Cisco promises the ‘virtual networked organisation’

While fellow giants of the technology industry continue to struggle, Cisco rang up a 12% increase in revenues in its fourth fiscal quarter of 2002, swelling its cash reserves to a collosal $20 billion.

Joo-Hun Kim, an analyst at investment bank SG Cowen believes he knows why. Organisations still have budget and have been taking advantage of the hiatus in spending on new applications to upgrade their networks, he argues. “A lot of companies have been upgrading their old network


Company name: Cisco Systems

HQ: San Jose, California

Main activity: Networking hardware

Last full year revenues: $18.91 billion

Last full year net income: $1.9 billion

Key issue: Cisco is still trying to find the ‘next big thing’. With the networking market sewn up, it needs to find new technologies for customers to buy into. But its main focuses in recent years – voice over IP and B2B ecommerce – have yet to grab the enterprise market’s imagination.



equipment for the sake of it.” And that makes IT management look good. “Everyone notices a faster network,” he says.

But despite this welcome boost, Cisco CEO John Chambers still faces the challenge of finding and exploiting the ‘next big thing’.

This is important because Cisco won its commanding lead in the networking market with ‘disruptive’ technology that overturned existing systems in favour of IP-based routers, switches and other now standard equipment. Competitors, by contrast, failed to adapt quickly enough.

As new IP-based standards such as gigabit Ethernet and 802.11b wireless networking have emerged, the hardware has quickly become commoditised and other vendors have invariably led the way instead, leaving Cisco trailing in their wake.

Cisco has struggled to locate a new disruptive technology. Instead, it has evangelised the convergence of telephony and networking to little effect. While doing so, it has almost missed out on the genuinely disruptive technology of wireless networking, enabling competitors to capitalise.

Now, it is trying to catch up with its all-encompassing ‘virtual networked organisation’ initiative. This involves persuading customers to deploy the latest networking kit – including wireless – to deliver everything from supply chain management to training and conferencing.

In many respects, the initiative mirrors the way that Cisco has traditionally operated, outsourcing as much as possible and tying the disparate parts together over the network.

In its bid to catch up, Cisco is upping its almost forgotten support for Mobile IP, a way for mobile users to maintain a connection to a corporate network as they switch between wireless, wired and cellular systems.

It is also backing the successor to 802.11b, 802.11i, which promises enterprise-grade security, the lack of which has put off many companies from implementing wireless networking.

Finally, it has a new range of mobile access points that can bridge cellular and satellite Internet with wireless networks, making them suitable for in-car, in-train or even in-plane wireless Internet provision.

However, many will view with scepticism Chambers’ claims of what Cisco’s virtual networked organisation initiative can do for business. “It will drive up productivity by 50% to 100% in the next three to four years. The whole economy can get a 3% to 5% productivity increase if it is implemented. It is the most fundamental change since the assembly line,” he says. Just installing a new network or wireless applications will not be enough. “Without changing process, it won’t work,” he adds.

But in the current cautious age, Chambers will have to talk round customers who have been burnt many times in the past when they bought into grand technology visions that ultimately failed to live up to the hype.

And in a time of low budgets, convincing companies that they need to completely change how they work – even if Cisco has done it already – will be a hard sell for the best of salesmen.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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