Cisco Systems Business Strategy
Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Cisco's Internet Protocol-based (IP) networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world. Cisco is famous for its routers and switches that link networks and power the Internet. It also makes network access servers and management software. Although the company is very young, it has achieved an enormous growth in the last decade. The computer networking industry is an extremely fast paced business. Technology is constantly evolving, forcing companies to come up with more innovative products. The customers are well informed about the market and very demanding. They can easily switch from Cisco to one of the numerous competitors. The competition is very tough with more companies moving into the networking industry. The laws and regulations are only starting to form, which makes outcome even more uncertain. However, the rewards are!
far greater than risks: in 1998, Cisco had net income of more than $1 billion and was growing at 31% rate. The success of the company was due to the groundbreaking research and development, exceptional marketing and excellent staffing. The SWOT analysis reveals that despite on very strong position in the market, Cisco may lose because of high prices, overconfidence and inflexibility. Nonetheless, the economic conditions are favorable and through globalization and product innovation Cisco will be able to fight its competitors. In order to remain on top of the industry, the company has to constantly decide in what direction to move. The few alternatives that Cisco’s management might consider include implementation of the web services, strategic alliance with a telecommunication company, creating networking products for residential use, venturing into United Kingdom, producing software packages and marketing its internal network system. After a careful consideration, a recommend!
ed strategy for Cisco would be to develop and market its internal network system, known as a Globally Networked Business System, with addition of an accounting information system. The implementation of this strategy will result in increase of the market share, net profit and customer loyalty. The failure will result in financial disaster, damaged reputation and loss of customer confidence. The execution of this strategy will be most obvious in three functional areas: marketing, research and development and human resources. The process must be closely monitored. Both the Globally Networked Business System and the accounting information system will be expected to come out on the market in 2002.
Cisco Systems Inc. resides in the computer networking industry. Cisco develops networking devices such as switches, routers, network management software, and dial- up access servers. The corporation developed the technology that enabled computers to be connected, making the worldwide web. Cisco is the world’s largest networking company, with revenues over 8.5 billion dollars each year. In the history of computers, Cisco has been noted as being the company to grow most rapidly and is continually the industry’s market leader. In order to determine a future strategic alternative for Cisco, it is essential to look at the few characteristics of the company. The broad environment consists of domestic and global environmental forces such as socio-cultural, technological, political, and economic trends. The broad environment constitutes the background in which the firm exists along with its task environment. Evaluating the broad environment can allow for discovery of various op!
portunities and threats that the firm can then use and benefit from. Competition is fierce in the networking industry. It is driven by high demand and rapidly evolving technology. Dr. Harrison describes the task environment as "stakeholders with whom organizations interact on a regular basis ." This consists of many different groups, including Cisco’s competitors. Perhaps the other most important stakeholders in Cisco’s task environment are their customers and suppliers. The functional areas of the company determine the success of the business. The important functional areas described by Cisco Systems include marketing, human resources, operations, and research and development. Following is an analysis of the broad environment, competition, task environment, functional characteristics, financial history, a SWOT analysis, strategic direction, recommendation, and the detailed implementation plan. The analysis of these characteristics enabled our group to make a recomme!
ndation of an alternative strategic direction and an implementation plan for this direction.
A major socio-cultural trend important to the success of Cisco is the increase in consumer demand. Now, more than ever before, customers understand the importance of information and the availability of information. Customers are constantly in search of information that will help to enhance productivity and efficiency. They also prefer the information to be obtainable within a certain time frame. Cisco can profit from this socio-cultural trend if the corporation maintains their current advantage over competitors and remains a leader in technological expansion. The networking industry, consisting of a large customer foundation, is rapidly evolving. In order to guarantee customers, Cisco must continue to evaluate the current, as well as future, needs of consumers.
