Thursday, June 15, 2017

Blog #4 - Further Analysis of Cisco and Their Strategy

After reading the article from John Chambers, it’s easy to see how large technology companies with legacy business units have a hard time shifting, as he describes a few of those in the article (IBM, Compaq, DEC, etc.).   The evolution of Cisco core business, networking infrastructure/hardware components, has dramatically changed over the past few years with the advent of Software Defined Networks.  As hardware sales have dropped for the 5th consecutive quarter at Cisco [1], their strategy is shifting to keep up with the dramatic changes in the computer networking world.  John Chambers in the article states, “By the time it’s obvious you need to change, it’s usually too late.”  In the case for Cisco, that may be what is happening.

Researching Cisco further, I have found that they described 5 pillars to their strategy in 2015. [2]  Those pillars are build, buy, partner, invest and co-develop.  The issue they are currently facing is that their bedrock hardware platform business is being attacked at all levels, as the hardware itself becomes a commodity.  The virtualization and software defined environment that changed the server platforms over the last 10 years (see VMWare) is now hitting networking hardware, which is Cisco’s foundation.  Companies like Facebook are creating their own hardware, instead of purchasing from Cisco, which not only hurts Cisco’s sales but their hardware maintenance agreements are suffering as well. 

In order to adapt to this change, Cisco has developed a cheaper platform and a software defined solution to compete against VMWare (NSX).  They’ve also purchased Cloud based companies, such as Meraki, and hope to shift their consumers from a hardware model to a software licensing model.  [3]

By shifting to a licensing model, once a customer purchases a Cisco device, they can no longer run it past its End of Life date because customers will need to continually buy licensing for the product to work – similar to what we see in the consumer software environment.  Just as Microsoft has changed their Office suite into a subscription model, Cisco is looking to do the same, by selling hardware cheap but ensuring that the hardware only works with a valid license allows Cisco to avoid customers who look to purchase their equipment and use it for years without paying Cisco any additional maintenance costs. 

The shift to the licensing isn’t the only area that needs to improve and Cisco recognizes that the industry wants a simplified utility model, which they are trying to achieve as they shift their overall architecture and sales strategy towards.  The hope, for Cisco, is that they don’t wait too long in the rapidly changing network industry.  We see in “Why Good Companies Fail to Thrive in Fast-Moving Industries,“ that “..the decisions that led to failure were made when the leaders in question were widely regarded as among the best companies in the world.”  In the case of Cisco, they are one of, if not, the best Computer Networking Company in the world – so let’s hope that their management make the proper decisions in a timely manner, in order for them to adapt to the changes of their arena and continue on with their storybook success.

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