Layoffs Won't Solve Cisco's Problems

| About: Cisco Systems, (CSCO)

According to news reports, Cisco Systems (NASDAQ:CSCO) is planning to cut up to 10,000 jobs or 14 percent its labor force to cut costs and boost its bottom line.

Though the news gave a temporary pop to the company's stock, it won't solve Cisco's problems, as I outlined piece, Cisco's fall from grace was caused by four factors: A momentum shift away from internet and networking companies in the aftermath of the high-tech bubble of the late 1990s; the transition of the Cisco from and emerging to a mature company; growing competition from Alcatel-Lucent (ALU), Hewlett-Packard (NYSE:HPQ), Juniper Networks (NYSE:JNPR), Huawei Technologies Co.; and inability to keep up with competition.

What will solve Cisco's problems is a new leadership; a shift in the company's culture, a commitment of company's insiders to buying the company's stock and a shift from engineeering to economics -- as discussed in another piece.

Here I want to add another factor that could potentially help Cisco regain its leadership in the networking industry: Leverage the core business to develop innovative products; and change the innovation model, from one that rely to strategic acquisitions to one that relies on internal capabilities.

To pursue this strategy, Cisco Systems can learn a great deal from Corning Inc. -- a 165 year old company that survived and thrived just doing that.

Corning (NYSE:GLW) began with making electric lamps riding the electricity revolution. The problem, however, is that within a few years 36 companies began doing the same thing -- and eventually the market reached saturation. What did Corning do? Leverage its capabilities to make heat resistenca glass for the defense industry. But again the competition caught up. What Corning did? Leverage, again, its core capabilities to make CRTs for TVs. And as competition caught up, Corning went on and on leveraging its core capabilities to develop the one blockbuster product after another: The fiber optic cable, the flat glass, and the green lazer.

The bottom line: Cisco leadership should stick with innovation, not with job cuts to beat the competition.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.