Due to constant technological change, the growth of the industry is increasing exponentially. In order to take advantage of this growth, it is necessary for Cisco to continuously develop quality services and products quickly. This will help the corporation to maintain their current status and retain their current level of market share. Computer networks are constantly needed for education buildings, businesses, and other various establishments. Cisco must become attentive to the different requirements of their extensive consumer base. Some of these requirements include convenience, efficiency, and quality.
A major legal trend that may impact Cisco involves the expansion of globalization laws concerning information systems. In order to compensate for the assortment of laws that involve IT globalization, Cisco must impose their copyright beliefs and privileges in each country. Cisco must be careful to keep an eye on their organization in light of the anti-trust laws. Cisco’s latest mergers and acquisitions, the improvement of various products, high-speed growth, and having a majority of the market share cause the threat of monopoly to be a major force in the organization’s environment. The corporation could find itself in a monopolistic situation comparable to Microsoft if management is not practical in researching laws and carefully monitoring the growth of the organization.
One major economic trend is the opening of China’s economy. The case describes the way that China’s free market economy will open huge opportunities for technology. Also, the Chinese government has met with the management of Cisco and is excited about working with the corporation. The government in China has promised to pass legislation creating a positive environment for the growth of the corporation in China. To capitalize on this economic trend, the corporation’s strategy needs to focus on becoming and staying the largest and the most important computer company in China.
Existing Industry Competitors
There are many existing competitors in the networking industry, but only a few are in a position to control the market. These companies include Ascend Communications, Lucent Technologies, Nortel, and 3Comm. Competition remains high among these companies due to the high level of development and success in the industry. The level of fixed costs compared to variable costs is dependent on the individual company. Each company will face similar costs, such as programming, web designers, and information technology specialist charges. The costs will fluctuate in relation to the specific company’s operational selections. To switch from one seller to another is relatively inexpensive. This makes competition more concentrated. Additionally, for the consumers, the admittance into distribution channels is fairly easy. The rapid escalation of the industry has had a considerable impact on the success of various companies. This analysis leads to the conclusion that existing industry!
competitors have a high level of power.
Since Cisco holds around 80 percent of the market for the networking industry and other large competitors significantly dominate the rest of the market, it would be difficult for potential competitors to gain access to the industry. Furthermore, it would be almost impossible for these potential competitors to gain any market share. Even though switching costs in the computer networking industry are relatively small, the entering competitors would have to develop new, creative, superior innovations not already present in the industry. The overall analysis is that potential competitors do not have much power in the industry.
The computer networking industry has numerous customers. Governmental agencies, universities, and the aerospace industry were Cisco’s initial customers. Products within the computer networking industry continue to be purchased and used in homes, businesses, educational facilities, and other various institutions. A large part of the customers consist of proficient persons and those leaning toward the higher levels of income. Acquiring seller information by consumers can be done rather easily. The quality, as well as efficiency, of an Internet/network connection is most important to customers. Most customers could not easily become their own suppliers. Customers can, however, easily switch between sellers. The breakdown of customers in the industry indicates that the average customers do not possess a lot of power.
The computer networking industry is dependent upon the familiarity and proficiency of various IT professionals. The industry suppliers are composed of programmers, web designers, and various Internet experts. Because of their level of expertise, suppliers can determine the future of the networking company. This allows them to be seen as having a moderate level of power.
The most interesting aspect of Cisco’s task environment is the fact that the corporation becomes partners with the external stakeholders mentioned above. For example, the Globally Networked Business function the corporation uses allows them to be connected with their customers and suppliers on a real time basis. This is a great strength for the company and will be discussed in more detail in the SWOT analysis to follow.
