Specifically large telecommunications customers like Verizon or SBC have a lot of bargaining power due to the size of their purchases. An initial purchase of $50 million in network equipment can easily turn into a 400 million dollar purchase when the same equipment is installed in the entire region that the Telco provides service. This may be why Cisco has not been successful with US telecommunications companies; they have not recognized how much bargaining power these buyers have.
New Entrants
New entrants are defined as potential competitors in the future or an existing company that dramatically shifts its business strategies to become a direct competitor to the strategic business unit, Cisco Systems. The threat of new major potential competitors in the network equipment industry is always possible. This industry is characterized by technology start-up companies that focus on designing new or improved products. It would be possible for a company, sponsored by a venture capitalist firm, to develop a similar product that is less expensive, faster or encompasses more features. One of Cisco’s biggest threats is a privately-held start-up in Milipitas called Procket Networks. Interestingly, the current President and CEO of Procket Networks is Roland Acra who worked at Cisco as well as founder Tony Li and VP Brad Kashani.
Network equipment companies based outside of the United States are beginning to enter the American market. Foreign companies, like Huawei Technologies, based in China, are entering Cisco’s domestic market ready to compete. One foreign company, Alcatel, based in France already has a significant presence in the United States. As the Internet and networks continue to develop in Asia, the Middle East and Latin America new networking equipment companies will enter the market.
Cisco also faces the possibility of existing companies shifting their business strategy to directly compete with Cisco’s core market. Many companies currently compete in the networking arena or computer hardware but do not focus on Cisco’s core market and networking equipment. Several of these companies like Siemens or Dell are large and would have the resources required to shift focus.
Threat of Substitute Products and Services
A substitute is a replacement or alternative to doing business with the strategic business unit. The largest threat Cisco faces from substitute products is actually from Cisco products, used that is. Used Cisco equipment is auctioned off by online companies like E-bay. Consumers can purchase functioning network equipment for fractions of the original cost. Thousands of Cisco products are sold on E-bay with price tags ranging from a few dollars to just under one hundred thousand.
Customers also have the option to access the Internet or a network without building their own. Small companies or individuals could choose to purchase Internet space through an existing provider. Although business is not done directly with Cisco, it is possible that the service provider chosen by the individual uses Cisco equipment. When the ISP needs to increase bandwidth they will turn to Cisco to expand their network and Cisco still benefits. Other alternatives, not as similar include mail, video conferencing and phone services. Land lines are supported by Telco companies that use networks and this alternative could again possibly benefit Cisco. Communication with the use of mobile phones that use satellites instead of traditional channels could be a threat. If communication is the issue these options are available but do not provide the same speed, reliability or wide ranges of data transfer.
Conclusions Drawn from the Porter Competitive Model Analysis
The following conclusions can be derived from the Porter Model. Cisco is challenged with powerful intraindustry rivalry from many network equipment companies. There are numerous smaller tech companies that are currently not strong competing factors but that could become a threat in the future. The power of buyers in this industry exists but has limited Cisco only in the service provider market. The power of suppliers in this industry is minimal in this case. Cisco could easily find a substitute for an IT vendor or buy to maintain low buying costs or high quality levels. Large network equipment companies have an advantage over the suppliers who must compete for their business because they buy in large volume. Smaller start up companies would be at the mercy of suppliers in this market. Companies that produce unique products like a specific chip can name their price with a small startup. Suppliers, with Cisco or Nortel as their main customer, may choose not to do business with a start up networking company that may hurt their relationship to a key customer.
With so many start-up companies the threat of new entrants is always possible. The start-ups would need capital and a way to differentiate their products or company. Venture Capitalist companies are continually looking for the next Cisco. Foreign companies have begun to move into the North American market and will continue to expand as the Internet and networks continue to grow worldwide. Overall Cisco has a strong competitive position within the network equipment industry.
D. Globalization of the Industry
The Internet connects the world; network equipment makes the Internet a reality. People utilize the Internet to efficiently and effectively communicate and conduct business on local, national and global levels. As Internet traffic continues to increase and gain momentum in other world regions the demand for network equipment will grow. Network equipment industry companies initially pushed their way into global markets, pursuing new business opportunities. As all major businesses come to rely on their networks to transact business they too will demand new products and services.
Currently, the majority of the dominate companies in the network equipment industry in the United States have gone global. Network equipment products are products that can easily travel across national boundaries. The current network equipment industry leaders are in an offensive position, focusing on entering new markets not defending their company from foreign competitors. Network equipment companies are pursuing new business opportunities abroad as the Internet continues to grow in popularity. Although it has been weaker in recent years due to economic constraints there is a customer demand for network equipment products and services offered by this industry.
E. Importance of Information Technology to the Industry
Most of the companies in the network equipment industry have recognized the advantages offered by information technologies. Cisco has served as a pioneer, a prototype that many companies have followed and based their IT strategy on. Industry companies have implemented information technologies in their core business that will ultimately benefit their customers. Value is passed to customers when each process is automated with information technologies. Core business functions that can be addressed with the installation of information technologies include human resources, manufacturing, engineering, sales and distribution, service and marketing.
Cisco’s Value Chain
Figure 8
Gaining Competitive Advantage Through Internet Business Solutions. February, 2004
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Information technologies are essential for network equipment companies to be able to compete in today’s e-world. Connectivity and integration have changed the way companies do business with their suppliers. Supply chain management exists primarily due to the World Wide Web.
SECTION II: COMPANY PERSPECTIVE: AN ANALYSIS OF CISCO SYSTEMS
- Cisco Systems Company Profile
Virtually all Internet traffic today travels through networks built with Cisco Systems equipment. The Internet would not function without this revolutionary company. Cisco Systems is a success story, a company envied and admired by many. Cisco is responsible for paving the road that so many companies have seen traveled. They achieved record sales, market capitalization and revenues in less than two decades! Legendary leaders like John Chambers, Cisco’s CEO have made these accomplishments possible. Cisco is also recognized as a great company to work for and has been included in lists like Fortune’s “Best Companies to Work For” and “Best Companies for Working Mothers” in Working Mothers Magazine. Cisco Systems has grown over 20 years from its modest beginnings in California to a global giant with over 34,000 employees and a name that is recognized worldwide.
Background
A love story is intertwined with the birth of Cisco at Stanford University. One couple, Sandra Lerner and Leonard Bosack, were frustrated with the mismatched computer technologies on campus that hindered their ability to communicate using the computer. At that time, Stanford had twenty incompatible e-mail systems and 5,000 different computers on campus. With the help of a few friends, the young couple linked the graduate business school building’s network to the Bosack’s computer lab network and the first router was born! In 1984 this revolutionary technological achievement inspired the couple to continue building routers which they named ciscos after the nearby city of San Francisco.
Two years and one house mortgage later Lerner and Bosack sold the world’s first network router. Soon business was booming. The young couple were earning over a quarter of a million dollars each month without the help of a sales staff or marketing campaign. Realizing the need for additional funding and professional staff, a sales pitch was developed and the mission to find a venture capitalist sponsor began. After 76 failed attempts, Bosack hit the jackpot with Donald Valentine from Sequoia Capital. Valentine provided the necessary funding and installed a top notch executive team. John Morgridge was installed as President and CEO in 1988 and the company altered its target customer from universities and the government to large corporations. Sales skyrocketed from $1.5 million in 1987 to $28 million in 1989. This company was going places! First stop was going public in 1990. Unfortunately this is also the year Lerner was asked to leave and Bosack followed her. The small company that started in a garage was transformed into a worldwide giant, Cisco Systems. This transformation can be traced to the leaders of the company that included Chambers, Morgridge, Valentine and Solvik.
