TO: Senior Manager
FROM: James Adams, Michael Hsu, Siyao Li, David Miller, Prerak Patel
DATE: September 10th, 2012
SUBJECT: Cisco Case

In this report, our group will examine what went wrong at Cisco in the early 2000’s. We will address what and how the main problem occurred for Cisco. Then, we will provide a solution on how to prevent this error from occurring in the future.

The Nature of the Problem
Cisco was one of the fastest growing companies in the world, on pace to size up the United States economy. They were a primary provider of switches and routers. Their success was largely credited to a computer model that helped forecast their future sales and demand. Even when the industry showed signs of struggle, Cisco still managed to maintain successful quarters. They had seen over a decade of growth until the third quarter in 2001. In an unforeseen turn, Cisco in the third quarter of 2001 dropped sales by 30%, wrote-off $2.2 billion of inventory, and laid-off nearly 8,500 employees. Cisco, a powerhouse company with increasing projections, took a big hit. Stock prices dropped by $68.37 in a 3 month span.

The Real Causes
Cisco's demand forecasting did not correctly predict the economic trend as it did not account for economic spending, interest rates, and debt. Cisco overlooked these macroeconomic factors, not realizing that this type of high demand was not sustainable. Also, the company was recording profits at an all-time but failed to take into consideration that many of its competitors in the same industry were projecting a slow growth period. Many salespeople continued to project high sales which led to overproduction in inventory.

Cisco’s Information Analysis Failure
The information analysis at Cisco failed because it did place emphasis on macroeconomic conditions. It heavily relied on sales forecasts and the assumption of future growth.