Strategic Management Mission and Vision Brocade Communications

Strategic Management

Mission and Vision

Brocade Communications systems "provides innovative network solutions that helps the world's leading organizations transition smoothly to a virtualized world where applications and information can reside anywhere" (Brocade.com, 2013). The company notes that "these solution deliver the unique capabilities for a more flexible IT infrastructure with unmatched simplicity, non-stop networking, application optimization, and investment protection" (Ibid).

This is the company's description of its business, and is not specifically billed as a mission or vision statement, this is precisely what it is. The company is stating what it does, what its vision of its market is, and how it seeks to deliver value to its customers. There are all good elements of a mission statement, so in that sense this description of the business can be evaluated as a business statement. The company's focuses on data centers, Ethernet, storage and converged network solutions. The company competes with Juniper Networks and industry leader Cisco (Caplinger, 2013).

Strategically, the company is a niche market competitor. Brocade has sales of $2.2 billion, which makes is a very small company in its field. Cisco's revenue are $48.6 billion as a point of comparison. This indicates that there might well be an issue here. Brocade has the idea that it wants to be a global business, able to help its customers with their data needs anywhere in the world. Yet it simply does not have the size of a global company, and certainly not one that can offer a range of services as comprehensive as those of its main competitors. In this Brocade does not appear to be quite big enough to fulfill its stated mission. That is not to say that the company should be criticized for having ambition, just that when evaluating whether the company's strategy matches up with its mission, in this case it does not. The mission is bigger than the company, and Brocade has not grown much in recent years, which indicates that it does not have a major growth strategy either.

Strategic Goals

The strategic goals are the same as the mission and vision. I guess it is worth criticizing the fact that Brocade does not have an explicit mission and vision but it is true, the company should have some separation between these things. That it does not is perhaps a weakness. The strategy is the same as the mission and vision, so the company as noted has not done a great job of taking that strategy and executing on it. For this strategy, Brocade should be much larger, since it wants to deal with global companies and wants to serve their needs around the world. For Brocade, the size is maybe the only issue.

It also has a fairly narrow business vision as well. It bills itself as something of a total solution provider but then describes its precise business in terms that do not indicate that it meets that vision. It seems narrowly focused on networking and storage, which is more narrow than its description of the business, which takes a much broader vision. It is worth applauding the company for taking this broader vision, as it leaves the door open for innovation, but it still must be considered that it needs a more comprehensive range of services to effectively compete with Cisco.

Needing growth, the company is presently seeking to position itself to find that growth. The CEO has noted that he believes the major growth trajectory for the company will begin in 2015 (Rogers, 2013). The company's growth strategy is focused on the development of emerging markets and new technology called software-defined networking. Brocade believes that it is well positioned to enter new emerging markets and to succeed in this software-based networking.

The company must also take something of a defensive strategy as well. The company believes that its hardware, such as VDX switches, will "ride the server virtualization wave," and it has won a deal with IBM for its Ethernet fabric technology. What this tells us is that Brocade is seeking to be an innovator and compete that way. The strategy therefore maybe as a premium provider, and in that there is the chance that Brocade can survive as a niche operator able to meet specialized needs. This strategy does not exactly fit the description the company gives of its business, but it is not too far off.

Financial Performance

Brocade's financial performance has been mediocre over the past several years. The top line was $1.9 billion in FY2009, and only increased as far as $2.23 billion in FY12. This is relatively slow growth, especially for a company that is pretending that it competes with superior products. Usually in the technology business growth is driven by technological superiority, so these sluggish growth figures call into question the caliber of products with which Brocade is trying to compete.

The bottom line has seen some improvements. The company turned in a loss in FY2009 of $81.4 million but has earned a profit in each of the last three years, including a strong profit of $195.2 million last year. These figures are ok, and the good news is that today both the revenues and profits are trending in the right direction. This is encouraging also that the company's CEO has a plan to kickstart some growth for the company.

The balance sheet for Brocade is fairly healthy. In terms of liquidity Brocade is fine, having a current ratio of 1.9, which means that the company is generally liquid and will be able to meet its financial obligations for the coming year. This is especially true since most of its current assets are cash. The capital structure is also favorable for the company. Debt is only 37.5% of the capital structure. Normally companies benefit from having some debt because it lowers the cost of capital. Furthermore, debt is good because it can allow the company to match certain cash flows with the financing from which those cash flows are derived. There is nothing risky about the amount of leverage that the company is carrying, so from a balance sheet perspective the sluggish performance in recent year does not appear to have hurt Brocade.

Overall, the company's financial performance has been moderately good. There are no major red flags in the performance, such as heavy borrowing or heavy losses, so that is encouraging. As an investor I might want to see a company that is not paying a dividend (they aren't) offer a bit more of a growth orientation. Brocade seems content to grow slowly and hopefully this new emerging market strategy reverses this trend of mediocre performance and encourages higher revenue and profit growth rates going forward for Brocade.