Cisco credits most of its sensational achievements to their early adoption of the wide are networks and successful implementation of Internet technologies. Cisco has information systems for its customers, intranet systems for its employees, systems for it suppliers and more. The man responsible for the leading-edge introduction of these systems was Senior Vice President and Chief Information Officer, Pete Solvik. Solvik was also responsible for changing the company policy on the implementation of information technologies. Pete Solvik, with the assistance of senior executive Doug Allred, developed a ground-breaking IT authorization policy. They developed the Client Funded Model, a system that allowed individual business units to make IT expenditure decisions. Core IT spending would remain centralized but the redistributed responsibility would increase sales and benefit customers. Although Solvik would continue to report directly to the CEO not all IT decisions would be required to be taken to the top level. This was a radical idea, that individual business units could purchase and implement IT as they saw fit with no waiting and no approval.
B. The Company and Current Business Leaders
Today, Cisco Systems is a dominant worldwide player. This young innovative company has become the most financially successful company in the network equipment industry. Cisco is a name recognized and respected in the technical world. Cisco stock has made people millionaires, Cisco products have saved companies millions of dollars and Cisco training programs have enabled people to advance their career.
Cisco System’s main corporate headquarters is located in San Jose, California with offices in sixty-eight countries worldwide. Cisco’s core market is routing and switching, which make up 67% of sales. Cisco has branched in other related markets including optical, wireless LAN, network security, IP Telephony, home networking and storage networking by developing advanced technology products. Cisco divides its market into four segments: large enterprise (their principal market), small and medium businesses, service provider and recently added, home and home office. Products and end to end solution advice is given dependent on the customer’s needs and size. Cisco is a global company with the majority of Cisco’s sales, 56% made in the Americas followed by 27% in Europe, 7% in Asia Pacific and the remaining in various countries.
Cisco is moving towards becoming a “networked virtual organization.” John Chambers is an outsourcing proponent and has outsourced many of Cisco’s main business areas, most notably manufacturing. Chambers states that the core business, that is - what provides a company’s sustainable competitive advantage, should remain internal but everything else can be outsourced to those more capable. Chambers actually uses the term “out-pass”, differentiating the concept from outsourcing by stating Cisco maintains control of the strategy, the implementation, the systems and the inventory. The decision to outsource or “out-pass” was made when Cisco was still in its infancy. When Cisco first began selling routers they lacked significant manufacturing capacity. Knowing that speed was vital to survival Cisco’s leaders made the decision to outsource, they bought manufacturing capacity allowing sales to be made immediately. Cisco has gained a competitive advantage with this strategy, as 95% of present customers ordered Cisco products through contract manufacturers over the Internet who were also responsible for delivery. Other areas were “out-passed” like all customer service which is now handled online, decreasing the average customer call cost from $250.00 to $7.00.
More about John Chambers
John Thomas Chambers was born in Charleston, West Virginia in 1949 to two doctors. Growing up his parents taught him to value education and he was able to graduate in the top percentile of his high school despite his learning disability. He earned B.A. and B.S. degrees from West Virginia University and an M.B.A. at Indiana University. In 1976, Chambers got his first job at IBM selling mainframe computers. Six years later he moved to Wang Laboratories where he worked for eight years before joining Cisco in 1991 as senior vice president, worldwide sales and operations. Chambers became CEO and President in 1995.
Chambers helped Cisco to grow from annual revenue of $1.2 billion to their peak of over $22 billion in 2001. Chamber’s has nurtured a friendly workplace environment with a positive culture that makes Cisco one of the “Best Companies to Work For”. He has won dozens of awards while at Cisco including “The Most Powerful Man in Networking”, “CEO of the Year” “Best Boss in America” and “Smithsonian Lifetime Achievement Award”. Part of the reason this culture is so strong is because of Chamber’s team-building skills and primary focus on the customer. This was unique at the when other companies were focusing on technology. "At Cisco, we make customers our No. 1 priority, not only by delivering innovative technology and good service but also by listening to their needs and responding appropriately." Chambers spends a great portion of time meeting with customers and has developed an ability to foresee which technologies businesses will need in the future.
It was Chambers steadfast vision that the Internet would revolutionize the way all companies conducted business that rocketed Cisco to the forefront of the tech boom. Chambers has been nicknamed the poster child of the Internet. Chambers is a name that is almost as well known as Cisco! John Chambers is revered as a visionary, a charismatic leader who preaches the Internet revolution. Chambers speeches are legendary; oozing optimism he states the Internet can make the world a better place by improving education and the standard of living. This Internet evangelist sees the value in technologies but more importantly understands the impact of technologies on business results, governments and the educational system. As Senior Vice President, Rick Justice states, "John's greatest contribution is the vision he has for the Internet, not the technology, but
Hooper, Larry. “The Internet Evangelist.” 2002 Industry Hall of Fame.
< http://www.crn.com/sections/special/hof/hof02.asp?ArticleID=38526>
the vision of how it will change the way we live, work and play. Chambers' ability to look beyond the technology is what makes him a leader.”
During Cisco’s glory days, Chambers was named “CEO of the Future” and was considered the industry’s superstar. When the bubble burst in Silicon Valley and the network equipment industry went sour, Chamber’s success was written off as luck as he received harsh criticism from many. Eight thousand employees were laid off and the stock plummeted. Cisco’s comeback has recently earned Chambers praises like “survivor” and “miracle worker”. “Resurrection” has become the new term to describe Cisco’s startlingly fast comeback from their magnificent fall suffered in 2001 when stock plummeted. Chambers has been revered because his leadership skills have shined not only during the technology boom but during the tech bust as well. Chamber’s leadership is one, if not the reason that Cisco was able to weather through the recent economic downturn and maintains their competitive position.
More about Pete Solvik
In 1993, Cisco was facing problems: customer ratings had fell to an all time low. Cisco, on average, was growing over 270 percent annually, growing so quickly that they could not keep up with their customer service. Pete Solvik recognized the inconsistency between Cisco’s predicted growth, future goals and current system. He prioritized implementing an IT infrastructure that would allow Cisco to quickly react in a fast paced environment. Solvik’s proposal included a massive system upgrade that was only approved after Cisco’s system collapsed and forced the company to shutdown for two days in the beginning of 1994.
Cisco gained a competitive advantage by implementing the best IT infrastructure they could find before any of their competitors replaced their legacy systems. Solvik proposed a fifteen million dollar ERP, Enterprise Resource Planning system from Oracle that would integrate business functions such as manufacturing, marketing, sales, and accounting. Oracle’s system was approved and implemented, becoming the backbone of Cisco’s e-business. Solvik was also responsible for enhancing Cisco’s Internet site CCO, Cisco Connection Online, the employee intranet, Cisco Employee Connection, CEC and MCO, the Manufacturing Connection Online. These information technologies revolutionized the way Cisco did business and earned Solvik a place in CIO Magazine’s Top 100 CIO list. Cisco products not only run the Internet, but Cisco Systems is an inspiration, a model showing what the Internet can accomplish.
Brad Boston joined the Cisco team in 2001 as the new CIO and Senior Vice President. Boston is responsible for Cisco’s use of information technology worldwide. With the use of IT Boston hopes to increase Cisco’s productivity, efficiency, agility and speed. Boston was responsible for launching Cisco’s new website in 2002. Boston earned a place in BusinessWeek’s 25 most influential people within the industry.
Other current significant leaders include: Dennis Powell, Cisco’s vice president and chief financial officer, Larry Carter, Cisco’s senior vice president, office of president, senior vice president Howard Chaney and Sue Bostrom, Senior Vice President, Internet Business Solutions Group and Worldwide Government Affairs.
C. The Competitive Strategy
Cisco has made its way to the top of the network equipment industry and has maintained this position over time. This elevated status has been achieved through differentiation, innovation, growth and alliance strategies. Cisco is considered a pioneer, as they were the first company in the network equipment industry; in fact one of the first companies in any industry to use the Internet for its own business practices. Cisco adopted the Internet in 1991 and began investing in information technologies. Cisco can be differentiated from their competitors by their outstanding award-winning website, CCO, which offers unparalleled customer service by providing tools specifically designed for customers. Cisco continues to grow by acquiring new companies and branching into new product and geographical markets. Started by a few engineers twenty years ago, this company now has over 34,000 employees. Cisco is also differentiated from their competitors by their numerous acquisitions and available resources. Cisco offers their customers innovative industry-leading products and tools to meet their needs. Alliance strategies have allowed Cisco to quickly offer their customers services or products through partner agreements. The combination of these strategies has proven incredibly successful for Cisco, the network industry’s bellwether.
D. Market and Financial Performance
Cisco is the mighty king within the network equipment industry. Revenues per employee and net sales for this powerhouse tower over competitors. Cisco’s growth in sales can be observed over the nineties in Figure 6, until their peak in 2001. Although it is Cisco’s peak sales year, it is also their only reported loss of $1014 million. Cisco was forced to layoff over 8000 employees and suffered a loss on surplus inventory in 2001. This occurrence can be easily viewed in Figures 7 below. 2002 showed little improvement as Cisco reported a gain but not as high as 1999 or 2000. This past year, 2003 showed a marked recovery for Cisco as their net income exceeded all other years.
Figure 9(1) Figure 10(1)
1. Hoover’s Company Profiles. Hoover’s Online < >
Cisco’s revenue per employee was $525, 417 in 2002. This is larger than all of their competitor’s and more than double the revenue per employee for a few including 3Com. The margin between Cisco’s revenue per employee is much greater for the larger companies like Lucent and Nortel than it is for the smaller companies like Extreme.
Cisco’s profit per employee was $52,583 in 2002. Compared to competitors like 3Com, Lucent and Extreme who suffered losses in 2002, this number is phenomenal. Cisco was one of the few networking companies that reported profit in 2002.
Figure 11(1)
Cisco reached a market capitalization milestone of one billion dollars in 1998. Market capitalization is the total dollar worth of a company's stock, or the price per share multiplied by the number of outstanding shares. The most notable factor determining this value is not the company's current size in terms of sales but the market's perception of its future prospects. If investors think a company will grow rapidly, they are likely to bid up its share price. Figure 9 shows that investors believe that Cisco has a bright future, with a market capitalization value higher than the combined values of the nine competitors shown.
Market Capitalization in Millions of Dollars for 2002
Figure 12(2)
1. NW200 Compare-o-matic. NetworkWorldFusion. <http://www.nwfusion.com/nw200/2003/compare.jsp>
2. Companies Ranked by Market Capitalization. NetworkWorldFusion.
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E. Significance of Information Systems
Information systems have been critical to Cisco’s success. It is possible to say that information systems are the single most significant factor responsible for Cisco’s success. Customers would have sought out Cisco’s competitors or found substitute products if the customer service problems in the early nineties were not solved using innovative IS solutions. Cisco has implemented award winning, ground-breaking systems that benefit not only their customers but also their partners and employees.
CCO, Cisco Connection Online sold over 75 million dollars worth of products within the first four months. Customer order errors dropped one-fourth, from 25% to 1%. Today, over 90% of customer orders are made online through this always accessible globally connected website. This year CCO was awarded “Best Business-to-Business Web Site” by Net Marketing. Cisco states that in 2003, information systems saved the company over $2.1 billion in cost avoidance and time efficiencies.
CEC is Cisco’s intranet, Cisco Employee Connection, a system that incorporates most employee functions to simplify their process. Employees can do everything on this site from request a cubicle reassignment to track a shipment to order catering services for a scheduled meeting or review employee benefits. Cisco boasts that this system empowers employees, streamlines administration, optimizes workforces and improves recruiting efforts. Recruiting and retaining highly skilled technical employees could make or break a company in the 1990’s. These systems helped build and popularize both the culture and excitement of being part of the Cisco team by keeping individuals ‘plugged in’ to the corporate vision.
F. Strengths and Weaknesses
Strengths
Brand Name
Cisco Systems carries security as a name recognized by technology companies. In today’s struggling economy customers are conservative and are avoiding taking risks. Cisco is considered a network veteran with over 90% of the enterprise market, not a risky startup that might disappear tomorrow. Customers feel confident choosing a brand name like Cisco, knowing that other big names like Sprint, Proctor and Gamble and NASDAQ have put their faith in Cisco. A failed mission critical network could cost a company millions and therefore the reliability of Cisco’s high-priced products justifies the extra cost. Network equipment can be quite costly and drastically change the way a company does business. The decision to purchase a router or switch or end-to-end solution from Cisco or any company is not a trivial decision. “People buy Cisco because they are the VP of IT at a company and the CEO won’t fire them if the network crashes and it was all Cisco equipment. The VP knows that any problems in the network can be fixed by Cisco.”
“This is the power of the network. Now.” This is Cisco’s newest global campaign launched in 2003. The campaign focuses on how networks and the Internet are changing lives and how companies can benefit from information technologies. Printed advertisements and commercials show a variety of network beneficiaries from heart patients to schoolchildren to olive companies. Cisco’s goal is to convince companies that Cisco products will immediately save them money. These campaigns give Cisco an advantage over their smaller competitors such as Juniper and Extreme. Cisco has the resources to spend $150 million on a global campaign, an amount the smaller companies could never afford.
Leadership
Cisco has accomplished what it has today because of strong leaders like John Chambers and Pete Solvik. Both of these men are visionaries and risk takers. Solvik developed revolutionary information systems like CCO and Chambers supported and funded the implementation. Solvik can be credited with keeping Cisco on the forefront of the technology wave. “In a two year period we replaced every piece of technology in the company. We have a very low cost/high value technology architecture. We have no mainframes, no mini computers and no legacy technology. Everything is current.” Chambers not only played a major role in Cisco’s early success but in recent years with the struggling economy. He carried Cisco through their darkest days, relentlessly pursuing his vision to change the way we work, live and play.
Customer Satisfaction
Cisco Systems tracks customer ratings through web-based satisfaction surveys. Survey results reveal what customers consider strengths, and areas that need improvement. Feedback is important to the company, because understanding - and acting on - customer input is one of the most valuable sources of Cisco's competitive advantage. John Chambers has always insisted that the company's focus on customers is at the core of Cisco's culture. In an interview in Darwin Magazine, Douglas Allred, Cisco Senior VP of Customer Advocacy, explained, "If your customer satisfaction is decreasing, you're in a death spiral. Customer satisfaction equals customer loyalty.” The fact that Cisco has a VP of customer advocacy is proof they take customer satisfaction seriously.
Power over Suppliers
Cisco has abundant supplier sources and retains the power within the relationships. Suppliers for Cisco are not selling any unique products or services that lack substitutes. Cisco can dictate the terms of the agreement and probably has significant influence on the price agreement. Cisco has such a large number of suppliers and values quality relationships that it gives out supplier awards for each supplier category like optical or transformation. Cisco’s supplier information and enrollment forms ensure that Cisco does not waste time or money searching for new suppliers.
