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 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.

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.