Cisco Systems and National
Australia Bank
MIS 204
Michael Reynolds
Amanda Grove
Who Cares about Cisco Systems?
► Founded
by Stanford University computer
scientists in 1984.
► In 1990 the company grew at a double digit
rate.
► Now Cisco has 85% of the Internet routing
and switching equipment market.
Why Cisco Prospered at first…
► Adapted
the first multiple-protocol software.
► Cisco was the first to create the
commercially successful multi-protocol
router to allow previously incompatible
computers to communicate using different
network protocols.
► Products first started hitting the internet in
1995 and by 2000 Cisco Systems were
selling 50 million products a day online.
► Internet Protocol
Two main Cisco Systems Strategies
► First:
The company outsourced most of its
production.
► Second: The significant portion of its
growth was through acquiring and investing
in other companies especially suppliers.
555 Billion to 100 Billion???
► In
2000 Cisco was briefly worth $555 billion.
► April 2001 it declined in value to nearly
$100 billion.
► The stock price peaked at over $80 per
share in July 2000
► The stock price bottomed out at less than
$14 per share in April 2001
Cisco Systems Internet Sales
► Customers
use the Cisco Connection Online
(CCO) to configure, price, route, and submit
orders electronically to Cisco.
► 50% of the orders entered on CCO are sent
directly to the manufacturers, then shipped
directly to the customers.
► Delivery went from taking 6-8 weeks to less
than 3
Cisco Sales Database
► Cisco’s
sales database is updated THREE
times daily.
► Engineering managers receive email alerts if
a big problem occurs that is not solved
within one hour.
Business to Business Supply Chain
Extranet
► Cisco
created Manufacturing Connection
Online for business transactions between
manufacturers/suppliers with Cisco Sytems
► Manufacturers could purchase supplies,
make reports or submit forecasts and
inventory information
► Inventories for Cisco’s suppliers were
reduced by 45% after the formation of this
extranet
Cisco’s Decline
Starting in Spring 2000
► Cisco projected its sales to double over the next
year so they made the “necessary” orders.
► Telecommunications market was falling
(dotcoms etc.) but Cisco wanted to expand as it
had before (mid 90’s)
► Year ended with 40% decline in
telecommunication sales (largest market)
► 6,000 employees released
Ending in April 2001
National Australia Bank and
Computers Errors
► 1998-National
Australia Bank (NAB) was the
largest bank in Australia.
► NAB bought HomeSide Lending Inc. for
around $1.2 billion. HomeSide was located
in Jacksonville, FL and was the 6th largest
home loan servicing company in the US
(about 2 million).
Problems from the beginning
► In
2001 the US Federal Reserve lowered short
term interest rates indirectly causing long term
rates to fall especially for HomeSide.
► Several of these long term interest rates included
mortgage rates so HomeSide customers were
refinancing at dangerously low rates.
► HomeSide and NAB cost themselves a $288 million
after-tax write-down that year.
HomeSide Computer Forecasting
Software Fails
► HomeSide
developed a model to forecast their
income of loan servicing.
► This forecast model was connected to another
model and both had to use the same type of rates
(either both net or both gross).
► BIG MISTAKE: one model was using gross rate
while the other was using net rate.
► Complete overstatement was made in projection
for the 2 years
Costs for NAB
► $1.2
Billion to buy HomeSide
► $288 Million write down in beginning of 2001
► $400 Million write down in July 2001
► $760 Million for forecasting error 1999-2001
► Sold HomeSide for $1.9 Billion to Washington
Mutual, the US largest savings and loans company
► 2006 Money Magazine named NAB “Bank of the
Year”
References
► Case
Study. “Cisco Systems and Australia
National Bank”. Binder in the Library.
► Former VP of Sales for Commercial East
Area Lou McElwain
► Wikipedia Encyclopedia
http://en.wikipedia.org/wiki/National_Austra
lia_Bank