Worldwide Service & Support
Cisco has one of the highest levels of customer service within the high-tech industry. Their website has extensive technical support centers that are backed by armies of support teams. Smaller companies lack the ability to match Cisco’s global high standard of customer service. Cisco also offers educational opportunities that include seminars, e-learning programs and even a Cisco networking academy. Over the years Cisco’s website, CCO, and technical support center, TAC, have won a variety of awards including “Best Web Support Site” and “Best International Service and Support Site”.
Alliances
Cisco devotes a large section of their website to their partners, stating: “The Cisco Channel Partner Program is the most respected in the industry and offers significant benefits”. They provide their partners with the same tools they use, as stated in VAR Business News “Partner Access OnLine (PAL) leverages the same technology Cisco uses internally to monitor and score customer satisfaction levels. The idea is that the partners can use the data, which they can access via the Web 24 hours a day, to get a better understanding of the relationship they have with customers and identify the specific areas where they need improvement.”
Weaknesses
Failed Acquisitions
Cisco has grown in leaps and bounds through nearly one hundred company acquisitions. Similar to their time-conscious decision to outsource manufacturing, Cisco purchases companies with products they deem important but are missing from their portfolio. Speed is the key and Cisco understands that purchasing a company to gain entry to a market is infinitely faster that developing a product from scratch. Cisco has gotten significant product gains from this process but have a history of spending big and then losing the most talented people within the organization. They have also lost money on acquired products that never made it to market. John Chambers acknowledges these problems, “probably 80 percent of acquisitions during the 90s, failed” but still believes that the successful acquisitions make up for the bad.
Failure to Break into the Telco Market
Cisco, throughout their history, has failed to make significant gains in the telecommunications market. When the enterprise segment was soaring it may have been less important, but all customers are crucial in today’s economy. Consider this sale announced January 7, 2004, that Nortel made which includes some of Cisco’s core products. “ announced a juicy VOIP contract with sending its stock up and adding more than $2 billion to the company’s market value over the course of the day. Verizon plans to deploy all of Nortel’s Succession line of VOIP equipment, including softswitches, media servers, and gateways.”
Size
Large companies find it difficult to make changes quickly, adjusting to shifts in the market environment. Cisco has over 34,000 employees and has a large company atmosphere. Unlike startups in the industry, products at Cisco take a long time to be developed and often never reach the market. The company has trouble reacting quickly to market, customer and competitor changes. One of Cisco’s main challenges is getting new products to market quickly; their big company processes are too extensive and slow down the overall process.
Loss of Talent
The famous “Brain Drain”, Cisco has not conquered their problem of losing talented people. It is a common phenomenon for both senior executives and individual contributors to leave Cisco to join a start-up company. Often this decision is made because the start-up, if successful offers huge rewards that are not possible at Cisco. Working on leading edge technology with top talent that can develop products quickly lures many talented engineers and managers away from Cisco. Many people believe that Cisco has lost so much talent they can no longer develop leading edge products on their own. Acquired company employees are more likely to leave than Cisco employees, but it is also common for talented Cisco employees including the product founders, to abandon Cisco. For example, Andreas Bechtolsheim, founder of Cisco’s gigabit Ethernet routers left in 2003 to join a start-up called Kealia. Juniper as well as Procket Networks was founded by frustrated Cisco employees.
SECTION III: INFORMATION SYSTEMS AT CISCO SYSTEMS
Cisco’s use of information technologies has been instrumental to the competitive advantage they achieved, allowing them to dominate the network equipment industry. This section provides an analysis of Cisco’s use of information technologies, concentrating on: accomplishments, support from senior executives and significant contributions to their industry leading position.
A. Strategic Option Generator
The Strategic Option Generator is a tool that can be used to identify strategic business opportunities involving the use of information systems. This model can also be used to analyze the successful use of information systems within an organization to gain a competitive advantage. The Strategic Option Generator first identifies the business target of a particular company and then defines their thrust (strategies), mode, direction (system users) and execution. The correct combination of these factors enables companies to successfully achieve and sustain a competitive advantage through the use of information systems.
Strategic Option Generator
Figure 12
Strategic Target
Customers were Cisco’s target in their strategy to gain a competitive advantage through the use of information systems. Customers have always been a focus at Cisco where customer satisfaction is not a priority but the priority. The first system designed to provide value to customers provided easy access to technical support and improved speed and accuracy of orders. CCO, Cisco Connection Online is Cisco’s main information system that targets customers. This system has brought value to the customer by: decreasing ordering errors and time delays, providing 24/7 technical assistance and providing access to current reliable information. Customers benefit indirectly from two other systems, CEC, Cisco Employee Connection and MCO, Manufacturing Connection Online.
Thrust
This layer includes five business strategies: differentiation, low cost, alliances, growth and innovation. Cisco’s primary thrust was undeniably differentiation; they were providing a “revolutionary” service for their customers. CCO met the growing needs of Cisco’s increasing customer base. The company also differentiated themselves by doing what they preach: Cisco is the best example of how to implement and benefit from a networked infrastructure built on Cisco’s products. Innovation, growth and alliance strategies have been utilized by Cisco in addition to differentiation. Innovation is essential for Cisco’s products and services. Cisco divides its innovation strategy into three segments: price performance, intelligent services and evolutionary infrastructure. Employee growth and product line expansion has been accomplished most often through the acquisition of smaller companies. Alliances have also helped Cisco to improve products and services, quickened product to market time and maintain a competitive advantage.
Mode
Cisco is a pioneer in the internetworking industry. Cisco was and continues to be an offensive global player, leading others in both business strategies and extensive use of information systems. The decision to move online, to transform a brick and mortar company into an e-company was a wake-up call not only to companies within the industry but other industry leaders. Cisco took a risk with an Internet information system strategy that paid off. The idea to share information, especially technical information with customers, suppliers and partners was controversial. By sharing information, by exposing themselves, Cisco ran the risk of giving competitors information that could be used against them. Fortunately, Cisco customers, given access to Cisco’s product problems, now wanted the same access to competitor’s flaws. Cisco has been an aggressive leader with their deployment of information systems and other technologies.
Direction
Cisco information systems users include both individuals outside the company and employees within. For this reason, direction for Cisco is both use and provide. Cisco Connection Online, CCO an award winning site for high customer satisfaction is accessible to both Cisco employees and customers. Employees quickly transfer information to CCO, ensuring that customers, suppliers, partners and investors have access to timely accurate information. CEC is an internal system for Cisco employees’ use and MCO is a system that connects Cisco to their partners and suppliers.
Execution
Cisco became a leader with their implementation of CCO, CEC and MCO. The combination of these factors has enabled Cisco to gain and sustain a competitive advantage through the use of information systems. Their example has been followed by numerous other companies attempting to follow Cisco’s example in the hopes of achieving a strategic advantage.
B. Roles, Roles and Relationships
Behind the success of competitive information systems are employees and relationships. The role of information systems is to concentrate on competitive priorities. Senior management’s role is to understand and prioritize the competitive information systems. The information systems organization is responsible for supporting operations, understanding the business and capitalizing on future opportunities. Users, on an operational level are the ones who actually achieve the competitive advantage with the systems.
