Cisco and the circle of corporate life

Technology transforming business is not new. Scenarios repeat and could impact Cisco.

On numerous recent occasions, Cisco Executive Chairman John Chambers has acted as a harbinger for dramatic changes he and others say face the world because of the pace of technology change.

In a video recorded at a recent International Monetary Fund event Chambers says technology “will transform every business model that we see,” predicting that “40 percent of the companies in America, Asia, Europe … will disappear in the next decade.”

As dramatic as these predictions may seem, they are not unprecedented in business history. In fact, many of the dynamics at play, although happening at a more accelerated pace today, are in part responsible for the success of the company that Chambers led from 1995 to 2015. In this post, I’ll look at two examples from business history, companies whose fates were intertwined with that of Cisco Systems, and compare to the forces at work today.

Digitization causing disruptive change

Especially since the most recent World Economic Forum held in January of this year, this idea of massive disruptive change attributable to digitization has been a popular headline topic. Like the physical automation of work before, digitization today is changing the world in fundamental ways. An important point is that digitization is not something new. The switch from analog systems to digital systems has been ongoing for more than three decades. Today it is more that we are hitting a point on the upward trending logarithmic curve of change where we can feel the forces of acceleration more than in the past.

Those who were employees and stakeholders of the late 1980s IBM and those of the mid-2000’s Lucent Technologies will remember similar times when the accelerating pace of digitization led to massive disruption. As we look towards the future, these two examples form diametric points on a continuum of possibilities for business futures.

Let’s start with IBM. Per IBM’s website, “During the 1980s and early 1990s, IBM was thrown into turmoil by back-to-back revolutions. The PC revolution placed computers directly in the hands of millions of people. And then, the client/server revolution sought to link all of those PCs (the ‘clients’) with larger computers that labored in the background.” The Harvard Business School website states: “By the early 1990s, IBM—300,000 employees strong—was losing billions of dollars.”

In the late 1990s and early 2000s, Lucent Technologies was a company riding high on the internet boom. It, too, faced several significant technology shifts. According to Lazonick and March, one was that the company bet on Asynchronous Transfer Mode (ATM) technology “as a competitor to Internet Protocol (IP), the technology championed by Cisco for packet transport.”

Cisco prospered from both of these shifts. In the enterprise market during the client/server transition, companies abandoned IBM’s Token Ring technology for Ethernet as the dominant local-area networking architectures. Coincidentally, as routing became “the pre­dominant method for interconnecting distributed LAN segments,” Jim Duffy wrote in Network World back in 1996, “Cisco became the dominant supplier of routers, achieving a 75 percent share of the world­wide market.”

Cisco success factors become challenges

Today, as happened for IBM and Lucent Technologies, factors that led to success have become challenges for Cisco. Peter Cohan wrote recently in Forbes that the company currently earns about half of its revenue from “selling to voice, data and video transmission service providers.” Those customers, writes Cohan, are looking at newer technologies, chiefly Network Function Virtualization (NFV) for which “they can pay 70 percent less for a better and cheaper solution to their problems.”

Similarly in the enterprise market, a recent Network World article pointed out that “a complementary technology” to NVF, software-defined networking (SDN), is facilitating “the movement toward next-generation networking,” where “the functions of complex pieces of hardware are emulated with software that runs on standard, off-the-shelf hardware.”

The management today of Cisco, as did Lucent Technologies and IBM when Cisco was the challenger, finds the ground moving under foot as non-traditional competitors flock to these new technologies. Formidable opponents are emerging. For instance Julie Bort wrote, Facebook’s “second-generation computer network switch, called the Wedge 100, is now available for purchase.”

Bort continues, “While Facebook isn't a direct competitor to Cisco, … it has created an entire ecosystem of companies that are, collectively, taking on Cisco,” and “Facebook's Open Compute Project … has a cult-like following.”

Meanwhile more traditional competitors, including Juniper Networks and HPE, have pivoted to the new technologies, while international competitors, including Huawei, take increasingly large bites out of Cisco’s franchise.

If there is a circle of corporate life, the stories of Lucent Technologies and IBM can be said to exist on opposite points of the diameter. Both were once at the top of their industries, and both have faced significant challenges. IBM is the success story. The company negotiated several massive shifts involving people, processes and culture and today leads in many fields, including cognitive technology and cloud. Lucent, once the “world’s largest telecommunications equipment company,” was acquired by the French firm Alcatel in 2006, and this year the remnants have been merged into Nokia of Finland.

Scenarios similar to the fates of IBM and Lucent Technologies might be opposite ends of the spectrum of possible futures. Will the forces of inertia toss Cisco to one end of the spectrum or the other, or will the company find a sticking place somewhere in the middle? Buckle up; interesting times are ahead for the company and the industry.

Copyright © 2016 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon