The use of SWOT Analysis in firms


A SWOT analysis gives a summary of the strengths and weaknesses of the company together with the opportunities and threats it faces. It draws the critical strengths, weaknesses, opportunities and threats from the strategic audit and distils this data to show the critical items from the internal and external audit. The number of items is small for forceful communications, and they show where a business should focus its attention (Kotler et al. 1999: 94).

On the whole, a formal SWOT analysis not only increases the awareness of the unique situation the firm is in (both in terms of pointing out what needs to be done and in putting problems into perspective), but also provides a roadmap to maintain, build and leverage the strengths as well as deter or eliminate weaknesses so as to pursue, exploit and capitalize on the opportunities even while avoiding, countering or at least defending against potentially devastating threats.

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In the words of a top consultant: "It gives a comprehensive concept of internal and external factors and how to creatively and innovatively develop a strategy that is directional, cost-effective and of course executable" (Excelsia Blog 2009).

SWOT Analysis of Cisco


Market leaders

Dedicated Management Team

Strong brand equity

Strong financial hold


Fluctuating global margins

High pricing

Low Sales Ability



Product and services expansion


Economic slowdown

Price wars

Product substitution




Cisco Strengths

Financially, Cisco is debt-free and has about $21 billion cash in the bank (Omnivorous 2003). It generated around $3.2 billion in cash flow from operations alone for the second quarter of fiscal 2009, compared with $2.4 billion for the second quarter of fiscal 2008, and compared with $2.7 billion for the first quarter of fiscal 2009 (Cisco 2009). The huge turnover not only aided them to fund the critical areas such as R&D or marketing, but also gave them the strength to acquire technology with lower venture capital funding in the market. It also enabled the company to buy back $2 billion in common stock during FYQ1 (Omnivorous 2003). An additional attribute of Cisco's strength is their financial management. Cisco's key balance sheet figures state:

DSO(Distinguished Service Order) is 25 days

Inventory turns were 7.3 in Q1, up from 6.8 in Q4FY2003 (Omnivorous 2003).

Revenues per employee were $525,000, more than 46% higher than Juniper Networks and almost double than Nortel Networks, according to Joel Fishbein of Janney Montgomery Scott (Add references).

Gross margins are extremely high, at 68.7% (Omnivorous 2003).

Cisco's financial strength has complemented its long term vision and strategy since they moved into new market adjacencies in conjunction with prioritizing the existing opportunities (Chambers 2009). Thus Cisco has been working on the simple principle of acquiring new companies and using their existing values to successfully integrate them.

Moreover, Cisco Management is well-respected for its ability to react to adverse business conditions, particularly the burst that started in 2001. Stephen Kamman, of CIBC World Markets writes in his Sept. 26, 2003 Cisco Systems analysis: "Looking back at Cisco's handling of the past 3 years of industry-wide calamity, it seems fairly clear that Management has a firm grip over the dynamics of Cisco's organization and operating structure. While Cisco took an initial hit along with everyone else, it responded and refocused much faster and more effectively" (Add corresponding ref).

The sales management of the company is highly respected. They are used to working with aggressive targets in mind, good international coverage and participation in all key segments -- from international service providers (ISPs) to government education and Fortune 1000 distributors (Omnivorous 2003). The one piece missing in their long list of achievements was a strong product offering for small businesses and home, which was filled in by the Linksys acquisition. The Cisco Management also has strong ability to manage channel partnerships, including IBM (storage area networks), Verizon Communications, Telstra, Sony Electronics and others.

Considering the work environment, Cisco was recently nominated to the National Association for Female Executives' (NAFE) list of "Top 50 companies for Executive Women" (Cisco 2010). The list recognizes organizations whose policies and practices encourage women's advancement and whose numbers at the highest levels of leadership, demonstrate that commitment. In the article that accompanied the list, NAFE highlighted their Inclusion Advocacy Program (IAP), which paired high-potential employees with senior executives from other business units, who not only mentor the individual, but also become an advocate for that person's professional development (Cisco 2010). Cisco is extremely proud and feels privileged to be recognized on this list.