Role of Chief Information Officer
CIOs and information system managers need to position information systems to meet the present and future demands of their company. New information technologies that capitalize on future business opportunities must be provided without disrupting daily business activities. Cisco’s current Chief Information Officer, Brad Boston “is responsible for the company's worldwide use of information technology. With a focus on improving the company's productivity, speed and agility, Boston is driving Cisco's IT foundation strategy to enable end-to-end business processes and IT efficiencies throughout the organization.” One of the most important responsibilities Boston has is to manage an ongoing relationship with senior management. By understanding their needs, IT can develop solutions before problems arise. This builds a fundamental trust between IT and senior management. Boston has also deployed some of the telecommunication technologies that will be discussed in the telecommunications section.
Pete Solvik, Cisco’s previous CIO played the role of ‘visionary’ for Cisco’s information systems. During his time at Cisco, Solvik was responsible for worldwide use of information technologies, productivity strategies and Internet initiatives. During Solvik's era, Cisco's business operations became the quintessence of e-business. Practically all functions were virtualized: customer support, manufacturing, sales, the supply chain and accounting. Under Solvik’s leadership, the Cisco Connection Online Web site won dozens of awards including: CIO Magazine's “Web Business 50/50 Award”, WebAward’s “Standard of Excellence Award”, Momentum's “eMarketer Marketing Award” and “Top 100 Internet sites” by PC magazine. Solvik was named in the “CIO 100” by CIO magazine for six years, 1997-2002 and included as one of the “50 People Who Make a Difference in Enterprise Networking” by Network World. Solvik had a tremendous role in building the technology foundation and Internet culture that Cisco is renowned for today.
Cisco Systems >
Role of Senior Management
Senior executives need to recognize the value of information systems and personally sell this importance to the company employees. They are responsible for funding and properly staffing the information system initiatives and IS organization. Cisco’s implementation and commitment to CCO, CEC, MCO and other technologies required senior management vision and approval. Luckily for Cisco, senior management has always seen the importance of information technologies. Today, an investment equal to 5+% of annual revenue is spent on IT. John Chambers defines three perspectives a CEO can hold about information technologies: as an expense, a necessary requirement or as instrumental to implementing strategies. Chambers is a strong proponent of the last view, stating that IT is the vehicle that drives a competitive advantage.
CEOs can not be the only business leaders to support the use of information systems. Cisco has benefited from other senior management leaders like Larry Carter who have prioritized information technologies at Cisco. Carter, now a senior vice president was Cisco’s CFO for eight years. He can be credited with implementing Cisco’s groundbreaking daily financial reporting that enabled their one-day worldwide virtual close. A one day close is a phenomenal tool translating to real-time, ‘hands on’ the pulse of the company.
Figure 13
Gruknovnjak, Joek. “Cisco IT Financial Management Approach.” 2002 Cisco Systems.
<http://internet.fon.bg.ac.yu/download/cisco/Poslovna%20Primena/CiscoITFinancialManagementApproach.pdf>
Role of Functional Management
Functional managers should understand the competitive advantage of information systems, identify new system requirements, financially justify systems and support their use. Cisco’s functional managers have these responsibilities along with certain unique freedoms. In 1993, Cisco developed a revolutionary process for distributing IT project development and IT funding responsibility. CFM, the Client-Funded Model was developed by Solvik and Doug Allred to delegate IT expenditures to business functions.
This decision allows business leaders to decide when, where and what technologies they want to invest in to change the business. This unique IS structure shown in Figure 13, is not a traditional hierarchy. IS decisions are made at each functional business level. In the updated model of CFM, Boston explains that Cisco “encourages people to build applications and systems that work cross-functionally and encompass the whole business process. Business and IT are both responsible for sharing the necessary infrastructure across all the parts of the business. Cross-functional funding helps the company integrate systems and processes.” (2) This form of employee empowerment has enabled lower level managers to make decisions, unleash their creativity, feel like they can make a difference and ensures employee “buy in”.
CEO-CIO Relationship
To achieve and sustain a successful information system it is imperative that a strong, continuous working relationship between senior management and the information systems organization exists. Chambers and Boston believe their relationship, the partnership between the business side and the technology side of the company is crucial. Chambers views the CEO-CIO relationship as critical for success, stating that “This [CEO-CIO] relationship must be a true partnership focused on business results. Cisco CIO Brad Boston and I work very closely together on our company goals.”(1) Chambers believes that IT and business must be aligned to increase productivity which helps companies become more competitive. Chambers is responsible for communicating Cisco’s long-term vision to Boston and the rest of the information systems organization. Boston’s team must use IS to make the vision a reality.
C. Redefine/Define
Cisco has been able to provide value to their customers through their use of information systems. By redefining their internal business processes, Cisco redefined or changed their industry’s factors of competition. Cisco also used information technologies to better define the nature of their business and products by placing emphasis on being their own best model, a networked business. Some product development processes have been redefined with use of information technologies but these changes have not been as
1. Greengard, Samuel. “CEO-CIO Synergy: The Leaders Speak.” Cisco Systems: Customer Care. April 2003. iQ Magazine. <http://business.cisco.com/prod/tree.taf%3Fasset_id=89988&ID=44744&ListID=44694&public_view=true&kbns=1.html>
2. Cisco System <www.cisco.com>
instrumental to providing customer value as the changes to the business processes. Three major systems, CCO, CMO and CEC redefined Cisco’s business processes, differentiating Cisco from their competitors.
Cisco Connection Online (CCO)
In the early 1990s, Cisco was struggling to keep up with their rapid growth. They could not handle the growing number of product orders and customer service problems. After Cisco’s network crashed in 1994, Solvik convinced senior executives to purchase an Oracle ERP system for $15 million. This single investment was huge, about 2.5% of 1993’s revenue and 3 times larger than the previous year’s entire IT budget. Once this system was implemented, CCO was launched and soon customer satisfaction was soaring.
CCO is a self-service system that offers a ubiquitous connection between Cisco customers, employees, partners and suppliers. Customer usage and satisfaction with this system have continued to grow since CCO’s introduction ten years ago. Initially, the site was designed for customer technical assistance and product information, not online purchasing. In 1996, the second phase of CCO was launched, the e-commerce side of the system that permitted online ordering. Customers were given the ability to configure, price, direct and submit electronic orders to Cisco’s automated order-flow system. The majority of the orders go directly to Cisco's third-party suppliers, who will ship directly to customers, reducing Cisco’s product order cycle over 70%. Shipment status can be tracked with Cisco’s direction link to Federal Express and UPS. Today, almost all, over 90% of orders are made online. Over 80% of customer’s service or support issues are resolved online. Error rates have decreased from over 30% to less than 1%. Real time communication and vast access to information have helped increase customer loyalty. Cisco.com, the CCO application, is a monster site today, containing over ten million pages of information.
Other beneficiaries of CCO’s self service system include Cisco suppliers, partners and employees. Companies wishing to be suppliers to the networking giant can find all the necessary applications and information online. Suppliers profit from this streamlined supply chain management that incorporates fully automated activities and accelerates new product development. Cisco partners are given extended access to CCO secure areas and tools to effectively manage this relationship. CCO adds value to partner relationships by sharing access to: online training tools, a partner locater search engine and Partner Access online, PAL, a system that measures customer satisfaction and tracks trends. CCO has led to higher employee satisfaction and retention levels and created a thriving Internet culture. This can be attributed to the self-serving empowerment of CCO. Employees can perform their jobs more efficiently with the use of CCO. Benefits to Cisco include: increased employee effectiveness and efficiency, lower costs, accelerated time to market and most importantly, increased value to customers. CCO has proven to be one of Cisco’s main competitive advantages because of the increased customer care with the added bonus of workforce optimization and integration of supply chain management.
