Most companies in the industry are multinational, and they often encounter various problems with state regulations. For instance, the controversial issue of political information gathering can put firms at risk (Cisco 2017a). Moreover, antitrust concerns are outlined by various states.
The economic conditions for network equipment selling companies are also dependent on the specific market. For instance, some companies saw a decline in their profits in the North American sector for hardware as the market is focused on wireless technology (Great Speculations 2017). Other countries’ markets, on the other hand, continue to grow.
Socio-cultural factors significantly influence the industry as people’s demands for speed and security evolve. The need to introduce faster and more efficient hardware for WLAN also pushes the competition forward (Rogers 2016). The focus on wireless technology is especially noticeable in the emerging markets, where the sales are growing rapidly. Consumers are currently interested in video streaming and mobile devices for communication and data exchange.
All companies in this sector have to upgrade their equipment to stay relevant on the market. The pressure to advance is strong. The most important areas of technological improvement include WLAN, network security, cloud storage and cloud computing.
Porter’s Five Forces
Suppliers in this industry have substantial bargaining power as manufacturing process requires unique and high-end materials. Skilled professionals and components’ manufacturers have the most significant impact on the market.
- The bargaining power of buyers is also high. The main buyers are internet service providers, government entities and big or small businesses.
- Leaders of the industry cannot rely on customer loyalty as new entrants may pose a serious threat to their success. New small companies and start-ups can enter the market and grow their profits very fast. Foreign companies can join the competition as the industry does not have any substantial national limitations.
- The products of the industry are hard to substitute, but sales of used equipment that are not performed by manufacturers may impact their profits.
- Industry rivalry is intense. It features major corporations and small businesses as well. The companies have to innovate and follow the latest trends to stay relevant to the clients.
- Geographic coverage – Multinational and state-wide businesses.
- Product diversity – Conglomerates such as Cisco offer a range of services and products, while other small companies may offer only one type of product.
- Product quality – The main competitors produce high-quality equipment, but it can come with additional services such as security.
- The main focus – Collaboration, routing, switching, WLAN, network security, and others.
- The degree of vertical integration – Cisco and other major players have integrated suppliers, manufacturers, and distributors. Small businesses work only on one step of production.
- Innovation and timely introduction of new equipment and software.
- Focusing on wireless technology and increasing the speed of data transfer.
- Ensuring the security for all services and strengthening the reliability of protective programs.
- Enabling and simplifying the multi-cloud world to appeal to customers.
- Collaborating with new enterprises to deliver the latest technology.
- Keeping the quality of all equipment high.
Upon analysing the industry, it can be seen that Cisco may encounter a number of challenges. The first strategic problem for the company is the constant need to innovate. While Cisco remains one of the biggest players on the network equipment market, it still has to attract customers with new and improved devices (CISCO dominates within network equipment 2017). The conglomerate is continuously introducing new ways to improve their products. If Cisco fails to adhere to the latest trends, it may lose its share of the market and open the way for other companies to take over. As customer needs evolve, new and emerging markets grow rapidly. Thus Cisco has to choose which markets to enter and which to abandon not to lose profits and remain at the top. Cisco is a massive conglomerate that incorporates various businesses, and it is present in many spheres of the industry. However, new advancements can come from very small companies that have a specific niche, and Cisco should keep that in mind.
The second issue that the company should be aware of is the need to improve network security. Many customers use their technology in business and governmental operations where information security is vital to the organization. The system that ensures end-to-end security should be installed in every product and service that the company offers (Mijumbi et al. 2016). However, this type of protection cannot impose on people’s right to privacy of information. Thus Cisco has to devise a system that would guarantee full safety of all data without eroding data privacy. The growing need for security can be explained by the fact that technology is continuously improving and such rapid changes may expose some products to malicious software. Furthermore, the Internet of Things (IoT) is predicted to become more popular every year (Kushida, Murray & Zysman 2015). The threat of improper security measures can affect not only people’s smartphones and computers but also all devices which can be connected to the Internet.
Finally, dealing with the outcomes of acquisitions may be the last major challenge for the company. Although it also can be considered Cisco’s strong point, its large number of businesses may complicate the process of management and create some problems with antitrust regulations. The corporation continues to acquire new companies, expanding its reach and range of products to follow the latest trends in the industry. This growth makes it hard for Cisco to adhere to a singular set of regulations, complicates opportunities for investment and poses additional challenges for the top management (Cisco 2017a). The company’s sustainability report highlights that this problem is present, noting that some products from their acquired companies may not be up to the standards established by the main branch (Cisco 2017b). However, Cisco admits that while this factor poses a threat to the business’ operations, the conglomerate will continue to broaden its reach.
