Cisco Systems
Networking the Internet Revolution
Brandi Martin
brandi@ucsc.edu
Table of Contents
Paper Objective
Section 1: The Network Equipment Industry
A. Industry Profile
B. Competitive Strategies within the Industry
C. Porter Model Evaluation of Industry Forces
D. Globalization of the Industry
E. Importance of Information Technology to the Industry
Section II: Company Perspective: An Analysis of Cisco Systems
A. Cisco Company Profile
B. Market and Financial Performance
C. The Competitive Strategy
D. Significance of Information Technologies
E. Strengths and Weaknesses of Cisco
Section III:
A. Strategic Option Generator
B. Roles, Roles and Relationships
C. Redefine/Define
D. Significance of Telecommunications
E. Success Factor Profile
Section IV: A Final Analysis of the Success of Cisco Systems
A. Success of Business Strategy and Information Technology Use to Date
B. The Effective Position of Cisco for the Future
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Objective of Paper
The purpose of this paper is to provide an analysis of Cisco System’s primary business
strategies and its utilization of information technologies to achieve a competitive
advantage in the network equipment industry. The paper is divided into four sections,
starting with a broad industry analysis, then narrowing to concentrate on Cisco Systems
Inc., followed by an analysis of their use of information technology. The conclusion is a
final analysis of Cisco System’s success.
The first section defines the structure of the network equipment industry. This
complex industry can be defined with the help of detailed industry trends, universal
strategies, effects of globalization and the significance of information technologies within
this fast paced industry. The second section will provide an analysis confined to Cisco.
Included in this in-depth examination is a company profile discussing Cisco business, the
business leaders, specific strategies, financial performance, use of information systems
and a summary of strengths and weaknesses. Section III concentrates on the use of
information technologies for this company. The role of information systems within Cisco
is analyzed using a “strategic option generator” and a “value to customer model”. The
paper concludes with a final analysis of the success of Cisco Systems, including
strategies and information technology that gave Cisco a competitive advantage. Cisco’s
current position in the industry for continued future success will also be addressed.
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SECTION I: THE NETWORK EQUIPMENT INDUSTRY
A. Industry Profile
The network equipment industry, although still in its infancy, is a booming industry
made possible by the Internet revolution. Broad acceptance of the Internet has created
new models for business, new means to motivate, organize and inform the public, and
new thinking about how humans communicate. Successful companies within this
industry have shown record growth in a world where everyone wants to be connected
and speed is everything. To connect the planet, network equipment companies design
and manufacture routing and switching equipment, communication and network
access devices, security hardware and wireless networking products. These
networking products are used to connect both WANs, wide area networks, and LANs,
local area networks. Large scale product solutions exist for corporations,
governments, and universities while smaller solutions are available for individual
consumers.
Two main markets exist for network equipment industries, a telecommunications or
service provider market and an enterprise or datacommunications market. Both
markets buy networking equipment but the telco market is defined by customers like
PacBell, Verizon and China Telecom whereas the datacom market consists of mid to
large corporations in banking, healthcare, transportation and dozens of other
industries. The ten dominant companies within the network equipment industry
include: Cisco Systems, Nortel Networks, Lucent Technologies, Juniper Networks,
Extreme Networks, Alcatel Fundamentals, 3Com Corporation Fundamentals,
Foundry Networks and Enterasys Networks. Lucent, Nortel and Alcatel are leaders in
the Telco market while Cisco rides high, estimated to own more than 90% of the
enterprise market.
Cisco, Alcatel, Nortel, 3Com and Lucent are large corporations that offer a diverse
range of products and services. Not all of their products and services would be
classified as network equipment but their core businesses can be defined as such.
Extreme, Juniper, Foundry, and Enterasys are much smaller companies that specialize
in one area within the network equipment industry. The discrepancy in size of
companies focused in the enterprise sector can often be attributed to mergers or
acquisitions. Traditionally, successful start-ups are often bought by larger companies
such as Cisco before they have a chance to significantly grow in size. However, many
of the smaller successful network equipment companies today have not been acquired
due to the recent economic downturn.
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Size of the Ten Dominant Network Equipment Companies
Cisco
Juniper
Extreme
Nortel
Lucent
Enterasys
3Com
Foundry
Alcatel
Ciena
80000
70000
60000
50000
40000
30000
20000
10000
0
Number of Employees
Figure 1(1)
Recent years have dealt a major blow to the information technology industry including
the network equipment industry. The network equipment industry has been riding a
rollercoaster in the past decade, reaching unbelievable heights and terrifying free-falls.
“In the last 10 years, more than $246 billion has been invested in networking equipment.