Cisco Value to Customer Chart
Figure 14
Cisco Employee Connection (CEC)
CEC, Cisco Employee Connection is Cisco’s intranet site, first launched in 1995. Originally, the site had limited capabilities, only e-mail, information bulletin boards and search tools. CEC was soon expanded to simplify employee’s daily tasks and boost efficiency. Employees can do everything from order supplies, exercise stock options or hold meetings. One of the first business processes to be redefined by this information system was the Human Resources department. HR forms such as expense reports, health insurance, and new hires were standardized and incorporated into this ERP for online employee access. Employees are highly satisfied with this system that makes their lives easier. A great example of these computerized processes in CEC is the expense report process. Charges can be quickly transferred from an employee’s American Express corporate card electronic statement to an electronic expense form. These forms are submitted automatically and employees can be reimbursed in as little as forty-eight hours. IT has made employees more productive, contributing to Cisco’s profitability in this example. Another key process that was automated was accounting. Real-time management accounting was created with the goal of empowering management teams to improve decision-making with real-time information. Managers can access company orders, discounts, and revenues from the previous day. Accounting automation has also enabled Cisco to close their books in a day, a monumental feat for any large company.
Manufacturing Connection Online (MCO)
One of Cisco’s first landmark decisions was to outsource manufacturing, a necessary decision to meet the raging demand for Cisco products. Cisco redefined their manufacturing process with the use of an information system that was developed in 1998. Cisco Manufacturing Connection Online, MCO, is a business-to-business portal (web access gateway) that connects Cisco’s manufacturers, suppliers, logistics partners, assemblers, and distributors. MCO integrates and networks the supply chains of Cisco and Cisco’s partners and contract manufacturers. Access to information about customers, products, shortages and sales projections are shared through MCO, resulting in decreased inventory costs and more accurate customer delivery dates. MCO is a highly automated process that can reach the assembly line with little human intervention.
D. Significance of Telecommunications
Telecommunications describes the sciences and technologies that transmit various forms of voice and data electronically. Telecommunication technologies have significantly boosted Cisco’s cost savings, productivity, and effectiveness. Cisco is considered the network equipment industry’s most productive company because of their high revenue per employee. Efficiencies have been gained with e-learning initiatives like IP/TV and network access extensions like WLANs. Cisco estimates their use of Internet capabilities saved them over $1.94 billion in 2002 through cost avoidance and time efficiencies. A common theme can be found in all of these technologies: an increase in employee value, productivity, a basis for a competitive advantage and tremendous cost savings.
Cisco’s Fiscal Year ’02 Benefits from Internet Capabilities
Application Cost Avoidance Time Efficiencies Total Savings
Customer Care $891M $8M $899M
Workforce Optimization $300M $339M $639M
Supply-Chain Management $208M $66M $274M
E-Learning $73M $60M $133M
Total $1.94B
IP/TV
Ongoing education and training is necessary to ensure employees understand new technologies and are moving towards the same company goals. This training is often expensive and time consuming for both the company and individual employee. Cisco recognized this problem and developed some innovative technologies to combat the dilemma. IP/TV is Cisco’s network streaming video solution that provides immediate results: cost-savings, wide-scale training, viewer convenience and real-time educational opportunities. Cisco trains their own employees with this IP/TV 3400 series server that they sell to customers along with software as an end-to-end complete network video solution. Employees watch training videos at their own workstations, at their own scheduled time. This unique approach to training employees virtually eliminates the need for costly travel and loss of productivity. Training can be scheduled during “down times’ like between software releases or completed from home. Cisco implements this technology for new product training, up-to-the-minute corporate communications and educational programming. Cisco benefits from this form of e-learning that produces a well-trained knowledgeable staff, provides continual cost savings and increases productivity.
IP Telephony
Once again, Cisco became their own "first and best customer" in deploying this groundbreaking new technology. In 1998, Cisco began deploying integrated Internet Protocol networks to their worldwide offices. Traditional telephone systems were replaced with feature-rich, cost-efficient IP telephony systems. Although it was a risk to deploy integrated data, voice and video, Cisco believed it was a better alternative to
Cisco Systems <www.cisco.com>
reinvesting in legacy technology. They started with a pilot program, with 200 employee volunteers and rapidly expanded. Today, over 100 Cisco sites have IP telephony, serving nearly 40,000 phones, and benefiting employees worldwide through reliable, cost-saving IP telephony applications. The knowledge Cisco gained through this implementation process helped Cisco become the world leader of IP Telephony with over 1.4 billion phones shipped.
Wireless LANs
Wireless local area network deployment or WLAN deployment was one of Cisco’s goals at the turn of the century. Cisco wanted to integrate WLANs with their existing network infrastructure to produce a global, scalable, secure wireless end-to-end solution. The WLAN would be a secondary network, not meant to replace the wired infrastructure, but used to increase employee productivity and safeguard against any unforeseen service impacts. The process of deploying the Aironet WLAN solution began in early 2002 and was completed in more than 380 sites in 79 countries by that summer. This “anywhere, anytime” network connectivity allows Cisco employees to conduct business wherever, whenever. Today, the WLAN is a fully deployed and used worldwide, with more than 3000 access points (about 25/user) and 32,500 clients. This is the largest single enterprise deployment of a global wireless network. Every Cisco employee has been provided with a wireless network interface card (NIC) or wireless laptop. Benefits for the employee include ease of access, convenience, better responsiveness, a wire-free environment, increased flexibility and portability. Employee access to the Internet, applications and e-mail is no longer limited to cubicles but can include locations like conference rooms and lobbies. A study by NOP World estimates a time savings of almost 90 minutes per employee per workday with the use of WLANs. Cisco has profited from this cost effective solution that reduces errors, enables quick decision-making and boosts productivity.
IP VPN
Secure IP Virtual Private Networks, VPNs, allow employees to telecommute and virtually meet. Employees can access Cisco’s VPN remotely through a high-speed DSL or cable connection. Cisco estimates that VPNs have increased productivity one to two hours a day for each employee. IP phones allow users to hold virtual meetings and access the same tools as employees within Cisco office buildings. Other advantages include retention of highly skilled employees who can not commute, travel cost savings and the elimination of long-distance phone tolls.
E. Success Factor Profile
The Success Factor Profile is a compilation of the strengths of over 150 organizations and their strategic use of information systems. Sixteen factors that helped companies gain a competitive advantage were defined. Primary factors vary between companies in the networking equipment industry because of different company strengths such as: strategies, management and product line. The majority of these factors could be used to describe Cisco’s successful utilization of information systems. The following success factor breakdown is limited to the major factors that helped Cisco successfully achieve a competitive advantage with information systems.
Executive and Information Systems Management Partnership
A strong relationship between senior management and information systems management is a crucial success factor for Cisco. There must be an ongoing working relationship where communication between the two parties is open and frequent. In a recent interview Chambers stated “the relationship between the CEO and the CIO is critical for success.” Chambers meets with Cisco’s CIO frequently, believing that he has a strong partnership with Boston. Through direct communication with Chambers, Morgride and Valentine, Cisco’s most influential CIO, Pete Solvik, was able to understand Cisco’s business needs and develop Cisco Connection Online.
Other important aspects of this relationship include senior management confidence in information systems and information systems management business understanding. Chambers is a great example of a company leader who believes in the dependability of information systems and views them as a competitive resource. Pete Solvik, Cisco’s most influential CIO and Brad Boston Cisco’s current CIO, understand Cisco’s priorities and direction. Neither CIO is solely technical; both have a business perspective from their previous companies.
