Cisco Systems Analysis

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Cisco SystemsCisco Systems

Networking the InternetRevolution


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Brandi Martin

[email protected] 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

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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

Objective of Paper

The purpose of this paper is to provide an analysis of Cisco Systems 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 Systems success.

The first section defines the structure of the network equipment industry. Thiscomplex 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. Ciscoscurrent 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

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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.

Size of the Ten Dominant Network Equipment Companies

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Number of Employees

Ci

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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 arollercoaster 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 purchasingequipment 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)

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5000

10000

15000

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25000

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Figure 2(1)

1. Hoovers Company Profiles. Hoovers Online< www.hoovers.com/cisco-systems/--ID__13494--/free-co-fin-factsheet.xhtml>

2. Cisco Systems. Manifesto Brand & Technology Ad

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

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Cisco F

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Figure 3 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%

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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 liesin 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 companys 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.

B. Competitive Strategies within the Industry

A competitive strategy is essential for a company to successfully compete in todays

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-endsolutions which usually include network equipment, software and support or just the

network equipment. Product choices are strongly related to the companys 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. Todays hot question is: too

outsource or not to outsource. Companies must decide if they want to save costs by

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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, comparablewith 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

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 didnt exist, routers and

switches had not been invented, the new buzzword was connectivity. Today, companiescompete 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

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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 inthis 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.

Industry Strategy Options

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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 companys 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

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Ciscos 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 Ciscos 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 Ciscos 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 likeused routers auctioned on E-bay, and possible new entrants that carry potential threats to

the industry are also included.

Intra-Industry Rivalry

Ciscos core competitors are companies that compete in the Enterprise market. These

rivals sell products comparable to Ciscos core products, routers and switches which

make up over 65% of Ciscos sales. Although, Cisco has continually attempted to break

into the service provider market they have had only limited success in selling to the major

Telcos in the United States compared to rivals Lucent, Nortel and Alcatel. They havesecured 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.

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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 vendors 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 costslow 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 likelythat 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 customers 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 customers old networking equipment to replace it with Ciscos, 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 inthe 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

Ciscos 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 Ciscos 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 Ciscos core market. Many companies currently compete in the

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networking arena or computer hardware but do not focus on Ciscos core market and

networking equipment. Several of these companies like Siemens or Dell are large and

would have the resources required to shift focus.

Threat of Substitute Products and Services

A substitute is a replacement or alternative to doing business with the strategic businessunit. 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 E-

bay. 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 start-

ups 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

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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.

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.

Ciscos Value Chain

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Figure 8

Gaining Competitive Advantage Through Internet Business Solutions. February, 2004< http://faculty.darden.edu/gbus885-00/Documents/Cisco_ppts.pdf >

Information technologies are essential for network equipment companies to be able to

compete in todays e-world. Connectivity and integration have changed the waycompanies 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 Systemsequipment. 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, Ciscos CEO have made these accomplishments possible. Cisco is also

recognized as a great company to work for and has been included in lists like Fortunes

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

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computers on campus. With the help of a few friends, the young couple linked the

graduate business school buildings network to the Bosacks 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 worlds 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

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 ground-

breaking 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.

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Cisco Systems main corporate headquarters is located in San Jose, California with

offices in sixty-eight countries worldwide. Ciscos 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 intofour 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 customers needs and size. Cisco is a global

company with the majority of Ciscos 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 Ciscos main business areas, most

notably manufacturing. Chambers states that the core business, that is - what provides a

companys 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

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 Ciscos 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. Chambers 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

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Award. Part of the reason this culture is so strong is because of Chambers team-

building skills and primary focus on the customer. This was unique at the when othercompanies were focusing on technology. "At Cisco, we make customers our No. 1priority, not only by delivering innovative technology and good service but also bylistening to their needs and responding appropriately." Chambers spends a great portion

of time meeting with customers and has developed an ability to foresee whichtechnologies businesses will need in the future.

It was Chambers steadfast vision that the Internet would revolutionize the way allcompanies 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>

the vision of how it will change the way we live, work and play. Chambers' ability tolook beyond the technology is what makes him a leader.

During Ciscos glory days, Chambers was named CEO of the Future and was

considered the industrys superstar. When the bubble burst in Silicon Valley and the

network equipment industry went sour, Chambers success was written off as luck as he

received harsh criticism from many. Eight thousand employees were laid off and thestock plummeted. Ciscos comeback has recently earned Chambers praises like

survivor and miracle worker. Resurrection has become the new term to describe

Ciscos 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. Chambers 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 Ciscos 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. Solviks proposal included a massive system upgrade that was only

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approved after Ciscos 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 thatwould integrate business functions such as manufacturing, marketing, sales, and

accounting. Oracles system was approved and implemented, becoming the backbone of

Ciscos e-business. Solvik was also responsible for enhancing Ciscos 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 Magazines

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 Ciscos use of information technology worldwide. With the use

of IT Boston hopes to increase Ciscos productivity, efficiency, agility and speed. Boston

was responsible for launching Ciscos new website in 2002. Boston earned a place in

BusinessWeeks 25 most influential people within the industry.

Other current significant leaders include: Dennis Powell, Ciscos vice president and chief

financial officer, Larry Carter, Ciscos senior vice president, office of president, senior

vice president Howard Chaney and Sue Bostrom, Senior Vice President, InternetBusiness 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 productand 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

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agreements. The combination of these strategies has proven incredibly successful for

Cisco, the network industrys bellwether.

D. Market and Financial Performance

Cisco is the mighty king within the network equipment industry. Revenues per employeeand net sales for this powerhouse tower over competitors. Ciscos growth in sales can be

observed over the nineties in Figure 6, until their peak in 2001. Although it is Ciscos

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.

1000

6000

11000

16000

21000

3 4 5 6 7 8 9 0 1 2 3 4

Net Sales (

in Millions)

0

1000

2000

3000

4000

3 4 5 6 7 8 9 0 1 2 3 4

Net Income (Doll

Millions)

Figure 9(1) Figure 10(1)

1. Hoovers Company Profiles. Hoovers Online < www.hoovers.com/cisco-systems/--ID__13494--/free-co-fin-factsheet.xhtml>

Ciscos revenue per employee was $525, 417 in 2002. This is larger than all of their

competitors and more than double the revenue per employee for a few including 3Com.

The margin between Ciscos revenue per employee is much greater for the larger

companies like Lucent and Nortel than it is for the smaller companies like Extreme.

Ciscos 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.

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150000

250000

350000

450000

550000

Cisc

o

Nortel

Luce

nt

unip

er

Cien

a

3Com

ound

ry

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R

E

Figure 11(1)

Cisco reached a market capitalization milestone of one billion dollars in 1998. Marketcapitalization is the total dollar worth of a company's stock, or the price per sharemultiplied by the number of outstanding shares. The most notable factor determining thisvalue 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 upits share price. Figure 9 shows that investors believe that Cisco has a bright future, with amarket capitalization value higher than the combined values of the nine competitorsshown.

Market Capitalization in Millions of Dollars for 2002

0

20000

40000

60000

80000

100000

Cis

co

Nort

el

Luc

ent

unip

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e

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Market Capi t

Total excludi

Figure 12(2)

1. NW200 Compare-o-matic. NetworkWorldFusion.

2. Companies Ranked by Market Capitalization. NetworkWorldFusion.

E. Significance of Information Systems

Information systems have been critical to Ciscos success. It is possible to say that

information systems are the single most significant factor responsible for Ciscos success.

Customers would have sought out Ciscos competitors or found substitute products if the

customer service problems in the early nineties were not solved using innovative IS

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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 globallyconnected 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 Ciscos 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 1990s. 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

todays 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 Ciscos 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

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 wont 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 Ciscos 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

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advertisements and commercials show a variety of network beneficiaries from heart

patients to schoolchildren to olive companies. Ciscos 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 Chambersand Pete Solvik. Both of these men are visionaries and risk takers. Solvik developedrevolutionary information systems like CCO and Chambers supported and funded theimplementation. Solvik can be credited with keeping Cisco on the forefront of thetechnology wave. In a two year period we replaced every piece of technology in thecompany. We have a very low cost/high value technology architecture. We have nomainframes, no mini computers and no legacy technology. Everything is current.

Chambers not only played a major role in Ciscos early success but in recent years withthe struggling economy. He carried Cisco through their darkest days, relentlesslypursuing his vision to change the way we work, live and play.

