COMPANY Case
Cisco Systems: Solving Business
Problems Through Collaboration
Perhaps you’ve heard of Cisco Systems. It’s the company that runs those catchy “Human Network” ads. It also produces those familiar Linksys wireless Internet routers and owns Pure Digital Technologies, the company that makes the trendy Flip video cameras. But most of what Cisco sells is not for regular consumers like you and me. Cisco is a tried and true B-to-B company. In fact, it earned honors as BtoB magazine’s 2009 “marketer of the year.”

Three-quarters of Cisco’s sales are in routers, switches, and advanced network technologies—the things that keep data moving around cyberspace 24/7. But over the past decade, in addition to all that hardware, Cisco has pioneered the next generation of Internet networking tools, from cybersecurity to set-top boxes to videoconferencing.

But this story is about much more than just a tech giant that makes equipment and software that companies need to run their Internet and intranet activities. It’s about a forward-thinking firm that has transitioned from a manufacturer to a leadership consultancy. To make that happen, Cisco has perfected one major concept that seems to drive both its own business and its interactions with customer organizations—collaboration. Cisco is all about collaborating with its clients in order to help those clients better collaborate employees, suppliers, partners, and customers.

COLLABORATION WITHIN AND WITHOUT
John Chambers became the CEO of Cisco in 1995, when annual revenues were a mere $1.2 billion. He successfully directed the growth of Cisco as a hardware provider. But following the dotcom bust in 2000, he knew the world was a different place. In response, he engineered a massive, radical, and often bumpy reorganization of the company. Chambers turned Cisco inside out, creating a culture of 63,000 employees that truly thrives on collaboration. As such, Cisco is the perfect laboratory for developing and using the collaboration tools that it subsequently sells to external clients. Cisco not only manufactures the hardware and software that makes collaboration possible but also is the foremost expert on how to use it. All this collaboration has helped Cisco’s business explode, hitting $36 billion last year.

Cisco’s advertising campaign, “Human Network Effect,” illustrates the company’s philosophy. The campaign highlights the benefits that come to organizations that use their people networks more effectively. According to Susan Bostrom, Cisco’s chief marketing officer, the pragmatic campaign helps customers understand how Cisco’s technologies can save them money, bring products to market faster, and even have an impact on the environment. At the same time it has communicated why customers need Cisco’s products and services, the campaign has helped Cisco become the 14th most valuable brand in the world.

Chambers tells the story of how Cisco began its transition from hardware into services. “Our customers literally pulled us kicking and screaming into providing consultancy,” says Chambers. Some years ago, the CEO of financial services company USAA asked Chambers to help the company figure out what to do with the Internet. Chambers replied that Cisco wasn’t in the Web consulting business. But when USAA committed to giving all its networking business to Cisco if it would take the job, Chambers proclaimed, “We are in that business!” Now Cisco has both the products and the knowledge to help other companies succeed on the Internet. Cisco itself is the best model of how to use its products to network and collaborate on the Web, so who better to help other companies do it?

A turning point for Chambers in further understanding the impact that Cisco can have on clients was the major earthquake in China in 2008.

Tae Yoo, a 19-year Cisco veteran, supervises the company’s social responsibility efforts and sits on the China strategy board and the emerging-countries council. “I had always been a believer in collaboration,” she says, but after the earthquake, “I saw it really happen. Our local team immediately mobilized, checking in with employees, customers, and [nongovernmental organization] NGO partners. The council got people on the phone, on [video conference], to give us a complete assessment of what was happening locally. We connected West China Hospital to a specialized trauma center in Maryland via the network.” High-level medical centers from the other side of the world were able to weigh in on diagnostics remotely. Cisco employees were on the ground helping rural areas recover and rebuild homes and schools. Within 14 days, Yoo continues, “I walked over to the China board with a complete plan and $45 million to fund it.” That number ultimately grew to more than $100 million. “Our business is growing 30 percent year over year there,” Chambers says, adding that Cisco has committed to investing $16 billion in public-private partnerships in China. “No one has the reach and trust that we do. No one could offer the help that we could.”
COLLABORATION BENEFITS
Cisco management knows that number one on most CEO’s lists is to break down the communication barriers between a company and its customers, suppliers, and partners. According to Jim Grubb, Chambers’ long-time product-demo sidekick, “If we can accelerate the productivity of scientists who are working on the next solar technology because we’re hooking them together, we’re doing a great thing for the world.” Doing a great thing for the world— while at the same time selling a ton of routers and switches. But while routers and switches still account for most of Cisco’s business, the really interesting stuff is far more cutting edge. Consider Cisco’s involvement in what it calls the Smart_Connected Communities initiative. Perhaps the best example of a smart and connected community is New Songdo City in South Korea, a city the size of downtown Boston being built from scratch on a manmade island in the Yellow Sea. Cisco was hired as the technology partner for this venture and is teaming up with the construction company, architects, 3M, and United Technologies as partners in the instant-city business.

