Cisco Reinvents Itself To Expand Its Market Reach

11 engineering divisions focused on technologies replace former segments as revenue drops
Cisco Systems' recent reorganization--its first in four years--aims to eliminate artificial barriers placed on which customers could buy which products.

In the reorganization, disclosed late last month, Cisco has scrapped its three business segments--enterprise, service providers, and commercial accounts--because the boundaries between them had started to blur. For product development, Cisco now is organized into 11 engineering groups, each focused on a specific technology area, such as Internet switching, optical equipment, and storage devices.

The reorganization follows a dramatic dip in Cisco's revenue, from $6.75 billion three quarters ago to $4.3 billion in its most recent quarter, and a corresponding drop in its stock price from a high of $70 to a low of $13. The drop in revenue is just now leveling off.

The shift won't disrupt customer relationships, Cisco says, since its marketing and sales organizations will continue to be aligned with the older separation of customers into enterprise, service-provider, and commercial segments.

From a product-development standpoint, focusing on technologies could end up helping customers because Cisco should be more flexible. Cisco will be able to eliminate self-imposed limits on what equipment it can sell to different types of customers, according to analysts. It will make it easier, for example, for Cisco to sell business customers higher-end networking equipment that it had previously sold exclusively to service providers.

"We had an artificial separation of products and requirements in our old organization, and this new organization will allow us to apply each product to whichever market requires that set of capabilities," says Charlie Giancarlo, a senior VP who will oversee four of the new groups.

Customers also should see more product innovation because the vendor's research and development efforts will become streamlined by eliminating duplication across customer segments, says Zeus Kerravala, an analyst at the Yankee Group.

One potential problem, though, is that customers might think Cisco is less focused on them because it's no longer aligned by customer category, says Kerravala--an impression that competitors could exploit.