Gaining CompetitiveAdvantage ThroughInternet BusinessSolutionsPresentation IDSourcegraphic: 1999, Cisco Systems, Inc.1

Cisco - A “Best Practice”Example Who’s been to Cisco and can tell us aboutthe working environment and culture? Cisco makes routers. What are routers? Why are they the poster child? Why isCisco a “best practice” example ofE-Business?2

Cisco – In the Beginning Founded in 1984 by Sandra Lernerwho was Director of Computing atthe Stanford Business School andLen Bosack at the Stanford ComputerScience Department - “Sandy andLen” . Financed Cisco on credit cardsand a mortgage on their house.3

The Problem to be Solved Original ARPAnet design brokemessages into small packets fortransmission which were sent to thecentral network for broadcast. Interface Message Processors (IMPs)connected local networks to the ARPAnetbut not to each other. For LANS in two Stanford buildings to“talk” they had to move the packetsthrough IMPs to the ARPAnet whichwould eventually broadcast them backdown to the destination department.4

The Internet RoutersNeeded to connect the networks thatmade up the InternetCooperative routing needed to provide apath from Len to SandyLenSandyCISCORouters5

Cisco – In the Beginning In 1987 pitched the “router idea” to 75 VCfirms before getting 2.5 million fundingfrom Don Valentine at Sequoia Capital–gave up 32% of the company. Cisco neverneeded the funding because of the rapidgrowth that followed. 1987 US Congress opened up the Internet– 28,000 hosts at that time. 1990 Cisco went public – In 1989 had 4.9million profit.6

Cisco – In the Beginning In mid- 1988 John Morgridge was brought infrom Grid Computers as President andCEO. Sandy became VP of CustomerService and Len became the CTO. By 1990 Sandy and Len pushed out by thethe other VP’s – sold their stock for 170million. In 1991, John Chambers joined Cisco as aSenior VP for Worldwide Operations. In1994, he became Executive Vice Presidentand in 1995 be became President and CEOof Cisco. He was previously at IBM andWang.7

Cisco TodaySource: Hoovers.com8

Source: Hoovers.com9

Cisco TodaySource: Hoovers.com10

t &EconomicModelBusinessFunction &Value ChainOperating ourcesSource: Farris & Pfeifer11

What is/has been JohnChamber’s Strategy?12

John Chamber’s Strategy Assemble a broad product line Systemize acquisitions Set industry networking standard Pick the right strategic partners Customer orientation– Chambers: “if I find someone who looks atthe customer as a burden or problem, I’llstrangle him or her. That’s unacceptable.”Source: Brent Schlender, “Computing’s Next Superpower,” Fortune ASAP (Feb 23, 1998)13

Cisco’s 2000 AcquisitionsSource:Hoovers.com14

Cisco’s 2000 AcquisitionsSource:Hoovers.com15

Cisco’s 2000 AcquisitionsSource:Hoovers.com16

Cisco’s 2000 AcquisitionsSource:Hoovers.com17

Cisco’s Acquisitions Why did John Chambers on August25, 1999 pay 100 million shares ofCisco stock or 7 billion for Cerent –an optical networking company withlifetime sales of 50 million?18

Global Networked BusinessModel What are the key elements of theglobal networked business model ?19

Core Assumptions of Cisco’s GlobalNetworked Business Model The relationships a company maintainswith its key constituencies can be as muchof a competitive differentiator as its coreproducts and services. The manner in which a company sharesinformation and systems is a criticalelement in the strength of its relationships. Being “connected” is no longer adequate.Business relationships andcommunications that support them mustexist in a “networked fabric”.Source: Cisco.com20

The Cisco StoryChallengeResults Scale the company Maintain high-qualitycustomer support Maximize return toshareholders in times of:InternetBusinessSolutions Dramatic competitiveadvantage through:Higher customersatisfactionRapid growthFaster time to marketTechnology change 685M in savingsAcquisitions27% improvement inproductivity ( 2.5Bexpense base)Shortage of expertsSource : www.Cisco.com21

Internet Strategy What are the advantages of aninternet strategy? What mightthreaten such a strategy?22

Summary Financial Impact ofInternet Business SolutionsFinancial ContributionCustomer Care Headcount Avoidance Software Distribution Document Publishing 75,000,000250,000,000 40,000,000Internet Commerce Headcount Avoidance 12,000,000Supply Chain Management Reduced Operating Cost Increased Contribution75,000,000100,000,000Employee Services Online Hiring Productivity IncreaseTotalSource : 8,000,000 4,000,000 550,000,000 23

E-business Impacts Three BroadAreas of Firm NTRANETINTERNET24

Using the Web to Restructurethe Supply Chain What should come first, the sell-side,inside or buy-side? Why is buy-side an important area forWeb enabled systems?25

Cisco’s InternetBusiness SolutionsDevelopmentManufacturingSupply rtCustomerCareWorkforce optimizationSource : www.Cisco.com26

Internal Systems 1994 - Oracle Enterprise ManagementSystem - 15 M – 9 month rollout Two year IT architecture replacementPeter Slovak: “In a two year period, wereplaced every piece of technology in thecompany. We have a very low cost/high valuetechnology architecture. We have nomainframes, no mini computers, and no legacytechnology. Everything is current”27

Cisco’s IT Architecture Common PC platform,O/S, ProductivitySW, Email Browser Common Applications PackagesWorldwide Oracle Database Management Enterprise servers – Oracle Workgroup servers – NT Worldwide network base upon TCP/IP28