In the Internet. In Intranets. Extranets. In the last 10 years, we [Cisco] have seen a stock
market run-up of unprecedented proportions in Internet-related businesses. We have seen
a dot-com boom. A dot-com bust. And worldwide business readjustment, realignment,
retrenchment.” (2) In March 2001, still wounded from the events of September 11th, the
United States economy entered a recession after ten years of growth. GDP fell;
unemployment rose and companies stopped or delayed spending on large projects. The
seeds to this economic downturn were planted in the preceding year. Many companies,
especially service providers were purchasing equipment on credit or purchasing
equipment financed through the seller. When a company went bankrupt the equipment
was returned or simply written off as a loss. Cisco financed several equipment deals that
resulted in losses for the company.
Net Sales for Top Ten Network Equipment Industry Companies (millions)
35000
Cisco
30000
Juniper
25000
Extreme
20000
Nortel
Lucent
15000
Alcatel
10000
Enterasys
5000
3Com
Foundry
0
2003
2002
2001
Figure 2(1)
5
2000
1. Hoover’s Company Profiles. Hoover’s Online< www.hoovers.com/cisco-systems/--ID__13494--/free-co-fin-factsheet.xhtml>
2. Cisco Systems. Manifesto Brand & Technology Ad <www.cisco.com/offer/powernow/docs/FINAL_MANIFESTO_Feb10_03.pdf>
Companies like Cisco, flying high in 2000, suddenly had to layoff thousands of
employees and report net losses for the first time. Cisco, once the highest-valued
company on the planet suffered a stock meltdown in 2001. By 2002, virtually all
companies in the network equipment industry showed a massive decline in sales and
revenues compared to previous years, shown in Figures 2, 3 and 4. This past year, 2003,
showed signs of economic recovery but many companies are still struggling. Stock prices
ranging from $65.00 to 100.00 are now between $5.00 and $25.00. In the present
economy, companies are not purchasing new equipment to build, extend or upgrade their
network. This trend will continue to hurt this industry.
Profit or Losses reported for 2002
2000
Cisco
Foundry
12000
Juniper
Extreme
9000
1500
1000
6000
500
3000
Nortel
Lucent
Enterasys
3Com
Alcatel
0
0
Losses in Millions
Profit in Millions
Figure 3
Ciena
Figure 4
Companies with Largest Employment Changes in 2000
Company
# of Employees in 2003
% Change from 2000-2001
Nortel
36960
-31%
Lucent
34500
-39%
Juniper
1542
26%
Ciena
1816
-44%
3Com
3300
-43%
Enterasys
1627
-12%
Industry analysts are optimistic and continue to predict economic recovery, but the
financial performance of the companies has not reached its high peak of 2001. Hope lies
in the Internet. Internet traffic doubles every 12 months, increasing the need for Internet
bandwidth and the demand for network equipment. As Korzeniowski from LinuxInsider
explains, “Internet use will continue to grow and that bandwidth requirements, as a result,
will continue to increase, ultimately making high-end routers a necessity rather than a
luxury”. Whether a company’s network is built with routers or switches or another
product, as the Internet grows so will their need for equipment.
NW200 Compare-o-matic. NetworkWorldFusion. <http://www.nwfusion.com/nw200/2003/compare.jsp>
6
B. Competitive Strategies within the Industry
A competitive strategy is essential for a company to successfully compete in today’s
dynamic environment where technologies and the rules of competition are continually
changing. Companies in the network equipment industry must make critical decisions
about product scope, alliances, markets, information systems, services portfolio and
pricing packages that will define how competitive their company will be. In the network
equipment industry the diversity of products and services offered will depend on the size
of the company. Differentiation of features/functions/benefits for companies within this
industry is fundamental. The main strategy for companies within this industry is
differentiation. Companies differentiate themselves from competitors with products,
customer service, acquisitions and using information technologies to improve their
business processes. Information systems are a necessity for companies to remain
competitive, allowing management to make better informed decisions by providing
detailed current information and the tools to support business strategies such as
differentiation, innovation, growth, low-cost and alliances.
The Business Strategy Model, shown in Figure 6, defines the strategy choices specific to
this industry. One of the first decisions a company must make is what products and
services will they offer. Will they specialize on a single product, routers, or offer an
extensive product line? Companies must also decide if they are going to sell end-to-end
solutions which usually include network equipment, software and support or just the
network equipment. Product choices are strongly related to the company’s chosen
customer. Large corporations will need more complex technologies and have more
financial resources than a home office customer. It is important that products match the
targeted customer. Most companies in this industry have selected a global marketing
strategy and are situated in the regions listed in Figure 6. Today’s hot question is: “too
outsource or not to outsource”. Companies must decide if they want to save costs by
outsourcing manufacturing to those more qualified, work with vendors or vertically
integrate. Sales strategies can include online e-sales, independent dealers, a sales force or
distributors. Given the choice of remaining independent, having joint ventures or forming
alliances, most companies in this industry chose the latter. The last strategy decision
includes the business processes where it is possible to implement an information system.
