Mini Case: Cisco Systems

							Mini Case: Cisco Systems

Cisco Systems, Inc. was one of the early successes from the Internet. Cisco makes the
routers, switches and other technologies necessary to make the Internet work. They
provide products and services to customers who want to build their own networks or who
want to connect to others. Customers include large enterprises with complex networking
needs, service providers who provide network, cable, or other telecommunication
services, and smaller businesses who want to connect to the Internet. And they have been
quite successful, growing from revenues of $1.3 billion in 1994 to $12.2 billion in 1999,
and their stock is up more than 2,300% in the same time period.

In order to fuel the explosive growth, Cisco executes a business strategy of acquiring
companies to complement their core strengths. As of October 1999, Cisco had acquired
43 companies (the latest was just hours before this case was written) in fields related to
their goal: Be the biggest supplier of equipment needed to build, run, and manage the
Internet. The acquisitions provided Cisco with immediate infrastructure, technology, and
smart people. John Chambers, the CEO and President of Cisco since 1991, described his
strategy to Business Week magazine as,
       [Mergers and acquisitions] are a requirement, given how rapidly customer
       expectations change. The companies who emerge as industry leaders will be those
       who understand how to partner and those who understand how to acquire.
       Customers today are not just looking for pinpoint products, but end-to-end
       solutions. A horizontal business model always beats a vertical business model. So
       you've got to be able to produce that horizontal capability in your product line,
       either through your own R&D, or through acquisitions.
Cisco is not only a vendor of components for the Internet, they run their business on the
Internet. Their business strategy has been to build the “ultimate model of an efficient Net
company,” and to do so, they use the Internet for connecting to customers, suppliers, and
other stakeholders.

Cisco connects to customers though a series of Web pages that allow customers to read
and learn about products and services. In addition, like many companies, customers can
learn about Cisco, order products, seek support and service, and contract for training.
However, unlike many companies, Cisco sells more than 75% of their products over the
Net, which amounts to about $30 million a day. And almost 80% of customer support
issues are handled this way. There are several benefits to this method of doing business.
First, that gives the customer control over part of the ordering process because they can
choose and enter exactly what they want. Second, Cisco instantly gives them back
information regarding availability and delivery, often without a person intervening. It
means Cisco can respond instantly to a customer order by accepting and managing the
electronic order. And it means that response is less costly to Cisco than to competitors
where human intervention is needed.
But Cisco’s interaction with customers is only part of their success. Cisco has built an
extensive network of suppliers, partners, resellers, and contractors who are also
connected directly to Cisco. An order received by Cisco is sent to suppliers who
manufacture some of the products for Cisco. The suppliers, in turn, are able to provide
exactly what Cisco's customers want to Cisco. And this is done automatically by the
information system.

In order to accomplish this e-business, Cisco has about 19,000 employees all over the
world. Employees, too, interact with the Internet for much of their business. Recruiting
and candidate screening is done on the network. Managers have access to staff records on
the network. Information on competitors is available on the network. And all financial
information is gathered and stored on the network, making it possible to virtually “close”
business on any day of the quarter. That means they can accurately evaluate their entire
company’s financial performance on any day of the year. Processes are virtually paper-
free, where just about anything that can be done on the Net is done on the net. And
Cisco’s success internally only provides additional fuel for their story externally: Doing
business on the Internet is the only way to go.
Questions for Discussion:
1. How does the business strategy affect information systems and organizational
systems decisions?
2. Why does Cisco management insist on putting all of their business processes on an
internal network?
3. How does candidate screening on a network support their business strategy?
4. What options does Chambers, CEO of Cisco, have other than to use the Internet so
aggressively?