Cisco Systems Inc. began in 1984. Cisco remained a private company until 1990. When the company became public, John P. Morgridge hired John Chambers to be the Senior Vice President. Chambers later became the President and CEO of the company. Chambers has numerous business degrees and even holds a law degree. He has helped strengthen the organization in many ways. He has directed Cisco during massive developmental stages and continues to keep the corporation on top of an industry with fierce competition. The computer networking industry is exceptionally strong. This is partly due to consumers who won’t settle for anything less than the quality of Cisco’s products once they’ve used them. Chambers is aware of this trend. He is also aware of the fact that educated, quality employees are a necessity in the industry. Chambers is dedicated to maintaining good relationships between the employees and customers. Cisco makes training programs available that result in highly qualified employees.
The products and services provided by Cisco Systems, Inc is efficiently marketed. Cisco Systems was originally marketed through educational institutions and has expanded into a market leader. Cisco Systems marketed their products and services in several ways. For example, Cisco Systems offered consultation services when selling their products, which promoted the company as proactive and committed to their customer base. In addition, Cisco Systems marketed their products and services by taking a nonrestrictive approach. For instance, Cisco Systems does not favor one form of technology; instead the company pays close attention to consumers, current and upcoming trends, and provides a range of options to each customer. As a result of Cisco System’s successful marketing technique, the company has become a dominant market leader.
Cisco System’s Human Resources department has provided the company with a great a deal of success. The company hires individuals of various backgrounds to gather a diverse workforce. For example, some of the backgrounds of Cisco System’s Board of Directors include law, communications, engineering, computer science, and banking. Cisco System’s human resources philosophy illustrates a diverse workforce that promotes creativity and innovation. Additionally, Cisco Systems believes in a cooperative and efficient workplace for each employee. For instance, the CEO of Cisco Systems makes it his obligation to stay connected with each of his employees. The Human Resources department at Cisco Systems promotes a cooperative organizational culture and a diverse hiring methodology.
Cisco System’s operations come together with one goal in mind, which is to be the fastest growing computer company in the industry. Cisco System’s operations include designing and developing their products to encompass all accepted industry standards. Some of Cisco System’s operations have set the standard for the industry, which illustrates the company’s ability for innovation and creativity. Cisco System’s operations involve the use of its own technology to further along its own success. This technology is called the Globally Networked Business, and will be discussed later. Cisco System’s operational department works in an open and collective environment in an attempt to meet new successes.
Research and Development
Through research and development Cisco Systems has successfully become the globe’s largest supplier of superior computer Internet working systems. Cisco System’s research and development sector successfully set new industry standards by developing broad technological solutions. Through research and development, Cisco Systems was able to narrow their target market, assess their competitors, and develop new innovations. Research and development has assisted in Cisco System’s path to market dominance.
By 1998 Cisco has become one of the fastest growing companies in the world. In order to assess how healthy the company is financially, a ratio analysis was performed. The analysis consists of the calculation of four ratios, one from each of the following categories: profitability, liquidity, leverage and asset management. The net profit margin ratios for the years 1997 and 1998 were 16.28 and 15.96 respectfully . This slight decrease was due to several factors, including the continued shift in revenue mix to the lower-margin products and recent economic catastrophe in Asia and the Pacific Rim. The current ratio in 1998 was 2.13 down from 2.77 in 1997, which was due to higher deferred revenue on service contracts. However, the company’s liquidity level is higher that of Lucent Technologies, which in 1998 had a current ratio of 1.35 . In 1997 and 1998, the debt ratios were 0.21 and 0.22. It shows that the company intends to maintain its current capital structure. However, the low level of leverage suggests an opportunity to raise additional capital. To evaluate the efficiency of working capital management, analysts use asset turnover ratio. The asset turnover ratio was 1.18 in 1997 and 0.95 in 1998. In the light of aggressive expansion, the numbers are quite impressive. They show that the firm manages its assets quite effectively. Overall, Cisco proved to be a financially healthy company with unlimited potential. The company presents great investment opportunities for any kind of investor.
Cisco is an organization that has various strengths. For starters, having a large amount of control in the computer networking industry is a major advantage for the company. Effective marketing strategies, professional employees, and profitable stocks have benefited Cisco in its maintenance of industry control. The advertisement of Cisco’s products has been very successful. This has allowed them to develop well within the marketplace.
