Wednesday, May 04, 2011

Enterprise IT lessons from Cisco's Earnings!

I have been following Cisco for couple of reasons - its business interests around architectures and IT services. Though the core competency of Cisco is around network equipments serving corporate/government customers, it recently ventured into direct-consumer-centric businesses such as IT services and home-networking/retail products.

In the last two years, Cisco's Leadership often talked about company's ambitions to make it big in the new businesses. Indeed it was promising and raised lots of expectations in the market!. Cisco was making audacious attempt to transform itself from being a product-in-a-box provider to end-to-end solution provider. The company launched quite a few campaigns such as smart+connected communities that would put network-centric platforms as the core to deliver new, innovative services for urban communities!. Clearly, Cisco was trying diversify beyond its core competencies!. And that was the challenge.

Have written about Cisco in my blog earlier here and here!

The challenge showed up in Cisco's earnings in the last couple of quarters and they were below market expectations!. Cisco was not delivering upto shareholder demands and its own benchmarks. Consequently, Cisco's Chairman John Chambers recently wrote an internal memo to all its employees explaining the challenges the company is facing and its future directions. The company has already initiated the organization restructuring process to bring back the focus to its core portfolios.

Couple of interesting observations - Cisco is selling its recently acquired retail video camera business (Flip) and plans to stay out of services business, especially in emerging markets. The second one was interesting. The company has said it doesn't want to compete head-on with other IT service companies like IBM/Wipro, etc. Instead it wants to partner with them to deliver the services to the market. With the new plan, it would tie up some strategic partnership with some of the system integrators/service providers and would help in delivering the core platform and together they would come up with goto-market strategies. That's a significant development!. Cisco is on back foot from directly selling to its customers especially in IT services/solutions business. There are couple of reasons behind this movement:

1. Cisco's margins in traditional network equipment businesses is challenged as it faces fierce competition from vendors like Juniper.
2. Cisco's recent interests in new services/retail products diverted its attention from focusing on its core competencies.
3. The services business / retail business is typically low margin compared to its traditional network instruments' business margins. If services has to make business sense, Cisco need to pump up the volume of those services. This could again change the portfolio mix of its core businesses.

Ok, Why are we discussing this issue in this blog?. How does it impact Enterprise IT shops?. How is this issue relevant to CIOs?

One of the emerging trends that we have been discussing in this blog as well as in the industry is that CIOs need to be business partners. They shouldn't just deliver value in contributing to the bottomline of the company but also to the topline of the company, by delivering IT-intensive services. Isn't this exactly the same Cisco tried to deliver?. Am not sure how much of Cisco's IT organization / CIO's office was involved in delivering its new consumer-direct, IT services/solutions business. But, IT has a role to play!.

There are good amount of lessons to be learnt in Cisco's journey. Cisco's Chairman himself agrees that there is nothing wrong in company's strategy or vision. Its just the execution that has failed. So, for companies that want to venture into transforming themselves from product businesses to services businesses, IT certainly can be a partner. But, delivering on the transformation doesn't look like an easy task!.

As an additional note, IBM has recently acquired a building management software company to accelerate its Smarter Planet initiative!. Would be interesting to watch the developments.

No comments: