[pic] An Analysis of Cisco Systems by Steven Levchenko

TABLE OF CONTENTS:

Objective

I. Network Communications Industry Summary

a. Industry Profile b. Typical Industry Competitive Strategy c. Porter Model Evaluation d. Globalization of the Industry e. Importance of I/T to the Industry

II. The Cisco Company

a. Cisco Systems Company Profile b. Business Leaders c. Competitive Strategy Statement d. Market and Financial Performance e. Significance of Information Systems f. Strengths and Weaknesses of Cisco

III. Structured Analysis of Information Systems Use at Cisco Systems

a. Strategic Option Generator
b. Roles, Roles and Relationships
c. Redefine/Define
d. Significance of Telecommunications
e. Success Factor Profile

IV Final Analysis

a. Success of Business Strategy and I/T Use to Date
b. Have the Above factors positioned them for the Future?

Bibliography

OBJECTIVE

The objective of this paper is to provide: an analysis of Cisco Systems using various elements developed by Michael Porter as well as concepts from Jack Callon’s book: “Competitive Advantage Through Information Technology.” The structure of the paper is as follows: Section I focuses on the Network Communications industry (hereby referred to as NetCom industry.) It will define the industry, its environment and its actors, and how the actors compete with each other. Section II’s focus is entirely on Cisco, its history, key people, competitive strategy statement, market and financial performance, the significance of its information systems and finally its strengths and weaknesses. Section III is the most important part of the paper, for it focuses on Cisco’s strategy, and most importantly, the factors which led to its success. Key information systems are identified and their position in the company analyzed. Following it is Section IV, which provides this author’s overall performance evaluation of Cisco. Without further ado, allow us to take a look at the mine in which Cisco Systems has staked a claim.

SECTION I: NETWORK COMMUNICATIONS INDUSTRY SUMMARY

a. Industry Profile

DEFINITION The most discernable root of the NetCom industry is the Communications industry itself, dealing simply with providing the means for people to communicate with each other. In NetCom, the word “Network” really implies [Computer] Network where a set of individual computers are physically linked together such that they are able to provide a means for successful human communication. To be clear, a “Computer” is merely the interface a human being has with the digital realm that can come in a variety of forms that go beyond the scope of this paper. The NetCom industry deals not only with the physical linkups (whether they are tethered to Earth via wires or not [i.e. Wireless]) between computers, but the interface-hardware and software assigned to each computer and intermediary device in any given network to make the linkup work. In fact, the vast majority of the NetCom industry’s product is rarely ever seen by users for they hide behind the guise of end-user applications such as Web Browsers, Text Chat and Conferencing software.
ENVIRONMENT
The demand for networking equipment comes from the rapid growth of the Internet (the largest working example of the NetCom industry’s product) and private company intranets. Such growth requires that each competitor within the industry respond quickly to the changing needs the popularity of the Internet puts forth. Such a pre-requisite to entry enforces fierce competition within the industry since substitution products pose the greatest threat to all competing entities.
WHO THEY ARE As it stands, Cisco is the current industry leader both physically and financially. With over 75% of the Internet operating from its hardware and software, Cisco’s physical prowess can be rather intimidating, in fact, just as intimidating as it stands financially; Cisco is quite the high roller with 177.5 Billion out of the 240.3 Billion in the industry – a total of 74% market share (simplified to Cisco and its major competitors.) Its primary competitors Nortel Networks with 13% market share, Lucent Technologies with 7% market share and Juniper Networks with 5% market share really seem to not stand a chance against this now seemingly-like-Microsoft networking giant. The chart below provides a visual of the aforementioned data, taken from Yahoo!’s Industry Browser for 2003 and 2004.
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Figure 1: According to Yahoo!’s Industry Browser (2004)

Industry trends have certainly begun to form over the years. Simply put, it is much like a rollercoaster ride: where the steady increase is observed for a good duration of time (in this case, about 10 years) up until a sharp decrease sets the momentum for the future ups and downs. The year 2000 was undoubtedly the industry’s most successful time, which can be seen in the financial reports of all the actors within. Then came the pain. March 2001 signified the beginning of the worst economic downturn the NetCom industry has seen to date. Worse yet, it continued until about March 2002, while companies were still letting the ink dry on their most recently delivered pink slips. Yahoo! Finance has provided a historical look at the NetCom industry’s performance below.

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Figure 2. Acquired from Yahoo! Finance (2004)

It was at this point in the industry when the majority of dot-coms had pulled the plug, and large corporations had to downsize their manpower in order to stay alive. However, this event acted as reality check to those companies who were beginning to believe that there was going to be no end in sight to the seemingly endless growth rates they had been experiencing. It was starting to become clear now that if a company didn’t have a good vision and set of goals that could withstand the volatile nature of the NetCom industry, then they should start looking for other industries, and no large company reengineers for fun. Nonetheless, when the smoke cleared, a few good strategies seemed to still prove useful, we shall take a look at some of those next.

b. Typical Industry Competitive Strategy

Michael Porter has been regarded as one of the Industry’s top analyst when it comes to identifying general trends and making universal, yet practical observations of industry. His models, therefore, will be used a base to jump from when looking into the NetCom industry. The power of buyers: Come the turn of the century, it became more and more apparent to network equipment suppliers that customers were beginning to look for end-to-end business solutions. This is partly in due to the idea that if one buys all of his or her equipment from one location, it’s all bound to work really well together, and wouldn’t it be great if that company could pay attention to engineering standards to ensure that their products will be as compatible as possible with other products, and the future generation of products? It is this line of thinking that companies are using to inspire their product lines. The problem lays in that the technology changes so fast. How is one company to keep up with these demands if each segment of the product line has roughly its own world of engineering standards and practices to follow? The solution sits comfortably in one word: outsourcing. More importantly, in the case of Cisco Systems, this dealt with Mergers and Acquisitions. Why re-invent the wheel yourself when you can acquire someone who has already done it? In this fashion, the skill required by customer demand was literally bought and made apart of the company, where opportunities await. Granted, these aren’t the only strategies out there, but they are the primary ones that seem to have survived the great 100 year flood as John Chambers, CEO of Cisco Systems likes to call it. Throw some Information Systems into the mix to speedup core processes and reduce time to market, and a glimmer of hope begins to appear for the long run. The Business Strategy Model to follow provides a good means of how the Industry generally competes.
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Figure 3: Business Strategy Model

