Lower Operating Costs through Storage Management Savings: Since personnel costs comprise such a large portion of the ongoing IT budget, reducing intangible costs such as storage management trims operating costs significantly. With networked storage, centralized management eliminates the need for multiple software packages, facilities easier maintenance, and allows each administrator to manage more data.
Reduced Downtime through Availability and Protection: This covers the primary defensive strategies including clustered configurations for networked storage enabling reduced downtime to keep mission-critical revenue generating applications running around the clock. Additionally, from a data protection standpoint, storage routers facilitate a host of backup and recovery options such as onsite or offsite mirroring in the event of a disaster. .
Operational Agility through Flexible, Scalable Architectures: Savings from the rapid capacity expansion model, and the consolidation across multiple vendors, providing more purchasing control and equipment choices to end users.
Technology adds value for the customer everywhere from homes to the corporate world.
- A director meets with a graphic designer in Newyork and clients in London, from her desk in Columbus, Ohio and nobody pays for long distance.
- In Germany, the world’s fifth-largest retailer uses the network to cut costs, streamline its supply chain, and make shopping a pleasure for customers.
- In North Bay, Ontario, a patient receives operation she needs—from a surgeon 400 kilometers away.
- A doorman confirms her reservation, processes her credit card, and creates a room key—all before she reaches the lobby the only thing she has to do this evening is relax.
- In a quiet suburban home, mom banks online, dad compares minivan prices and two good friends fight to save the planet from alien invaders—but nobody’s fighting for internet access.
- Even if schools are closed, 70,000 students in hong kong can still enjoy lively classroom sessions, interact live with Teachers, and keep in touch with classmates.
How did Cisco Systems become the leader in the network equipment industry? How can Cisco make money despite open standards? What are the principal components of its business strategy? How do these components fit together?
Cisco Systems: A quick journey
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Founded in 1984 by Stanford computer scientists who pioneered the router. 2. Growth through innovation, partnerships and acquisitions. 3. Corporate Culture: Unwavering attention to customer service and militant frugality. 4. Got VC funding in 1987. John Morgridge joined as CEO 5. IPO launched in 1990. 6.John Chambers became the President and CEO in 1995 7.Revenue ( Quarter ended May-04 ) – $ 5.62 B, (Year 2003-04) - $ 22 B 8.Market Capitalization: $ 130 B (21st Sep 2004)
Cisco Systems, Inc. manufactures and sells networking and communications products, and provides services associated with that equipment and its use. Its products are installed at corporations, public institutions and telecommunication companies, and are also found in small and medium-sized commercial enterprises. The Company provides a broad line of products for transporting data, voice and video within buildings, across campuses or worldwide. Cisco sells scalable, standards-based networking products that cover a wide range of customers' networking needs. Its products and services help customers build their own network infrastructure, while also providing tools to allow them to communicate with their customers, prospects, business partners, suppliers and employees. Products are used individually or in combinations to connect computing devices to networks or computer networks with each other, whether they are within a building, across a campus or around the world.
CISCO: Becoming a Leader
Cisco became market leader in telecom industry in no time. It entered the industry in an environment of multiple standards and distributed processing by developing its router technology that allowed different machines operating with different standards to communicate.
It used following strategy to attain leadership position:
- Innovation: Give customer technologies they needed rather than those that were available in the market.
- Unwavering Customer attention: Top management looking into customer service department.
- Set technology standards: Integration of solutions to enable them to be the single solution provider for many of their customers (one-stop-shop).
- Diversified product offering: This was achieved through a series of strategic acquisitions of smaller players offering required products that Cisco did not have in its portfolio.
- Strategic Alliances / Partnership: Alliances with other technology leaders like Hewlett-Packard, Intel and Microsoft to co-develop products using shared technologies.
- Branding: To help build customer awareness. Corporate brand under the “Cisco Powered Network”.
Open Standard advantages for Cisco:
A "one-stop model" offered by a single vendor typically features vertical integration, closed architecture, and proprietary platforms that perpetuate engineered dependence and forced-fit solutions. Service provider investment is virtually locked in for the life of the system and scaling is difficult.
An "ecosystem model," the approach Cisco employs, is built through partnerships among companies that share an open architecture based on industry standards. Each partner brings a unique capability and service providers can select from a range of potential solutions that fit their specific requirements. In this way, providers protect their investments and can rapidly deploy solutions. Components provide open, northbound interfaces based on open standards and protocols (such as HTTP, XML, and so on). This approach not only enables partner products to integrate with the Cisco OSS components, but also enables service providers to leverage their existing OSS SML and BML components and integrate them with the other components in the OSS architecture. Reduced costs, increased market share and accelerated deployment, increased flexibility are some of the advantages:
- Open standard created positive network effects for Cisco. It increased the customer base.
- New telecom companies followed the open standards set by Cisco. Later, it became easy for Cisco to acquire these companies and integrate them with Cisco.
