The Company that revolutionized the world of Networking

Raheel Javaid
ISM 158 Analysis Term Paper 02 05 04

Table of Contents

Paper Objective...............................................................................................3

SECTION I: AN ANALYSIS OF THE NETWORK COMMUNICATION EQUIPMENT INDUSTRY...................4

(a). Industry Profile.........................................................................................4 (b). Typical Industry Competitive Strategy....................................................7 (c). Porter Model Evaluation...........................................................................8 (d). Globalization of the Industry..................................................................11 (e). Importance of I/T to the Industry............................................................12

SECTION II: COMPANY PERSPECTIVE: AN ANALYSIS OF CISCO SYSTEMS.............................................................12

(a). Company Profile ....................................................................................13 (b). Competitive Strategy Statement............................................................16 (c). Market and Financial Performance.........................................................16 (d). Significance of Information and Information Systems..........................18 (e). Strengths and Weaknesses of Cisco Systems.........................................18

SECTION III: Information Systems at Cisco Systems............20

(a). Strategic Option Generator.....................................................................20 (b). Roles and Relationships:........................................................................23 (c). Redefine/Define......................................................................................24 (d). Significance of Telecommunications ....................................................28 (e). Success Factor Profile.............................................................................29

SECTION IV: A Final Analysis of Cisco Systems.................30

(a). Success of Business Strategy and Information Technology Use to Date .......................................................................................................................30 (b). Is the Company Effectively Postured for the Future? ...........................31

Bibliography............................................................................33

Paper Objective
The objective of this analysis paper is to identify the role and importance of information systems for Cisco Systems in gaining a competitive advantage in the Network Communication Equipment Industry. The industry, which is the focus of this paper, manufactures and sells networking products, focuses on setting up networks, providing network solutions, providing other professional services such as supporting network products and helping businesses become more efficient and competitive. In its entirety it would be identified as the Network Communication Equipment Industry. Since this is fairly long, the industry will hereafter be referred to as the Network Equipment Industry. To accomplish the analysis of the industry and specifically Cisco Systems, the paper has four sections, which are as follows: Section I: This section analyzes the structure of the Network Communication Equipment Industry, briefly discusses the competitors of the industry, the impact of globalization and the importance of information technology within the industry. Section II: This section discusses Cisco Systems role in the Network Equipment Industry and its position in the industry along with its competitors of the industry. Section III: This section discusses the role played by Information Systems in the company internally and externally. Section IV: Lastly the paper anticipates the position of Cisco Systems in the future based on the analysis from the first three sections.

SECTION I: AN ANALYSIS OF THE NETWORK COMMUNICATION EQUIPMENT INDUSTRY

This section gives an overview of the Network Equipment Industry. It talks about the industry profile, the competitors of the industry, globalization in the industry and the significance of IT (Information Technology) to the industry.

(a). Industry Profile

While the Network Equipment Industry focuses on both private and public networks, the current emphasis is on the Internet, intranets, extranets and new technologies like VoIP, data storage networking, Network Mobility and new forms of Internet security. The logic of this focus is dictated by the fact that the Internet connects the entire world and as such has become the backbone of todays economy while giving new meaning to the word globalization. The Network Equipment Industry has gone through immense changes and has developed significantly in a relatively short period of time. The beginning of this significant industry as it is known today began with the introduction of the first router by Cisco Systems. The industry development was then a factor of fast economic growth and political stability throughout the world. Most importantly it was the huge revenues that companies in the industry experienced within a short period of time. Another strong reason, which is relatively a recent one, was the competition between the different companies and the struggle for market share. There is much competition in this industry on every level. Companies of different sizes compete on different levels. Cisco Systems, Lucent Technologies and Nortel Networks are three major companies that dominate and influence the industry. In addition to these three large companies, the industry has a significant number of smaller companies that successfully focus on product niches. A good example is a company like Juniper Networks, which is significantly smaller than the other three large companies discussed in this paper, but continues to be successful. Figure1 shows the revenues for each of these companies over a period of three years. Revenues 2000 18.9 27.9 28.67 0.67 Revenues 2001 22.3 17.5 21.3 0.89 Revenues 2002 18.9 10.5 12.3 0.55 Revenues 2003 18.9 9.26 8.47 .7 4

Company Cisco Systems Nortel Networks Lucent Technologies Juniper Networks

Figure 1: Revenues for the major role players of the industry (*in billions)1

Cisco Systems is the world leader in the Network Equipment Industry. It has been a very stable company that has gone through hard times recently. Figure 2 gives a pictorial representation of how the companies of the Network Equipment Industry compete and influence the market. The router market declined globally by as much as 32% in 20022. The graph shows the revenue for these companies, which have suffered significant losses. Cisco Systems revenues also dropped by about 3.4 billion dollars (about 15% of the total revenue) in just one year. But to date, Cisco Systems has been the only company in the industry to regain its strength and maintain its influence on the market. Lucent Technologies and Nortel Networks on the other hand experienced a major setback and are still struggling to regain their strength in the industry. Lucent Technologies, another significant company in the industry, also focuses on manufacturing products for networks. Its products comprise of telephone switches, Wireless Network equipment, Optical equipment, network management software and an aggressive customer support service. Lucent Technologies had to face hard times during the recession and is still recuperating from the damage that it suffered. Nortel Networks, a well-known company in the Network Equipment Industry, also offers networking and communication services on a global level. Nortel originally focused only on voice networks and cellular technology until after its acquisition of Bay Networks in 1998. The acquisition facilitated Nortel Networks in expanding its operations and exploring the data networking market. Juniper Networks is also in the manufacturing business of the industry, but focuses only on the IP segment of the industry. They mostly provide equipment to small Internet Service Providers and other small businesses. Juniper Networks has also experienced losses in the last couple of years, like most of the other companies in the industry. But Juniper Networks regained its strength soon and is now a posing threat to all the companies in the industry.
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Juniper Networks is a new entrant in the industry that was founded in 1996. It has grown really fast and has shown exceptional results in a very short period of time despite the threats it has had to face in the industry. The key for Juniper Networks success was that it only focused on the IP routing segment of the industry, which helped the company survive and develop and get to the point where it is today.

30 billion 25 billion 20 billion 15 billion 10 billion 5 billion 0 billion 2000 2001 2002 2003 Cisco Systems Nortel Networks Lucent Technologies Juniper Networks

Figure 2: A graph showing the fluctuation in revenues in the industry (*in billions)

In order to be able to compare these companies, it is important to understand that though these companies compete in the same industry, they also focus on product segments that make them different from each other. Focusing on different sectors give these companies a competitive advantage on each other. For instance, Cisco Systems is a company that focuses specifically in data networking, end-to-end communication, and providing complete business solutions along with selling specific network equipment products. So basically, they focus on the LAN and WAN throughout the world. Lucent Technologies on the other hand are more into Wireless Base Stations, Telephone Switches, 3G solutions and other networking management software. Nortel Networks also focuses more on cellular technologies (CDMA, GSM, TDMA, UMTS), Optical Networks etc. Juniper Networks, unlike these giant companies, focuses only one segment of the market, which is IP routing. Though Juniper Networks is a small company that has emerged in the industry recently, it still poses a great threat to the giant companies in this industry.

(b). Typical Industry Competitive Strategy

To understand the competitive strategies of these market leaders, it is essential to first understand what business they are in. Networking equipment can be divided into different categories as mentioned earlier. When we think of Cisco systems, we think of cable modems, LAN and WAN, Wireless networking etc. When we think of Lucent Technologies, we think of Telephone Switches, routers, Wireless Base Stations etc. When we talk about Nortel Networks, we think about cellular technologies, 3G wireless etc. These companies have products that overlap each other or depend on each others products. They all make routers and switches but Cisco Systems is the industry leader. Nortel is the leader in the cellular phone technology along with phone switches and Optical Networks. Lucent Technologies is known for its Telephone Switches, routers and Wireless network products. The Network Equipment Industry is a very competitive industry. There is a lot of competition and marketing strategies these companies use to stay ahead of each other and in order to keep innovating. Outsourcing is a major and one of the most recent competitive strategies in this industry. Companies are getting a significant chunk of their manufacturing done offshore, which is cutting their cost down by a huge percentage. Along with manufacturing, companies are also moving their product and technical support offshore, resulting in major cost reduction. Cisco Systems has moved most of its manufacturing and support to India. It has even sent its employees to train the people that are being hired there. Outsourcing increases profits, to which these companies are able to spend more on Research and Development. Figure 3 shows a little comparison of what these companies net incomes were in the last four years. Nortel Networks net income for 2003 is not yet published, but their revenues are shown in Figure 1. Cisco Systems has been able to stay stable and it is evident by the numbers in the figure. Lucent Technologies, overall has suffered the highest losses in the industry. It has shown a great improvement in the year 2003 though. This was mostly made possible by laying off employees and cutting down other expenses.

Company Cisco Nortel Networks Lucent Technologies Juniper Networks

Net Income 2000 2.7 2.5 3.1 .148

Net Income 2001 (1.014) (4.5) (14.17) (.013)

Net Income 2002 1.9 (3.58) (11.826) (.120)

Net Income 2003 3.6 (.77) .039 7

Figure 3: Companies Net Incomes show the competitive edge in the market (* in billions)

Research and Development is one of the most important ingredients of this industry, since the products being manufactured and technology are constantly being innovated. These companies, in order to keep their influence in the market, have to come up with new and improved products on a regular basis that could give them a niche in the industry.

Figure 4: Business Strategy Model for Cisco Systems

Business Strategy Model Products Routers Individuals Switches Large/Medium/Small Corporations Cable Products Customer Institutes Market Europe USA International Manufacturing Outsource Sales/Distribution Resellers Company Structure Subsidiaries Information Systems Company Structure Support Asia/Pacific Region Vertically Integrated Online Store Alliance Business Solutions/Services Governments LAN/WAN Products

Subcontract Sales Force Independent

Customer Support

Products Development

Sales/Distribution

(c). Porter Model Evaluation

The Porter Competitive Model examines the Network Equipment Industry in detail in relation to the buyers and suppliers of the industry. There are four main parts to the Porter Competitive Model: Potential New Entrants, Bargaining Power of Buyers, 8

Substitute Products and Services, and the Bargaining Power of Suppliers. This model identifies all the competitive forces in the market, existing alliances, potential threats and other sources of positive and negative influence instead of just focusing on the use of Information Technology. The analysis clearly shows that the Network Equipment Industry encompasses all kinds of companies. Some of these are struggling for survival, some are trying to gain a bigger industry share and some are just too big for most of the companies to compete with. The Network Equipment Industry is a very competitive industry. The Porter Competitive Model shows three enormous corporations in the industry that dominate along with the new entrant that could impose a threat to these giant corporations.