c. Porter Model Evaluation

Michael Porter’s model provides us a structured analysis of the NetCom industry where a company like Cisco Systems, Nortel, Lucent and Juniper Networks compete. It focuses on all of the competitive forces in the market, of which include the bargaining power of suppliers and buyers as well as the threats of new entrants and substitute products. Each part will be better defined in their respective sections. Taking a look at the NetCom industry, it becomes clear that the common goal amongst competitors is either to attain maximum market share, or play catch-up to those who have already achieved maximum market share. Cisco, for one, has been the dominant industry leader for many years and has fought hard to keep its position. Cisco’s competitors then follow a defensive plan of action where they try to take as many of Cisco’s customers they can with substitute all-in-one products. The following chart provides a brief overview of the rest of the section, which is dedicated to detailing it:

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Figure 4: Porter Model of the NetCom Industry

The Bargaining Power of Suppliers There exists one primary category of supplier in this industry, and it is “manufacturer.” Cisco realized early in its life that it needed to get to market quick while keeping its costs low; it did so by outsourcing/acquiring its manufacturing process using other companies specializing in NetCom component production (power supplies, circuit boards and things of that nature.) Cisco succeeded well using this technique and other companies followed closely behind. A good supplier is one who is familiar with the IT in any given company, since they know that one of the greatest enhancements to their business has been delivered through the information system. Since good companies look for good suppliers, it becomes beneficial to be a knowledgeable supplier. Knowing when one is knowledgeable gives one bargaining power. When other companies copied the outsourcing strategy, the demand for good suppliers grew very rapidly. With the demand up, suppliers now had the option to choose which company they would supply for, and more often than not they chose the one with the most market share thus leading to further intra-industry rivalry. To further Cisco’s example: Suppliers connected to Cisco have a competitive edge over other firms, potentially leading to increased sales. They are also able to better manage manufacturing schedules, improve management, and respond faster to Cisco’s needs.[1]

The Bargaining Power of Buyers The customer is always right, and thus the customer should have some buying power. The buyers, namely IS Managers and CIOs in charge of upgrading company network and computer hardware consist of the primary buyers of this industry. The secondary buyers consist of private network organizers, a class of buyers that has steadily been growing. The bargaining powers they posses come from education and knowledge of the field in addition to the high volume of options and roughly-equivalent products floating about the market. A skilled IS Manager will know where to get his or her product from and often know what complement product to purchase to achieve their goal. It is this knowledge that the customer possesses that places a professional pre-requisite on the company in question. To tote his philosophy, Chambers likes this in his buyers and wishes to ensure that the level knowledge amongst the buyers remains high to further increase barriers to new entrants into the industry and keep intra-industry rivalry high.

Potential New Entrants The NetCom industry has provided the perquisite of adapting to the rapidly changing needs that exist in the technology field. This alone rules out those who do not adapt to change very well, as with most modern business. However, industry high rollers have worked hard to secure themselves in their positions by placing strong barriers to entry within the industry. By doing what they’ve been doing, companies like Cisco raise customer expectations and keep them high with good customer support services and knowledge-base applications that raise buyer coherency. Companies like Cisco, have made it clear that outsourcing the manufacturing process within the industry produces wonderful alliances and henceforth has reduced the number of obviously un-tapped resources further enhancing the barrier to entry. Even providing a wonderful substitute product that could temporarily knock giants off their feet for a bit would only last a short time unless the company was able to keep up such innovation for a long period of time. However, this is the thing most companies fear in the industry. Since the industry seems to coax creativity, an incredibly creative company can spring from seemingly nowhere and take a good portion of market share away. This fear, though, does not remain justified for long. There are limits to how creative a company can be since backwards-compatibility is much sought after amongst buyers, especially older ones with some still-effective legacy systems. Thus there will merely be a recoil time in which the other companies will use to readjust their strategies to incorporate the new comer, effectively killing the upper hand the newcomer might have had. This train of logic also leads to a barrier to entry.

Threats of Substitute Products The NetCom industry makes the sole assumption that the company which uses its products must be constructing and running their own network. This is a grave assumption in an industry that supports almost frantic levels of outsourcing, relative to the conservative mindset of the companies of the past. Thus, if a company chooses to outsource its Network Management portion of the business, companies like Cisco and Juniper will not be seeing that much activity. To a technical savvy company, this doesn’t seem like much of a threat, however one must realize that there are a good portion of people who out there who are nervous about technology. This is a threat to the industry.

Conclusions When in doubt, listen to and focus on the customer. According to the porter analysis, consider (at least at this point in time) delivering a full end to end solution, outsource the areas of the areas of the company that have weaknesses relative to this demand and try to convince the customer of the strategic importance of running their own information systems department.

d. Globalization of the Industry

The industry is in an early state of tapping the global resource. The United States and Asia are the primary hubs of technological growth using the Internet. However, the reasons to globalize are good and numerous. • Cisco has done it. Its webpage visits over 68 countries and translates over 10 languages.[2] Since Cisco is the leader of the pack, it’s bound to have many followers. • Other countries not existing within the hubs of the NetCom industry are considered to be a bit behind. Due to the opportunities these countries provide, others want in. Politically, industry leaders like John Chambers are convincing the government leaders of such countries that a full blown IS system can really help them compete in a global market.[3] • In countries that do not have up to date communications systems laid down by city planners, the wireless subset of the industry can thrive and provide access to anyone regardless of their geographic location. • In an industry devoted to interconnection, it makes sense to want to connect the entire world together. If for no other reason than to merely increase the market base of customers.

e. Importance of Information Technology (I/T) to the Industry

“Information systems are strategic weapons, not cost centers.” (McDermott) The NetCom industry deals specifically with the components that make up an Information System! Thus it is one of the prerogatives, not necessarily the highest one, of each actor to establish a solid example to current and possibly future customers by incorporating an IS themselves; most importantly, is to make it work. More specifically, IS is just plain good at working magic on business processes. Having one’s ordering system placed online can offer a quicker response to market since the order can trigger a chain of events that end up contacting the supplier for parts: the secret lies in the fact that it was customer-initiated. Having a corporate intranet can be vital to intra company communication, especially on a cost savings level where activities like making a single announcement to the entire company can be done quickly and cheaply as we will see later.

