Cisco Systems - Summa Four Case Analysis

Cisco Systems: The Summa Four Case Analysis

EXECUTIVE SUMMARY

Cisco Systems is a publicly held, multi-national corporation that provides internet infrastructure and data-networking equipment and support primarily to enterprise companies, small businesses and service providers (Exhibit 1). They have dominated the next-generation, network application industry through the strategic use of acquisitions and mergers which has ultimately become their competitive advantage against rivals such as IBM, Hewlett Packard, Dell and Juniper (Exhibit 2). This strategic use of acquiring complementary, technology-related companies has enabled Cisco to grow rapidly and adapt to, as well as create, changes in the market quickly; crucial in an industry plagued by shrinking product life-cycles.

Cisco's core competencies include focusing on high customer satisfaction, an ability to introduce new products to the market quickly and being extremely cost efficient. The corporation has always focused its efforts on being an industry leader and recognized early on that advances in technology could be realized faster through acquiring other companies than by internally developing new products and ideas. This realization led to the development of an organization-wide acquisition strategy that enabled Cisco to analyze potential value-added companies and integrate them into Cisco's culture and manufacturing processes quickly and seamlessly.

Summa Four represented such an acquisition possibility; they were already established with products that would enable Cisco to expand their services to IP (internet protocol) networks which would allow them to transmit voice, data and video via the world's first, standard, programmable switch. This paper shall analyze Cisco's strengths and weaknesses through PESTEL Analysis, SWOT Analysis, VRINE Analysis, PORTER'S FIVE FORCES Analysis and STAKEHOLDER Analysis and shall give the Cisco Board recommendations pertaining to the possible acquisition of Summa Four.

INTRODUCTION

Cisco Systems, founded in 1984 by husband and wife team Leonard Bosack and Sandy Lerner, is a multi-billion dollar corporation that dominates the data-networking equipment and software industry. Cisco's initial networking technology grew to include products and services that met individual, small to medium-sized company and multi-national corporation's needs. After going public in February, 1990, the company's growth exploded rapidly and just eight years later was valued at over $100 billion. Much of the company's success can be attributed to their organization-wide strategy of outsourcing and acquiring companies that added corporate value, enabled immediate profitable growth and allowed Cisco to focus on its core competencies.

CISCO SYSTEMS INTERNAL AND EXTERNAL ANALYSIS

PESTEL

Political: The political environment was stable. Technology companies needed adhere to governmental rules and regulations as well as global trade agreements.

Economic Factors: The economy was relatively stable at the time of the case study and interest rates were not high enough to dissuade investment. Long term prospects for increased demand of technology related products and services were very strong.

Sociocultural: People and businesses were beginning to rely more heavily on technology and the demand for integrated technology was increasing.

Technological: The focus on technology was intense and competition was becoming more and more of a factor. New technologies were emerging daily and affected how businesses and governments operate.

Environmental: No major environmental issues affected the technology industry except disposal of old computers; therefore firms needed to adhere to environmental-protection laws.

Legal: Requirements of larger companies to be ISO-certified (International Organization for Standardization) and the need to adhere to national and global laws, including those protecting employees during acquisitions. New technologies had to be patented in order to protect intellectual property rights.

SWOT ANALYSIS

Strengths: Very strong financial position, had a variety of product offerings (through both internal development and acquisitions), created a strategic acquisition process which became Cisco's competitive advantage, enjoyed global brand name recognition and had a strong management team. Also, a strong channel network had been implemented.

Weaknesses: Large volume of products were manufactured out of external factories. Many acquisitions included intellectual assets; employees could leave for employment elsewhere.

Opportunities: Strategic partnerships, alliances, acquisitions and mergers to enhance and expand the company's product and service lines. Rapidly growing market for the company's products. Ability to create demand for new products and services due to technological advancements.

Threats: Competition from other technology companies such as IBM and Hewlett Packard that had the potential to introduce products and services to the market quickly. The possible consolidation of other technology companies was also a threat as were economic slowdowns.

PORTERS FIVE FORCES

Threat of New Entrants: Cisco was a major player in this market and new entrants would face steep competition; most, however, had a tendency to be acquired quickly by larger, more established firms. Entry costs were relatively low as value was greatly tied to intellectual knowledge.

Supplier Power: Not a large amount of firms competing at Cisco's level and therefore supplier power was minimal. To minimize supplier power, Cisco has effectively established relationships with some suppliers and acquired others.

Buyer Power: Buyers power was relatively low because costs to switch IT systems were very high. Buyers did have a choice of companies to purchase from unless the product was unique.

Threat of Substitutes: Substitutes to technology really don't exist. In order for companies to compete nationally and globally, they must have some sort of IT system in place.

Rivalry: The technology industry was comprised of small, medium and large sized firms. Rivals to Cisco included companies such as Juniper, IBM, Dell and Hewlett Packard.

VRINE ANALYSIS - Cisco's Competitive Advantage: Strategic Acquisition and Integration

Valuable - Cisco created an acquisition process that enabled