Potential New Entrants

Barriers to Entry Still Attracts startups Foreign Companies

Bargaining Power of Suppliers

IT vendors Standards Organization Technically Skilled Personnel Component and end product manufacturers

Intraindustry Rivalry SBU: Cisco Systems Rivals: Lucent Technologies, Nortel Networks

Bargaining Power of Buyers

Internet Service Providers Corporations Small/Medium Businesses Government Entities

Substitute Products And Services

Outsource network management Used Equipment Sales

Figure 5: Porter Competitive Model for Network Communication Equipment Industry (i). The Bargaining Power of Suppliers

The bargaining power of suppliers is significantly based on the uniqueness of their products or services that they have to offer. Since, Cisco Systems is essentially in the business of manufacturing, IT vendors and skilled personnel have the most bargaining power. Standards Organizations such as ANSI, NIST, and IETF are considered to have significant bargaining power also. Component and end-to-end product manufacturers are the most significant suppliers of the industry and have a great deal of bargaining power. (ii). The Bargaining Power of Buyers The bargaining power of the buyers mostly depends on the volumes of production. The Internet service providers are the most significant buyers in the industry. They depend on the networking equipment to provide service to businesses as well as individuals. Corporations depend on networking equipment to perform almost any aspect of their business. Government entities are also buyers in this industry, since they buy some of the most sophisticated and expensive equipment to run their operations. (iii). Potential New Entrants New entrants are companies that are either new competitors in the industry or existing companies that have grown, developed, and are highly capable of competing with the strategic business unit directly. Leaders of this industry are under constant threat by startups and foreign competitors. Their strategy is to manufacture and sell the same products at a price lower then these industry giants. Foreign competitors in this industry are one of the biggest threats because of the fact that most of them do not have any laws regarding intellectual property. Sometimes these competitors, by means of reverse engineering, create most of these products at a very low cost. This in turn increases their profit and influence over the industry. (iv). Threats of Substitute Industries A substitute is an alternative to doing business with the strategic business unit. The two biggest substitutes for the industry are the outsourcing of network management and sellers of used equipment. Most of the work these days is being transferred offshore because of the cost efficiency factor. In the last couple of years, a significant number of companies ran out of business due to recession and most of them sold a lot of equipment for a lower price. This reduced the sales for the companies in the Network Equipment Industry. Conclusions based on Porter Competitive Model analysis

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The analysis of the Porter Competitive Model of the Network Equipment Industry helps us derive various conclusions about the industry. The bargaining power of suppliers is predictably high, since this is an industry that depends on highly skilled personnel and IT vendors for manufacturing, support and sales. The bargaining power of the buyers is also high, since there are so many end users of these products and services that are offered by the industry. Though, this is a highly competitive industry, we still see new entrants frequently. This is because a lot of these companies are still capable of generating profits in the industry and because they realize a possibility of getting bought out by one of these giant corporations. The threat of substitute products and services is something that this industry has started experiencing recently. Outsourcing network management is something that can turn out to be a threat in the long run, since the companies that are providing these services can end up gaining too much control of the industry, which could harm the Network Equipment Industry itself.

(d). Globalization of the Industry

In todays world, globalization is the most important element needed for the growth of any kind of business. Without globalization, it is almost impossible for any business to grow after a certain point. To understand globalization in this industry, it is important to first understand that globalization can be divided into two types, push and pull. Push is the type of globalization in which the company goes global just for the simple fact that it is pursuing added business potential. The pull form on the other hand, is based on the needs of foreign customers. Network Equipment industry is one of the most globalized industries for the simple reason that there are customers for this industry all over the world. For instance, these days the technology of VoIP is being used to communicate throughout the world. Companies are setting up their networks to make these calls possible throughout the world using the VoIP technology. This is just one small and recent example of globalization in this industry. Economies, businesses, and individuals throughout the world depend on it on a day-today basis. Capturing the world market not only means increased sales and increased profits, but also means lowering the manufacturing cost by outsourcing. That makes both the suppliers and buyers of this industry global. Cisco Systems, Lucent Technologies, and Nortel Networks all compete on a global level since without being global; it would be impossible for these companies to compete in the industry. One main advantage for globalization in this industry is that many of the products only need minor changes to be sold in other countries. All products and services travel well to many countries with only minor changes. This is a big advantage because companies do not need to spend too much money on modifying and creating new products in order to compete globally. Mostly the changes are in documentation of the products or some minor manufacturing changes that do not require too much time or capital.

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A company in this industry cannot thrive if it does not have a strong global presence. However, the risks of globalization include strain on company resources, cost and legal issues.

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

Information technology plays a great role in this industry from the manufacturing standpoint as well as the service point of view. First, and most importantly, information technology is used in the manufacturing of all the products. Research and Development through the use of information technology makes it possible for the companies to keep innovating and developing their products. Cisco Systems has used IT throughout its operations because they want to show that proper use of their products and services can result in a more efficient business environment. In a way, they are just marketing their products by using them for their own operations. Also sales of their equipment and service over the Internet accounts for a majority of their sales, which would be impossible without the support of IT. Cisco Connection Online uses IT to offer online customer services such as product support and sales.

Research and Development

Engineering

Production and Manufacturing

Marketing

Sales and Distribution

Services

Customer

Figure 6: Value Chain for the Network Communication Equipment Industry

SECTION II: COMPANY PERSPECTIVE: AN ANALYSIS OF CISCO SYSTEMS

This section analyzes Cisco Systems position in the Network Equipment Industry. The section gives an overview of the company profile including its business leaders, the

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companys competitive strategy in the market, significance of the information systems and the companys strengths and weaknesses.