SECTION II: CISCO

a. Cisco Company Profile

Until one fateful spring, CEO John Chambers was Wall Street’s Golden Boy and his company, Cisco Systems was incapable of doing wrong. From the time Chambers took the reins in 1995 until 2000, Cisco achieved a steady annual growth of 57%. [4] In March 2000, Cisco’s market cap reached over half a trillion dollars, and for a moment, it was the most valuable company on Earth.
HISTORY
Legend has it that Cisco Systems began out of frustration in the late 1970s when two love birds at Stanford University, Sandra Lerner of the Business Department and Leonard Bosack of the Computer Science department, wished to send love letters to each other via the University email server system. However, their messages never went through, for each of them existed on two different networks. So they got together and constructed the first router that allowed them to connect the two networks on campus which existed approximately 500 yards apart from each other. So the initial creation of Cisco happened without any strategy or vision in mind but merely by coincidence since two people just wanted a way to communicate with each other. Effectively, the invention of the router was simultaneously the invention of the necessary technology to create the Internet. So in a way, Cisco was a developer of the Internet. In late 1984 Bosack and Lerner began the company and ran it from within their own home, where each room in the house was designated to a different task in the development of more routers. It was Sandy, who coined both the ‘cisco’ name and logo. She used the latter part of “San Francisco” to get the name, hence the lowercase letters above, and used the Golden Gate Bridge for the insignia (which still remains today) to represent the bridging of networks. In the late 1980s, the commercial market for internetworking communication products began to boom and so both Leonard and Sandy decided that it was time to go professional. Problem was, it took them over 76 venture capitalists to go through before they found one, the 77th, a Mr. Donald T. Valentine to accept and make the company go live. He demanded that new control-ownership take place, and so Cisco went hot in 1990. Valentine hired John Morgridge as the company’s new CEO who in the process ended up replacing a lot of upper management. Not too long after the company’s debut, Sandy Lerner was asked to leave in an ultimatum fashion. She did, and Leonard followed. They both sold away a lot of their stock and gave most of it away to their favorite charities. The company’s name was changed to use the upper case ‘C’ in 1992, and a whole new procedure was now needed to really let the company take off. The first step was to listen to the customer and give them what they wanted, followed by the hiring of a lot of good technical people. Then the step of constructing a large internet based system that allowed their customers to post questions and comments. Finally they decided that they must help the customers help themselves. In 1994 came the “Cisco Connection,” the online database that allowed customers to gain volumes of information about its products. These primary steps led to where Cisco is today. Cisco’s vision statement and strategy statements can be seen rather clearly through the actions the company took during these steps. (Bridging Technology, Cisco Systems.) Cisco’s primary goal at this point was certainly routers, though others had different plans. John Chambers, Senior VP of world operations, and Ed Kozel-Chief Technology Officer, sat down with some real goals in mind and started to gear themselves for future development, which will be discussed momentarily.

b. Business Leaders

John T Chambers is currently the CEO of Cisco Systems. He is 54 years old and was born in Ohio. He achieved a BA/BS in 1971 and a JD Degree in 1974 from West Virginia University and an MBA in Finance and Management from Indiana University. But it hardly began there. As a child he suffered from the condition of dyslexia and worked incredibly hard to remedy it. He succeeded, and that aspect of his past taught him the lesson of not giving up. In his college years, he would play sports, basketball mostly. Although he wasn’t very good at it; rather, he focused on organizing teams, with only one goal in mind: to win. If there wasn’t a chance for him to get the first or second place position in a game, he simply would not play. Today John, using Hewlett-Packard as inspiration, has organized the company as several teams within designed for specific goals in mind. He believes in team players, and removes people who cannot work in teams. He also believes that employees are perfectly willing to do a good job, provided they are given an environment in which to do it in. This, he also understood from the Hewlett-Packard way. Chambers worked at IBM as a salesman for many years. IBM’s sales force was certainly ranked at an incredible high in it peak while Chambers was working there. If he could attribute one thing from his experience at IBM, it would be his avoidance to condescend. The understanding that the customer will probably have little to idea about the inner workings of an industry seem to be obvious, but from his experience, he has noted that salespeople rarely abide to this assumption and end up losing many customers. After his days at IBM, working at Wang labs taught him the value of a good worker. Mr. An Wang was possibly the most brilliant man John had ever had the pleasure of working with. However, John had to do something at Wang labs that he swore he would never have to do it again: he had to layoff workers. The process made him physically ill at the time and has remained as a staple in his mind forever since. From his time at IBM and Wang, John devised two lessons for Cisco: 1. Do not forget to sell to the small companies. Inspire Customers to become trusting, loyal and comfortable. 2. Avoid layoffs. He realizes the importance of keeping good people and makes it a point to keep all the people who come with the purchase of an acquisition. Employees who do well at Cisco are given freedom, people who do not are asked to leave.[5]