Another strength of Cisco is the firm’s global success. Cisco is the world’s chief supplier of high quality computer networking products. Individuals choose Cisco as their main product provider because of their ability to design and develop their products to uphold industry standards. Cisco is among the top 40 organizations in the world. Their products are distributed in 90 countries. As previously mentioned, Cisco has established a strong affiliation with China. In China, Cisco is the predominant networking company. In 1998, the amount of Cisco personnel was expanded by a remarkable 500 percent.
Perhaps the most important strength Cisco has is the Globally Networked Business. This is a mixture of programs that permits the company to converse online with their stakeholders. At any time, employees, partners, customers, and suppliers are able to retrieve online information. In 1997, the company was able to avoid spending $250 million due to the Globally Networked Business application. This strength could be the basis of an ongoing competitive advantage if the company could develop a way to construct the process for current and prospective clients. The Globally Networked Business has the capability of giving Cisco a sustainable competitive advantage in the industry.
The weaknesses of Cisco include high prices and over confidence in the marketplace. As a result of high quality and productivity, Cisco’s products are made available at a higher price than some competitors. Cisco’s sizable amount of control in the industry allows the company to have control over their product prices. As a result of Cisco’s dominance, the company may become over confident. The company has not yet encountered a major failure, which can cause them to believe one may never occur. Cisco must come to terms with the possibility of future failure and develop a recovery plan. Every company is capable of failing, and overconfidence may be a starting point.
The opportunities that Cisco may take advantage of include foreign markets, convergence of data, voice, and video, and new programs. The combination of data, voice and video could lead to the innovation of more efficient products that Cisco could then offer to its customers. Programs could be created that would increase speed and efficiency, improving the Internet experience of customers. Additionally, Cisco could maintain development of consulting services for various businesses that crave computer assistance.
As technology advances and becomes more complex, more consulting is necessary. Because of the increasing desire of pre-purchase consulting, each transaction could become a consulting project. For that reason, Cisco’s strategy should focus on developing this service. Internet sales are on the rise and Cisco should set up their Globally Networked Business system as a product that can be purchased by other companies. This will increase the company’s customer base and provide a specialty product to the industry that no other corporation has yet to perfect competition.
Cisco’s main threats are their competitors and economic fluctuations. Mergers and acquisitions flood the industry, resulting in huge corporations proficient in every aspect of the industry. It is necessary for Cisco to gain advantage through joint ventures and/or mergers and acquisitions. Otherwise, they will be surpassed by close competition. Economic fluctuations can drastically lower the use of Cisco’s services. An economic downfall can lead companies to go out of business. They would then no longer have any use for Cisco’s services. Through an analysis of Cisco’s threats, the company can develop deterrence to several downfalls.
In 1994, John Chambers, a CEO of Cisco, defined the company’s mission as to "shape the future of the Internet by creating unprecedented value and opportunity for our customers, employees, investors and ecosystem partners. " By the end of 1998, Cisco has become the worldwide leader in networking for the Internet. The company provided its customers with end-to-end enterprise network solutions, which in turn lead to cost savings, process efficiencies, and closer relationships with their customers, prospects, partners, suppliers and employees. Cisco’s vision is that the Internet will transform the way people work, live, play and learn. The company wants to lead the world through this transformation. John Chambers and other executives see Cisco as a reformer and a creator of a new Internet economy. To achieve this goal, the company relies on brilliant product innovations and exceptional customer service. Although, Cisco values its customers as a number one priority, the company !
takes good care of its investors and employees. Cisco is also notable for its outstanding philanthropic actions. For instance, Cisco has been working with the United Nations Development Program on the creation of an Internet information system in effort to eradicate extreme poverty. During the war in Yugoslavia, Cisco has set up networks and Web sites in Kosovo to help refugees contact and reunite family members.