Differentiation
To gain a competitive advantage in the network equipment industry differentiation
strategies are maintained. This is the primary strategy that companies choose to focus
their efforts on. Companies in the network equipment industry can differentiate
themselves through the new products they develop and the product lines they choose to
support. These products can be developed within the company or acquired in an
acquisition. Some companies like Cisco have routers with so many features they can be
compared to Swiss Army knifes while Juniper routers are fast and simple, comparable
with a very sharp hunting knife. The quality of products and brand reputation is a huge
differentiating factor. Is the equipment reliable? Will the network go down? Companies
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can also differentiate themselves through marketing campaigns that focus on
strengthening their brand name. Some companies distinguish themselves through the use
of information systems that add value to the customer.
Innovation
Network equipment is innovative technology. The network equipment industry is a
ground-breaking industry. Twenty-five years ago networks didn’t exist, routers and
switches had not been invented, the new buzzword was connectivity. Today, companies
compete by racing to develop new products offering the best solutions to meet customer
needs. For example, gigabit routers have recently been replaced by terabit routers, a feat
once thought impossible. Customers want network equipment that is fast, but more
importantly equipment that will not fail. Mission critical networks are not like individual
computers or retail stores, if a network fails for a day or even an hour a company could
lose millions. The banking industry is a good example of service offerings based on
networks. Without wide area networks, ATM transactions would not exist (a service that
people can no longer live without). If that network goes down, the bank is losing millions
due to lost transactions. On average banks charge about $1.50 for each ATM transaction,
this amounted to $2.1 billion transaction surcharges last year. If one network goes down
for one hour affecting two thousand Citibank ATMs, how much would Citibank lose?
How much more would Citibank be willing to pay for network equipment and services to
ensure their network never failed?
Growth
Growth has also proven fundamental to many companies who expand their internal
workforce or grow through acquisitions. Incorporating a new company and possibly a
competitor not only brings new products aboard but new talent. In a time conscious
market it is often easier and faster for a company to fill a void in their product line by
buying another company. Companies can gain immediate access to niche markets by
incorporating/absorbing a purchased company into their own. Talent is also a key asset in
this young industry and companies often gain experienced engineers and executive
leaders through acquisitions.
Expansion into international markets is crucial in this industry. The Internet is a global
entity that appeals to people of all nationalities and ages. The North American market and
North American Internet has a mature network infrastructure in comparison to other areas
like Asia that have just begun to develop their network. In the US, almost all of the
network equipment companies are global players and will continue to expand in the
future despite recent downsizing. Expansion is focused on regions where network
infrastructure is still largely undeveloped like the Middle East, Latin America and Asia.
China is the current hotspot that many of the industry companies are targeting. Growing
exponentially, China offers companies the opportunity to build a backbone network for
its massive population, a substantial new market.
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Industry Strategy Options
Figure 6
Alliances
Establishing partnerships with other companies is another competitive strategy that has
been implemented by numerous companies. Alliances allow a company to offer services
or products to their customers that are not available from the company itself. Alliances
can also improve a company’s position within the current market. Partnership agreements
allow companies to focus on their core businesses and still offer a complete solution to
their customer. By forming a mutually beneficial alliance with one or more companies to
deliver what the customer wants in the timeframe the customer is demanding, everybody
wins. An example, IBM formed an alliance with Cisco to sell a digital media delivery
package that was developed using technologies from both companies. IBM incorporated
9
Cisco’s IP-based delivery and distribution system for digital media into their own suite of
digital media storage and management tools. Both companies benefited from the alliance
that resulted in a new product which will benefit consumers and create profits for both
Cisco and IBM.
Low-Cost Strategy
A low cost strategy could offer a company a competitive edge within the network
equipment industry with notoriously expensive products. Low costs are possible due to
the development of new technologies. In particular Juniper Networks has focused on
offering lower cost products as an alternative to Cisco’s high priced products. Overall this
strategy is not a logical choice because of the high input costs in this particular market.
Strategies could also include offering price discounts when necessary. This strategy is
used to drive out entrenched competitors and acquire new customers. Cisco utilizes this
strategy with large corporations, offering a low cost to lure the customer away from any
competition.
C. Porter Model Evaluation of Industry Forces
Five forces exist in the Porter Model that influence the competitive environment within
the network equipment industry. Companies that directly compete within this industry are
listed with intra-industry rivalry. The most threatening competitors for the strategic
business unit, Cisco Systems include Extreme, Juniper, Enterasys, Foundry and Nortel.
Other competitors, not competing as directly in Cisco’s core markets, but still a threat are
Lucent, Ciena and 3Com. The Porter model recognizes specific customers and suppliers
with power that affect industry rival competitive characteristics. Substitute products like
used routers auctioned on E-bay, and possible new entrants that carry potential threats to
the industry are also included.
