Cisco Systems is an industry leader in network technology. Their primary business is technology that is used to enable communication with people all over the world with multiple functions. Whether it be email, voice video or general applications these service are transported over Cisco Networks. The current CEO is John Chambers who has held the position since 1995. This case study focuses on his vision and strategy over the past 17 years. Cisco is a market leader in networking technology.
Financial Information: www. Bloomberg.com (1)
Sales 2012 Sales/Revenue/Turnover:
Total Operating Revenues. $46,681,000,000
Gross Profit $28,558,000,00
Net income $ 8,356,000,000
Key Milestones in Cisco’s History (2)
1997 All in One: Data/Voice/Video
2000 Network of Networks
2006 Network as Platform
2008-Current Collaboration/ Web 2.0
Cisco’s’ internal strengths are its people. They have a built a corporation with over 70,000 employees. 1/3 of those are Engineering people who develop Cisco’s solutions. (2). These solutions come from internal design or from acquisitions. There weakness is the size of the corporation compared to when they were in there early days. They challenges adapting to customer demands at the rapid pace the technology industry changes. The opportunities have come with the use of acquisitions. When they want to add a piece of technology to their portfolio they at times bypass the development process and acquire a company with the needed expertise. The major threats to the business are the number of employees who leave and go to competitors. Many of Cisco’s competitors are run by former Cisco employees. See Juniper.com(7)
ANALYSIS VIA PORTER’S FIVE FORCES MODEL
Analyze the competitive environment by listing the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in the industry (Chapter 2). Summarize your key points in a Figure. (25 points)
Cisco’s’ threat of new entrants is limited due to Cisco’s market cap on network Switching: Modular/Fixed (2) . They currently hold a 69% market cap sue to their design and build of these devices. Their competitors have copied and duplicated these products and there are only handful that compete. The bargaining power as a buyer based on thre volume allows them to keep manufacturing costs low. There suppliers in turn have strong bargaining power with their silicon and chip manufactures.
New Chipsets are developed rapidly and suppliers can gain a competitive advantage over the manufacturers. The threat of substitute products is a common theme with Cisco. An example was a Chinese company stole Cisco’s design and started producing replica hardware. Years of litigation was later settled however the cost to do so was a major impact. (3)This caused an intense rivalry with its competitor 3Com who partnered with the Chinese company (4). The other issue with its competitors is its talent pool. Many of Cisco’s engineers leave for competitor with hopes of creating the next generation of technology.
Cisco’s competitive advantage in the switching market has led them into being market leaders in other sectors. Having the market share of the core network as the base layer of Infrastructure allows them to see the need of its customers. These sectors have all been supplicants that utilize the Cisco core networking products that today has brought them an industry market share in the following area. The core strategy used is there overall cost leadership to create this competitive advantage
Performance Market share per sector
Digital Video: IPTV-64%
Switching: Modular/Fixed- 69%
Storage: Area Networks-44%
Web Conferencing-38% (2)
One core strategy they used in the area of differentiation was the introduction of Voice over the network. Voice is a legacy technology created over 100 years ago and up until recently was run with the same original design concepts. Cisco changed that system buy running voice over the IP network. Today VOIP phone systems are a standard and the original POTS (plain old pots lines) are now considered legacy. They used acquisitions to buy phone providers and break down there core fundamental and produce them on IP networks., allowing today the use of voice over your PC Email Text.
They were very successful in this space however not all companies can use this strategy for this particular technology. There install base is so strong the market is saturated and would not be cost effective. This strategy however is now in the maturity stage of the industry life cycle. They contain 69% of the voice market and they are continued to grow. The core installations will eventually decline however the service to maintain the phones systems will continue to remain in the maturity stage.
Cisco’s strategy is based on catching market transitions—the market transitions that affect our customers. With the proliferation of video and collaborative Web 2.0 technologies, the network continues to evolve from the plumbing of the Internet—providing connectivity—to the platform that will change the way we work, live, play and learn.‖ John Chambers, Chairman and CEO, Cisco
THE ISSUES AND CHALLENGES FACING THIS COMPANY
Cisco’s’ competitive advantage in some sectors can be maintained. The overall progress should continue however weaker sectors where they have lost focus on have declined. In the example of the home Networked sector they maintain a low 23% market share. This has not been inline what the projections were when they entered these markets. Recently they have announced they are moving away from the home based market with a sale of their Linksys lien to Belkin (5) I believe the companies’ competitive advantage can be maintained if they focus on areas where they have control on market share.
Shedding unprofitable business such as Linksys is a step in the right direction. This product is clearly on the decline side and Cisco should focus on growth areas such as storage area networks. The companies’ culture is changing from when they were a smaller enterprise they were able to maneuver with market needs more quickly. The fierce competition in the home market was one of the company problems. I believe that they are an enterprises corporation provider of services and do not understand the needs of home based users.
COURSE OF ACTION RECOMMENDED
I would advise Cisco to focus on server storage sectors. They are not a market leader in servers such as HP but have new products that are changing the way we companies utilize servers. This is a differentiation strategy that will change the industry if done correctly. They created a virtual server solution called UCS that if markets correctly could achieve future growth in the server storage sector. (6) I would use my market power and customer to base to provide these solutions at a low cost and this will expose a broad customer base to the product
What do you think of this case study? Describe what you believe are the lessons learned from this case. (10 points) I think this case study showed me new concepts in strategic management. By studying Cisco’s market dominance based on 46 billion in revenues I now understand that having a competitive advantage must be maintained. Seeing Cisco now leaving markets is a new direction for them and these concepts have brought me to understand that.
When you have completed the paper using the above sections, insert a page break and have a separate references page. The references should be listed in accordance with the APA guidelines as shown in the tutorial. (5 points)
http://newsroom.cisco.com/documents/10157/0/Corporate+Overview+-+Q2FY12.pdf (2) http://www.theregister.co.uk/2004/07/29/cisco_huawei_case_ends/ (3) http://www.theregister.co.uk/2003/07/09/3com_welcome_to_join_ciscohuawei/(4) http://www.dailytech.com/Belkin+Plans+to+Purchase+Ciscos+Linksys+Home+Networking+Business+Unit/article29747.htm(5) http://www.cisco.com/assets/global/europe/powerofu/ucs_vs_hp_deployment.pdf(6) http://en.wikipedia.org/wiki/Juniper_Networks(7)