Customer Satisfaction

Cisco Systems tracks customer ratings through web-based satisfaction surveys. Surveyresults reveal what customers consider strengths, and areas that need improvement.Feedback is important to the company, because understanding - and acting on - customerinput is one of the most valuable sources of Cisco's competitive advantage. JohnChambers 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 ofCustomer Advocacy, explained, "If your customer satisfaction is decreasing, you're in adeath spiral. Customer satisfaction equals customer loyalty. The fact that Cisco has aVP 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

relationships that it gives out supplier awards for each supplier category like optical ortransformation. Ciscos supplier information and enrollment forms ensure that Cisco does

not waste time or money searching for new suppliers.

Worldwide Service & Support

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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 Ciscos global high standard

of customer service. Cisco also offers educational opportunities that include seminars, e-

learning programs and even a Cisco networking academy. Over the years Ciscos

website, CCO, and technical support center, TAC, have won a variety of awardsincluding 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 usesinternally to monitor and score customer satisfaction levels. The idea is that the partnerscan 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 areaswhere 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. Speedis 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 todays economy. Consider this sale

announced January 7, 2004, that Nortel made which includes some of Ciscos 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 thecompanys market value over the course of the day. Verizon plans to deploy all of

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Nortels Succession line of VOIP equipment, including softswitches, media servers, andgateways.

Size

Large companies find it difficult to make changes quickly, adjusting to shifts in themarket 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 Ciscos 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 abandonCisco. For example, Andreas Bechtolsheim, founder of Ciscos gigabit Ethernet routersleft 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

Ciscos 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 Ciscos 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 businessopportunities involving the use of information systems. This model can also be used toanalyze the successful use of information systems within an organization to gain acompetitive advantage. The Strategic Option Generator first identifies the business targetof a particular company and then defines their thrust (strategies), mode, direction (system

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users) and execution. The correct combination of these factors enables companies tosuccessfully achieve and sustain a competitive advantage through the use of informationsystems.

Strategic Option Generator

Figure 12

Strategic Target

Customers were Ciscos 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 toprovide value to customers provided easy access to technical support and improved speed

and accuracy of orders. CCO, Cisco Connection Online is Ciscos 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

providing access to current reliable information. Customers benefit indirectly from two

other systems, CEC, Cisco Employee Connection and MCO, Manufacturing Connection

Online.

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Thrust

This layer includes five business strategies: differentiation, low cost, alliances, growth

and innovation. Ciscos primary thrust was undeniably differentiation; they were

providing a revolutionary service for their customers. CCO met the growing needs ofCiscos 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 Ciscos products. Innovation, growth and alliance

strategies have been utilized by Cisco in addition to differentiation. Innovation is

essential for Ciscos 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 usedagainst them. Fortunately, Cisco customers, given access to Ciscos product problems,

now wanted the same access to competitors 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 andprovide. 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.

Execution

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Cisco became a leader with their implementation of CCO, CEC and MCO. Thecombination of these factors has enabled Cisco to gain and sustain a competitiveadvantage through the use of information systems. Their example has been followed bynumerous other companies attempting to follow Ciscos 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. Seniormanagements 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 anoperational 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 thepresent and future demands of their company. New information technologies thatcapitalize on future business opportunities must be provided without disrupting dailybusiness activities. Ciscos 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 tomanage an ongoing relationship with senior management. By understanding their needs,IT can develop solutions before problems arise. This builds a fundamental trust betweenIT and senior management. Boston has also deployed some of the telecommunicationtechnologies that will be discussed in the telecommunications section.

Pete Solvik, Ciscos previous CIO played the role of visionary for Ciscos informationsystems. 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 Solviks leadership, the Cisco Connection Online Web site wondozens of awards including: CIO Magazine's Web Business 50/50 Award,

WebAwards 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

tremendous role in building the technology foundation and Internet culture that Cisco is

renowned for today.

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Cisco Systems

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 andproperly staffing the information system initiatives and IS organization. Ciscosimplementation and commitment to CCO, CEC, MCO and other technologies requiredsenior management vision and approval. Luckily for Cisco, senior management hasalways seen the importance of information technologies. Today, an investment equal to5+% of annual revenue is spent on IT. John Chambers defines three perspectives a CEOcan hold about information technologies: as an expense, a necessary requirement or asinstrumental 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 haveprioritized information technologies at Cisco. Carter, now a senior vice president wasCiscos CFO for eight years. He can be credited with implementing Ciscosgroundbreaking daily financial reporting that enabled their one-day worldwide virtualclose. A one day close is a phenomenal tool translating to real-time, hands on the pulseof the company.

