MEMORANDUM

Date:October 8, 2009

To:Professor Truex

From:Daniel Gottschalk, IB8680[D1]

Subject: Comparative framework regarding “Cisco Systems: Building Leading Internet Capabilities”

Introduction

The following paragraphsprovides a comparative framework between Richard Nolan’s “Cisco Systems”, Michael Porter’s “Strategy and the Internet” and Thomas Friedman’s “The World is Flat: A Brief History of the Twenty-First Century.” This framework maps out how Cisco’s ability to focus and achieve horizontal integration affects the capacity to prosper in an increasingly competitive global environment. The following criteria are parallel messages within each of the writings to provide this analysis: the difficulties of maintaining competitiveness during technological advancement, the importance of developing innovative solutions during industry downturns, and the significance of a flexible strategic framework involving consistent innovation[D2].

The matrix is on page 4.

Criteria I: The Difficulties of Maintaining Competitiveness during Technological Advancement

As explained by Richard Nolan, Cisco’s started because of industry consolidation and technological advancement. Three industries converged and the advancement of digital networks was rapidly spreading globally. Many companies altered their strategy to supplement older technology while maintaining their corporate foundation. Although Cisco’s competitors focused on improving their corporate structure, they were implementing the same technology industry-wide. Therefore, Cisco was faced with the threat of diminished returns and loss of competitive advantage caused by a flattening of business processes and commoditization of services.

Both Michael Porter and Thomas Friedman highlighted the general reasoning for Cisco’s challenges[D3]. The rapid flow of information through new technology and companies’ adoption of standardizing applications alter industry structures affecting profitability and leveling business practices. Specifically, as emphasized by Porter, the increase of buyer’s bargaining power becomes evident as access to information becomes easier which enhances competitiveness based on cost rather than differentiation. This was seen in the service provider market and the reason why telco companies were forced to move data over the Internet. More importantly, the increased flow of information expands the geographic market which further enforces the standardization of the strategic framework in order to maintain interconnectivity.

Friedman stressed that technology affects the protection of corporate assets and maintaining innovator’s intellectual property. For example, intellectual property law has failed to protect innovation being developed from open-source collaborations and communities (Friedman, 2005: p. 254). Cisco extensive focus to establish Internet capabilities within each function of the business was a response to reducing the need for protection. Cisco’s horizontal integration provided the ability to innovate and develop interconnected capabilities that surpassed their current capabilities; forcing current business practices to become obsolete while improving flexibility to change.

Criteria II: The Importance of Developing Innovative Solutions during Industry Downturns

Cisco’s strategy to develop innovative solutions in order to maintain growth within an industry downturn was based on establishing corporate accountability towards a clear strategic vision. Upper management’s commitment was essential to force company-wide interaction while providing guidance to establish plans based on business importance. Accountability was recognized by requiring management’s involvement through status presentations and allowing each functional group to develop a plan of attack. Cisco’s management understood that if innovative solutions were not maintained, the difficulties under Criteria I would diminish Cisco’s capability to stay competitive.

Porter explained that in order to sustain competitive advantage, a company must operate at a lower cost through operational effectiveness and strategic positioning while also trying to demand premium prices[D4]. He further highlighted that this can be accomplished through the use of the Internet which will increase capabilities and streamline the overall value chain. Porter’s analysis was evident in Cisco’s strategy to incorporate Internet capabilities within each function of the business to increase interconnectivity and flexibility to a rapidly changing global environment. This allowed Cisco to progress towards horizontal integration by creating tight linkages with partners of all types (Nolan, 2001).

Friedman understood that as the world becomes horizontally integrated, company strategy will follow suite. Moreover, the horizontally integrated strategy will be supported by business acquisitions and partnering that gain access to customers, that obtain technology, and that provide know-how of technology. As seen with Cisco, acquisitions and the establishment of an IT group increased their capability to invest in employee’s collaboration and technology services (i.e. Training programs). Moreover, the ability to improve linkage between partners in other industries such as financial and consulting institutions significantly enhanced communication practices (i.e. Cisco’s Public Relations efforts).

Criteria III: The Significance of a Flexible Strategic Framework Involving Consistent Innovation

Cisco struggled to maintain competitive advantage through the use of ERP applications as industry competitors incorporated similar capabilities within their business practices. By focusing on a strategic framework that maintained consistent innovation, Cisco improved their ability to change. Their vision forced creative thinking and a realistic view of the current situation (Nolan, 2001: p. 9).