Evaluation and Needed Changes
Based on situation analysis of the company, Cisco is heading toward its goal – the global leadership in computer networking. The company has conquered 80 % of the market share and is still expanding. It has expanded to 90 countries through direct and indirect sales. In 1998 alone, Cisco’s executives met with heads of state from Japan, Australia, Germany, Russia, France, China and other countries to discuss prospective mutual benefits from working together. In addition, the company has been actively engaged in mergers and acquisitions. It acquired 25 companies since 1984 and entered into numerous strategic alliances with hardware and software manufacturers. On other hand, Cisco has been successfully investing in new product research and development and marketing. But most remarkably, it has developed an internal network system that links together customers, suppliers and employees. This alone enabled Cisco to save almost $250 million in annual operating costs and to increase sa!
les by 15 %. However, stiff competition in the computer networking industry posses a huge threat. Cisco has to be a step ahead of competitors to maintain its current status. The company has adapted to the harsh external environment through globalization and product diversification. Since the networking industry is very broad and still developing, Cisco is better off by concentrating on one industry and not expanding to other areas. Overall, the chosen strategy of aggressive growth and customer focus has brought Cisco to the top position in the industry and, without a doubt, will continue to work in the future.
Evaluation of Alternatives
Defense of Selection of Alternatives
Having six alternative strategies for Cisco to choose from made it difficult to narrow them down to one. Through the evaluation of the functional strategies and consideration of our situational analysis, our team was able to choose the three best possible alternatives. The choice of the best possible alternative was then narrowed to one. One alternative is that Cisco should develop a strategic alliance with a company such as Motorola. Another would be for Cisco to expand its product distribution and venture into the United Kingdom. The third best alternative would be to develop and market as a new product the Globally Networked Business function Cisco uses internally as well as adding an accounting information system to the network.
Since Motorola and Cisco are not in competition with each other, the first alternative, to develop a strategic alliance with Motorola, would be an excellent decision. This strategy would increase Cisco’s market category and bring in new profits as well as market share. Additional expenses needed to implement the strategy would be for research and development, as well as operational and marketing costs. Additional administrative expenses may also be necessary. This alternative fits well with Cisco’s mission and its desire to satisfy its customers and stakeholders by increasing profit. But there is a large amount of risk that the strategy may fail; two reasons being, company cooperation between the two partners and product failure in the market. Overall, if Cisco were to form an alliance with Motorola, they would have an advantage over other competing companies.
The second alternative, venturing into the United Kingdom, could add significant value to the company. The strategy allows for a high potential in revenue growth. Benefits would also be presented such as a wider customer base, contributing to new consumer input and ideas. The costs associated with international marketing include transportation, foreign taxes, time devotion, salaries, warehousing, market research, and advertising. Venturing into the United Kingdom will fit well with Cisco, as it will enable them to take advantage of their distinctive capabilities. There are several risks involved in doing business internationally. Some of these risks include the loss of finances, customers, reputation, and internal damage to their environment. The benefits must be weighed against the risks to measure the final outcome.
The third best alternative for Cisco, chosen from the six total, would be to develop a Globally Networked Business along with an accounting information system. The value this would add to the company would be the increase in market share. Implementing this strategy could help attract new customers and would also save the company money. Research and development would be a main cost in developing the accounting information system. Other expenses include the increase of personnel, training, and marketing. This alternative is consistent with the current direction of Cisco and would fit easily into the company. The risks involved would be mostly associated with the ability of failure to damage their reputation. The CEO of Cisco, John Chambers, supports the idea of a Globally Networked business and believes it will be necessary for future success.