Figure 13

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Gruknovnjak, Joek. Cisco IT Financial Management Approach. 2002 Cisco Systems.

Role of Functional Management

Functional managers should understand the competitive advantage of information

systems, identify new system requirements, financially justify systems and support theiruse. Ciscos functional managers have these responsibilities along with certain uniquefreedoms. In 1993, Cisco developed a revolutionary process for distributing IT projectdevelopment and IT funding responsibility. CFM, the Client-Funded Model wasdeveloped by Solvik and Doug Allred to delegate IT expenditures to business functions.This decision allows business leaders to decide when, where and what technologies theywant to invest in to change the business. This unique IS structure shown in Figure 13, isnot a traditional hierarchy. IS decisions are made at each functional business level. In theupdated model of CFM, Boston explains that Cisco encourages people to buildapplications and systems that work cross-functionally and encompass the whole businessprocess. Business and IT are both responsible for sharing the necessary infrastructure

across all the parts of the business. Cross-functional funding helps the company integratesystems and processes. (2) This form of employee empowerment has enabled lowerlevel managers to make decisions, unleash their creativity, feel like they can make adifference 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 informationsystems organization exists. Chambers and Boston believe their relationship, thepartnership 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. CiscoCIO Brad Boston and I work very closely together on our company goals.(1) Chambersbelieves that IT and business must be aligned to increase productivity which helpscompanies become more competitive. Chambers is responsible for communicatingCiscos long-term vision to Boston and the rest of the information systems organization.Bostons 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 informationsystems. By redefiningtheir internal business processes, Cisco redefinedor changed theirindustrys factors of competition. Cisco also used information technologies to betterdefine the nature of their business and products by placing emphasis on being their ownbest model, a networked business. Some product development processes have beenredefined with use of information technologies but these changes have not been as

1. Greengard, Samuel. CEO-CIO Synergy: The Leaders Speak. Cisco Systems: Customer Care. April 2003. iQ Magazine.2. Cisco System

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instrumental to providing customer value as the changes to the business processes. Threemajor systems, CCO, CMO and CEC redefined Ciscos 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 couldnot handle the growing number of product orders and customer service problems. AfterCiscos network crashed in 1994, Solvik convinced senior executives to purchase anOracle ERP system for $15 million. This single investment was huge, about 2.5% of1993s revenue and 3 times larger than the previous years entire IT budget. Once thissystem was implemented, CCO was launched and soon customer satisfaction wassoaring.

CCO is a self-service system that offers a ubiquitous connection between Cisco

customers, employees, partners and suppliers. Customer usage and satisfaction with thissystem have continued to grow since CCOs introduction ten years ago. Initially, the sitewas designed for customer technical assistance and product information, not onlinepurchasing. In 1996, the second phase of CCO was launched, the e-commerce side of thesystem that permitted online ordering. Customers were given the ability to configure,

price, direct and submit electronic orders to Ciscos automated order-flow system. The

majority of the orders go directly to Cisco's third-party suppliers, who will ship directly

to customers, reducing Ciscos product order cycle over 70%. Shipment status can be

tracked with Ciscos direction link to Federal Express and UPS. Today, almost all, over

90% of orders are made online. Over 80% of customers service or support issues areresolved 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 millionpages of information.

Other beneficiaries of CCOs self service system include Cisco suppliers, partners andemployees. Companies wishing to be suppliers to the networking giant can find all thenecessary applications and information online. Suppliers profit from this streamlinedsupply chain management that incorporates fully automated activities and acceleratesnew 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. CCOhas led to higher employee satisfaction and retention levels and created a thriving Internetculture. This can be attributed to the self-serving empowerment of CCO. Employees canperform their jobs more efficiently with the use of CCO. Benefits to Cisco include:increased employee effectiveness and efficiency, lower costs, accelerated time to marketand most importantly, increased value to customers. CCO has proven to be one of Ciscosmain competitive advantages because of the increased customer care with the addedbonus of workforce optimization and integration of supply chain management.