Business Vision
Cisco is striving to “Change the way we Work, Live, Play, and Learn". This change will occur as Cisco "Shapes the future of the Internet by creating unprecedented value and opportunities for customers, employees, investors, and ecosystem partners." Cisco’s vision is defined and supported by Cisco’s visionary CEO. Chambers is the “industry spokesperson”, the “King of the Internet” who is campaigning for the Internet revolution. His vision and prioritization of information technologies has spread through the company. Chambers has consistently been both a motivator and educator within his own company; he understands the power of all employees marching together. “I want Cisco to be a dynasty. I think it can be a company that changes the world.” Chambers long-range goal is for Cisco to become the most powerful and influential company in history. This goal is fairly vague and gives Cisco room to make all kinds of changes needed to move towards this goal. Cisco’s vision to change the world is accepted by employees who are motivated to use the information technologies tools at their fingertips to move the company in this direction. Employee approval and vision support help foster a healthy culture within Cisco.
Culture
Cisco has been honored by being in many annual “Best Company to Work For” lists. A healthy company culture keeps employees motivated and happy. Chambers’ values have been driven down throughout the organization. Slogans are transformed into reality by educating and uniting employees around the company’s goals. The message is clear: customers are the priority, focus on their needs and providing solutions to make them successful. Employees respond positively to culture that emphasizes customer satisfaction because it translates into being part of an organization that believes in quality. Given Cisco’s product line and e-business foundation it is no surprise that Cisco has been identified as having an “Internet culture”. Employees are computer savvy; they recognize and accept the use of computer based information systems. Many employees are able to telecommute due to the IS systems implemented.
A big part of this healthy culture stems from employee empowerment and the motto, “Don't ask for permission, ask for forgiveness later”. Encouraging employees to take risks, to go forward with their ideas, creates an exciting work environment. People are not stuck doing the same monotonous tasks day after day. Empowerment is also tied to communication, the ability for every employee to ask questions and make suggestions. Each month Chambers holds a “birthday breakfast” session where any employee who had
Greengard, Samuel. “CEO-CIO Synergy: The Leaders Speak.” Cisco Systems: Customer Care. April 2003. iQ Magazine. <http://business.cisco.com/prod/tree.taf%3Fasset_id=89988&ID=44744&ListID=44694&public_view=true&kbns=1.html>
a birthday that month can ask questions. The goal is to allow employees who are not involved in senior management meetings to get a chance to listen and contribute.
Chambers believes Cisco’s emphasis on giving back to the community has helped shape Cisco culture. Other factors promoting a strong culture include unique employee centered programs like the technically sophisticated childcare service in Silicon Valley. Cisco’s Family Connection is a childcare center for over 400 children. The center has classrooms and playgrounds with IP/TV technologies that let parents check on their child from their desktop at any time. Parents are delighted to have their children in this on-site childcare center. Lastly, educational opportunities and reward programs have helped facilitate a strong company culture. Cisco’s success and the individuals’ success are cemented through employee stock award programs
Information System Integral to the Business
If Cisco’s information systems stopped functioning for any extended period of time Cisco would be wiped off the map. Cisco is synonymous with e-business, with online applications. Not only would customers lose faith in a company that failed to keep their own products working but virtually all of communication and transaction channels would disappear. Cisco’s streamline business processes would be inoperative. There is no way that Cisco would be able to resolve this problem quickly. How would the 90% of customer orders currently made online be received and filled? How would the lost online technical support information be accessed? Cisco Systems would face a major irresolvable consequences if their information systems shutdown.
Linkage to Suppliers and Business Partners
Cisco’s global network was extended to their business partners and suppliers: sharing accurate, timely data. This system has instantaneous sharing of data about supply, demand, design, finance and manufacturing. Through the sharing of critical knowledge, process times and decision making has been reduced from days to minutes or seconds. Partners , suppliers and Cisco benefit from this close relationship that improves responsiveness and efficiency. Suppliers now have the tools to do their own forecasting, to better manage their costs and inventory. The streamlining of supply chain management has allowed Cisco to reduce costs, get products to market faster, increase value to customer and guarantee the delivery process. There is a definite competitive advantage in a link to suppliers that is so powerful that Cisco products get delivered to the customer without a Cisco employee ever touching the product.
Linkage to Customers and Customer Service
Through the use of information systems Cisco was able to redefine their connection to customers and customer service. As previously cited, customer satisfaction in the early 1990s was dangerously low, something had to change. There were too few employees to effectively run a call center and the cost to employ the number of employees needed to sustain the growth rate was exorbitant. Customers now diagnose network problems and access technical data through the Technical Assistance Center, (TAC) on CCO or use TAC to communicate with Cisco employees.
Customers can also place and customize orders using CCO as well as research products and end-to-end solution alternatives. Customers’ primary interaction with Cisco is through CCO, making user-friendliness and user approval a must. Cisco runs one of the largest usability testing programs in the world for their website. Customers and engineers are videotaped and interviewed to identify parts of the site with navigation problems. This feedback allows Cisco to make frequent changes resulting in improved user convenience and experience.
SECTION IV: A FINAL ANALYSIS OF CISCO SYSTEMS
THE SUCCESS OF CISCO SYSTEMS
Cisco has had their ups and downs, extreme ups and extreme downs. They had a momentous beginning with record growth and sales. By 2000, Cisco was named the “world’s most valuable company” with a market capitalization of almost $600 billion. They were one of the fastest growing companies in the world pushing the envelope with their innovative technologies. The tech recession hit the unsuspecting company hard and fast. By 2001, Cisco’s stocks had plummeted; they were forced to have layoffs and incurred a billion dollar net loss. Cisco was in pain and forecasters predicted the worst. Cisco surprised the industry critics by beating the odds with a strong comeback. Today, Cisco is recovering, doing well, but still struggling to regain the position they held a few years ago.
A. Success of Business Strategy and Information Technology Use to Date
Cisco is the leader in the network equipment industry. Their sales, profits, and revenue per employee surpass all competitors. Implementation of bold strategies, including information technologies and e-business processes has made this a reality. Cisco has continued to grow and expand globally (with the exception of the layoffs in 2001) with the help of information technologies that connect their customers, employees, investors and partners. Business processes have been streamlined by information technologies that share accurate real-time data.
Technology and Information Systems
There is no doubt that technologies and information systems have made Cisco the world-class leader they are today. Information systems like Cisco Connection Online, CCO, Cisco Employee Connection, CEC and MCO, Manufacturing Connection Online have helped Cisco increase employee efficiency to become one of the most productive companies. These systems have also set Cisco apart from their competitors; they are the foundation of Cisco’s competitive advantage. They are the company’s main provider of value to the customer. These systems along with technologies like IP/TV and WLANs have saved Cisco money through cost avoidance and workforce maximization, while providing value to the customer. Telecommunication technologies have enabled Cisco to complete over 80% of their sales and technical training online. They have saved 40-60% in costs compared to the typical expenses of travel and traditional classroom training.
Figure 15
Access to real-time information has been a critical success factor for Cisco. The company’s decision to link employees, customers, partners and suppliers through a global
network has been beneficial to all parties, Figure 15. Information technologies have empowered Cisco employees who can access reliable data to forecast and make decisions. An example of this access is the automated financial business process. One of Cisco’s most impressive technical achievements briefly mentioned above is their virtual close. Cisco is able to close their books within 24 hours before the end of a quarter, a task that takes most companies weeks to accomplish. The accomplishment isn’t so much the quick close at the end of the quarter but Cisco’s continuous access to real-time hard numbers like revenue and orders, not just estimates. With real-time management accounting Cisco is better able to maintain control in a dynamic environment and avoid financial surprises.