Evaluation of Alternatives
The field of information technology is one defined by its inability to move in one direction for very long. With the ever-changing worlds of business and academia being the industry’s main customers, it must always think three or four steps ahead. Currently the Internet has perhaps had the biggest impact on the industry. Millions of people are on the Internet, with millions more signing on for the first time every year. The Internet is full of possibilities and, much like anything in information technology, is constantly evolving and changing to meet its users’ needs. Currently new standards, languages and protocols are being developed for use solely online. Given Cisco’s standing in its industry, it must anticipate any change well before it happens. This is why, as of this time, Cisco should attempt to make the move into web services.
A web service, simply put, is a broad term that means performing tasks online, which are typically reserved for the "real world". Examples of current web services are online banking and stock trading. Many companies are becoming interested in web services, and Cisco should strike while the iron is hot.
Since web services are a relatively young idea, Cisco does not have a path to follow and must cut their own. Much research needs to be done with regard to the protocols used and how they can fit in given Cisco’s current products and infrastructure. Cisco already has a web service in their Cisco Supplier Connection, which is a shining example of business-to-business, or B2B, services. Cisco stands to gain much revenue, market share, and overall industry power with this move.
Cisco’s research into this new terrain will of course have costs. Research must be done in order to discover who will use web services and which services would be used the most. The most common research in this case will be through the use of surveys. The company’s research could consist of surveys sent out to current customers. The main costs in the research will be employee salaries and mailing/print costs. Once the research is complete, Cisco must design and implement these services. These costs will mostly consist of programmers, database designers and project leads, as well as any necessary hardware or software they must use.
The move to web services would be a venture into uncharted territory for Cisco, and their findings will determine the fit of these new services within their organization. It is a move away from their most traditional product line, networking hardware, but it may also fit in very well with its software offerings if implemented properly.
Any move by a company into a new aspect of its industry carries a hefty risk. For Cisco, this is not only in the possibility of the research coming up as inconclusive or with outright disapproval of web services but also with competition. Currently both Microsoft and Sun Microsystems, who are not usually direct competitors with Cisco, are drafting up their own ideas of what web services should be. The first company to come up with a viable idea that businesses and consumers are willing to buy into will dominate web services. This may also be a problem. As seen with Microsoft, if Cisco does have the best web services available and it appears as if there is no real viable alternative to its services, allegations of antitrust can surface. Cisco must manage all of this carefully as they do not want to fail in this venture but must also be cautious not to become too successful.
Strategic Alliance with Motorola
By 1998, Cisco became the largest provider of intranet and Internet products, mainly routers, switches and related services. However, demand for better products and strong competition from the likes of Lucent, Nortel, 3Com and Nextel is threatening not only future growth, but also mere existence of the company. To stay on top, Cisco must constantly develop and improve its products and services. The major trend in the industry is to find a better way to transport information. Whichever company finds it first will set industry standards and gain a competitive advantage. The solutions to this problem are countless ranging from the optical long-haul technology to wireless transaction to high-speed copper links. Since it doesn’t have an expertise in telecommunications, Cisco faces tough time and resource constraints. To win the race, the company needs to partner up with a telecommunication company such as Motorola.
Motorola has an extensive knowledge of integrated communications and embedded electronic solutions, and, unlike Novel or Nextel, it does not compete with Cisco. With Motorola’s experience in the digital cellular transmission business and Cisco’s knowledge of computer networking, they can create an efficient framework for Internet-based wireless services.
This alternative will allow Cisco to enter new market category, bring in profits and increase market share. It will also permit Cisco to share associated risk and expenses with Motorola. Moreover, the alliance can be taken further in the future and be fruitful for both companies.
The alternative will result in increasing administration, research and development, operational and marketing costs. The additional administration costs will reflect managerial and juridical expenses. Research and development costs will be the expenditures for creation of the new product. Operational costs will detect manufacturing costs and marketing costs will reflect promotional expenses. However, benefits associated with this alliance will outweigh all costs.
Cisco is one of the most aggressive companies in the industry. In 1998 alone, the company has acquired nine firms and made strategic alliances with HP and KPMG Consulting. The new alliance will profit to Cisco’s customers and stockholders, which are two major target groups the company is thriving to satisfy. This alternative fits the company’s mission and strategy.