- A strong movement away from proprietary standards to a greater acceptance of open standard in data processing and transmission assisted Cisco to garner market share.
- One-stop-shopping helped Cisco to become a preferable suppler for big enterprises.
- Strategic alliances with technological leaders like Microsoft and Intel helped Cisco to develop products which became industry standards.
Principal components of Cisco’ Business strategy:
- Growth through Acquisition
- Strategic partnership
- Innovation
- Branding
- Unwavering customer attention
Cisco has primarily used acquisition as its growth strategy. 1995 onwards Cisco has acquired 95 companies. Following are the key components of its acquisition strategy:
Acquisition Criteria
- Importance to company’s products and people and net market share
- Corporate culture should be in agreement with Cisco’s corporate culture
- Clear short term benefits for both the companies
- Clear long term prospects of the combined company should be attractive
- Target should be within close geographic proximity to Cisco’s centers.
Acquisition Approach
- Nearly all of acquisitions have been purchased using Cisco stock as a primary form of consideration
- Cisco rarely participates in competitive bids/auctions, instead it chooses to undertake a process based on relationship and negotiation that allows it to build a significant expertise in acquisition game.
- The process of identifying , assessing and executing acquisition is managed through Business Development Group (“BD”) which is divided into 3 functional teams:
- Mergers & Acquisitions and Investment
- Business Partnership
- New Markets
1) Developing an Acquisition Strategy:
Step 1: BD works closely with senior management to jointly develop the company’s long term strategic vision and to identify the technologies which are consistent with the vision and key to achieving these objectives.
Step 2: BD then works independently or with Cisco business unit managers to identify hot companies that possess these technologies.
2) Assessing Potential Acquisitions:
Step 1: When BD identifies opportunities, it contacts the appropriate business unit to jointly assess the companies
Step 2: First assessment occurs informally as the business unit strikes a relationship with the target company. Such relationship allows Cisco to assess the target company as well its employees.
Step 3: If a business unit general manager expresses interest in a company as a possible acquisition, he must be willing to become the defacto champion of the acquisition within Cisco and now it becomes his responsibility to successfully integrate the target company.
- Executing Transactions:
The Merger & Acquisition team within BD is responsible for the acquisition once the decision to acquire has been taken. Given that most target companies are relatively small in size BD has developed internal sophistication and expertise to rapidly turn around an acquisition (generally it takes BD around 6 weeks to go from assessment to acquisition phase).
Acquisition Integration
- More than 90% of the employees brought in through acquisition have chosen to stay with the company, a rate which is higher than the company’s regular hires.
- A small team of BD group will serve as a catalyst around which a “virtual team” of functional specialists (finance, HR, etc) is formed. This virtual team is rapidly deployed to integrate the 2 organizations.
- In order to minimize confusion for the incoming employees, Cisco works very quickly to tell them their eventual places within the Cisco organizational structure.
- Entrepreneurs, who have sold their companies to Cisco, say that since most people in Cisco came from startups, so the place has a small – company mentality. They also say that every new group within Cisco has opportunity to make a difference and contribute.
What are the key factors that differentiate Cisco as an Information Age company? How did Cisco use internet, intranet and extranet to support its strategy?
Cisco used Information Technology to gain competitive advantage over its competitors. The two main core components of Cisco’s systems architecture are the ERP system and the Web enabled internet/intranet/extranet system. Cisco implemented Oracle ERP suite in 1995. The web enabled system takes in orders from dealers and suppliers and stores it in its local database. Several automatic scheduled processes then transfer this data to the ERP system. The various processes of the ERP system then use this information to complete the order. The orders are shipped out to the dealers and at the same time the information is copied back to the web database, where is gets reflected to dealer extranet.
Key success factors:
- Better responsiveness to customers.
- Lock in customers through added convenience, online support, switching costs.
- Internal database that is available to manufacturers and distributors.
- Life easier for channel partners such as VARs who study buyer behavior on the site.
- Cost savings for Cisco.
Advantage of Internet, Intranet and Extranet:
Internet:
- Cisco Connection Online (CCO): 80% Cisco’s technical support is delivered electronically.
- Net commerce through web-site : 92% total revenue base through internet Marketing
Intranet:
- Executive Information System and Decision Support System: Around 2000 top executives including CEO are connected through web enabled systems which support in decision making.
- Employee self service system(CEC- Cisco Employee Connection) : Satisfy unique needs of 40000+ employees
- Communication across departments and distance learning: Remote Training and live streaming of Cisco’s Quarterly meetings.
- Collaboration and workflow knowledge management
Extranet:
- Single Enterprise (MCO – Manufacturing Connection Online): Connected to key suppliers through network applications. Supplier managed supply chains.
- Direct fulfilment: Partner directly fulfilled the demand for Cisco customers.