(a). Company Profile

Cisco Systems was founded on December 10, 1984 by a small group of engineers from Stanford University. The companys total strength is 34, 0003 employees and captures over 80%4 of the Network Communication Equipment Industry. The company headquarters are in San Jose, California and they have facilities all over the world. The company has offices all over Asia, Europe, Africa, the Middle Eastern countries and even in the Caribbean islands. Cisco Systems as described earlier is in the business of Network Communication Equipment. Cisco provides solutions for businesses to make them more productive, make information storage more manageable, and data more secure and mobile. In order to analyze Cisco Systems and understand the company profile, it is important to discuss the industry profile first and then see how the companys profile relates to the industry profile. The first networks were time-shared networks that used mainframes and attached terminals. Both IBMs System Network Architecture (SNA) and Digital Network Architecture (DNA) implemented such environments. Local Area Networks (LANs) evolved around the PC revolution. LANs enabled multiple users in a relatively small geographical area to exchange files and messages, as well as access shared resources such as file servers. Wide Area Networks (WANs) interconnect LANs across normal telephone lines and other media, thereby interconnecting geographically dispersed users. Today, high-speed LANs and switched Internet works are becoming widely used, largely because they operate at very high speeds and support such high-bandwidth applications such as voice and videoconferencing. Internetworking evolved as a solution to three key problems: isolated LANs, duplication of resources, and a lack of network management. Isolated LANS made electronic communication between different offices or departments impossible. Duplication of resources meant that the same hardware and software had to be supplied to each office or department, as did a separate support staff. This lack of network management meant that no centralized method of managing and troubleshooting networks existed. Implementing a functional Internet network was no simple task. Many challenges had to be faced, especially in the areas of connectivity, reliability, network management, and
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flexibility. Each area of these areas was a key in establishing an efficient and more effective Internet network. Cisco Systems is the leader in resolving these exact problems and a lot more. The networking market has evolved from just being used as the department of defenses and academic researchers communication line to being a medium to network every single household and business. Cisco as well has tremendously progressed from just an equipment provider to a full fledge solution provider. It has entered every possible market that has to do with data networking and communication and has become an icon of technology, innovation, quality and service. The most important aspect in this industry is the interoperability among various vendors equipment and different technologies. Other things like scalability, reliability, speed, service and pricing are of utmost importance as well. Cisco has focused on all these aspects and much more to make itself the number one equipment and service provider in the networking/data communication market. Business Leaders A company is known by its leaders and its culture. Cisco Systems is fortunate enough to have some of the most capable leaders of the industry. John Chambers: (President and CEO) John Chambers received his law degree from University of West Virginia and an MBA from Indiana University. He started working for IBM Corporation as a sales person in 1977. In 1983 John Chambers joined Wang Laboratories and in a seven year period was promoted to senior vice president of US sales and field service operations. Chambers left Wang in 1991 and joined Cisco Systems the same year as Senior Vice President of Worldwide Sales and Operation. Chambers has had the honor of serving two of the American Presidents. He was on the Vice Chairman of the President George Bushs National Infrastructure Advisory Council and he was on the President Bill Clintons Trade Policy Committee. John Chambers brought a strong leadership to the company along with his experience and vision. In 1995, he was promoted to CEO of Cisco Systems. Since Chambers became the CEO, the companys revenue went from 1.2 billion annually to 18.9 billion in just 6 years5.

http://www.hoovers.com/cisco-systems,-inc./--ID__13494--/free-co-factsheet.xhtml

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Chambers was voted the Most Powerful Person in Networking by Network World magazine. He has received many other awards and in recognition of what he has achieved and in his career so far and how he made it possible to make Cisco Systems the industry leader and maintain the companies position. John Chambers was a visionary sales person. From the very beginning he started selling the idea of Cisco to the world. He was smart enough to pick the right team, the right technology and the right market to focus on. He dedicated himself on a personal level and brought revolution in the high tech sector by introducing his management style. In the beginning he made sure that he delivered on all his promises as far as the product and technology went. After a few years, he became a brand himself. John and his team shifted through numerous ideas and were lucky enough to choose the perfect ones. This did not happen all the time but most of the time, which is an important measure. Aside from his leadership, his vision, and his commitment to excel he made some amazing acquisitions of companies that could have threatened the company or those, which were coming out with cutting edge technology. Indeed there were many acquisitions that did not justified at the time but proved to be an important step towards the success of the company afterwards. Pete Solvik: (Senior Vice President and Former CIO) Another important leader in Cisco Systems history is Pete Solvik. He is the former Senior Vice President and CIO for Cisco System. Solvik joined the company in the early 1990s. He made an attempt to redefine the companys infrastructure by integrating all the business divisions with the implementation of the ERP systems. He was also responsible for implementing many other applications and tools the company uses in its operations, such as the CCO and the MCO. Implementing the information systems in the infrastructure of the company every step along the way has helped the company achieve all this success and be competitive in the industry. Solvik gave the company its vision and made it clear that it would be impossible to compete in the industry at this level without depending on information systems. Peter Solvik was a visionary and played a significant role in changing the IT infrastructure of the company, which has led to its success. Brad Boston: (Senior Vice President and CIO) Brad Boston, Senior Vice President and CIO of Cisco Systems, has been involved in integrating Information Systems in every segment of the company. Boston has a huge role in creating and expanding the Cisco online retail store and developing the companys image online. He took over the responsibilities of Solvik after he left the company. Boston is following the footsteps of Solvik and is making sure that the infrastructure of

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the company stays well integrated and uses information systems to stay competitive in the industry.

(b). Competitive Strategy Statement

Cisco Systems competitive strategy is to produce the best products and support them in the most aggressive manner possible. They believe in having loyal, trusting and satisfied customers and building a reputation in the industry based on goodwill and brand recognition. Cisco Systems has always aimed for high goals and has been able to accomplish them. They believe in innovation and uniqueness of products and providing complete business solutions to large corporations. Cisco Systems is also a firm believer in forming alliances and acquiring small companies in the industry that might pose a threat down the road.

(c). Market and Financial Performance

Figure 5 shows the companys financial highlights over the period of five consecutive years. The numbers clearly show the companys stable financial position in the industry. The companys overall sales have increased from 12.2 billion dollars in 1999 to 18.9 billion dollars in the year 2003. The net income of the company has also increased overall by 1.6 billion dollars in five years. These facts are very impressive compared to the other companies in this industry that have been experiencing huge losses over the last couple of years, even though they have tried all possible measures to cut down their cost and increase their incomes. Cisco Systems assets have doubled in this five year period, which is why Cisco Systems has managed to maintain its 80% of the market share. Cisco Systems showed an unbelievably huge difference in its revenue from $6.4 billion in fiscal year 1997 to $22.3 billion in fiscal year 2001. In year 2002 the revenue dropped from 22.3 billion to 18.9 billion during the recession, but the companys competitors in the industry experienced worse times. Cisco Systems was the only one company in the industry to regain its strength and survive the recession without any major damage.