Accomplishments
Cisco is a trailblazer. They were the first ones to develop and market routers, the first network equipment devices. They were the first industry company to implement e-sales and e-support to enhance their value to customers. Cisco is not afraid to take risks.
Projects like CCO and IP Telephony network integration could have failed and cost Cisco
“Cisco Systems: The Network is the Company.” Alliance for Converging Technologies. 1999 <http://www.digital4sight.com/pdf/10_15cisco.pdf>
greatly. Some projects have failed but the positive gains far exceed the negative losses and Cisco will continue to sponsor new endeavors.
Cisco is an enthusiastic user of the products that they sell. They are their own best customer, providing a great example of how to benefit from network infrastructure technology. Every Cisco business process employs networked technology: streamlining their customer, employee, supplier and partner interactions to decrease costs and accelerate innovation. Ed Kozel, Cisco’s previous Chief Technology Officer explains that “CEOs didn’t want to see a box [router]. They wanted to see how a company could be run. All of our competitors were saying, ‘My box is faster, it’s cheaper.’ They were competing at the level of boxes. They weren’t talking about what you can do with boxes.”(1) Customers want to emulate this model, to reap the benefits that Cisco has. Cisco’s decision to use their own company as a model has strengthened their company name and customer willingness to implement new technologies.
Crucial Factors for Success
One of the fundamental factors of Cisco’s success has been their strong leaders. Chambers and Solvik had the vision that has driven Cisco to the forefront of technology and the essential focus on customers. Chambers is fanatical about customers and has instilled this customer satisfaction emphasis on employees. As Pete Solvik explains, "The goal is to create a relationship where customers can get access to every aspect of their relationship with our company over the intranet or Internet". (2) Emphasis on customers inspired the development and adoption of information systems like Cisco Connection Online and its customer-facing applications.
Customer satisfaction and customer support are huge contributors to Cisco’s leading position. Cisco has prioritized the customer from their early days and implementation of CCO. Not only does this attention make customers happy and boost their loyalty but this focus provides Cisco with the means of predicting future trends. If Cisco can continue to anticipate customer’s future needs they will be able to maintain their competitive advantage.
In today’s stressed economy companies are reluctant to take risks. Customers need to feel
secure with their decision to purchase a product or end-to-end solution. Brand name
dependability and history are factors that have helped Cisco maintain their dominant position within the network equipment industry. Networks today are implemented in mission critical systems. Customers want to purchase equipment from companies with a strong history and bright future. Cisco, unlike their small start-up competitors is an example of a company that has weathered the test of time. Current and future marketing campaigns are introducing Cisco to new customers and strengthening their company name.
1. Slater, Robert. The Eye of the Storm: How Chambers Steered Cisco Through the Technology Collapse.
New York: HarperCollins Publishers Inc., 2003.
2. Sherman, Lee. “A Matter of Connections.” Knowledge Management. July, 2000. KM Magazine.
< >
B. The Effective Position of Cisco for the Future
Can Cisco System’s phenomenal strength and worldwide dominance withstand the test of time? Four years ago investors, employees and customers alike were asking the question “Is Cisco going to survive?” During Cisco’s free-fall days people weren’t so sure of the answer. Chambers was confident though, he believed Cisco would rise again and he was correct.
Continued emphasis on the customer has postured Cisco well for the future. Exceptional customer support and service are strengths at Cisco and will continue to be an asset. TAC, Cisco’s technical assistance center provides customers with 24/7 access to all technical data. Systems monitor customer satisfaction and programs like customer usability testing are used to pinpoint areas that need improvement. Customer focus gives Cisco the ability to predict the future needs of customers and industry trends. Customers are growing more sophisticated and demanding. If Cisco understands the customer needs they will be able to offer innovative solutions and sustain their competitive position.
One of the major future concerns for Cisco is what will happen when the company loses John Chambers? “In the fall of 1999, John Chambers told the Cisco board that he would stay through 2004; he also said that he might stay for 10 years if everyone would have him.” It is 2004 and although there have been no announcements, this could be one of Chambers last years as Cisco CEO. Chambers has not identified a number two or group of potential successors, there is no apparent heir. Will Chambers’ heir be able to carry on Chambers’ legacy and built upon Cisco’s success story? Cisco grew from $1.2 billion in annual revenue to their current run-rate of approximately $19 billion under Chambers. Cisco stock increased 10,000 percent since Chambers took over as CEO. Is there another person who can persuade companies to join the Internet crusade? Can Cisco employees be motivated under someone else’s leadership? If John Chambers personally mentors a replacement and eases him or her into a leadership position, they will have a good chance of success.
As the United States economy and global economy improves, network equipment sales and profits will increase. Corporations that delayed capital spending for network upgrades during the recession will not survive unless they invest in their network. Other
less networked countries like China have begun to build their network infrastructure and more countries will follow. There is a large opportunity for growth in the future. The number of Internet users and e-businesses is growing at a phenomenal rate. Cisco is in an excellent position with a name that both companies and governments recognize and trust. Many smaller potential competitors did not survive the technology crash and new start ups will need to prove themselves. Cisco will continue to be profitable and has some time before up and coming companies like Juniper and Extreme present a real threat. These companies are smaller, agile and are producing faster networking equipment, at a lower price. With a smaller product line, these companies are also able to get products to market much sooner than their giant competitor. However, many major corporations got
Slater, Robert. The Eye of the Storm: How Chambers Steered Cisco Through the Technology Collapse.
New York: HarperCollins Publishers Inc., 2003.
burnt recently by failed start ups and will not trust another small company with their network. Cisco will profit from this experience. Cisco will also face problems if they continue to fail to break into the telecommunications market. This is a huge market that will continue growing and Cisco has not made any advances despite their many attempts.
The Internet Revolution is happening! In 1989 there were 80,000 Internet hosts, by 1996 there were 14,325,000 hosts and 100,000 websites; two years later there were 29,670,000 Internet hosts and 1,834,710 websites. In 2002, there were a staggering 147,344,723 Internet hosts and 36,689,008 websites. The world is changing, Chamber’s Internet Revolution is happening and Cisco is playing a major role. Cisco is routing the future, changing the way you and I live, work and play.
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Hartsock, Netty. “IBM, Cisco partner for corporate streaming.” eBusinessIQ.
<http://www.ebusinessiq.com/industries/Education%20Government/415-eBusinessIQ%20Eductation.html>
Technologies
Blackwell, Gerry. “Cisco's Wi-Fi Challenges.” September 10, 2003. Wi-Fi Planet
< http://www.wi-fiplanet.com/columns/article.php/3075681>
Chugh, Manoj. “Putting the IT in productivity.” January 2003. Network Magazine. < http://www.networkmagazineindia.com/200301/cover8.shtml>
“Gaining Competitive Advantage through Internet Business Solutions.” February, 2004
< >
Top Three Sources!
The absolute most informative source was Cisco.com. There is an unbelievable amount of accessible information. I watched short speeches given by senior executives and their most recent commercials. They may be a bit harder to find but there are a lot of great PowerPoint presentations and referenced articles.
Slater’s book, “The Eye of the Storm” was also a helpful reference because it written recently and discusses Cisco’s comeback with the help of John Chambers.
I also liked the Dartmouth article, “Cisco System Evolution to E-Business” as an introduction to Cisco. The article gives a brief overview of Cisco’s beginning, major systems and successes.
For financial information and comparisons and Hoovers’ are useful.