Strategic and Marketing Analysis

Brocade believes that it has superior products and capabilities for meeting customer needs. The company has also sought to enhance shareholder wealth of late mainly by cutting costs and preserving its cash flow (Rogers, 2013). This was necessary as the overall industry conditions are currently weak, which promises to hamper growth efforts. Rogers (2013) notes that rival Cisco also missed its revenue estimates lately, something that Brocade has had a problem with as well. Brocade also touts as a strength the cost controls that have allowed it to improve its gross margin, something that reflects better bargaining power either with suppliers or with customers

Management at this point has to be seen as a strength. However, the company has not performed all that well in the past few years. However, management has responded with cost cutting to improve profitability today, and with a plan to grow the business in the future. Brocade is not rushing into these foreign markets as well, which I would take a positive because it means that they are entering with a long-term growth strategy rather than seeing that expansion as a quick fix for the problems it has in the U.S. market.

That the firms in this industry rely so heavily on the American market has to be seen as a weakness. Brocade noted that its business was hurt by overall softness in the market, and even the effects of the U.S. federal budget issues. This might relate to having U.S. federal government customers, but if not it reflects that the company has a distinct lack of diversification to be hit by a temporary shutdown in the government. The company appears to have offset domestic sluggishness at least in part by expanding its Asia-Pacific business. Brocade also has a weakness in that it is in intense competition with Cisco and compared with Cisco is a much smaller company. This puts Brocade at a disadvantage with respect to the comprehensiveness of service it offers, its geographic scope and the ability of the company to thin out its margins in order to compete on price with such a large, high volume producer as Cisco.

Competitive Strategy

Michael Porter (QuickMBA, 2010) outlined the three generic strategies by which firm can earn profit for its shareholders. There is little opportunity other than these three strategies, Porter argues, because these strategies imply that the firm is the best at whatever it is that it wants to do. The first of these strategies is the cost leadership strategy. This means having the lowest costs. In a nutshell, companies that pursue this strategy should be large, and then they would leverage their significant bargaining power to lower prices, and support this with economies of scale in operations. The second strategy is the differentiated strategy. This works where the company is sufficiently differentiated from its competitors so that it can foster loyal business, and the customers will not simply become price sensitive. The point of a differentiated strategy is to have a low price elasticity of demand with your cost base. The third strategy is a niche strategy where you are catering to a smaller market. The other two strategies imply catering to a larger market.

The best of these strategies for Brocade is the niche strategy. There are a few reasons for this. First, its size is nothing like what would be useful for a cost leadership strategy. Smaller firms need to have extraordinary cost advantage or efficiencies in order execute this strategy effectively and Brocade does not have these underlying conditions. What the differentiated strategy requires in the technology services business is two things. The first is that the company needs to have a broad variety of services, so that the company can provide a large number of related services to the customers. This is something a company like IBM does. The differentiated strategy can also leverage strong research and development that gives the company a technological competitive advantage. Brocade seems to frame itself like it has a technological advantage, but the market does not seem to agree, and has not flocked to Brocade. That is why Brocade is seeking foreign markets.

The company is therefore in a difficult strategic position, where competitors like Cisco and Juniper are in a much stronger position to compete either as cost leaders or as differentiated players. This poses tremendous competitive pressure on Brocade. For Brocade the response has to be to avoid direct competition especially with Cisco. Instead, it needs a niche strategy. Where Brocade finds this niche in another matter. It could be overseas, it could be strictly with networking, or it could be with new technology like this software-defined networking that the company is touting. Either way, the niche strategy will allow Brocade to offer something to the market that it can do better than anybody else. If it figures out what that might be, it needs to follow that strategy. Right now, the company is having troubles in part because it does not seem to have defined its business clearly enough and follows none of the recommended generic strategies.

M&A Activity

For Brocade, there are a number of key benefits of finding a merger or acquisition partner.. Brocade is certainly big enough to buy out a small company with an emerging technology. I guess the first thing is that Brocade is not likely to find a buyer that would make it bigger than Cisco . Brocade could be bought for some large firm to try to compete with Cisco but the size difference is too great. Further, it was recommended that Brocade adopt a niche strategy. Doubtless it will find the niche strategy better to execute if it acquires some new technologies that will add value to its existing business, either by enhancing it or by offering more services to customers. The management of Brocade would have a much better sense of what the emerging technologies are in its business than I would, but ultimately the company can start looking for small companies with emerging technologies that could give it technological competitive advantage.

Normally, an acquisition is done at one of two different times. The first is when the company is struggling and the second is when the company is small and needs capital. The latter is the better option. If the company had good technology, it probably would not be struggling. Thus, the best choice here is to step in somewhere at the venture capital level and buy into some good new technology from a company that is not yet public. If the technology has synergy with Brocade's existing business, such a deal could begin to add value as Brocade takes the technology and applies it to the existing business. Brocade can even look to its current suppliers for a potential takeover target in a vertical integration move to gain key patents.

Motivation

The strategy that I have chosen is actually one that I should be working on, if I am the CEO. M&A activity is precisely the place where a CEO adds value to a company. Thus, the motivation here should be inside the C-suite, with the executive team receiving long-run equity for Brocade. This will motivate me to work hard to pull this company out of its funk, and that probably means both international expansion and finding some suitable new technologies in which to invest.