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S le ($m a s il.) 2 ,0 0 0 5 0 .0 2 ,0 0 0 0 0 .0 1 ,0 0 0 5 0 .0 1 ,0 0 0 0 0 .0 5 0 .0 ,0 0 0 0 0 .0 19 97 19 98 19 99 20 00 20 01 20 02

Figure 7: Sales for the company (millions) Figure 8 provides an overview of the companys profits and revenues over the period of the last five years. The only year Cisco Systems had a net loss was 2001. this was the time of the recession.

Figure 7: Financial Highlights for Cisco Systems Figure 9 gives a break down of the companys total sales percentage of different products. The main source of their revenue was the routers and switches, which comprise 70% of the total sales.

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Products Switches Routers Access Other Service Total

in millions 7,560 5,607 980 1,522 3,246 18,915

Perc. of total sales 40% 30% 5% 8% 17% 100%

Figure 9: Breakdown of Cisco Systems sales6

(d). Significance of Information and Information Systems

Cisco Systems is a Network Equipment Industry and depends on information systems for every single segment of its operation. The company uses information systems in manufacturing, support, day-to-day management, sales and distribution etc. Implementation of the information systems in the companys infrastructure has been the key reason for its success. Cisco Systems is one of the few companies that have integrated the use of information systems in every single operation. It has developed a business strategy that highly depends on the use of information systems in order to be efficient, be able to compete in the industry and also make the whole company more manageable. Cisco systems implemented the ERP system, CCO, MCO and the Cisco Employee Connection. All these applications act as a catalyst to the companys competitiveness. Without the ERP system Cisco Systems would not be able to sustain its tremendous growth. Also Cisco Connection Online, which accounts for around the biggest part of the companys sale, would not have been possible without the implementation of the ERP system. By integrating into every part of its business Cisco was able to lower costs, reduce errors in the system, and respond more quickly to customers needs.

(e). Strengths and Weaknesses of Cisco Systems

Cisco Systems has done a tremendous job in this short period of time and has come out to be the worldwide leader of the industry in less then two decades. This section of the analysis talks about the strengths, weaknesses, opportunities and threats of this company. The strengths/weaknesses analysis can also be a useful tool in determining the role or the position of the company in the industry in relation to the position of its competitors in the industry.
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Cisco Systems Hoovers Company Profile

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(i). Strengths Cisco Systems has always set high standards for itself and has mostly been successful in achieving them. Excellent Leadership The company has the strongest team in terms of the leaders as well as engineers that work on the products directly. The company leaders have a tendency to look at the big picture and this poses high visibility in terms of innovation. The high return on investment and increased profits give the company a great opportunity to invest in Research and Development. Brand Recognition and Industry Leadership Cisco Systems most valuable strength is its extremely valuable brand equity and recognition. The high quality of their products and prompt customer support guarantees customer satisfaction. Brand is considered a sign of prosperity, innovation, high quality, service, financial stability, intelligence and profitability. Global Presence One of the most important factors under economic strength would be the companys global presence. Cisco Systems is known worldwide and is trusted in the local as well as the international Network Equipment industry. Financially Strong Cisco Systems is financially one of the most stable companies in todays economy. The company has a huge amount of cash at its disposal, which gives them an opportunity to do Research and Development, which in return helps them keep innovating their products and their business strategies. Acquisitions Cisco Systems has acquired the most valuable and fastest developing companies such as Linksys, Hammerhead Networks, Signal Networks and Okena etc. These acquisitions have made this company even stronger in terms of having a greater influence in the Network Equipment industry. Vast Range of products The company has the most expansive range of products starting from just small routers and switches for individual household use to complete business solutions for huge corporations. The company leaders have been able to have some of the best relations with their buyers and suppliers and are highly appreciated by its investors. These are all good signs for the companys future. (ii). Weaknesses

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Cisco in spite of being the worldwide leader and the most influential company in the Network Equipment industry has a few weaknesses. Some of them are ironic because of its size and the market share it has in the industry. Target of every competitor Cisco systems is a giant company in the industry. Whenever a company in the industry competes, it always thinks about Cisco Systems. Size of the Company Cisco is a significantly large company. It has over 34,000 employees worldwide, doing business throughout the world. The size of the company and the fact that it is globally very active makes it hard to manage the company. Lack of Success within the Telco market One main weakness that can be found in Cisco Systems and that might hurt them in the long run is that there is too much focus on the enterprise and all sectors of Network products but not enough on Telco. Acquisitions Cisco systems has made over twenty nine7 acquisitions in the last three years alone and in the long run can face legal issues by taking over too many companies and forming a monopoly, just as in case of Microsoft Corporation. Acquisition strategy can be viewed as both strength and a weakness. Another important issue is that it is difficult to assimilate new products and people into the organization.

SECTION III: Information Systems at Cisco Systems

The following section will focus in detail on the use of information technology at Cisco Systems. Some topics covered are how information technology has helped the company achieve its goals, how information technology has helped sustain Ciscos position in the industry, and what approaches did the company follow that led to its success.

(a). Strategic Option Generator

The Strategic Option Generator is a tool used to evaluate an organization that has used information systems to gain competitive advantage in an industry. It is a conceptual model that was developed by Charles Wiseman to recognize strategic and business
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opportunities involving the use of information systems. The way it works is that it starts out by identifying a business target, and then goes through layers of Thrust, Mode and Direction before it significantly uses the information systems to execute the plan.

