SFGate057

Cisco’s Slide Tech Bellwether Must Find A New Path To Success


Hal Plotkin, Special to SF Gate
Tuesday, June 5, 2001

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/gate/archive/2001/06/05/cisco.DTL

“Are you ready?”

As you may recall, industry bellwether Cisco Systems Inc. practically beat that catchy little phrase into our heads last year as part of its since-scaled-back multimillion-dollar TV advertising campaign.

One year later, however, amid scores of major dot-com failures and tens of thousands of lost jobs, the answer to Cisco’s rhetorical question is painfully obvious: No, we weren’t ready.

In fact, most businesses and individuals were pretty much blindsided.

The lack of preparedness has been costly — both for the national economy and for Cisco, which just suffered its worst quarter ever. But Cisco’s leaders have a plan they say will get things back on track.

The company is going to reduce its inventory.

As anyone who has taken a basic business class can tell you, cutting back inventories has long been a strategy for faltering businesses. If customers aren’t buying, businesses cut production and move unsold goods off the books until they can re-create a profitable balance between supply and demand.

But in Cisco’s case, it seems to be a matter of too little, too late. What’s really needed goes far beyond inventory reductions.

To restore growth, Cisco will need to mount a far more aggressive campaign to reignite demand for its networking equipment. The company must get down in the trenches with customers in key markets and show them how switching to Internet-based business processes will pay off.

That will require better marketing. Unfortunately, the need arises just as the company’s marketing budgets, including its spending on advertising, appear to be coming under the ax.

Cisco hasn’t yet said exactly what the almost 1,500 employees it recently fired did, but if past is prologue, they were mostly marketing, public relations and salespeople, despite the fact they are the industry’s real rainmakers.

A good salesperson can sell something that doesn’t even exist yet (think Steve Jobs). Highly skilled engineers, on the other hand, are often great at making products no one wants to buy, as Cisco’s recent experience demonstrates.

Nonetheless, in Silicon Valley, it’s engineers and programmers uber alles. When startup Eazel Inc. got into trouble a few months ago, for example, the open-source software company took pains to point out that it had sacked everyone except its technical and programming staff. The sales and marketing people were thought to be expendable; all they do is sell stuff and keep a company in business. Eazel went belly-up shortly thereafter.

Like so many other Silicon Valley firms, Cisco also has a tendency to put all its eggs in the engineering basket when hard times hit. When sales collapse, the patter often turns to talk of inventory reductions and increasing speeds and feeds, which refers to the processing power of networking devices, and the number of user ports they can accommodate.

But focusing mostly on inventory control issues and ramped-up product specs is sure to take Cisco down the wrong path. Instead, Cisco must do a better job of leading the online revolution on which its future depends.

What’s missing is the demand side of the equation, which old-economy tools such as monitoring inventory levels don’t measure. For that, we’ll need a new business yardstick better suited to businesses such as Cisco that are creating new markets rather than just serving existing ones. Let’s call it the “technology digestion rate.”

The technology digestion rate is the degree to which companies and individuals make effective use of new technologies. When word processors came along, for example, they were digested pretty quickly, within a few years at most, by the world’s legion of weary typists. Within months, businesses and individuals were able to take advantage of the efficiencies created by the new machines, which in turn rapidly boosted worker productivity and corporate profitability.

Not so, however, with the latest in networking gear.

Most business leaders I talk to haven’t got a clue about how they can most effectively use a B2B exchange to cut design, manufacturing and distribution costs. Ditto with those running schools, who still have few if any sources for good, free, up to date, off-the-shelf Web-based software that connects students, parents and teachers. The same is true in the health care industry, where most executives remain clueless about how the Internet can be used to improve patient care and reduce costs.

Each of these areas represents a multibillion-dollar market opportunity that is dying on the vine. The slower these areas mature, the slower Cisco will grow.

In the past, Cisco’s strategy has revolved around calling for the digital revolution and then sitting back and waiting to cash in on it. The company has made some modest investments in priming the demand pump, such as the approximately $23 million the firm spent to set up its Cisco Networking Academy, which offers certificates to students who learn how to deploy and manage Cisco products.

But Cisco’s spending hasn’t helped crack the new markets the company needs. Not when some individual Cisco executives have pocketed far more than $23 million in salary, options and bonuses in recent years, money that recent events prove did little or nothing to increase demand for the company’s products.

At the same time, Cisco has been earning what must be an unwelcome reputation for doing the equivalent of throwing its wares over a wall and expecting customers to know how to use them. A recent issue of the trade journal e-week, for example, carries a devastating cover story about Cisco’s poor marketing efforts.

The most telling anecdote: a tale about a customer in the Midwest who received a complicated textbook in the mail, and nothing else, when she inquired about purchasing a costly Cisco voice-over-the Internet product. She ended up buying from a competing supplier.

Cisco is in no danger of going under. But whether the company has the visionary leadership needed to revive its growth curve and reward its investors is in question.

Cisco’s Web site offers visitors the sketchiest of help when it comes to most end-user applications. Small businesses, for example, get little more than a referral to a list of implementation partner firms such as Ariba and Onyx Software, many of which are in considerable trouble themselves, that are eager to take their money.

What Cisco needs, however, is something the decidedly low-tech Betty Crocker company figured out decades ago. When consumers buy a Betty Crocker mix, they typically get offered a list of step-by-step recipes that tell them the many ways the product can be used.

What if Cisco did the same thing?

Many small B2B firms, and more than a few good individual programmers, have developed worthwhile networking software but, like home cooks with a killer brownie recipe, they lack the marketing, service and support reach that a major firm such as Cisco can deliver.

What if Cisco sponsored rigorous competitions for best-of-breed software solutions and then purchased the winning products or subsidized their distribution?

Cisco would increase sales of its hardware and services by giving businesses access to the software they need rather than forcing them to gamble on working with unstable B2B companies, many of which are tottering toward insolvency.

Cisco could also increase demand for its networking equipment by more rapidly subsidizing the creation of online course content across the entire curriculum, not just for its networking academy. Giving schools and businesses access to more of the networking software they need is the surest way to boost sales of Cisco’s networking hardware.

In short, Cisco could do a lot more to touch off the next stage of the revolution it so hopes to exploit. But that means Cisco’s leaders will have to get over their current fixation on speeds and feeds and inventory levels and spend more time thinking about the human element, including finding ways to help potential users get the most out of networking technologies.

The question now is whether Cisco’s leaders will be able to make those changes.

Or, to put it another way: “Are they ready?”

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