Earlier today, Cisco issued a press release announcing organizational changes designed to simplify operations thus “restoring our operational excellence”. With the announcement, Cisco has backed away from three things:
1. Consumers
2. Cross functional engineering
3. Cisco’s bureaucratic ‘council management’ approach.
As one of my colleagues pointed out, “this release suggests that the council approach was only moderately effective” and that “the combination of the decision complexity and the challenges in the market has made the council approach not feasible.” Thanks Kneko.
In the release, Cisco Chairman and CEO John Chambers states: “Today, the market is driving toward simplification and it’s why the network matters.” While I agree that the network matters (now mare than ever before), I disagree that simplification is the catalyst that is driving his organizational changes.
First of all, networks are more complex now than ever before. Enterprises are using a combination of premise based architectures, hosted and public/private cloud services to meet their needs. And service providers don’t have just one or two networks to manage. The combination of access technologies available, including legacy wireline services such as ISDN and DSL with wi-fi, 2G, 3G and now 4G services can confuse even the most experienced CTO. Simplification isn’t the key, it is hiding the complexity from the user. These are totally different animals.
Second, it is no secret that Cisco had to make some moves in response to Wall Street. On his program, Mad Money, Jim Cramer has been blathering about the need to replace John Chambers because of perceived ineffectiveness to deliver shareholder value. According to CNBC’s Cramer, Cisco has “lost its way”. And Cramer is not Cisco’s only critic.
I am wondering how today’s announced changes fundamentally make things different at Cisco. Cisco still looks at things like a packet is a packet is a packet. In my opinion, Cisco has a major issue around Mobility. I thought they had addressed the issue when they brought in Padmasree Warrior a couple years ago from Motorola. But I could be wrong.
In order to succeed, Mobility must become a core area for Cisco. While Wireless is an access technology, Mobility is a state of being, and while linked, they are fundamentally different.
In today’s announcement, Cisco COO Gary Moore said they created their “new” councils around: “the five drivers of the future of the network”. The five drivers include the core (routing, switching, and services), collaboration, the cloud and data center virtualization, video, and architectures for business transformation.
When I look at four of their Five Drivers, a theme that intertwines all of them is the theme of Mobility. It is true that Cisco is routing and switching the data we use. But the endpoints we use today, more than at any time in our history, are wireless and are being used in a mobile environment. Unlike how we used laptops and wireless devices a couple years ago (take your laptop from the desk to the conference room to home) we are using iPads, iPhones, Android devices, etc while we’re moving. It could be in an elevator, on the subway, walking across the campus/office or any of a number of other ways, people are consuming data when mobile.
Like consumption of data, collaboration is happening at anytime, anywhere, from any device. Front and rear facing cameras are becoming the norm on devices. Embedded wireless modules in netbooks, notebooks, tablets, and handsets has allowed the paradigm to shift from Wireless to Mobility.
The cloud is not just for the enterprise anymore. It is not just about making your desktop PC into a thin client. Less than 35% of North American mobile users use a smart phone. That being said, the mobile cloud has the ability to reach the majority of users without forcing an upgrade to more intelligent endpoints and smart phones.
Video…..now that’s a great subject. How many people would you guess watched video on a mobile device (handset, tablet, laptop) last month? Just look around. Is that trend changing?
Until Cisco takes a step back, and decides if it wants to create a strategy around Mobility, and not just the packet, they will continue to struggle with Wall Street. We believe that they should use some of their moldy money (they are sitting on a mountain of cash somewhere above $50B USD) to accelerate their position in the space.
I know they won’t do what I’m about to recommend; but they do need to do something. Listen up, CSCO; Wall Street is PISSED.
Today the hole in Cisco’s Mobility “strategy” is greater than endpoints (Cius) and greater than just the core network. So what do you do if you’ve got $50B and disgruntled shareholders? A stock buy-back? A one-time dividend?
And I know this is a reach, but perhaps you purchase companies like ALU and RIMM at the same time. They both have some great products, but also have a somewhat incomplete vision of the world. ALU is winning 4G business around the world (which ties to Cisco’s carrier business) while RIMM’s key demographic is the mobile professional. Cisco already owns the enterprise segment for switching and routing; why not use the channel for BES and Blackberrys.
Next, split the new company into 4 divisions: Professional Services, Enterprise, Consumer, and Carrier.
How could you do it? Let’s use some fuzzy math…. Cisco has $52B in cash and short term assets.
RIM’s market cap is $25B, but has $6B in cash.
ALU’s market cap is $14B.
You might be able to do an all cash deal for ALU at a 60% premium (when is the last time shareholders saw that value?) and then do a 3 shares for 1 plus $10B stock and cash transaction for RIM. That leaves Cisco with over $10B in cash, some assets that could be divested, and a much stronger company, especially in emerging markets.
It’s not an answer, but it is a start. Cisco, let’s see some big moves; and not provide lip service to large issues.
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