It all boils down to the fact that Chambers, like Morgridge, is a salesman, not an engineer. Chambers knows this, and really prefers it. In his eyes, engineers come off as very condescending, with a sort of “techier-than-thou” air about them. This is not how Chambers wants his company run. Rather, Chambers is extremely customer focused. He spends, on average, 30 hours per week working with customers.[6] In fact, he is so customer focused that his employee recognition and rewards process is based entirely upon customer satisfaction! Culture has become a staple of Cisco Systems; it has been viewed as both good and bad. However it is viewed, it has been attributed entirely to John Chambers. At Wang Labs, Chambers learned yet an additional lesson that reinforced his current company culture system. One particular day, he recalls, his manager at Wang Labs pulled him aside to chat about his goals. Ever since Chambers overcame his struggle with dyslexia, he has since been extending his goals to the very limits of his capabilities. The manager took note that Chambers would set ten goals for himself and only manage to execute nine, clearly missing one. The manager preferred that Chambers set three goals for himself, and execute three than his previous method. This depressed and angered Chambers, and has since then implemented a system of Stretch-Goals. Chambers has restructured the management organization of the company to allow for such stretch goaling to take place, the result of which, he believes, will add to employee empowerment and result in greater productivity and enthusiasm. He also emphasized that employees would not be punished for not meeting all of their stretch goals. [7] Since its implementation, Stretch-Goals have led to remarkable internal productivity. Once Chambers starts something, he tends to keep on it until he specifically stops it. So in the case of promoting a certain company culture, he is constantly on top of it. Many employees have remarked that during their conversations with Chambers, at the end, he always asks them how they feel about the culture and the way things are run, and they do emphasize that he really means it and has a wish to know. Employees find him very personable. However, with the ongoing success of Cisco, he has wished to implement more of a culture of paranoia. He does not wish employees to begin slacking off as the company climbs higher and higher up the market ladder. This has received a bit of controversy, but overall seems to be working out for Cisco. Pete Solvik, brought on board by Morgridge, acts as CIO of Cisco Systems. He has since been replaced by Brad Boston, but it attributed to many of the company’s key success in implementing information systems strategically. Chambers and Solvik would very often have conversations together regarding the direction in which IS would be taken. Solvik was very business savvy, and this made the relationship between Solvik and Chambers remarkably smooth. Since Solvik thought in terms of cost reduction and customer satisfaction, many of the internal systems within Cisco have been reengineered to not only reduce costs but provide a noticeable improvement to customers; something the IS department usually has a tough time with. Sandy Lerner, although removed from the company early on, left a sort of legacy behind her. She is credited with the term “Customer Advocacy” where she would spend the majority of her time working directly with customers on their needs and wishes. This term has been kept for historical accreditation purposes, but the goal of this portion of the company remains the same. [8] In 1991, Douglas C. Allred would take over the role as Senior Vice President of Customer Advocacy in the company. He has since been replaced with Wim Elfrink after 1997. Allred can be most credited with the persistence of taking customer satisfaction surveys, and as a result, championing a new Oracle ERP (Enterprise Resource Planning) system which cut Cisco’s order lead times from twelve to three weeks in less than eight months. Today, the entire IT department reports to Customer Advocacy, and Elfrink reports directly to Chambers.

c. Competitive Strategy Statement

At the meeting between Ed Kozel and John Chambers (among other upper management as well of course) in 1994, the company’s plans for the future had changed. The group sat down and with an intended strategy and decided that it was time to move on to four new areas for future development: 1. Provide a complete solution for businesses. 2. Make acquisitions a structured process 3. Define the industry wide networking software protocols 4. Form the right strategic alliances.[9]

The results of those past decisions laid down some solid groundwork for the creation of both the vision and mission statements of today: • Cisco’s VISION: “Is that the Internet will transform the way people, work, live, play and learn.”[10] • Cisco’s MISSION: “Shape the future of the Internet by creating unprecedented value and opportunity for our customers, employees, investors, and ecosystem partners.” [11] • Cisco’s GOALS: “Empowering the Internet generation.” [12]

Chambers, in 1994 pushed hard to make Cisco’s first acquisition: the Crescendo Corporation (who was at the time attempting to switch from the router over to a new type of switch that had been released.) The company was worth $10 Million and Cisco purchased it for $97, which led to first ever drop in Cisco’s stock. However, this did not last long as it has since proven well worth it considering that it was a key movement to get Cisco’s name heard. As a result, in 1995, John Chambers was promoted to CEO of Cisco Systems. The company has made over 71 different acquisitions since then! What has since been added in the last couple years is Cisco’s strive to locate good employees. Cisco offers an intensive training program to train each employee with the knowledge of each of the products and how to use them efficiently. Cisco spends quite a bit of money on its training program, and has found it to be one of its most rewarding investments. With the implementation of the aforementioned strategies, Cisco believes that it will be able to achieve a competitive advantage in the industry by adhering to all customer demands, managing its suppliers digitally and gearing the usage of information systems to rapidly improve upon its business processes.

d. Market and Financial Performance

In spite of the major economic hit of 2001, Cisco is still alive. Since its introduction in 1990, the company rose to $430 Billion in market value in March 2000, marking its most profitable and successful point in its history. In 2002, it fell to $154 Billion, considered “one of the deepest losses of shareholder wealth in history.”[13] After such a hit, the company was not expected to survive. See the updated chart below for Cisco’s performance history.
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Figure 5: Company Market Trends (From Yahoo! Finance, 2004)

John Chambers, being a visionary and an opportunist, saw this as an opportunity to excel beyond what he had previously accomplished. Since 2002, Cisco’s market value has gone up to what it currently is: $177 Billion, showing steady increase over time. The general trend here is not unlike that of the industry: a steady increase to an utmost high point followed by rollercoaster like hills and troughs. So how does Cisco recover so quickly from such an economic hit? Simply by resuming the strategy they were pursuing. The four areas of future development, previously mentioned, allowed for the flexibility of Cisco’s to move on with the market flow. Since then, they focused intensely on the Internet as a primary source, and have received much in return. “Cisco captures 90% of its revenue directly from the Internet. By helping themselves – whether configuring products, downloading software upgrades or uploading support documentation – Cisco’s customers help save the company an estimated $250 Million per year. This helps the company achieve the industry’s highest revenue per employee -- $568,658 vs. $332,909 at Nortel.”[14] Since customers invest a significant amount of time and energy in their relationship with Cisco, they face higher switching costs, thus leading to the further future success of the company.

e. Significance of Information Systems

Cisco depends on the Internet. Plainly put, it is an Internet company. Information Systems are integral and vital to the success of Cisco. The key phrase is “vital to the success” here. Cisco, since its earlier years in 1994, has worked to create one of the, if the not the largest online database and interactive extranets between customers and employees in history. Due to the nature of the industry Cisco resides in, John Chambers and past + current CIOs: Pete Solvik and Brad Boston respectively have worked tightly to ensure the upper management plays a key role in the direction in which the usages of the information systems go toward competitive advantage. Peeking at the Porter Value chain should give us another perspective of the significance of IS within Cisco.