Company’s Current Strategy
The most recent annual report of Cisco outlines its strategy in a number of points. First of all, the company is interested in “accelerating [their] pace of innovation” (Cisco 2017a, p. 6). The description of this step notes that new ideas can come from any source, and the company is working with this belief in mind. Furthermore, Cisco states that it is focused on software-defined networking (SDN). This point adheres to the current trends of the industry, defined by various scholars. For instance, Sezer et al. (2013) argue that SDN replaced older types of networking and established itself as the main driver for the industry due to many service-focused requirements. In fact, according to Carpenter and Lazonick (2017), software-defined architecture became the main concentration of many companies during the last years. The authors explain that the programmability of this method is favoured by both big companies and small organizations. Thus, Cisco’s first strategic goal corresponds with one of the industry’s primary issues – the need for innovation.
The next defined goal of the company is to increase the value of the network. Here, Cisco discusses the significance of the clients’ ability to use various accumulated data in order to understand its contents and utilization. Moreover, the company also mentions safety and the necessity of security deployment for all Cisco’s products and services. The minimization and simplification of all operations are outlined in this step as well because they create an opportunity for clients to maximize their benefits. This strategic decision correlates with the second issue of the industry – the necessity for security. Cisco’s managers understand the significance of security in the constantly evolving technical field, and the report also mentions the fact that cyber attacks should be treated before, during and after their occurrence. This particular point is crucial for any company to comprehend as it helps them to create policies which work and improve the equipment even after the cyber attack.
Finally, the third point of the company’s strategy is their desire to deliver “technology the way customers want to consume it” (Cisco 2017a, p. 6). This step deals with the flexibility of the sold products and implies that Cisco wants to create services that would be beneficial for both the client and the cloud system. The report also mentions some changes connected to the way people pay for the services, stating that subscription-based offerings are advantageous for customers. Their desire to innovate the cloud systems is in line with the latest developments (Kushida, Murray & Zysman 2015). This point, while being attentive to the needs of customers, does not reflect the main challenges of the company. In the report, Cisco (2017a) mentions the issue of extensive diversification. However, the firm debates whether its acquisitions will or will not negatively affect its development and that it plans to expand even further. This assurance in the stability of the conglomerate may pose a risk to its operations.
Possible Adjustments to Strategy
Overall, the company’s strategy seems viable and organised. The main steps that Cisco decides to take align with the general direction of the industry, but some parts of the approach can be adjusted to ensure the business’ success. First of all, the company’s decision to expand should be regulated to avoid some problems. It is unquestionable that Cisco’s bold decisions brought recognition to the company (Kushida 2015). Nevertheless, Cisco should keep in mind that each new acquisition undermines the ability of the top management to control the internal operations of the company fully. Moreover, connections between newly acquired businesses inside the conglomerate may be hard to maintain as well. It is possible to advise Cisco to reevaluate its current purchases and focus on a number of acquisitions instead of trying to broaden the reach of the company too much. It is understandable that Cisco’s choices are based on its drive to innovate. However, it seems that the company may not be cautious enough.
For instance, the recent acquisition of App Dynamics is a viable decision as this platform is mostly used by businesses – one of the main Cisco’s clients (Cisco 2017a). Moreover, it deals with cloud computing which can be considered as one of the central focuses of the company. While the purchases mentioned in the latest report appear to be significant for the company’s path to innovation, Cisco should concentrate its efforts on strengthening the internal ties between its new and old businesses. The company could create a structured plan for future and recent acquisitions in order to mitigate such risks as the lack of managing control over the operations and loss of potentially valuable employees and services. The main outcome of this advice would be a system for acquisitions that would simplify the tasks of the management and the process of merging. The proposed stricter rules for purchases should lower the probability of substantial losses.
Next, the company could consider centring its attention on a smaller portion of some emerging markets. Cisco already dominates multiple sectors of the network equipment industry. According to Rogers (2016), the conglomerate is virtually unbeatable in such markets as Ethernet switching and routing. Furthermore, its share of the total and premise-based collaboration markets also exceeds all other competitors, including Microsoft which only excels in the market of cloud collaboration. It is also the biggest WLAN vendor, and the company’s revenue in that sector is slowly increasing (Rogers 2016). The company explained its previous decrease by the uncertainty of the market. However, its success is still substantial enough to separate it from its rivals and put pressure on the competition.