Cisco SELL- SIDE29

Cisco’s Sell-side Strategy How has Cisco implemented its sellside strategy? What were the steps?30

Cisco Connection Online – the“CCO” 1995 – Check order status, configurationand pricing online 1996 – Place orders online 1997 – Place orders through customersERP’s 1998 – Large customers can scheduleneeds directly into Oracle’s productionmanagement system 1999- Online market for complementaryproducts from other vendors31

Cisco Connection Online(CCO) 150,000 active registered users 70% technical support deliveredonline Savings of 365M annually32

Customer Care ResultsTotalLogins/Month1,600,000January 1999 Over 81% questions handled on line Dramatic growth—over 1.1millionlogins per monthSatisfactionSatisfaction4.254.1 25% higher customer satisfaction1,400,000 98% accurate, on-time repairshipments1,200,000 Annual savings of 365 mHeadcount1,000,000 75 mSoftware download800,000 250 mDocument publication 40 m600,000J a n '99O c t '98J u l '98A pr '98J a n '98O c t '97J u l '97A pr '97J a n '97O c t '96J u l '96A pr '96J a n '96O c t '95J u l '95A pr '95O c t '94J a n '95Source : www.Cisco.comJ u l '940A pr '94200,000SatisfactionSatisfaction3.43.4J a n '94400,00033

Using the Web to Restructurethe Supply Chain Compare and contrast self-service atCISCO and Dell. Why does the self-service modelprovide high customer satisfaction? Is the self-service model right foreveryone? Which industries?34


Cisco’s Supply Chain Strategy Describe Cisco’s supply chainstrategy. How did Cisco achieve“ virtual integration”?36

Supply Chain Management Extended ERPsystems to suppliers Automated routing datatransfer through EDI Eliminated needfor purchaseorders and invoices Developed partnershipwith suppliers and createdtest cells on supplier line Test proceduresautomatically downloadedon order configuration Suppliers test usingCisco methodology“Single Enterprise”with ed Testing onOutsourced Supplier LineCiscoCentralControlSupplierTest CellWANSource : www.Cisco.com37

Supply Chain Management(Continued)New Product Introduction Automated data gathering Engineers aggregatedesign information atthe touch of a button All companies in supply chainwork off of same demandforecast reducinginventory costsPDMCiscoIntranetERPCDMSCisco “OneButton Push”Dynamic ReplenishmentSingle Forecast forEntire Supply ChainCustomer Suppliers ship directly tocustomer and do notrequire Cisco interfaceCiscoDistributorDirect Fulfillment3 DaysSupplierSource : www.Cisco.comWANSupplierCustomer38

Cisco ManufacturingConnection Online Single Extended Enterprise New Product Introduction Autotest Direct Fulfillment Dynamic Replenishment “Global Networked Business Model”Source: Cisco Systems Inc, HBS39

Supply ChainManagement Results 50% of unit volume directly shipped withoutCisco touch New product introduction time to volumeaccelerated by a quarter (annual contributionmargins enhanced by 100 million) Lead times reduced from six to eight weeks toone to three weeks Engineering change notice time down from 25days to 10 days Annual operating costs reduced by 75 millionSource : www.Cisco.com40


Workforce OptimizationCisco Employee Connection Employee servicesTravel/expenseBenefits enrollmentTraining registrationStock informationInternal IT help deskDirectory andorganization chartSource : www.Cisco.com42

Workforce Optimization(Continued) WorkflowPurchasing/ORMRecruiting online Decision supportEISSource : www.Cisco.com43

Workforce Optimization(Continued) IP/TV for sales/product training Company-wide employeemeetings and broadcasts Collaboration with suppliers fornew product design Stanford Engineering coursesonlineSource : www.Cisco.com44

Workforce Optimization :ResultsAnnual Revenues perEmployee K*Cisco6604733 073,000143,800* (Latest Quarterly Revenues x 4) /employees as of 4QCY98Source : www.Cisco.com45

Cisco Web ApplicationsIntranetInternet/ExtranetEIS/ DSSExtranet supply chainEmployee Self-service Customer self-servicethrough the WebCommunication andNet commercedistance learningthrough the WebCollaboration andMarketing through theworkflow management WebWeb-enabled legacysystemsSource: Cisco Systems Inc, HBS46

Financial Impact of InternetBusiness SolutionsContribution ( m pa)Customer Care Headcount Avoidance Software Distribution Document Publishing7532740Internet Commerce Headcount Avoidance30Supply Chain Management Reduced Operating Cost Increased ContributionWorkforce Optimisation Online Hiring Productivity Increase75100830685 Source : www.Cisco.com47

Cisco’s Shareholder ValueCreationValue of 100 Invested in Jan. 1995CiscoNortel/Bay3Com1,296180133Source: NASDAQ, Jan. 3, 1995 to February 5, 199948

CISCO: Lessons Learned Listen to customers. Start small. Focus on quick payoffs first. Expect success: plan to expandinfrastructure quickly. Evaluate commercial products you canuse and adapt. Market the applications both internally andexternally.49

Cisco - The Future Will Cisco still be the industry leaderin five years? What companies andtechnologies might challenge itsleadership position? Can it continueits outstanding growth rate?50

Cisco Model Can the Cisco model be applied toother industries?51

t &EconomicModelBusinessFunction &Value ChainOperating ourcesSource: Farris & Pfeifer52