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Mathias On Mobility: Cisco At A Crossroads

I don't get it about these "mea culpa" memos from CEOs and other senior executives that seem to be all the rage these days. Ray Ozzie's "Dawn of a New Day" ("Doomsday" to some) missive at Microsoft. Stephen Elop's "Burning Platform" piece at Nokia. And now John Chambers' "We're Not Executing" posting, perhaps the best of this bunch. But, still, why air dirty laundry in public? Does this really help the cause? And how did Cisco get into this mess to begin with?

There was a time when Cisco could do no wrong. For many, Cisco is networking, one of the seminal companies (along with Wellfleet Communications, which, of course, turned into, oh, never mind for now) that started it all and one that remains a key player in the future of home, enterprise, and carrier networks alike. The company continues to dominate both the enterprise and residential (via Linksys) wireless LAN markets, my particular areas of interest, and they continue to make steady progress with seemingly constant announcements of new wireless and related functionality. The products are good and the company is reliable, and yet the market value of the firm has fallen by more than 77% from its all-time peak in 2000. What's going on here?

Chamber's memo says that vision and fundamental strategy are just fine; the problem is in "operational execution". Unspecified (in the memo) changes are on the way. The company will stick to five stated priorities, none of which, interestingly, is explicitly wireless. The emphasis is instead on the core, collaboration, virtualization/cloudvideo. I get the focus on the core, and on applications like collaboration and video as drivers of demand for network capacity. I think cloud is going to be a source of growth for networking for many years. But is such really the right product mix for a company like this? And can a single operational strategy unify all of these pieces?

I don't think it can. Cisco's core problem is now simply that the firm is too big. They grew largely through acquisitions, many obtained at high prices, and now have a product line and service mix that is complex even for an analyst to understand. There's little doubt that Cisco's wireless products, again, both enterprise and SMB/residential/consumer, are up to the requirements of contemporary users and have a lot going for them. The synergies with the rest of the product line, however, well, that's a challenge right there. While there's a lot to be said for a single-vendor strategy on the part of buyers, and many customers do choose all-Cisco solutions for exactly that reason, our industry has expanded with interoperability driving both innovation and growth. The case can even be made for mixed-vendor solutions as optimal in many cases. Cisco is starting to look like a conglomerate with too many pieces that don't build or even depend upon one another. It's likely that their current cost structure simply can't sustain such an approach, and, um, streamlining from senior management on down is now in order. This direction is implied in the memo without, of course, any specifics. But many people, customers included, do not respond well to the threat of change, let alone change itself. Nimble competitors know this and the nipping has only just begun.

The evolution of technology very often encourages the dismembering of previous leaders. Changes in technology drive changes in cost, these in turn force management to re-think even fundamental assumptions about how best to apply resources for optimal results. It's of course unreasonable for Cisco to behave like a startup; such is not possible regardless. Hey, at least they're not running ads, as was the case during the early part of the Carly Fiorina era at HP, with John C. standing in front of some garage professing that Cisco is going act like a nimble newcomer. Rather, it's time for focus, cutting loose the pieces that aren't synergistic, and freeing locked-up value for what's next. Wireless will undoubtedly play a key role in that, whatever it might be. And with such robust competition in the WLAN world, Cisco will require crisp execution indeed if a loss in market share is to be avoided.

Craig Mathias is a Principal with Farpoint Group, a wireless and mobile advisory firm based in Ashland, Mass. Craig is an internationally recognized expert on wireless communications and mobile computing technologies. He is a well-known industry analyst and frequent speaker at industry conferences and trade shows.