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Figure 6: Porter Value Chain for Cisco

f. Strengths and Weaknesses of Cisco

In a fairly simple fashion, we shall shortly see the listing of Cisco’s strength’s and weaknesses. This section of the paper will offer itself as a jump point to future sections. John Chambers has clearly led Cisco into a profitable existence from its early days of introducing the router in, quite literally, someone’s garage, to becoming an industry leader. His talents and leadership skills offer themselves as one of the largest strengths Cisco posses. More importantly, his interaction with the different teams within the company allow for more of his guidance to fulfill his vision and mission for the company. As a result, the company is number one, and with the nature of competition, this leads to a particularly large problem: the competition sets their sights on you.

Strengths: • Business Vision • Culture • Employee Empowerment • Upper Management Understanding of IS value • Early Market Entry • Large Customer Base & Ability to respond Quick to their needs • The most Aggressive Acquirer • Good Abundance of Engineering Talent • Brand Name reputation • An acknowledged market leader • Proven Management Skills • Broad Product Line • Focused on efficiency • Largest and fastest growing among peers • Worlds largest Internet Commerce Site • Focus on all customer (big and small) • Ability to adapt to technology (Bridging Technology, Cisco Systems)

Weaknesses: • Industry leader, and therefore target for competition • Culture (seen as a “slave yard”) • Phonebook-like acquisition strategy • Lack of foresight regarding Market trend on year

Cisco’s culture is radical in nature, and as a result has received a lot of heat socially. Former employees argue that even though employees are empowered, they are also left with a feeling of heavy responsibility if they fail to succeed, and as a result are pushed really hard in their working conditions. Analysts claim that Cisco’s serious acquisition strategy has left them with a phonebook like listing of companies, none of which have been properly streamlined into the company’s strategy to be truly efficient. In 2001 the company had to write off an incredible amount of inventory due to an oversight in market predictions: they have made the assumption of needing to purchase a lot of inventory so as to be able to deliver it ASAP as soon as market demand came back up. Chambers himself recognizes this flaw and even though he tried to cultivate a culture of paranoia, he found that he didn’t completely succeed. Above all, Cisco has a reputation and market position to withhold, so it only seems natural that such pressures would have some negative effect on the company. As it stands, Cisco’s weaknesses really aren’t all that weak considering the volatile nature of the industry in which it exists.
SECTION III - INFORMATION SYSTEMS AT CISCO SYSTEMS

Let us now consider the role information systems plays toward the attainment of competitive advantage. John Chambers has been evangelizing the idea that the Internet will change how we live, work, play and learn since his start as CEO of Cisco Systems and especially from 1998 on. It should come as no surprise then to identify him as the executive sponsor of strategic IS placement. His roles, as well as the role of others such as Pete Solvik and most recently Brad Boston, prove most significant in accomplishing this placement goal. It seems reasonable to look at the relationships these people share and the technological accomplishments that resulted. These, along with Key Success Factors will be identified and clarified momentarily. But let us first look at the path Cisco Systems chose to take in the industry, provided to us by the Strategic Option Generator.

Strategic Option Generator The strategic option generator is an analysis tool developed by Charles Wiseman of Columbia University designed specifically to identify strategic opportunities derived from the usage of information systems. While it has the ability to be used to identify new strategic opportunities, it will be used here to focus on the combination of factors that made it possible for Cisco to become a successful company that is capable of sustaining its competitive advantage. Below is an instance of Cisco’s strategic options generator with its selected course of actions highlighted:

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Figure 7: Strategic Option Generator for Cisco Systems

Target Cisco’s merciless attention toward its customer clearly identifies the Target base in the strategic options generator. Chambers is so adamant, practically hell-bent, on pleasing his customer that it should come as no surprise to see that he is using their level-of-satisfaction as the core of his primary strategy to drive the company.

Thrust Initially, their primary Thrust (strategy) was growth, since the changing climate of the Netcom Industry environment demanded expectations of them qualities they did not possess directly. Thus, their goal was to outsource, or at least, acquire the necessary tools to stay alive in the industry, where the necessary tools ended up being companies specializing in a particular market niche. Their acquisition strategy acted as an enabler, an enabler that allowed them to pursue innovation and differentiation. Considering their large base of product developers, they were then allotted the ability to develop end-to-end solutions for customers. In addition, recent developments indicate that Cisco Systems has also formulated an alliance with AT&T in hopes to expand their market to provide telephone equipment and services to customers outside of the United States. Cisco Systems has been doing business with them for a little over 10 years – usually on an ad hoc basis, keeping well out of the market spotlight.[15]

Mode Cisco went Offensive. Chambers does not like to lose, nor will he enter a Market where he cannot be a winner. From the beginning, he planned on meeting and surpassing all of his customer requirements and he would use information systems by any means necessary to achieve this goal. Clearly, the advent of CCO (Cisco Connection Online) was an offensive move that enforced the direct interaction of information systems with the customer.

Direction A key strategy Chambers enacted towards the usage of information systems in Cisco was use. Chambers attributes a lot of his company’s success through the example it set to others via the usage of its information systems in its day to day activities. However, in the act of using its information systems to such an extent Cisco saw the creation of new services to the customer, again see the CCO. So where the direction started as using IS towards strategy, it went to providing new services which further boosted the availability of its strategic options.

