Cisco Systems Inc. designs, manufactures and sells networking and communication products related to ICT (internet and telecommunication technology). The company offer products in three categories such as core technologies, routing and switching and services such as technical support services and advance services. In recent times, as impact of global financial crisis and issues surrounding Cisco’s operations and strategic decisions, company consistently produced declining financial results. The company in year 2011 declared the slump in forecast that would impact company’s net income for several quarters. The company realized that its strategy of growth by acquiring new business with a rapid pace left them with too many products with narrow revenue per line. Resulting the shrinking profit margins.
Cisco’s CEO John Chambers, in 2011 decided to revamp the internal system. In effect, it created a position of Chief Operating Officer to streamline its operations. Organization also curtailed its offering by eliminated flip line of video cameras, EOS media and entertainment operating system technology. It merged UMI TelePresence system with its TelePresence operations. In this process, company reduced its manpower by 550 and had plans to reduce 6500 jobs worldwide. Cisco is part of highly competitive ICT market segment where innovation is crucial for survival. To stay current with latest trends and technologies, company announced its plans to focus on virtualization via cloud services. Cloud services are nothing but a combination of software-as-a-service, platform-as-a-service and infrastructure-as-a-service offering. Company also plans to focus on high tech collaboration i.e. video conferencing via high-end TelePresence, core networking and switching. The technologies in discussion here work together effectively and seamlessly, providing a possibly of offering these services as part of end to end solution offerings. It is very evident that company is targeting on very specific set of offerings by eliminating or terminating ineffective and loss making ventures. It is trying to optimize their operational efficiencies to increase net profits.
It will be interesting to see how these changes help Cisco in longer run. The analysts are correlating the success of Cisco’s financial results in early 2012 to its restructuring. The net income for fiscal second quarter ending Jan. 28 grew 43.5%, while revenue increased 11%. The overall goal of the restructuring was to improve efficiency, reduce operation costs to improve the profit margins at the rate that is higher than revenue growth rate. Analysing the results, it looks like company is living up to the expectations and its restructuring promise. However, the major turmoil in the global market will have significant impact on long term growth of the company.
Outside its own world, rival companies, giant like HP, veteran Juniper, young companies like Riverbed Technologies and low cost producers from China like Huawei Technologies Co. pose serious challenge to Cisco. It will be essential for Cisco to innovate high quality product line and produce it with a significantly higher profit margin to be able to compete effectively with rivals.
Cisco's Chambers Keynote Foreshadows Restructuring. (2011). Channel Insider, 1
Interesting article. I had no idea that Cisco was having troubles. I do not have much knowledge in this industry but I have always thought that Cisco was a market leader and probably controlled most of the shares. It seemed to me that the CEO was able and willing to take the necessary steps in order to turn the company around. Reorganizations are never easy especially when lay-offs of such a high magnitude are involved. It is also difficult to redesign the internal systems. It is good to see that cisco has been able to turn it around so far. The long-run results are yet to be seen. If I were an employee at Cisco it would make me very happy to know and to see that my CEO is able and willing to turn things around. These days, it seems like many CEO's fail but it doesn't bother them because they get let go with huge buyouts. It will be interesting to see how Cisco's competition responds to the changes they have made.
ReplyDeleteMark, I do agree with you. Cisco's CEO has been phenominal in re-structuring the organization and get it back on the right path. During my readings, I came to know about another major restructure that was done in 2001 to 2003. He had to let some executives go due to that. Was a bold move. However, company did well for a while before realizing it required a major restructuring in terms of operational efficiency and productivity. I wish I had some more details about this restructure. I am interested to know more.
DeleteThis is a good article which explains corporate restructuring using Cisco as an example. Article indicates that Cisco was able to achieve good financial results in 2012 due to merger, change in management structure and concentrating on a specific set of high end technologies. In my opinion, to gain sustained competitive advantage in the market, Cisco should adopt an ambidextrous strategy. If they become ambidextrous organization, they will be able to concentrate not only on their existing technology but also on developing new technologies.
ReplyDeleteGreat article. Cisco is at a crosspoint in my opinion. Cisco seemed to be too ambitious in 2011. In my opinion this is an example of a "Rusty Giant", in the way they started to acquire way too many products. The problem that I see was that instead of focusin their strategy and be very specific. Cisco had a too broad strategy, which ultimately left them with too many products which they didn't know what to do with.
ReplyDeleteIn my opinion, Cisco must be able to realize what they're "bread and butter" will be and stick to it. They must be able to manage their innovation while at the same time maintaing their proven products current. As Vijeta states, they must become an ambidextrous organization.
I like this article, not only it lets me know more about a high technology company, but also gives me a good understanding of the successful strategy for Cisco. As we know, Cisco has been a marvelous company for various reasons. One important reason is that its unusual merger and talent strategy plays an important role. Cisco is good at how to integrate and apply the talents. After many acquisitions, Cisco's culture fusion occurs gradually, but Cisco has always been committed to a core set of values: customer-centric. Of course, companies could face different challenge with the development, so could Cisco, like in this article. But Cisco has been growing well for its strategic resources and structure revolution when facing problems. It should bring to us deep thinking from Cisco in management strategic application.
ReplyDeleteThis article is very relevant in today's times. Many organizations have had to restructure things. I found this article interesting. I did not realize that Cisco was having problems either. Just like Mark, I thought they were a leader in their industry.
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