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Cisco's Silver Anniversary: A History of Reinvention

A handful of business practices have carried Cisco through its first 25 years. Its success for the next 25 years will likely depend on those as well.

December 10, 2009

By Charles Waltner

To try to predict the future, people often look to the past. For Ken Presti, a technology consultant and former journalist who has been covering Cisco Systems since 1995, that sums up his assessment of the iconic technology company as it celebrates its 25th anniversary this month.

"I think we'll see more of the same," he says.

Presti and other Cisco observers point to a shortlist of business practices that should serve Cisco well during its next quarter century. Certainly, they've been a big help in getting the company this far.

For Presti, Cisco's ability to reinvent itself is top of the list. Cisco's tradition, he says, is not to be stuck in the past but to use the past as the starting point for its future.

In the mid-1990s, for example, Cisco was strictly a router and switch vendor. "It was all about plumbing back then," Presti says. But over time Cisco has moved from making gear for data networks to providing all kinds of equipment for voice communications and video systems, highlighted by products like Cisco TelePresence. The company has also become much more focused on software to make networks work even better for communicating, collaborating and entertaining.

Perhaps more importantly, Cisco has also been able to reinvent its business operations. For example, Presti says Cisco's rapid growth in the 1990s was threatening to outstrip the company's sales capabilities. This is when it developed a pillar to its current operations: the Cisco reseller partner program.

Cisco's revenues chart

In hindsight, it seems like an obvious move, but Presti says the decision then was "hugely controversial" within the company. However, as with many pivotal moves during its history, Cisco made the right choice.

Independent sales partners, such as technology integrators, consultants and distributors, now account for a strong majority of the company's $36 billion in annual revenue and have helped Cisco grow rapidly without becoming weighed down by a massive sales force.

A Philosophy of Change

Throughout the years of change and reinvention, observers say Cisco's strategy has been driven by a prescient belief that Internet protocol, the language of the Internet, will be the great unifier for all computer and communications networks.

"Even as late as 2001, telecommunications executives laughed at John Chambers for saying phone calls would be free, but they don't laugh about that now," says Zeus Kerravala, an analyst with the Yankee Group. "A lot of people didn't believe Internet technology could carry all forms of communications. But Cisco did, and that has helped them stay ahead of the curve."

Presti says one of Chambers' favorite catch phrases – "You know where I'm going with this?" – typifies the way Cisco is always looking for the next big thing rather than hunkering down in its established markets.

Kerravala, who has also known Cisco as a customer, equipment reseller and consultant, says Cisco's foresight with Internet protocol helped it make all the right moves while competitors made mistakes. In the mid-1990s, for example, Cisco was involved in a full-tilt horse race with three other young Internet equipment makers: Bay Networks, 3Com and Cabletron. One by one those companies fell behind as Cisco moved on to new challenges.

Business Basics

While Cisco's far-sighted vision of how communications will evolve has been the common thread through much of its historical success, the company has been able to carry out that vision by being extra good at a couple of key tasks.

Cisco's ability to sell its vision and products has a lot to do with its focus on customer service, Kerravala says. "Every company will tell you about their commitment to customer service, but coming through on that is something else."

"A lot of people didn't believe Internet technology could carry all forms of communications. But Cisco did, and that has helped them stay ahead of the curve."

— Zeus Kerravala, Yankee Group analyst

Kerravala likes to tell the story of when he was working as an engineering consultant: A customer had a problem on its network unrelated to Cisco's equipment. It was a Sunday, and because Kerravala had to fly out that night for another assignment, he needed to solve the problem right then or face all kinds of repercussions, including angry customers. But Cisco stepped in and helped him out when no one else would. He's never forgotten that.

"You can talk to engineer after engineer, and they will have stories just like this," Kerravala says. "That creates a lot of loyalty."

Cisco's training and education programs also bode well for the company's future. Cisco's network engineering certifications, for example, are viewed as the gold standard in the industry, Kerravala says.

And each year Cisco's Networking Academy provides vocational education to thousands of people throughout the world. Such programs simultaneously offer unique career development opportunities while cultivating a huge base of potential customers that will be predisposed to Cisco's equipment and services, Kerravala says.

A New Era of Invention

While observers express admiration of Cisco's first 25 years of business, they say the company will need to draw on all of its capabilities and resources to navigate the next 25 years.

"From here forward, it gets more difficult," Kerravala says, explaining that to continue growing at its stated goal of 12 to 17 percent, Cisco will need to expand into new markets that are already occupied or targeted by other large and highly capable competitors.

As an example, Presti says Cisco's new focus on using its networking skills to improve how data centers operate will test the company as it faces complex technological, logistical and competitive issues.

"This is the huge challenge of the day for Cisco," he says. "For the first time in a long time, Cisco is in a fight."

Recognizing the task before it, the company is now busy reinventing itself in preparation for yet more dramatic changes to the industry well beyond the data center. Cisco, for example, is shifting to a collaborative management structure while realigning resources to speed its response to many unfolding opportunities.

If history does indeed repeat itself, then Kerravala has one other observation for people who might have doubts about the networking vendor's ability to reinvent itself yet again.

"People have bet against Cisco before, and they have been wrong," he says.

Charles Waltner is a freelance writer in Piedmont, Calif.

 
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