Networking behemoth Cisco has been in the news lately, but for reasons of disappointing financials and lackluster shareholder returns. Cisco is truly a world renowned global tech giant, another American entrepreneurial success story with deep roots in Silicon Valley. Its name, after all, paid homage to the City By the Bay, and its founders came from the computer operations staff at Stanford University.
The company has grown a lot and weathered tremendous hardships such as the dot-com bust. It’s a component in the Dow Jones Industrial Average and the NASDAQ 100 Index. This tech giant obviously has sound products and effective executives for the company to become an important part of the Internet Age. Without its heavyweight data routers and switches in the Internet backbone, all of us would have trouble sending emails, browsing the Web, and conducting online meetings.
But being a public company meant that ultimately Cisco has to report to its shareholders, and they are far from pleased. It has grown with many acquisitions, including several in the consumer market in hopes of better revenues, yet its recent financial guidances continue to disappoint. Even more worrisome is the news that Cisco actually lost market share in the enterprise networking market, an area which it dominated for years.
So, what would John (Chambers) do?
The CEO has realized that something drastic is required to turn Cisco around. This reminds me of what happened to Nokia recently, except Cisco isn’t in that bad of a shape (yet). First, of course, Cisco released a memo from Chambers to employees — his “guiding principles” in excerpt:
We now need to prepare ourselves for what’s next, as you will see Cisco make a number of targeted moves in the coming weeks and as we move into FY12. These actions will be based on uncompromising integrity and will represent a very simple set of guiding principles:
- We will not fix what’s not broken. There are numerous areas where we’re executing incredibly well for our customers and partners. In these areas, you will see no disruption and you will see nothing less than support and empowerment. Simply put, we will not get in the way of our success. Our five company priorities are established: leadership in core routing, switching and services; collaboration; data center virtualization and cloud; architectures; and video. The importance of delivery to market through our partners is also clear – and we will do nothing but reinforce this.
- We will take bold steps and we will make tough decisions. With change comes disruption, and you will see this necessary and healthy disruption as we make meaningful decisions in a timely, targeted and measureable way. We will address with surgical precision what we need to fix in our portfolio and what we need to better enable.
- We will accelerate our leadership across our five priorities and compete to win in the core. Again, our strategy to extend the role of the network will not change. Our approach to leadership in the core amidst this transition will change. In switching we understand that our customers are buying across broader segments and specific needs in this market. We understand that our competitors in this area are fierce, with different business models and architectures. We will not be defined by them. Most important, we understand that our customers want to stay and grow with Cisco. They know we will partner with them to make their business successful and their technology investment sound. They know us well and understand that we will not leave or devalue this business. We need to give them the right reasons to make this transition with us, and we will.
- We will make it easier for you to work at Cisco, as we make it easier for our customers and partners to work with Cisco. We will simplify the way we work and how we focus our attention and resources. We will significantly rework our systems, tools and funding models to do this. We will reshape the operational foundation in order to empower our teams, integrate our major functions, and allow our people to focus on inspiring and important work. We created the role of COO to expedite this effort and Gary Moore and I will drive these changes with the leadership team.
And quickly within a week of the memo and 30 days from its third quarter earnings call, Cisco restructures its consumer business, starting with closing down Flip (from Pure Digital Technologies) which was acquired for $590 million two years ago. Other products possibly to be affected include Linksys networking gear and Umi telepresence (not that anybody cares).
Would anything happen to its contact center business? Gartner in a 2010 report cautioned against Cisco’s Contact Center Enterprise and Express products as “under-featured,” “less feature-rich,” and no “all-in-one contact center applications suite capable of scaling to large enterprise size.” Essentially, its contact center products “sell strictly into environments using [Cisco’s] data communications network and telephony solutions.”
There’s little doubt that Cisco mastered data networking. But contact center applications? Some would say that’s debatable. If Chambers is really serious about returning to Cisco’s roots, then losing the contact center portfolio would be fair game.