Analysis of Cisco Systems Using the Strategic Option Generator

Supplier Differentiation Cost Offensive Direction Use Execution Provide Target Customer Thrust Innovation Mode Competitor Growth Defensive Alliance

Strategic Advantage Figure 10: The Strategic Option Generator Target: There are three possible strategic targets that a company can choose to gain competitive advantage over others; Supplier, Customer and Competitor. Cisco Systems has always kept a keen eye on its customers and have acted according to their needs. It has made buying services and products more convenient and reliable. The Cisco Connection Online is one of the biggest online stores that serves its customers and provides them with customer support for the products. The companys customer service has been the key to its well-recognized brand name and goodwill. Thrust:

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Thrust deals with the business strategy a company adopts. It can be divided into two categories; primary and secondary strategies. a) Primary Strategies: Primary strategies consist of two different strategies, which are as follows: i) Differentiation ii) Cost A company can choose only one out of the two primary strategies. It can either have a business strategy that differentiates itself by having something unique about itself from its competitors or it can go for the cost effective route and provide the same services and products as its competitors for cheaper prices. b) Secondary Strategies: In addition to choosing the primary strategies a company can also choose secondary strategies. A company can choose none or all three of these strategies. They are as follows: i) Innovation ii) Growth iii) Alliance Cisco Systems primary strategy has clearly been differentiation. The company has always focused on customer satisfaction and providing complete business solution to its customers rather than providing solutions to smaller problems like many of its other competitors. The companys intensive use of information technology throughout its business process has made it competitive and unique in the industry. Cisco Systems has used all three of the secondary strategies for its success. It has been innovative, has tremendously grown in a short period of time and has formed the most alliances in the industry then any of its competitors. Mode: Mode simply means if the company is aggressive in the industry or not, are they the leaders or are they the followers. This depends on a few factors such as innovation, how much the company spends on Research and Development and a lot of other factors. Cisco Systems is recognized as a company with an offensive business strategy in the industry. The company has spent a lot of money of Research and Development and has taken risks just to be the industry leader. Direction: Direction is divided into two classifications Use and Provide. If the use of the information system is internal i.e. within the company then it comes under Use. If the use of the information systems is beyond the boundaries of the company then it is also

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provide. Cisco Systems is one of the very few companies that uses its own products internally and externally to run its daily operations.

(b). Roles and Relationships:

Roles and relationships identify the importance of information systems in a companys operations and success by recognizing the involvement of the senior management with the information systems department. The concept of roles and relationship can be explained as follows: The role of information systems: Make the business competitive in relation to its competitors. The role of senior management: Making the information systems an integral part of the business to give it a competitive advantage. The relationship: The relationship between the information systems department and the senior management.

Senior Management
IT Leadership

Business Leadership

Information Systems Organization Use of information systems has proven to be not only one of the most significant and contributing sources to the companys success but has played an integral part in 23

managing the fast paced growth of the company in a short period of time. The nature of the business and the size of the company make the use of information systems essential and possible to manage the company. Like any large company Cisco is motivated to run its business in the most effective way possible. Given the nature of its products it is also both logical and necessary for it to become the best possible example of running its business through the use of its own products. Peter Solvik attempted to change the role of IT within the infrastructure of the company. He was the one to make the most significant change in the business strategy of the company by implementing an ERP system to integrate all the different divisions of the company. By this time Ciscos information system had become a key competitive advantage by generating most of Ciscos sales. Senior management was smart enough in its evaluation and implementation strategy. Peter Solvik was able to recognize early on that Cisco had two primary challenges in its IT department. First, the IT department was too traditional because it was viewed as a cost center that reported to the Finance department. He changed this by making the information systems department report to the Senior Vice President of Customer Advocacy himself. Secondly, Solvik recognized that the current infrastructure at that time would not be able to support the growth the companys business strategy was aiming for and nor would it be able to let the company to compete in the industry. He was also the person to let the information systems department give the authority to make all the decisions about implementing any new application or making changes to any of the existing strategies. The implementation of the CCO was also Solviks idea. He was able to analyze the effects and the benefits of having a online connection between the company and its customers. Peter Solvik was a visionary and played a significant role in changing the IT infrastructure of the company which has led to its success. When Brad Boston took over as the CIO he continued the work of Solvik by further improving the companys information systems department and making innovations on a regular basis. He implemented various other applications to the infrastructure of the business, which helped the company integrate its partners and suppliers in its EDI systems. Since the company realized the importance of information systems, pointed out by Peter Solvik, Brad Boston as the CIO got all the support of the senior management and the funding to implement the strategies.

(c). Redefine/Define
Redefine/Define is another concept, which helps us to understand a companys approach

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of successfully using information systems to gain a competitive advantage in the industry. Cisco Systems has implemented the use of information technology in almost all of its daily operations within all its departments. The use of information technology has added to the companys competitiveness significantly.

Product/Service
Network Equipment/Services

Delivery Process

ERP Systems

High quality products

Cisco Connection Online Cisco Employee Connection Manufacturing Connection Online

Customer support available 24/7 Convenient and fast online transactions High Merchandise Availability

Value to Customer

Figure 11: Value to Customer Analysis

ERP (Enterprise Resource Planning): ERP is the backbone of a business. It is an application that is used to integrate all the different divisions of a business into one. Cisco implemented the Oracle 11i ERP system in the year 19948, which integrated the companys manufacturing and sales departments and made the production more efficient, cost-effective and manageable. Before the ERP system was implemented, an order from the customer would take much longer to process. The ERP system also enables the companys partners and suppliers to act as part of the company itself, hence making the operations more effective.

www.cisco.com

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CCO (Cisco Connection Online): Cisco System introduced the Cisco Connection Online. The Cisco Connection Online is an online store where the customers can conveniently place orders after doing research on different products of their interest, get technical support for their products and manage their accounts online etc. These online buyer connections not only provide convenience and advantage to the companys customers but also enable the company itself to keep track of the orders and process the orders more efficiently. A big part of the companys sales is done through CCO, which cuts down the cost of their sales expenditure. MCO (Manufacturing Connection Online): The Manufacturing Connection Online is an attempt to communicate with the companys manufacturers and suppliers online and be able to place orders to the suppliers. This application keeps all the information of the suppliers and the status of the orders that the company puts in. CEC (Cisco Employee Connection): Cisco Systems has implemented a system used within the company itself. This system maintains contact between the employees of the company and the senior management and the sales and manufacturing departments. The system has made it easier for the company to deal with its internal issues and also communicate more efficiently.