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Cisco Value to Customer Chart

Figure 14

Cisco Employee Connection (CEC)

CEC, Cisco Employee Connection is Ciscos intranet site, first launched in 1995.Originally, the site had limited capabilities, only e-mail, information bulletin boards andsearch tools. CEC was soon expanded to simplify employees daily tasks and boost

efficiency. Employees can do everything from order supplies, exercise stock options orhold meetings. One of the first business processes to be redefined by this informationsystem was the Human Resources department. HR forms such as expense reports, healthinsurance, and new hires were standardized and incorporated into this ERP for onlineemployee access. Employees are highly satisfied with this system that makes their liveseasier. A great example of these computerized processes in CEC is the expense report

process. Charges can be quickly transferred from an employees American Express

corporate card electronic statement to an electronic expense form. These forms are

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submitted automatically and employees can be reimbursed in as little as forty-eight hours.

IT has made employees more productive, contributing to Ciscos 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 alsoenabled Cisco to close their books in a day, a monumental feat for any large company.

Manufacturing Connection Online (MCO)

One of Ciscos first landmark decisions was to outsource manufacturing, a necessarydecision to meet the raging demand for Cisco products. Cisco redefined theirmanufacturing 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 Ciscos manufacturers, suppliers, logistics partners,

assemblers, and distributors. MCO integrates and networks the supply chains of Cisco

and Ciscos partners and contract manufacturers. Access to information about customers,products, shortages and sales projections are shared through MCO, resulting in decreasedinventory costs and more accurate customer delivery dates. MCO is a highly automatedprocess 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 Ciscos cost savings, productivity, and effectiveness. Cisco is considered the

network equipment industrys most productive company because of their high revenueper employee. Efficiencies have been gained with e-learning initiatives like IP/TV andnetwork access extensions like WLANs. Cisco estimates their use of Internet capabilitiessaved 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.

Ciscos Fiscal Year 02 Benefits from Internet Capabilities

Application Cost Avoidance Time Efficiencies Total Savings

Customer Care $891M $8M $899M

Workforce Optimization $300M $339M $639MSupply-Chain Management $208M $66M $274M

E-Learning $73M $60M $133M

Total $1.94B

IP/TV

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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 Ciscos network streaming video solution that provides immediateresults: 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

reinvesting in legacy technology. They started with a pilot program, with 200 employeevolunteers 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 Ciscos goals

at the turn of the century. Cisco wanted to integrate WLANs with their existing networkinfrastructure to produce a global, scalable, secure wireless end-to-end solution. TheWLAN would be a secondary network, not meant to replace the wired infrastructure, butused to increase employee productivity and safeguard against any unforeseen serviceimpacts. The process of deploying the Aironet WLAN solution began in early 2002 andwas 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

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3000 access points (about 25/user) and 32,500 clients. This is the largest single enterprisedeployment of a global wireless network. Every Cisco employee has been provided witha wireless network interface card (NIC) or wireless laptop. Benefits for the employeeinclude ease of access, convenience, better responsiveness, a wire-free environment,increased flexibility and portability. Employee access to the Internet, applications and e-

mail is no longer limited to cubicles but can include locations like conference rooms andlobbies. A study by NOP World estimates a time savings of almost 90 minutes peremployee per workday with the use of WLANs. Cisco has profited from this costeffective solution that reduces errors, enables quick decision-making and boostsproductivity.

IP VPN

Secure IP Virtual Private Networks, VPNs, allow employees to telecommute and

virtually meet. Employees can access Ciscos 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 accessthe 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 andtheir strategic use of information systems. Sixteen factors that helped companies gain acompetitive 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 todescribe Ciscos successful utilization of information systems. The following successfactor breakdown is limited to the major factors that helped Cisco successfully achieve acompetitive advantage with information systems.

Executive and Information Systems Management Partnership

A strong relationship between senior management and information systems managementis a crucial success factor for Cisco. There must be an ongoing working relationshipwhere 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 Ciscos CIO frequently, believing that he has a strong partnershipwith Boston. Through direct communication with Chambers, Morgride and Valentine,Ciscos most influential CIO, Pete Solvik, was able to understand Ciscos business needsand develop Cisco Connection Online.

Other important aspects of this relationship include senior management confidence ininformation systems and information systems management business understanding.

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Chambers is a great example of a company leader who believes in the dependability ofinformation systems and views them as a competitive resource. Pete Solvik, Ciscos mostinfluential CIO and Brad Boston Ciscos current CIO, understand Ciscos priorities anddirection. Neither CIO is solely technical; both have a business perspective from theirprevious 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." Ciscos

vision is defined and supported by Ciscos 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-rangegoal 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. Ciscos 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 havebeen driven down throughout the organization. Slogans are transformed into reality by

ed