Intra-Industry Rivalry
Cisco’s core competitors are companies that compete in the Enterprise market. These
rivals sell products comparable to Cisco’s core products, routers and switches which
make up over 65% of Cisco’s sales. Although, Cisco has continually attempted to break
into the service provider market they have had only limited success in selling to the major
Telco’s in the United States compared to rivals Lucent, Nortel and Alcatel. They have
secured business with some smaller service providers in Canada, Europe and Asia.
Recently, Cisco has been emphasizing their end-to-end customer solutions but has not
had as much success as with their core products. Cisco has also tried to offer products
and services to another customer, home and home office users. Again, Cisco has had
some success in this smaller field but it is still a new push and will take time to develop.
10
Figure 7
The Bargaining Power of Suppliers
The bargaining power of suppliers is minimal for this specific industry. Cisco is a giant
company and there are an abundant number of suppliers willing to compete for their
business. Equipment vendors all have substitutes. As the number of competitors in each
of the vendor’s industries increases, power decreases. Vendors are forced to have
consistent quality and low cost or face replacement by an alternative supplier.
Information technology vendors will have more bargaining power than other supply
vendors, although the power has decreased in the recent economic downturn. With the
craze for technology products temporarily paused, all vendors are forced to keep costs
low to compete with competitors and stay in business.
Cisco has very rigid supply chain regulations that companies must meet to become
approved suppliers. Time and money are saved by Cisco by allowing companies wishing
to be suppliers apply and submit forms that are available online. Cisco does not need to
go in search of suppliers, the suppliers come to Cisco and if they pass the specified
requirements they must then compete in a pool with other suppliers.
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The Bargaining Power of Buyers
Buyers as a whole do not have much bargaining power against the Cisco giant. Examined
individually, it can be said that large corporations retain limited bargaining power. When
a customer buys a network from a certain network equipment company it is very likely
that they will return to the same company in the future for follow-up purchases. This
makes it critical for network equipment companies to make certain their product is
chosen in original network implementation. Cisco relinquishes power to the customers
just to get their foot in the customer’s door. Cisco offers deep price discounts to large
corporations to squeeze out their competitors. Cisco is notorious for doing anything it
takes to knock a competitor out, even selling products at cost. Cisco has also been known
to buy a customer’s old networking equipment to replace it with Cisco’s, knowing that
they will benefit from the follow-up revenue in the future.
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.
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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 Ebay. 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 startups 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.
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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
< http://faculty.darden.edu/gbus885-00/Documents/Cisco_ppts.pdf>
14
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
A. 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
15
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 groundbreaking 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
16
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 teambuilding 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. CMP Media LLC
< http://www.crn.com/sections/special/hof/hof02.asp?ArticleID=38526>
17
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
18
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.
Net Sales (Dollars
in Millions)
Net Income (Dollars in
Millions)
4000
21000
3000
16000
Figure 9(1)
Figure 10(1)
19
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1993
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
1000
1994
1000
1993
6000
1994
2000
11000
1. Hoover’s Company Profiles. Hoover’s Online < www.hoovers.com/cisco-systems/--ID__13494--/free-co-fin-factsheet.xhtml>
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.
550000
Revenue per
Emloyee
450000
350000
250000
or
te
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ce
n
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r
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ie
na
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o
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E
xt
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m
E
nt
e
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as
ys
N
C
is
co
150000
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
100000
Market Capitalization
80000
Total excluding Cisco
60000
40000
20000
Figure 12(2)
20
sy
s
En
ter
a
me
Ex
tre
Fo
un
dr
y
3C
om
Ci
en
a
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nt
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l
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o
0
1. NW200 Compare-o-matic. NetworkWorldFusion. <http://www.nwfusion.com/nw200/2003/compare.jsp>
2. Companies Ranked by Market Capitalization. NetworkWorldFusion.
< http://www.nwfusion.com/nw200/2003/marcap.jsp?_tablename=nw2003>
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
21
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
22
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, elearning 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
23
announced January 7, 2004, that Nortel made which includes some of Cisco’s core
products. “Nortel Networks Corp. announced a juicy VOIP contract with Verizon
Communications Inc. 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
24
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
25
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.
26
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
27
tremendous role in building the technology foundation and Internet culture that Cisco is
renowned for today.
Cisco Systems <http://newsroom.cisco.com/dlls/tln/exec_team/boston/ >
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
28
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
29
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
30
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
31
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
32
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
33
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 email 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
34
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>
35
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
36
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 worldclass 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
37
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>
38
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.
< http://www.destinationkm.com/articles/default.asp?ArticleID=885>
39
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.
40
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.
41
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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 www.nwfusion.com and Hoovers’ are useful.
45