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Customer

Sales Department

Manufacturing

Database

DF Model

Non DF Model

Contract Manufacturing

Contract Manufacturing

Customer

Cisco Systems

Customer

Figure 12: An overview of a typical manufacturing and sales process The manufacturing and sales process can sometimes be a highly complex procedure, depending on the product and its quantity. Figure 12 gives an overview of the complete traditional cycle from the point of receiving an order to shipping it to the customer. First the customer places an order with the sales department. The sales department puts the demand for the order through an EDI (Electronic Data Interchange) system to the manufacturing department along with the product number and the order specifications. These orders are refreshed every other day in the database. The manufacturing department links to all the CMs (Contract Manufacturers) and product manufacturers through another EDI system. The manufacturing department sends the order out with all the specifications to the manufacturer who has the contract for that specific product with Cisco Systems. The CM downloads all the information for this product from a Cisco Systems database. There are two different types of orders; the DF model (Direct Fulfillment model) and the non-DF model. The DF model is shipped directly from the CM to the customer and once it is shipped, the accounting department at Cisco Systems makes the payment to the CM. In case of a non-DF model, once the product is manufactured, it is shipped back to Cisco Systems from where it is shipped to the customer site. The payment is made to the CM as soon as the product is received. Cisco Systems has a lot of tools to assist the whole process. The company uses a tool

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called the Meter (Manufacturing end-to-end report). This tool is an online instrument, which keeps track of different manufacturing processes with different contract manufacturers. The contract manufacturers are logged in the system by serial numbers provided by the company. The manufacturing department can access the progress of an order on this system. Then the company has another tool called the SCE (Score Card Evaluation), which evaluates the companys suppliers. These evaluations are then added to the suppliers history in the database. In addition to all these tools and software, Cisco Systems has implemented various other information systems tools, which have enabled the company to be more competitive, and customer oriented. The company has implemented a variety of other tools in its Human Resource, Accounting and Finance and sales departments to stay closely connected with not only its suppliers and customers but also its employees.

(d). Significance of Telecommunications

Cisco Systems is one of the pioneers in Silicon Valley who realized the importance of an IT infrastructure for their own business and to interact with their customers, vendors and business partners. Cisco was one of the first companies that focused on web-based technologies. Their H.R. system, their financials, their ERP system (Enterprise Resource Planning), their employee benefits, timecards as well as EDI (Electronic Data Interchange) are all web based and done electronically. The employees of Cisco Systems use a file transfer tool called CCO to transfer data internally. The tool enters the sent data in a database and saves it in some safe location. The person it was sent to or even a group of members within the company can access the data. The transfer speed of the data is very fast and has no limitations to the size of the file being transferred. The company uses VoIP technology to form communication between employees throughout the world and also with the vendors and partners. CPAT (Corrective / Preventive action tool) is one of the most commonly used applications within the manufacturing department of the company. The application consists of a wide variety of tools within itself that help supervise the manufacturing of products. SCAR (Supplier Corrective Action Report), a tool used within CPAT, is a report that is issued to a supplier in a case where they mess up the order. If two SCARS are issued to a supplier within one quarter, then no more orders are placed with that supplier. It takes about 3 to 6 months to lift a SCAR off the supplier. These reports also affect the evaluation of the company. MCN (Manufacturing Change Notification) is also a part of the CPAT. This tool just notifies the manufacturing department of any changes that need to be made in the order placed by the customer. Line Alert is another tool that alerts the line staff of any changes or issues with the manufacturing. Failure analysis is a tool that detects any issues with parts while assembling them. If any problems arise then the report is sent to the supplier of the part using another tool called Purge Process.

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The GSM (Global Supply Management) is responsible for the selection of an approved supply base that meets the quality, technology, service, and cost requirements of our product. All production commodities are acquired from these approved sources, defined as either Cisco Preferred Suppliers or Cisco Approved Suppliers. After a component is qualified, the vendor is controlled through Approved Vendor List (AVL) and EDI software. Supply Operations personnel are responsible for acquiring material from approved suppliers only. If an issue is encountered with a suppliers part or process, the Supplier Corrective Action Procedure is used to correct it. In the year 2001, Cisco Systems implemented an application called the eHub9, which is responsible for maintaining a close connection with the companys suppliers. It is basically an application that the companys suppliers can access along with the companys employees. It gives a detailed inventory of all the suppliers in one place, which makes it easier for the company to accept orders from customers and place orders to suppliers. Cisco Systems has implemented telecommunications and network communication internally and externally in its day-to-day operations, which has significantly helped the company be competitive and form relationships with its customers and suppliers.

(e). Success Factor Profile

There usually are a lot of factors that lead to the success of a business but there are some that are responsible for its success. Cisco Systems main factors that are responsible for its success are as follows: Business Vision: Cisco Systems has a vision of Internet and networked applications as primary information technology platforms around which organizations will create sustainable competitive advantage in the future. Business vision has always been focused on the customer. Customer satisfaction has always been the top priority by creating and delivering new technology. Information systems play an important role in a business vision as it helps accomplish the goals the business has for the future.

Information Systems Integral to the Business: Cisco relies on its Information systems to do its day-to-day business. The ERP system forms the basis for the company's web-centric and IP-based IS infrastructure. It has allowed the company to completely integrate and streamline its operations ranging from
9

Cisco's eHub Initiative , http://www.manufacturing.net/scm/index.asp

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customer service and internal client service to supply chain management and net commerce. If all of a sudden Ciscos IS suffers a shutdown the company will simply screech to a halt and tens of millions will be lost everyday.