Cisco Weaknesses

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As is often the case, some strength's are also potential weaknesses. Cisco's high gross margins are not believed to be sustainable, even by management. With the acquisition of Linksys, average gross margins declined by 1% because consumer products typically have gross margins in the 30-40% range (Omnivorous 2003). Analysts feared Dell's entry into the business, using low-cost off-the-shelf components (Omnivorous 2003) to cut down into Cisco's business.

The pricing strategy of Cisco has come under scrutiny as some of the products are highly priced in the market. The customers of Cisco have expressed their perception of the pricing of the individual products as overpriced as compared to Cisco's competitors.

The company has also done some vertical integration, including purchasing chip-maker Seagull Semiconductor in 2000 (Omnivorous 2003), but with this another problem arises which is, it has become highly reliant on outside vendors who may be capacity-limited during periods of high demand.

Cisco Opportunities

The company is positioned well overall, as IP-based networks that form the backbone of the Internet expand and drive productivity. Howard Charney, in a presentation to Korean customers of Cisco, notes that U.S. non-farm productivity has been growing at an average rate of 3% per year since 1995 (when the Internet and browsers became widely used) -- more than double the 1.4% of the previous 20 years (Add references). Cisco has abundant inputs in respect to this evolving market and can play an important part in this business sector. Specifically, this is opening up the following types of opportunities, according to market research : Storage Area Networks: 16% CAGR (Compounded Average Growth Rate) Voice-over-IP (VOIP): 44% CAGR Security: 20% CAGR Wireless LAN: 18% (Omnivorous 2003).

The company has been seeking to identify 12 advanced technologies that could generate $1 billion per year if markets develop up to the expectations. According to John Chambers, CEO Cisco, six have been identified and are in the Advanced Technology revenue group (IP telephony, home networking, optical networking, security, storage networking, and wireless) (Add references). The remaining six are yet to be identified.

Finally, the increase in networking speed has offered the company substantial growth. The common standard today is 100Mbps Ethernet (often referred to as 10/100 Ethernet because of its support for the older, slower 10Mbps speed). Christin Armacost, of SG Cowen, believes that growth in that market will fuel Cisco growth, as it's only about 10% of the market -- and has an average sale price of $356 vs. $61 for 10/100 Ethernet (Add references).

Cisco Threats

The Form 10-K (A comprehensive summary report of a company's performance that must be submitted annually to the Securities and Exchange Commission ( n.d.)) is a good place to turn for the company's own analysis of threats. However, the company's top three risks mentioned in the form are:

1. Uncertain global economy

2. Variability of revenues

3. Product gross margins may not be sustainable (Omnivorous 2003)

Additional threat factors mentioned by analysts and management include the following:

An alliance of Microsoft (as software supplier) and low-cost hardware vendors (Dell, Gateway or offshore PC suppliers) may eat into the market share of Cisco (Omnivorous 2003). There is also a possibility that Juniper Networks, which outsources all of its manufacturing (in contrast to Cisco), is able to build a lower-cost operating model, particularly in the high-speed network arena. Also, potential acquisition of Juniper by a major strategic partner, such as IBM is a hindrance to its strategy of global expansion (Omnivorous 2003). Lately there are plenty of low cost hardware entries in the Wireless LAN market as well, that contribute to significant erosion of Linksys's profit margins.

Asian markets contain enormous potential but due to inadequate intellectual property protection, Cisco is unable to invest heavily in these markets. Regulatory and logistical issues have prevented the emergence and establishment of new market areas such as voice over IP.

References (By Archak):

Kotler, P., Armstrong, G., Saunders, J., and Wang, V. (1999) Principles of Marketing. Second European edn. Europe:Prentice Hall Inc, 94-95

Excelsia Blog (13 March 2010) Leverage success with SWOT analysis.[online] available from <> [15 March 2010]

Wikiswot (15 March 2010) Cisco Swot Analysis [online] available from <> [08 March 2010]

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Cisco (11 Jan 2010) Cisco Reports Second Quarter Earnings [online] available from <> [17 March 2010]

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Cisco (15 March 2010) The Platform Opinions and Insights From Cisco [online] available from <> [10 March 2010] (16 March 2010) Reference answers [online] available from <> [16 March 2010]