Managers know that ‘domain expertise’ — intimate knowledge of markets, clients, technology, competitive forces and industry structure — is vital. Trying new markets without such expertise can be fatal. Infosys, for example, sells its IT expertise with great success by first establishing ‘domain expertise’.

Now, Cisco’s legendary CEO John Chambers has announced his plans to lead Cisco into 30 (yes, 30!) new areas of business. His strategy is described in the latest issue of The Economist*. He calls them ‘market adjacencies’ — markets close to, or adjacent to, markets in which Cisco already operates.

In 2002, Cisco successfully pursued this strategy during the recovery, expanding into internet telephony, optical networks, and wireless equipment. These businesses now bring in 25% of Cisco’s profits. 

Chambers again sees opportunity during the current weak, volatile and fragile recovery, and plans to pursue a similar strategy, while competitors remain risk averse and mainly pursue cost-cutting strategies. Cisco will tackle ‘virtual health care’, ‘cloud computing’, safety and security, and ‘routers in space’. To implement this strategy, Cisco uses a rather elaborate organizational system that involves councils (markets potentially reaching $10 b.), boards ($1 b.) and working groups. Cisco has some 50 boards and councils, involving 750 managers. They are fluid and change rapidly.  

Will analysts’ fears that Cisco is overextending its capabilities be justified? I doubt it. After practicing its ‘moving up in a downturn’ strategy after the 2000-2001 recession, Cisco is well positioned to make it work during the much deeper current recession.

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*Reshaping Cisco The world according to Chambers. The Economist, Aug 27th, 2009.