, 2012).

Cisco has in truth been a bit lucky according to Volpi, "Historically speaking data shows that the majority of acquisitions fail". (Gigaom, online) Cisco has been able to implement an M&A (Mergers and Acquisition) plan that is scalable and repeatable. They have adopted the principal that acquisition a process not an event. Cisco has made a long-term commitment as part of their plan, to many acquisitions so that they can adapt the way the company learns from the process, eventually making this part of the core competencies.

According to a Newsweek article, acquisition is traumatic, but Cisco is good at it.

"Cisco is one of the few companies that have found a way to succeed in this risky business. Since it made its first acquisition in 1993, the world's No. 1 maker of computer networking equipment has gobbled up a total of 110 companies across the world. An average of about one every six weeks for 13 years." (Newsweek, Online) Although Cisco has not always achieved the outcome it set out for, more than 90 percent of the workers acquired by Cisco have stayed with the company. (Newsweek, Online)

Conclusion

Cisco is an undisputed champion in the Internet software, hardware, and networking industry. Their history is evidenced by successes that are supported by their aggressive acquisition of major technologies around the world, designed to collect Cisco’s services into a collaborative network. Their illustrious history is dotted with acquisitions such Tandberg and Linksys that served to provide complete end-to-end solutions to clients. Their core competencies have also evolved revamping corporate sales, services, and engineering organizations dedicated to simplifying the operating model and focusing on their five foundational priorities. Cisco’s priorities strive to develop leadership in their core business (routing, switching, and associated services) which also includes comprehensive security and mobility solutions, collaborative device and services, data center virtualization and cloud, video, and architectures for business transformation. Cisco’s key strategy is to integrate many of their technologies to provide customers flexible and collaborative systems that promote communications on the global perspective. Cisco’s successful strategy execution has provided them the ability to innovate and continuously improve their product and market position.