Roles, Roles and Relationships

With the assumption that information systems will be used in a company to attain a competitive advantage, one might intuitively conclude that the executives in charge of positioning these information systems strategically in their company must also be in charge of determining both why and where they should placed to compete. Thus, derived from said intuition, it should become clear that the role of information systems (which includes both the IS Exec and the IS Organization,) the role of senior management and the relationship between the two should be an ongoing and working relationship with the purpose of meeting the needs of the business. After his initial inauguration as CEO in 1994, Chambers began the implementation of an idea, inspired by his days working at IBM and mostly at Wang. To recap, Chambers was simply not a fan of setting three goals and meeting all three, rather than setting 10 goals and meeting nine, as recommended to him by his superior at the time. He much rather preferred his stretch-goals philosophy with emphasis on the lack of punishment if the employee does not meet all the newly stretched goals. He determined that a traditional top-down corporate hierarchy would not be suitable for promoting such a philosophy. Consequently, Chambers and his executive staff set off to organize the company around a tight central management group that would consist of the top four or five people making all of the decisions. In addition, these people would also be accountable for their decisions, though not in a sink or swim way. This led to the employee empowerment methodology followed throughout the company. Below is a general and updated (sans-Brad Boston) of the organizational result:[16]

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Figure 8: Cisco System Management Structure

Within this tightly knitted group of central management exist IT department heads assigned to each division. This enforced the interaction between business management and technical management, thus kindling the relationship between the two seemingly opposing facets (opposing in a historical sense.) The results of this organization help to emphasize both the role IS plays in the organization and the value it provides while allowing each group to learn the ways of the other, thus improving the interaction and efficiency between the two. It is important to emphasize that Chambers is not an engineer; he is a salesman like his predecessor John Morgridge. He despises the “techier-than-thou” outlook he feels most companies, and especially individual engineers, possess. He feels that this communicates very negatively toward the customer and will not have it in any facet of his organization. Being that the business-and-tech-savvy CIO Peter Solvik was well skilled in the art of business and finance, the relationship held by the two (both Chambers and Solvik) was like a well oiled machine. Chambers provides the guidance like a lead sled dog (Chambers does not wish to be compared with the man with the whip) while Solvik made it happen and made it clear how it was going to happen. As if born with this intuition, Chamber’s organizational result set an example to those outside of Cisco Systems, by proving-through-usage, the importance IS plays competitively within a corporation. Senior management must clearly understand, guide and support IS and its endeavors while the IS Exec must clearly state the values IS can provide toward the business and help senior management understand its capabilities. The fact that Chambers placed both types in the central-management-group emphasizes the idea that the relationship between the two is an ongoing one and not merely a one time deal.

Define and Redefine

Dictionary.com[17] defines “define” as “to describe the nature or basic qualities of; explain.” And “redefine” as “to give a new or different definition to.” However, as stated in Jack Callon’s “Competitive Advantage through Information Technology,” the key formula to follow is simply: define = clarify and redefine = change. For the most part, Cisco Systems’ use of Information Technology is geared toward clarifying business processes, as seen with the Oracle ARP system implemented in the early 1990s. However, there are a few cases where the technology manages to change the way the business operates internally, most notably with the Cisco Connection Online. Both of which and others will be described shortly. “If you take a look at the point in which Cisco broke away from its competitors in the networking market,” Chambers said during his address to the audience at the 1997 Comdex trade show, “you can see that it was in 1992. In that year Cisco stopped treating its IS department as an expense center and started treating it as a strategic advantage.” It began as a text interface to customers that provided bug reports and technical information. It was based on ftp and email and would certainly be described as crude by today’s standards. In the early 1990s, Douglas Allred (CCO and then-was SVP of Customer Advocacy) championed the installation of Cisco’s Enterprise Resource Planning System (from Oracle,) which defined Cisco’s order fulfillment process. Due to the results of an internal survey conducted towards customers, which indicated that customer satisfaction levels toward Cisco’s order-fulfillment process were dwindling, Allred opted to have the whole system upgraded. After all, the average lead-time was twelve weeks. After implementing the system in only eight months, where most companies at the time needed thirty-two, the lead time was knocked down to three weeks or less. Consequently, the entire IT department reports to Customer Advocacy. Chambers means business when he states that the customer is always first. Cisco has a solid Supply Chain Management (SCM) system, called eHub, which contains a network of component suppliers, distributors and contract manufacturers that are linked through Cisco's extranet to form a virtual supply chain. When a customer orders a typical Cisco product-for example, the order triggers a flurry of messages to the contract manufacturers. Distributors, meanwhile, are alerted to supply the generic components of the equipment, such as a power supply. Cisco's contract manufacturers already know what's coming down the order pipe because they've logged on to Cisco's extranet and linked in to Cisco's own manufacturing execution systems.[18] Thus redefining the means in which Cisco handles its suppliers. No longer does the company have to fill out paper orders and await processing from department to department. The time to market is greatly reduced and customers notice the difference in response time. At Cisco, the Internet is the answer to everything. Thus in 1996, Cisco launched its corporate website, The Cisco Connection Online or CCO for short. Cisco’s website describes it as “the foundation of the Cisco Connection suite of interactive, electronic services that provide immediate, open access to Cisco’s information, resources and systems.” Users of the site range from employees like engineers and sales personnel to suppliers and manufacturers to customers. Cisco likes to boast that the company site is online 24 hours a day, 7 days a week and 365 days per year and that hundreds of new documents are added each month. Customers are able to peruse the CCO for technical support documents and software as well as chat live with technical support personnel. For those looking to buy Cisco products, Cisco provides the Networking Products MarketPlace where the online ordering system allows users to place and manage orders for both products and services. In its first six months of operation, it received more than $100 million in orders. [19] As for the marketing and sales department, an “e-sales portal” was created in March 2001 which serves as a single access point in the company for the sales personnel to access. It offers information on all of Cisco’s available products as well as statistical information regarding the competition’s products. In addition, it also offers real-time market data from various sources on the web. The CCO, in effect, redefined the way Cisco was able to do business. Not only did it promote a mass system of information to assist sales personnel deal with customers, but its technical support aspects saved the company wads of cash. Over 90% of software upgrades have been delivered over the internet, and the sheer volume of customer support that has been provided without the necessity of engineering personnel has saved the company nearly $400 million a year. “Cisco estimates that it would have to hire up to ten thousand engineers for customer support without its online system.” [20] By 1999, most of the company’s internal workforce applications had been implemented in a single system called the Cisco Employee Connection. The CEC, as described by Cisco.com is “a browser based workforce optimization command center.” It allows employees to submit expense reports, make travel arrangements, compare working schedules, request workstation repair, attend long distance e-learning classes (a staple of Chamber’s plan to promote education through the Internet) or even order condiments like donuts or coffee for an upcoming meeting. The CEC defines the means in which employees in the organization can have access to information. Employee empowerment is a large concept that was emphasized with the creation of the CEC.
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Figure 9: Tailored Value to Customer Model

Significance of Telecommunications

Telecommunications primarily include the means of which users (mostly employees) communicate with each other. Communication in a business is key, and Cisco spares no expense at optimizing its communication facilities to lower its over all costs. Some of the technologies that have helped Cisco’s productivity include: Wireless LANs, Secure IP Virtual Private Networks, multimedia e-learning and IP Telephony. The key advantage a Wireless LAN possesses is the non-finite number of jacks available to employees within a certain area, and as a result does not require employees to be tethered to certain locations. Wireless LANs have been installed all across the board at the San Jose Cisco Systems campus to allow for employees to be connected in nearly any location, thus eliminating the gaps of time where Cisco employees could not work – “not by choice, but due to lack of connection," says Richard Gore, senior product manager for the IT Strategic Architecture and Technology Solutions group at Cisco.[21] Cisco’s Secure Access Control server authenticates each user and encrypts the transmission so as to allow for security and reduced frivolous usage. According to the same group, at least 10 minutes per person, per session, per day has been added to the time of total productivity, roughly increasing productivity value to $1000 per employee. For those employees on business trips, who cannot access the Wireless LAN on the San Jose campus, the Secure IP VPN has been established. Employees on the road who were once not able to work during their commute now can, clearly boosting productivity. Employees can access the VPN from home as well, thus opening up an option for the existence of telecommuters. In-person meetings cost more than virtual meetings due to transportation costs. Due to the increasing available bandwidth over the years, the number of options for employees who telecommute have been expanding, thus allowing Cisco to offer more benefits to quality employees. In addition to VPN, Cisco is running trials for a newer system called V3PN, which would allow video and audio tools to be accessed by telecommuting employees, thus further eliminating transportation costs since such technology was only available at the central office in the past. Considering how Chambers advocates using the Internet for learning, Cisco’s e-learning program is just as cutting edge as the rest of the technology. Based off the high speed internal company network, and the now improving V3PN network as well as newly instantiated multicasting abilities, full video training programs are available to the entire Cisco workforce. Considering how one employee can host a training program, then multicast it to thousands of other employees, both costs of in-person training and meeting have been drastically reduced. In addition, for those who miss the original live broadcast, video-on-demand systems have been installed to allow employees to access the content at their will. Since overall training costs have been reduced, more training programs can be offered and as a result a more educated workforce and ensue: a quality that has shown to significantly improved productivity in the past. In October 2000, the largest deployment of IP Telephony took place at Cisco Systems. No longer needing to reply on the analog phone system, Cisco’s new telephony system now had the ability to achieve long distance communication in addition to some of the previously mentioned multimedia benefits. Since Cisco was using its own products as the backbone of the installation, total cost of ownership dropped immediately. Since this technology bases itself off IP phones, unique ids are delivered all around removing the need to tether one’s self to any particular wall jack, much like the Wireless LAN situation described before. As a result, the company reaps an estimated $50,000 per month benefit in cost savings.

Success Factor Profile

Outside of the standard porter-model Strength, Weakness, Opportunities and Strength analysis, the Success Factor Profile identifies key components that attributed directly to the success of Cisco Systems. In short, Business Vision, Culture, IS Architecture, Linkage to Customers, and Linkage to Customer Service and IS Justification Process were some of the primary candidates that contributed to Cisco’s success.

Business Vision John Chambers has brought tremendous strength to Cisco’s ability to compete through his strong vision statement. Upholding the belief that the Internet will change the way we live, work, and play and learn has laid a foundation for the company to use to create its products and has proven versatile enough to last a solid decade considering the industry it exists in.
Culture
Chambers ensures that Cisco is geared entirely toward its customer. Chambers himself proves this by example by spending, on average, 30 hours a week simply working with customers. Chambers has also instantiated an employee benefits and reward system that functions upon customer satisfaction to determine the amounts of which employees are to be compensated for their work. In addition, Chambers wishes to enact a culture of paranoia, so that no employee becomes lazy depending on how much success the company has achieved. Employee empowerment has promoted risky endeavors by employees and has given freedoms to employees not otherwise known in other companies. While there are cons to the system, the pros seem to better allow employees to use the stretch-goal policy that Chambers advocates so much.
IS Architecture Chambers believes in the philosophy of walking the walk. As a result, Cisco “eats its own dog food” (an industry term for using its own technology) and sets out to prove by example. In doing so, it has extreme confidence in delivering sales pitches to customers and achieving success. The IS systems have also clearly cut costs all across the board in each business process they have been implemented in.
Linkage to Customers Cisco’s Product MarketPlace offered via its Cisco Connection Online has processed billions of dollars of orders since its inception. The process has been fairly automated and its performance is remarkable. Being that the majority of Cisco’s customers deal with online systems, it only makes sense to incorporate one in which they can use due to the comfort level that has been established over the years with online ordering. Also, a significant amount of information is available to the customer, including bug reports and technical sheets regarding the product they have interest in – even before they buy it.
Linkage to Customer Service An incredible amount of money has been saved by Cisco via its online Customer Support system. More importantly though, is customer satisfaction achieved by it. Downloading upgrades off the Cisco servers takes only minutes while awaiting an upgrade in the mail can operate on the level of weeks. With the documentation of bugs on certain products, Cisco provides customers with tips on how to deal with such flaws so as to further improve the customer-corporate relationship. The result is a remarkable level of customer loyalty.
SECTION IV - A FINAL ANALYSIS

