Cisco Systems is a company that has been in business for the past 25 years and they have grown from the basement of a few visionaries from Stanford University into the largest computer networking company in the world. The business model that they have put together has allowed the company to thrive despite many threats which have caused the demise of lesser companies. However, because of increased pressure from competitors and the economic downturn, Cisco faces new threats which have already eroded some of its profitability. To remain the market leader, Cisco systems will have to rely on what made them a great company (innovation, acquisitions, management, etc.) and continue to advance with the technology as it occurs.
A Discussion of Cisco Systems SWOTS
Cisco Systems is the world leader in the computer networking equipment (Sidhu, 2002), and they have been for more than a decade. In the year 2000, Cisco sent out a report of what their relative strengths, weaknesses, opportunities and threats (SWOTs) were at the time. It is interesting to note that the examination they performed at the time was prescient of the times to come. At that time, Cisco was on the cusp of a networking explosion. The internet was not around in any great capacity at the time and the world had no idea the changes that would occur in all manner of communication over the next decade. Then Cisco was interested in the networking capabilities of large businesses and they had little need for the small business that was required by individuals or small businesses. This market had not grown in any way, and there was no forecast that it would b growing in any significant way over the next few years. Of course over the next two or three years, individual networking became a $76 billion business (Sidhu, 2010) and Cisco was fortunate that they already had large network systems that they could shift to the individual market also. The business sense of the Cisco Systems research and development team is mirrored in the SWOTs analysis from the year 2000 and the way that the company has been able to grow its market share over the past decade.
Cisco remains the leader in its markets. The 2000 report says "Cisco has been recognized as the fastest growing, and most profitable company in the history of the insurance industry" (Cisco, 2000). This is not factual any longer with the emergence (and sometimes catastrophic collapse) of many new types of computer-related businesses. Since the computer field has increased exponentially, Cisco now has to rely on its primary business when making such statements. Cisco does remain the standard in networking systems (Sidhu, 2010), but they have no standing in many types of computer business.
The finances of the company have experienced tremendous growth since this 2000 report was written. In fiscal year ending 2009 Cisco reported revenues of $36.12 billion which was a decrease of 8.7% from the previous fiscal year, the operating profit of the company decreased 22.5%, and net profits decreased 23.8% (Datamonitor, 2010). These figures are extremely large, but they take into account a time period when companies around the world were experiencing similar financial hardship. The company remains the largest computer networking systems manufacturer despite the losses it has sustained the past two years.
However, Cisco can continue to rely on a management team that remains strong and committed, name recognition that keeps customers seeking the brand of Cisco, innovation in networking systems that ensures that the company stays ahead of the competition, and a network of committed employees that remains at more than 65,000 (Datamonitor, 2010).
Cisco has the same issues that any large and growing company does. In 2000 Cisco was concerned about the generation of enough capital to enable the company to keep up with its growing list of competitors. They were also concerned with a new ruling by the Financial Accounting Standards Board (FASB) which eliminated "the pooling of interests method of acquisition accounting" (Cisco, 2000). This meant that the company would not be able to absorb other businesses in the manner that it had been used to in the past. This would severely cramp the company's growth potential. As it turns out, this turned out to be a small weakness as the decade progressed.
The major weakness that has plagued Cisco and has allowed many of its competitors to steal resent market share is that Cisco remains a high price leader. This is because of their dedication to research and development. Unfortunately, these costs are passed along to the customer. They also have many business partners who rely solely on Cisco products. This can be a company strength during good economic times but during a market down turn when many companies are forced to reduce costs, this can be a weakness.
The opportunities that Cisco has, and many other large companies have, for growth is in the turnaround of the economy. Large business concerns which provide the bulk of the market for Cisco products have been hit hard by the financial markets. Many industries are seeing profits return, but they are unwilling to return to former business and hiring practices until they are convinced of the sustainability of the markets. This means that companies like Cisco which rely on the success of other businesses can see improved growth if the economy continues to improve.
Cisco Systems has always been a leader in innovation and if they continue that trend they will continue to grow. The computer industry, especially in networking systems, continues to be a growth market for innovation. Moore's law means that the ability of companies in the computer industry to continuously grow their products will not end anytime soon.
Another way that Cisco can grow is to branch into new areas of the computer services industry. Now Cisco has the opportunity to move into new areas and increase market share in that way. Because they have seen profits decrease in certain sectors, does not mean that there is not growth in the computer industry. Cisco needs to look into the other areas of the computer industry where it can make quick and decisive inroads and exploit that.
Many threat wait on the horizon for large networking concerns like Cisco. In 2000 Cisco, saw the threats as "low barriers to entry, unfavorable economic conditions worldwide, government regulations, acquisitions, increase in price component parts, and the telecommunications access device" (Cisco, 2000). Many of the worries were legitimate. Many companies have been able to enter the market since this report was released in 2000 because there are very low barriers for entry. All a company needs is a good idea, and they can enter the market because of the low costs required for start up and the amount of venture capital was available. The unfavorable economic conditions have been realized also, and have affected the growth of many companies. Government regulations are even a greater threat in today's market because the government, under the guise of protecting citizens, has added to the regulatory burden. The mysterious "telecommunications access device" that 3 com was supposedly developing is now old technology. Despite the threat that was seen by Cisco in the early part of the decade, it did not become a threat. In fact, through innovation Cisco was able to counter the design with one of their own.
Several other threats exist that could cause the erosion of Cisco's market share. Customers have always been loyal to the company, but there is increased competition in the market. As customers are forced to streamline their processes, they are less inclined than they were to remain loyal to a company if they can get the…