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The Efficiencies of Core Competencies

The Efficiencies of Core Competencies

July 23, 2011
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" We are making key, targeted moves as we align operations in support of our network-centric platform strategy - Cisco CEO John Chambers "

Everyone has at least one thing that they are good at — and for the most successful companies and individuals, perhaps several things they are good at — including one thing that they may be great at. These core competencies can become synonymous with a brand and lead to its dominance and success within its marketplace.

The nature of business being what it is, “having more” leads to “wanting more,” with corporate pressures and fiscal realities demanding a better option than putting all of your eggs into one basket.

On the surface, this seems like the smart thing to do, as diversification spreads risks and revenue streams, providing a broader, more stable platform for further growth, along with a “safety net” in case of an unexpected downturn in a key segment. Diversification isn’t always good, however, even when successful — as evidenced by Cisco’s killing of its market leading Flip mini-cam, among other changes.

Part of Cisco’s comprehensive plan to realign its operations, the move to exit certain aspects of its consumer businesses will realign its remaining consumer efforts in support of four of its five key segments — core routing, switching and services; collaboration; architectures; and video.

It will also cost nearly 600 jobs and shelve a popular piece of consumer technology.

According to the company, its future efforts will focus on bolstering videoconference and telephony systems as well as on developing a video platform for home users.

“We are making key, targeted moves as we align operations in support of our network-centric platform strategy,” Cisco CEO John Chambers stated. “As we move forward, our consumer efforts will focus on how we help our enterprise and service provider customers optimize and expand their offerings for consumers, and help ensure the network’s ability to deliver on those offerings.”

While the move to shore up its core business is understandable, Cisco bought out the company behind the Flip, Pure Digital, only two years ago. Although it was for the paltry (by Cisco standards) sum of $590 million, it was an outwardly profitable investment in a popular product that still enjoys considerable consumer demand; even in an age of video camera enhanced Smartphones.

But why wasn’t the Flip business, a market leader, sold instead of being killed?

“I’m very surprised that Cisco chose to simply shut down the product given what they paid for it,” Yankee Group analyst Zeus Kerravala stated. “But I’m not surprised that they got out of the consumer business.”

To make a long and complicated story shorter, by diverting its focus from its core competencies, Cisco saw those foundational elements diluted — with stiff competition from new Chinese manufacturers, among others.

Sure, Cisco’s eggs were now “safely” in several baskets, but the biggest basket was no longer as full, or assured of future, unquestioned prosperity, as it once was.

At the 2009 CES, Chambers projected up to $10 billion in near-term consumer sales.

“We are really committed to this market and we’re putting the whole company behind it,” Chambers stated. “We will be very aggressive.”

A few years down the road, however, they are leaving; but keeping lessons learned, as well as an array of associated intellectual property that could benefit future products.

‘We learned so much from this acquisition,” Cisco spokesperson Karen Tillman said. “We gained a lot of understanding about video and how people consume video and those things will only help as we work to advance and drive demand for our core products.”

For operators without the budget or staffing of Cisco, the lessons can be learned more easily and inexpensively: diverting your focus from what you know, may not provide you with the opportunity or security you had hoped for — and in fact, may hurt it. Stick with your core competencies and let other experts stick to theirs: your business will benefit.


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