Cisco Systems: Analysis on Organizational Structure for Competitive Advantage

Cisco Systems a company that has reinvented itself time and again has proved that the key to corporate success lies in an organizational structure that is both responsive and in tune with the changing industry and market requirements.

Phase-1: The Emergence of a Giant

In April-1997 Cisco structured its products and solutions into three customer segments: enterprise, small/medium business, and service provider. The organizational structure was crafted to address two major new market opportunities at that time: the service provider migration to IP services and the adoption of IP products by small and medium-sized businesses through channel distribution. The change was a marked departure from a product-focused structure, which had been Cisco's hallmark since inception back in1987, to a customer-oriented, solutions-based structure.

All of Cisco's research-and-development and solutions marketing would be organized under the three Lines of Business. The Line of Business teams defined and implemented both market and operational strategies that enabled them to deliver end-to-end solutions to their target customers. The new organizational alignment meant increased focus on specific customer segments to provide complete end-to-end solutions, including integrated software, hardware and network management. The different market segments at the time had nothing in common. The fact that Cisco was riding high on the imploding growth in the networking industry meant Cisco did not have to worry so much on costs since margins very high.

An analysis on the effectiveness of "Product Based" organizational structure reveals the following attributes.

Product Centric Organization	Effectiveness
Knowledge Sharing	Low
Ability to reduce Costs	Low
Fostering Innovation	High
Control and Coordination	Medium
Addressing Customer / Market requirements	High
Efficiency in Resource Utilization	Low

Phase-2: The Dot-Com Meltdown

In August-2001, Cisco Systems realigned the company's focus around changing industry and customer requirements and to reinforce the company as a dominant force in the networking industry. Customer segments and product requirements that were distinct in the past had become blurred. The downturn in the networking industry that followed the broad meltdown across the technology industry in early 2000 meant Cisco had to act quickly to minimize costs and reduce overhead. To respond to these changes Cisco zeroed in on a centralized engineering and functionally driven organizational structure.

The centralized structure was developed to bring Cisco closer to its customers, to encourage teamwork and to eliminate product and resource overlaps and more importantly to provide the industry's broadest family of products united under a consistent architecture designed to help Cisco's customers improve productivity and profitability.
The rationale behind a centralized organizational structure was to design all equipments using a baseline standard and architecture, which lowered the cost of product development and manufacture. A centralized organizational structure fostered deeper sharing of knowledge and components across Cisco product groups while promoting more consistent manufacturing and testing to realize economies of scale.

A centralized organization structure enabled Cisco to respond successfully to changing market conditions. The company's focus was on reigning in costs and respond to revenue shortfalls from declining growth prospects within the industry. The emphasis shifted from delivering new product launches or innovation to survival. An analysis on the effectiveness of "Centralized" organizational structure reveals the following attributes.

Centralized Organization	Effectiveness
Knowledge Sharing	High
Ability to reduce Costs	High
Fostering Innovation	Low-Medium
Control and Coordination	High
Addressing Customer / Market requirements	Low
Efficiency in Resource Utilization	High

Phase-3: Convergence

In December-2007 Cisco announced a new "Technology Organization" structure to address the challenges imposed by the next phase of Internet growth and productivity centered on the demands of tremendous growth in video, the revolution in the data center, collaborative and networked Web 2.0 technologies, where the network emerged as a platform for all forms of communications and data management. The new organizational structure enabled Cisco to position itself for growth in new markets and cater to new and emerging markets in China, Brazil and India.

"The Technology Organization":

The changes were designed to enhance Cisco's effectiveness and efficiency globally in delivering integrated products and solutions, as well as to provide greater synergies in its development process. The need for innovation and ability to cater to different market segments that had different product requirements necessitated a move toward a product-technology based organizational structure. With the industry evolving towards a services based Pay-As You Go" revenue model Cisco had to develop products with scalability, reliability and adaptability in mind. The emphasis on software and centralized nature of the Software Group allowed Cisco to access resources globally while driving integration and interoperability across all of Cisco product lines.

An analysis on the effectiveness of the "Technology Organization" structure reveals the following attributes.

Technology Centric Organization	Effectiveness
Knowledge Sharing (Across Divisions)	Medium
Ability to reduce Costs	Low
Fostering Innovation	High
Control and Coordination	Medium - High
Addressing Customer / Market requirements	High
Efficiency in Resource Utilization	Medium

References:

1. Cisco's Technology Vision for the evolutions of Networking.
   

Cisco Systems Corporate Timeline