Secrets Of Success: How Cisco Outlasted Its Competitors

0
5555

Share on LinkedIn

In December 2012 Chairman and CEO of Cisco, John Chambers, made a few observations on why he thought the company had continued to thrive in a very crowded market environment, noting:

“Every year there’s a new competitor or a new technology that’s going to completely leave Cisco behind. We focus on competing [against] market transitions. You get the market transitions right, and understand what that means to a customer, that’s how you win.”

“We’ve left behind almost every good competitor, and that’s from doing basics in ways that others have not.”

As one of the most recognisable names in the global IT and the networking equipment market in particular, Cisco Systems has long been cited as one of the best examples of corporate longevity and flexibility around.

But for anyone that is trying to meaningfully explain why this Californian colossus has lasted for so long in a pond that is very crowded…are John Chambers’ comments really enough? Can the answer to what makes Cisco so successful really come down to simply anticipating market changes and getting the basics right?

To find out, we are first going to have to take a trip down memory lane.

A brief history of the rocky road to market dominance

Cisco has not faced a smooth path to the position it is in nowadays. Started in 1984 by the husband and wife team of Leonard Bosack and Sandy Lerner as well as Richard Troiano, the company went public in 1990. Later that year the company suffered its first major setback when Lerner was fired and Bosack reigned in protest, leaving the company with only one of its original founders.

Although by no means a true originator, the company made its first serious breakthrough selling routers that supported multiple network protocols, although the importance of these began to decline as the Internet Protocol started to become widely used. Cisco managed to adapt to the changed environment through a range of products such as modem access shelves and core GSR routers.

In 2000, as the market growth that would become known as the dot-com bubble reached breaking point, Cisco was the most valuable company in the world. The company responded to the onset of competitors such as Juniper Networks by beginning to move toward high end hardware as well as software architecture.

It was in 2011 though that the company hit perhaps its biggest rock to date. In the wake of lower-than-expected profits, the company had to reduce its expenses by $1 billion, which equated to about 10,000 jobs being cut.

Making sure to get your fundamentals

So, while it has not been an easy ride for Cisco to get to where they are, it is true that they have been in a position of prominence for a very long time. The brief history above gives an idea of some of the changes the company has undergone in that time, but what are the other factors contributing to this long term success?

Keeping it steady

A more detailed look at the financial underpinnings of the company reveals a remarkable consistency at the heart of Cisco’s performance over the years. A strategy of under estimate and over deliver has led the company (despite its recent troubles) to beat its earnings estimates for the last 8 quarters in a row. Compared to the erratic nature of its competitors performance, such as Juniper (who have been having their own restructuring problems recently), this performance is amazingly steady.

Leading market share

Not only do Cisco have a huge range of products in its portfolio which allows it to keep its margins intact at all times, it also places a huge level of importance on market share leadership. The company has a minimum target share of 40% in all markets it is active in and won’t even contemplate staying in a market if its share drops below 20%. The company has dominated the networking industry (with a 70% share) for the better part of the last decade.

Being sensible about mergers and acquisitions

Another clear trend running throughout the history of Cisco is a clear and coherent strategy for gobbling up smaller companies. This focus on picking up software assets that complement the overall structure and goals of the company mean that the company tends to keep its purchases relatively small in the area of hundreds of millions.

Early success in emerging markets

Another factor is that Cisco were quick to try and establish themselves in the emerging market economies of the largest emerging economies, with China and India now providing 20% of the company’s business. The success of this strategy comes from the recognition that the majority of the world’s population live in these countries and the potential spending, earning and innovative power that could be unlocked through raising the standard of living is immense.

It is not quite as simple as anticipating market changes and getting the basics right, there is a fundamentally coherent and robust strategy going on beneath it all as well. These are the fundamentals that have helped Cisco outlive most of its competitors to date.

What do you guys think the future of Cisco holds, can they maintain their position or are they going to have to cede their dominance sooner or later?

James Duval
James Duval is a marketing expert who has been cited by Mainstreet, ProBloggingSuccess and MarketingProfs. He works for Comm100, thinking about new tricks and techniques in the email and marketing industries.

ADD YOUR COMMENT

Please use comments to add value to the discussion. Maximum one link to an educational blog post or article. We will NOT PUBLISH brief comments like "good post," comments that mainly promote links, or comments with links to companies, products, or services.

Please enter your comment!
Please enter your name here