Here, the emerging issue lies in the fact that by diversifying the conglomerate’s businesses, Cisco risks failing to support its declining or unstable spheres of manufacturing. For instance, the focus on WLAN should not be abandoned at its early stage of improvement as it is one of the central areas of customer interest in most countries (Rogers 2016). By trying to follow all trends that appear in the industry, the company may lose its main direction and suffer substantial financial losses. Cisco’s report already notes these challenges but does not mention them in the main strategy. It can be assumed that Cisco does not consider the changes in the sales as significant because it is interested in other areas of development. Nevertheless, not focusing on one of the most popular products of the industry or misplacing their attention on innovation alone may yield unsatisfactory results for the clients. Cisco should assess its current goods and focus on their promotion as well.
Finally, the company’s acquisition of businesses and talent that work on the IoT technology may open a path to increasing sales in cloud collaboration services. As Cisco invests in cloud computing, it may focus its efforts on the only part of the collaboration market in which it is not at the top. Furthermore, future predictions show that the IoT market is expected to grow substantially over the next five years, which only supports the idea that cloud collaboration’s popularity will follow the same pattern. Rogers (2016) states that while Microsoft continues to lead the market of hosted collaboration, Cisco’s growth in that sphere can change the current situation. The rising need to use such services may positively impact customer demands and bring more profits to those companies which present new solutions. Although investing in the IoT development is already a part of Cisco’s plan, it should highlight the necessity to implement the results of this research in the collaboration market.
For example, in 2017, Cisco launched a new cloud-based collaboration program that combines videoconferences and whiteboarding (Cisco 2017a). The implementation of this device may increase Cisco’s revenues in the shared collaboration market. However, the marketing of the product indicates a niche audience for the product, namely businesses. Cisco can increase the profits of this product by marketing it to another key customer – public institutions. As the main features of this product include cloud presentation sharing and video conferencing, it may be advantageous to present the device to the groups other than for-profit companies.
The proposed adjustments do not go against Cisco’s strategy and vision. While offering to systematize and reevaluate some acquisitions, the first proposition is not intended to limit the company’s pace of innovation. Moreover, the advice to focus on wireless technology and the IoT technology only promote the use of newly acquired businesses while using the existing resources of the conglomerate. The final proposition may be interpreted as an attempt to deliver more cloud-based options to customers. Cisco’s marketing decisions should address the necessity of attracting all customer groups with new products.
Unsuccessful acquisitions may result in the company losing its potential to compete in some emerging markets. Thus by approaching this activity more cautiously, Cisco may excel in the industry and create a more integrated community of professionals. Furthermore, the focus on WLAN may put Cisco in an advantageous position as the demand for this type of products is increasing every year. Finally, focusing on shared collaboration and expanding the customer base can help Cisco to become the absolute leader of the collaboration sector.
The proposed modifications do not require significant changes in finances while allowing the company to revolve its operations around the areas where it has experience. A stricter direction of acquisitions may result in a more controlled spending and lower percent of financial losses. The implementation of the newest technology to invest in the WLAN technology will bring more profits as the sales of these products are increasing continuously. Although marketing efforts for public institutions may require some additional spending, they can increase the potential for new deals with stable and reliable customers.
Current customer needs are changing towards wireless and cloud technology. All proposed changes help the company to adhere to the wishes of the client base and show them the latest technology on the market. As Cisco offers a vast range of products for both businesses and public entities, these adjustments ensure that each provided product is developed according to the latest findings. Moreover, growing firms, as well as public institutions, may positively respond to the innovative cloud computing devices created for collaborative work.
The potential response of competitors to the lowered number of acquisitions can be to increase their level of inorganic growth. As Cisco focuses on existing businesses and creates stronger internal ties, other companies may attempt to grow their sizes. The focus of WLAN will also be met with increasing competition as most companies are shifting their attention to the wireless technology. Microsoft can rival the emphasis on cloud collaboration. However, as the client base of public organizations is the sphere where Cisco excels in revenue, the company has a chance to grow its share of the market.
The proposed adjustments are not difficult for Cisco to implement. All changes are in line with the existing strategy of the company. Thus each of them is viable and can be performed in a short span of time. Moreover, using already acquired technology and talent in focused areas of innovation is not unreasonable as the company’s efforts are focused on the similar areas of development. The company’s report mentions marketing investments as a part of their planned spending. Therefore, the advice to broaden the niche for collaborative equipment is logical as well.
The future of the network equipment industry described above shows that the advised adjustments will create a more stable position for the company and allow it to evaluate its growth and build a broader client base. The focus on WLAN will help the company to excel in the market defined by growing demand. Its foundation of established businesses should remain profitable. As customer needs will change and markets will evolve, Cisco will remain a strong competitor with a solid basis for continuous innovation. The implementation of wireless technology and the IoT developments into existing devices will grant Cisco an opportunity to become even more competitive in the emerging markets. For this reason, the second proposition (focus on WLAN) should be executed first.
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