As mentioned by Porter, industry structure is shaped by the choices of competitors. Porter provided an example that Buy.com undermined the Internet retail industry by selling products below cost in order to gain profits through advertising and not product sales which deflated product value and ultimately lead to diminished returns. This was caused by an unsustainable strategic framework that didn’t demonstrate flexibility. A framework must be established that keeps critical assets intact in order to maintain effectiveness (Porter, 2001). Cisco exemplified this analysis through their ability to develop coordination through accountability and horizontal integration which improved distribution of information. Therefore, Cisco was able to establish plans from the bottom-up based on functional capability.

Friedman elaborated that if a company can maintain consistent innovation and establish innovative practices within their strategic framework, the company will be able to improve progression towards a horizontal strategy, synchronization of company resources, and the ability to develop self-informed customers. Similar to UPS and their financing arm “UPS Capital,” with a focus on a horizontal strategic framework and innovation, Cisco maintained financial leadership partnering with KPMG.

Conclusion

By establishing horizontal integration within their business strategy, Cisco improved their collaborative efforts and communication practices with employees, partners, and customers. Innovative progression towards decreasing costs, improving communication, and increasing flexibility to industry and economic changes has improved the future outlook of Cisco’s operations[D5]. Porter and Friedman analyzed the effects that technological innovation can have on global competition and how companies must integrate technological advancement in the strategic framework. As Cisco continually faces stiff competition caused by external and internal changes, management must focus on cutting edge innovation to maintain a competitive advantage[D6].

Comparative Matrix

Between Richard Nolan’s “Cisco Systems”, Michael Porter’s “Strategy and the Internet” and Thomas Friedman’s “The World is Flat: A Brief History of the Twenty-First Century.”

Criteria[D7] / Cisco Systems (Nolan) / Strategy and the Internet
(Porter) / The World Is Flat (Friedman)
Difficulties of maintaining competitiveness during technological advancement /
  • Altering strategy to supplement older technology (p 4)
  • Sustaining same level of innovation and avoiding diminished returns (p 4,5)
  • Maintaining the corporate foundation
  • Maintaining consistent work towards improvement
/
  • Acquiring new technology tends to alter industry structures in ways that dampen overall profitability and has a leveling effect on business practices (p2)
  • Increase in buyer bargaining power (p4)
  • Expansion of the geographic market increasing competition
  • Altering of cost structures
/
  • Maintaining innovator’s intellectual property (pg 253)
  • Competing against new entrances that bypassed sunk costs of old technology
  • Ability to adapt to the flat world (p243)

Development[D8] of innovative solutions during industry downturns /
  • Focus on bottom-up communication
  • Increased accountability and commitment to a clear, strategic vision
  • Develop a detailed game plan to accomplish the vision (i.e. benchmarking)
  • Upper-management buy-in is required
  • Focus on best in world rather than industry capabilities
  • Invest in employees knowledge (p10)
  • Force companywide interaction
/
  • Sustain competitive advantage by operating at a lower cost (operational effectiveness, strategic positioning), by commanding a premium price, or by doing both
  • Use the Internet to increase the value of current operations (p13)
  • Integrate the Internet into the overall value chain (p15)
  • Management must understand the potential of the Internet as a compliment (pg 16)
/
  • Move from a vertical to a horizontal strategy (pg 249)
  • Increase interconnectivity through global collaboration
  • Improve IS to lower costs
  • Gain access to customers, obtain technology, and know-how in technology through acquisitions

Significance of a flexible strategic framework involving consistent innovation /
  • Flexibility of the “four legs” (p5)
  • Competition implementation of same applications
  • Provides the ability to realize and pursue varying capabilities of the Internet
  • Force creative thinking and a realistic view of current situation (p9)
  • Ability to provide what the users need
/
  • Industry structure is not fixed but rather is shaped to a considerable degree by the choices made by competitors (p6)
  • Achieving operational effectiveness and strategic positioning
  • Keeps critical corporate assets intact (p12)
  • Ability to capitalize on traditional assets, reinforce me-too competition, and accelerate competitive convergence
/
  • Ability to develop a horizontal strategy
  • Ability to synchronize your company
  • Ability to allow customers to inform themselves

1 of 4

[D1]Daniel---as usual it seems a very nice job. Seem comments.

Grade: A

[D2]ok

[D3]nice.

[D4]Creativity or innovation figures in how?

[D5]These two points relate how? The transition and connection is not clear

[D6]Not a storng finish…

[D7]Generally nice! (-;

[D8]What about them…a bit more self-descriptive.