CISCO SYSTEMS: Getting It Right

This communications, networking, and convergence major has the formula of success to take on Microsoft as the world””s most valuable company.

Cisco
Mantras

  • Flat organizational structure with a lot of focus on creating independent business units for freedom of work, and better focus on customer relationships
  • High focus on R&D (14 percent of revenues went into R&D last year)
  • Outsource manufacturing as much as possible
  • Share Cisco””s own experiences of success with Internet with its present and potential customers
  • Go all out to meet the customers”” needs including organizing finance
  • Not tied down with any particular technology–offer the customer whatever he wants.
  • Bonus for employees linked to customer satisfaction
  • Focus on productivity

Cisco is a networking
company for the Internet” is how Anil Batra, chief of
Cisco for India & SAARC describes the company. And the
saga began with the Internet Revolution. Cisco was there with
the right products at the right time.

While it is true that
the world””s hottest networking company has a range of
products, its flagship products are its family of routers–one
of the key enablers of the Internet Revolution. With the
Internet has grown the demand for bigger, better, and faster
routers that can handle information in gigabits and terabits.
The demand for voice, data, and video applications on the
Internet is coming not just from the corporates, but homes
too. And Cisco appears to be ready to meet it.

Little wonder then that
Cisco controls over 50 percent of the $21 billion networking
market worldwide–a market share which has left traditional
leaders like 3Com and Cabletron far behind. Market
opportunity, backed by technological expertise and a clear
direction, made Cisco the fastest company in stock market
history to reach the $100, $200, $300 and then the $500
billion market capitalization mark. The Man &
the Vision

Much
of the credit of taking Cisco to dizzy heights goes to John
Chambers, the 50-year old non-engineer CEO who is a visionary
and strategist par excellence. As a visionary, he is very clear
about the advantage building for the Internet Revolution rather
than the Industrial Revolution.

Chambers leads by example.
“We are the most advanced users of the Internet,” he
says. Internet is used in every aspect of Cisco””s business.
Only two people manage the travel expenses of the 26,000
employees. The high use of technology enables Cisco to publish
its quarter end financial figures within a few days after the
quarter-ends. That over 85 percent of Cisco””s business
in 1999 was done over the Net not only makes the company highly
efficient, but also sets the right example for its customers.
Cisco has been literally using this fact as an advertisement
campaign.

Believing in
Self

Chambers
might be a great leader, but he also has a great team of
dedicated people who have a firm belief in their technologies
and products. According to senior officials, the rate of
employee churn–a major nuisance in the industry at large–at
Cisco is one of the lowest. Why is it so? First, Cisco””s
history in the stock markets has been one of “never looked
back” ever since it went public at $18 a share 10 years
ago. Since then the stock has been split nine times and the
shares have gone up by a whopping 8,000 percent! One Cisco share
quoted at about $14,000 sometime back. No wonder then that with
its Employee Stock Option Plan (ESOP), Cisco has made 2,500 of
its employees millionaires.

Second, its work culture.
Its employees feel it is one of the greatest places on earth to
work in. Each of its buildings proudly displays whatever great
or pioneering work that came out of that. Chambers”” motto is
“Never ask your employees to do something you wouldn””t be
willing to do yourself”. He sits in as small and simple a
cubicle as that of a new recruit. All employees from top
management or lower cadres fly executive class and have no
reserved parking places.

From 1986 when it shipped
its first e-mail router, Cisco has come a long way indeed. It
has acquired over 50 other companies and offers end-to-end
networking solutions. The 35 buildings spread over 5 million
square feet in San Jose is a testimony of its stature. It has
grown from 1,000 to 26,000 employees in less than 10 years. The Goal

Considering
what has been said above, its aim to hit $20 billion as business
revenues does not sound impossible. The company is fast shifting
gears to reach its goal and is looking beyond networking
solutions for the enterprise. As data becomes 90 percent of
information that will flow on converged networks, service
providers including telecom giants such as AT&T, and the
ISPs are its new targets. Here Cisco will be taking on
established telecom giants like Lucent and Nortel for the $250
billion telecom equipment business with its data/IP products. It
has been on M&A spree acquiring many companies, which had
traditionally been involved in technologies and products for the
service providers.

Cisco is tying up directly
with the consumer goods giants to address the home markets. It
has tied up with Whirlpool and Samsung to make Web-enabled
refrigerators and microwave ovens to reach out to homes and
housewives. Just like Cisco is a world leader in 14 out of the
15 markets that it operates in, it wants to have a big chunk of
consumer network market, which is expected to be worth $9
billion. The recent worldwide $60 million television campaign
“Are You Ready?” on the lines of Intel, is a major
effort to project and make Cisco a consumer brand. Products like
Cisco Home Gateway, a DSL home network hub that converts a phone
port into a broadband Ethernet port, have already been launched.

The Growth Cycle Model

Stage
One

The Pioneers:
Cisco went
after early technology adapters, who were ahead of times
in terms of IT usage.

Stage Two
The Enterprise:
Cisco cashed
on the massive drive that most of the large enterprises
went in for to stay ahead.

Stage Three
The Fast Track SMEs:
The new
generation Small and Medium Enterprises (SMEs) see
networking not as a tool for mere survival but for leading
in the market, and invest heavily in networking.

Stage Four
Home Consumers:
A very hot
market, this will be Cisco””s next target.

And the company has
learnt to speak the language consumers understand. It is
offering catchy terms like Packet Intelligent Quotient (PIQ)
for its products. "The higher the PIQ, the faster will
the data zip around the house" is the USP that will push
consumers to upgrade from PIQ 1 to, say, PIQ 2. In its effort
to catch them young, Cisco is setting up networking academies
world-wide in collaboration with engineering colleges to train
youngsters in Cisco””s products and technologies.

The Challenges

Is
it going to be easy? Perhaps not as the challenges are enormous.
Its plans to address the consumer segment, which works on the
pull approach will require huge investments and time. Its duel
with established competitors like Lucent and Nortel in the
telecom arena will be the real test. These players are not only
giants but have long established relationships with service
providers and have also shown ability to turnaround fast.
However, the biggest question that haunts Cisco””s initiative
is its success with IP solutions for voice communication. While
Cisco claims that its IP products, which were basically for data
applications, offer very high reliability and quality for voice
too, it will take some time for service providers to get
convinced. And last but not the least is how long will the
dot.com wave service. It has taken a heavy toll on investor
confidence in the US bourses.

There is thrill and
euphoria all around as Cisco has become world””s second most
valuable company beating General Electric, Wal-Mart, and Intel.
Analysts are sure that it would soon beat the numero uno
Microsoft. But there is caution too. The soft spoken Chambers is
aware of the increasing threat–threat not just from
traditional rivals like Nortel and Lucent, but more so from the
small and unknown players. He does not ignore the possibility
that one of these many small companies might repeat Cisco””s
own feat. And Chambers lets a bit of paranoia drive his team.
But he clearly has his head on his shoulders.

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