THE SUCCESS OF CISCO SYSTEMS

A. Success of Business Strategy and Information Technology Use to Date

John Morgridge was a cost-conservative salesman. He provided a good basis in which to jump from for the rest of Cisco’s future. The man he hired to take his place was very similar to himself, except in the fact that he was a little more radical in the actual execution of his plans and he had a good eye for technology and the future. Like Morgrige, Chambers was a salesman as well and really emphasized the avoidance of the techier-than-thou attitude that had been springing up over the past few years at the time in the NetCom industry. This provided the means for Cisco to get its foot in the door regardless of its physical product. Since Cisco Systems has vouched to use its product in its own company, it has been able to walk the walk rather than merely talk the talk, as Chambers likes to put it. This has placed a vital role on information systems in the company. To look at it another way: the company sells products that allow for the existence of information systems, products that would otherwise have very little use. It would be of the utmost in tragedies if Cisco opted to not use information systems to strive for and achieve competitive advantage. In fact, if Cisco didn’t eat its own dog food, then there would be little to nothing that would initially differentiate it from any mom-and-pop networking business that could popup on the Internet. Cisco Systems would otherwise still be unknown as “cisco” systems. It all trickled down from leadership. Chambers’ vision of the company can be attributed to the concept of keeping one’s eye on the prize, except in this case, the path to the prize was paved with Information Systems. Chambers knew on a gut level that the future lied in the Internet, and he was determined to execute any plan necessary that would position his company in that future. A unique aspect of Chambers is that even though he didn’t know that much about technology, he knew it would play such an integral role that he would have to utilize it in his company from the time the company took its first baby steps. The culture he cultivated challenged the human beings in the company to focus everything on the customers while keeping in mind that the future is where they want to be. Thus his nurturing of the business vision and mission statements has really helped enforce such focus. How these factors prove themselves to work really lies in human nature; however, that topic is beyond the scope of this analysis paper. Despite the economic hardships faced by Cisco, Chambers still remains determined to fulfill his vision. He has strived to and has achieved a positive outlook to the future and has communicated such outlooks to his peers. This has made him very versatile during periods of drastic changes, a quality that will prove to be of assistance in the future.

B. Is the Company Effectively Postured for the Future?

Cisco’s general strategy appears quite versatile. It has withstood the test of time, where “time” in this industry doesn’t operate with the same rules as with other, more industrial industries. Chambers’, and by extension Cisco’s, relentless focus on its customers will always prove to be an asset in its future. The acquisition strategy doesn’t work for everyone, but it has proved its worth with Cisco’s success and its resilience to the waves of change. Cisco’s is currently climbing back up the market ladder with industry analysts predicting growth for the 2004-2005 year. Chambers no longer views the market as being flooded, but being ebbed with ‘tornadoes’ and he feels that the Metropolitan fiber-optic networks appear to be the one that will land Dorothy in Oz.[22]
BIBLIOGRAPHY

2003 Annual Report, Cisco

Bridging Technology, Cisco Systems http://gcconline.georgian.edu/business_review/cisco.htm

Byrne and Elgin, “Cisco – Behind the Hype” 2002 Business Week

Callon, Jack D, “Competitive Advantage Through Information Technology,” McGraw Hill, 1996

Charney, Ben, “AT&T, Cisco expand partnership“ http://news.com.com/2100-1033-985810.html?tag=fd_top 2003

Cisco.com, 2004

Goldblatt, Henry (11/99), Cisco’s Secrets, Fortune

Hoovers handbook of American Business, Cisco Systems, Inc. 2003

Kotch, Chrstopher, “The ABCs of Supply Chain Management” http://www.cio.com/research/scm/edit/012202_scm.html , 2003

McDermott, Robert F., Former USAA CEO

Porter, Michael E. “Forces Governing Competition in Industry” Harvard Business Review, Mar.-Apr. 1979

Raider, Rhonda, “Putting the IT in Productivity” http://www.cisco.com/en/US/about/ac123/ac114/ac173/ac205/about_cisco_packet_netizen09186a00801014f7.html , 2002

Tapscott, “An Open Letter to CEOs”, Digital 4Sight 2002

Unknown Author (5/98), Mr. Internet, Economist.com

Waters, John K. “John Chambers and the Cisco Way: Navigating through Volatility” Jon Wiley & Sons, 2002

BEST OF BREED SOURCES:

1. Jack Callon’s “Competitive Advantage through Information Technology” provided the core concepts explored in Section III, the heart of the paper. Particularly, the Roles, Roles and Relationships Concept as well as the Define/Redefine concept. All attributes of this paper that are related to information systems, in some form or another, were derived from this book. 2. John K. Waters’ “John Chambers and the Cisco Way” provided remarkable enhancements to Section II: the devotion to Cisco, and Section III regarding the new information systems and projects that were developed, and their respective purposes. 3. Rhonda Raider’s “Putting the IT in Productivity” provided remarkable material for the Significance of Telecommunications section regarding the exact details of specific hardware and software changes the company underwent. Highly recommended.

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[1] http://www.cisco.com
[2] http://www.hoovers.com
[3] Waters, “John Chambers and the Cisco Way”
[4] Waters, “John Chambers and the Cisco Way”
[5] Economist 5/29/98
[6] Waters, “John Chambers and the Cisco Way”
[7] Waters, “John Chambers and the Cisco Way”
[8] Waters, “John Chambers and the Cisco Way”
[9] Fortune 5/12/97
[10] http://www.cisco.com
[11] http://www.cisco.com
[12] http://www.cisco.com
[13] Byrne and Elgin
[14] Tapscott, 9
[15] AT&T Cisco Partership “http://news.com.com/2100-1033-985810.html?tag=fd_top”
[16] Cisco SCM “http://www.cio.com/research/scm/edit/012202_scm.html” 2002
[17] http://reference.dictionary.com, 2004
[18] “Putting IT into Productivity” 2002
[19] “Putting IT into Productivity” 2002
[20] Waters, “John Chambers and the Cisco Way”
[21] “Putting IT into Productivity” 2002
[22] Waters, “John Chambers and the Cisco Way”