- Dynamic Replenishment: Real-time inventory management
- New product development: Sharing of design, test, ramp up, quality and product specification.
Total benefits Cisco reaped because of IT strategy were 1.94$ Billion.
Describe Cisco’s position in its industry at present and moving ahead into the future. How does Cisco maintain technological lead in its industry?
Cisco is one of the largest networking communications providers, serving three target markets: enterprise (large corporations); service providers; and commercial customers (smaller companies). The company sells its products in approximately 115 countries. With a number of new products expected to stimulate demand, the company is expecting long term growth. However, competition and industry consolidation are currently representing significant threats.
Key Figures:
Market Cap (21 Sep 2004): 130.09 $Billion
Return on Assets: 13.88%
Revenue (Year ending 2004): 22.04 $Billion
Cisco SWOT Analysis:
Key Financial Measures:
Top Competitors:
Cisco technological lead:
- Assemble a broad product line so Cisco can serve as one-stop shopping for business networks.
- Systematize acquisitions as an efficient business process. Cisco has made more than 95 acquisitions and key strategic alliances since 1993 to fill out its product line.
- Set industry wide software standards for networking. Cisco has issued IOS (Internetwork Operating System) licences to big companies like Alcatel, Ericsson, Intel and Microsoft.
- Pick the right strategic partners. Cisco is working with Microsoft to create an industry standard for security over network, working with MCI to deliver premium Internet services
How is VoIP likely to change the telecom industry? Are the phone, cable, satellite and power companies likely to converge? What are the implications for the network equipment industry?
Voice over IP (VoIP) defines a way to carry voice calls over an IP network including the digitization and packetization of the voice streams. IP Telephony utilizes the VoIP standards to create a telephony system where higher level features such as advanced call routing, voice mail, contact centers can be utilized.
Convergence
Traditionally, communications media were separate. Services were quite distinct - broadcasting, voice telephony and on-line computer services. They operated on different networks and used different "platforms": TV sets, telephones and computers. Each was regulated by different laws and different regulators, usually at national level.
Nowadays, digital technology allows a substantially higher capacity of traditional and new services to be transported over the same networks and to use integrated consumer devices for purposes such as telephony, television or personal computing. Telecommunications, media and IT companies are using the flexibility of digital technologies to offer services outside their traditional business sectors, increasingly on an international or global scale. Recent examples of new, convergent services include:
- Internet services delivered to TV sets via systems like Web TV;
- e-mail and World Wide Web access via digital TV decoders and mobile telephones;
- Web casting of radio and TV programming on the Internet;
- Using the internet for voice telephony.
The leading incumbent equipment players are remarkably aligned in where telecommunications networks are going, but not all of them may be able to get there. The six major incumbent suppliers and service providers agree that the telecom services network is moving toward a converged IP/MPLS network architecture and new packet-based services. Some incumbent equipment suppliers are better prepared to fulfill this vision than others. Some may fail miserably, in part because they lack the financial resources and/or key strategic products to make the transition.
Converged Network Infrastructure (CNI): Shown below is Cisco's product representation in the CNI model, which puts optical transport at the core, wrapped in turn by switching and then layers of edge services, applications, and access technologies.
Many incumbent carriers are wary about the shift of profitable legacy services such as voice circuits and leased lines onto a converged IP/MPLS network. Most of them will run these services directly over their optical transport networks for the time being. There is no easy way to migrate their exceedingly complex networks to a lower-cost, converged packet-switched core. In fact, they may take divergent approaches to preserve investments in legacy "stovepipe" networks. The challenge is migrating to IP technology without killing the legacy business models. There’ll clearly be a merging of organizations – the transmission guys with the router guys.
Implications for the network equipment industry:
That's where equipment supplier market positioning becomes important. For example, Nortel is in a good position to benefit from the carrier’s dependence on optical transport because it has a strong set of optical transport products. At the same time, Nortel is continuing the development of ATM products, which are likely to remain part of the mix for some time, while talking about continuing developments in MPLS.
Lucent’s decision to halt ATM developments after acquiring Ascend for $20 billion "beggars belief." Lucent’s strategy on the IP routing front is now largely dependent on its newly formed OEM relationship with Juniper. Equipment suppliers may soon fire back with new marketing messages and/or strategies for convergence.
Existing barriers:
- Access to users. 2. Regulatory restrictions on use of infrastructure. 3. Prices for telecommunications services. 4. Availability of content. 5. Fragmentation of EU market. 6. Insufficient IPR protection.
Potential barriers:
1. Regulatory uncertainty. 2. Multiple regulatory bodies. 3. Market entry and licensing. 4. Access to networks, conditional access systems and content. 5. Allocation of radio frequency and other resources. 6. Varying approaches to the achievement of public interest objectives. 7. Public confidence in new environment. 8. Lack of standards supporting interoperability and interconnection of converging networks.