Cisco’s involvement goes way beyond installing routers, switches, and citywide Wi-Fi. The networking giant is wiring every square inch of the city with electronic synapses. Through trunk lines under the streets, filaments will branch out through every wall and fixture like a nervous system. Cisco is intent on having this city run on information, with its control room playing the part of New Songdo’s brain stem.

Not content to simply sell the hardware, Cisco will sell and operate services layered on top of its hardware. Imagine a city where every home and office is wired to Cisco’s TelePresence videoconferencing screens. Engineers will listen, learn, and release new Cisco-branded services for modest monthly fees. Cisco intends to bundle urban necessities—water, power, traffic, communications, and entertainment—into a single, Internet-enabled utility. This isn’t just big brother stuff. This Cisco system will allow New Songdo to reach new heights in environmental sustainability and efficiency. Because of these efficiencies, the cost for such services to residents will be cheaper as well.

The smart cities business is an emerging industry with a $30 billion potential. Gale International, the construction company behind New Songdo, believes that China alone could use 500 such cities, each with a capacity for one million residents. It already has established the goal to build 20 of them.

Smart cities make one of Cisco’s other businesses all the more relevant. Studies show that telecommuting produces enormous benefits for companies, communities, and employees. For example, telecommuters have higher job satisfaction. For that reason, they are more productive, giving back as much as 60 percent of their commuting time to the company. There is even evidence that people like working from home so much that they would be willing to work for less pay. An overwhelming majority of telecommuters produce work in a more timely manner with better quality.

Their ability to communicate with coworkers is at least as good and in many cases better than when they work in the office. With products like Cisco Virtual Office and Cisco’s expertise in running it, for example, Sun Microsystems saved $68 million. It also reduced carbon emissions by 29,000 metric tons.

Cisco has also recently unveiled a set of Web-based communication products that enhance organizations’ collaborative activities. Cisco says this is all about making business more people-centric than document-centric. Along with a cloud-based mail system, WebEx Mail, Cisco Show and Share “helps organizations create and manage highly secure video communities to share ideas and expertise, optimize global video collaboration, and personalize the connection between customers, employees, and students with user-generated content.” Also on its way is what Cisco calls the Enterprise Collaboration Platform, a cross between a corporate directory and Facebook. These products allow the free-flow of information to increase exponentially over existing products because they exist behind an organization’s firewall with no filters, lawyers, or security issues to get in the way.

Cisco’s client list and product portfolio are expansive, and these examples represent just the tip of an iceberg that is growing bigger and bigger all the time. As Bostrom points out, Cisco’s own products and services are helping the company itself to become even more efficient at managing the purchase process. “I don’t think I had realized how powerful the Web could be in taking a customer through the purchase journey. We can get data on an hourly basis, find out right away what’s working and not working, and evolve our Web capabilities to meet those customers’ expectations.” Through its customer consultancy efforts, Cisco can share these insights and experiences to help customers do the same. That’s a powerful selling proposition.

A BRIGHT FUTURE
This year, Cisco’s financial performance is down. But Chambers thinks that’s only a blip in the grand scheme of things. He points out that Cisco has emerged from every economic downturn of the past two decades stronger and more flexible. During this downturn, Cisco moved quickly, seizing every opportunity to snatch up businesses and develop new products. During the 2000s, Cisco acquired 48 venture-backed companies. But last year alone, the company announced an astounding 61 new technologies, all focused on helping customers through and with collaboration. With these resources—and $35 billion in cash that it has stowed away—Cisco is now expanding into 30 different markets, each with the potential to produce $1 billion a year in revenue. Moving forward, the company has committed to adding 20 percent more new businesses annually. And because Cisco enters a new market only when it’s confident that it can gain a 40 percent share, the chance of failure is far below normal.

The collaboration market is estimated at $35 billion, a figure that will grow substantially in years to come. Because Cisco is the leader in this emerging industry, analysts have no problem accepting John Chambers’ long-term goal of 12–17 percent revenue growth per year. Cisco has demonstrated that it has the product portfolio and the leadership structure necessary to pull it off. One thing is for sure. Cisco is no longer just a plumber, providing the gizmos and gadgets necessary to make the Web go around. It is a networking leader, a core competency that will certainly make it a force to be reckoned with for years to come.

Questions for Discussion
1. Discuss the nature of the market structure and the demand for Cisco’s products.
2. Given the industries in which Cisco competes, what are the implications for the major types of buying situations?
3. What specific customer benefits will likely result from the Cisco products mentioned in the case?
4. Discuss the customer buying process for one of Cisco’s products. Discuss the selling process. In what ways do these processes differ from those found in buying and selling a broadband router for home use?
5. Is the relationship between Cisco’s own collaborative culture and the products and services it sells something that could work for all companies? Consider this issue for a consumer products company like P&G.