Executive/IS Manager Partnership Cisco Systems is a company with a culture that allows the senior management and the information systems management develops an ongoing working relationship. The information systems department has achieved so much in making the company competitive in the industry that it has made itself credible in the company. The senior management and the information systems management work together on forming competitive business strategies and analyzing the already existing ones. Linkage to Customers The main purpose of implementing the information systems for Cisco has always been its customers. The companys main focus has always been its customers, which is obvious from their business strategies and implementation of the information systems. The company implemented the EDI systems, CCO and various such applications just to be able to form a close relationship with its customers.

SECTION IV: A Final Analysis of Cisco Systems

This section summarizes the analysis of the company and predicts its situation in the industry. The Success of Cisco Systems (a). Success of Business Strategy and Information Technology Use to Date Information Systems have played a significant role in the success of Cisco Systems. Cisco has successfully used IS to be more competitive in the industry develop its business processes which as resulted in increased efficiency and reduced cost. The support and leadership of senior management plays an important role in both the planning and implementing of its Information System at Cisco. The senior IS executives have played a major role in implementing the information systems in the companys infrastructure. The applications and tools used by Cisco Systems integrate the whole infrastructure of the company and make it very manageable for the senior management. These 30

applications make it possible for the company to be efficient and have a competitive edge over its competitors. Apart from the manufacturing and sales department, even the HR and the finance department use highly sophisticated software to carry on with their daytoday operations. Internally, Cisco Employee Connection (CEC) helps its employees by providing centralized access to information, tools and resources. Through the Communication and Distance Learning initiatives, Cisco keeps employees informed with the latest data relevant to them and provides current information regarding Ciscos performance resulting in an increase in employee morale, monitoring of progress and a total optimization of the workforce. Externally, Cisco continues to maximize the utilization of its IS architecture for customers with online help. The CCO has generated a large amount of the sales performed by the company in the recent years. These online sales reduce the cost of the company by a huge number, hence increasing the profits. The online support also guarantees customer satisfaction. An integral part of Ciscos growth is derived from external acquisitions. One third of Ciscos new technologies are from partnerships and acquisitions. Because of Cisco's Internet Protocol and standards based IS architecture, the company is able to quickly and efficiently add the capacity required to handle the administrative processes of acquired businesses. Because of IS Cisco was able to create an environment that keeps their customers, suppliers, partners, and employees satisfied, which is the key for the companys success. Much of Ciscos success come from the understanding of the importance in implementing and updating IS to stay competitive in the industry. The company has also maintained its market leadership by being able to create innovative products and service that keep the companys customers interested. It is clear that Cisco would not be able to sustain a competitive advantage without the use of IS. (b). Is the Company Effectively Postured for the Future? Cisco Systems has established itself as the worldwide leader in the Network Equipment Industry. The company uses its highly sophisticated Information System to remain on the offensive side and to maintain its leadership position in the industry. It has established a sold foundation both on the technical and business side of IS which will allow it to remain a market leader. Senior management within the company understand the importance of IS in the companys continual success and that is something very crucial to a business. They must continue to use IS to provide innovation, be efficient, and cut cost to provide even more value to its customers. Cisco Systems must concentrate on making sure that it will always have the competitive advantage over its competitors by focusing on its customers.

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Cisco Systems IT strategy both harmonizes and supports its business strategy. Cisco Systems is a company with a solid financial background and have enough assets to invest into Research and Development and keep innovating their products, service and their infrastructure. With a remarkable management and information systems team, motivated employees, and the financial situation of the company, Cisco Systems will continue to be the leader of the industry.

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Bibliography

Hoovers Inc, Hoovers Company Profile-Cisco Systems Hoovers Inc, Hoovers Company Profile-Lucent Technologies Hoovers Inc, Hoovers Company Profile-Nortel Networks http://newsroom.cisco.com/dlls/corpfact.html http://www.soe.ucsc.edu/classes/cmps158/Winter04/cisco.html http://www.nortelnetworks.com/corporate/investor/reports/index.html http://www.lucent.com/investor/financialreports.html http://www.juniper.net/company/investor/ http://www.nwfusion.com/edge/news/2003/0218mktshare.html http://finance.yahoo.com/q/ks?s=CSCO http://sanjose.bizjournals.com/sanjose/ http://www.hoovers.com/cisco-systems,-inc./--ID__13494--/free-cofactsheet.xhtml

Cisco Systems Hoovers Company Profile http://www.cisco.com/warp/public/750/acquisition/summarylist.html www.cisco.com Cisco's eHub Initiative , http://www.manufacturing.net/scm/index.asp http://newsroom.cisco.com/dlls/innovators/mario_mazzola_qa.html http://newsroom.cisco.com/dlls/tln/exec_team/chambers/chambers_about.html http://newsroom.cisco.com/dlls/ts_013102.html

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http://www.networkmagazine.com/shared/article http://finance.yahoo.com/q?s=csco&t=1y http://www.cisco.com/warp/public/750/execs/solvik.html Cisco Behind the Hype, Business Week, January 21, 2002

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Three Best Sources

Hoovers Inc, Hoovers Company This site was one of the best sources since it provides all the factual information about the company and its competitors in the industry in a precise and clear way. www.cisco.com This site provided the most current and relevant information about the company in depth, which gave a good understanding of the business the company is in, the leaders of the company, financial information, and topics like innovation, alliances, growth etc. It also gives a very good undersatnding of the company for someone who does not know much about the company itself or the industry. http://www.soe.ucsc.edu/classes/cmps158/Winter04/cisco.html This was a good source since it has all the inforamtion pertaining to the paper in one place. This source has all the information about the company and its competitors divided up in sections just like in the guidelines.

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