There is substantial amount of risk that the venture will fail. The major concern is associated with how well companies will cooperate. If companies won’t be willing to compromise, the failure is certain. Another type of risk is financial. The product may not succeed in the market, which poses a threat to stockholders and management. The competitors will most likely retaliate and either enter this market category by themselves or through joint venture. However, if Cisco and Motorola will penetrate the market first, they will have a competitive advantage over their competitors.
Home Networking Products
An alternative strategy that Cisco Systems, Inc. can implement is making networking products and equipment that are compact enough to be used in residential estates. These products will be prototypes of what Cisco already has to offer the business world. It will allow for Cisco’s products such as switches, routers, hubs, and relative services to be compact while operating with the same efficiency and quality that the original products have to offer.
Cisco has experienced phenomenal growth in recent years. It is evident in today’s business world that Cisco is one of the leading companies in the computer networking industry. If Cisco decided to start producing prototypes of their current products that can be used at home, it will allow Cisco to sustain the amount of market share that they currently have. With more companies entering the market, it is going to be increasingly difficult for them to keep the market share they currently hold. New product innovations will add value to Cisco in a number of ways. First of all, new products will help to gain customers. By developing products that are different from traditional business use products, Cisco will increase their potential market. For example, these new products would help to entice more home businesses as well as give more employees the opportunity to work from home. Creation of the new products lines will not only help increase market potential in the short-ter!
m, it will help to ensure the success of Cisco in the future. Differentiation of products will help the company’s longevity because if more than one product contributes to the majority of the revenues, a decline in the demand of one product will not be as significant. This could also increase long-term value because if these products become successful, customers of Cisco may want to have more of their employees working from home; these individuals will have a higher tendency to choose Cisco for their home networking devices since they already use them in their offices and know that they can be reliable.
Of course, this new idea will not be free for Cisco. This project will require startup capital for market research in order to conduct surveys and tests for product approval by the public. Research and development will need funding to see if there is marketing for home networking devices. Cisco will also endure some legal costs in writing contracts and copyrighting their new products. Cisco retail locations will also require hiring more employees, such as sales personnel, technical support, and customer support, which will come as a cost to each store. Finally, the public has to know about the new products so a substantial amount of capital must be invested in advertising.
Since Cisco prides itself on outstanding service, this alternative perfectly fits the company’s goals and culture. This alternative is consistent with the current strategic direction of the company in that Cisco is simply creating smaller prototypes of current products. This innovation fits in the organization because it can use the same basic distinctive competencies that Cisco already employs. For example, Cisco has a great reputation with their services and customers. Cisco could use the same philosophy to deal with their new customer base. Cisco has also mastered the process of making their current products. The company could use the same talent and resources to design an efficient process for the new home networking products. Cisco management will definitely support the development of the new home networking products. The organization wants to increase market share and broaden their product base, hence the development of the products they already have to offer.
It has been proven, however, that Cisco can operate without venturing into home networking devices. The decision to design, produce, market, and sell the products does have risks. The first risk is the price of these new products. Cisco cannot sell these products to the "average Joe" at the prices they are offering to current customers, which consist of large enterprises, service providers, and small/medium businesses. They have to make prices more reasonable so more people can afford to have and use these prototypes in their homes. Another risk is the possibility of harming the organization’s reputation. If Cisco does not spend the necessary time and money to develop a quality product, the production of a product that is not received well by consumers would definitely hurt the organization. These two factors can lead into disagreement with shareholders, because of the immediate threat to the company’s stock price and reputation. Nevertheless, management must persuade th!
e board of directors that long-term benefits outweigh short-term losses. However, if Cisco will position itself as a company that values high quality products and services, it will always win more customers.
Venturing Into the United Kingdom
An alternative strategy that Cisco Systems can execute is venturing further into international markets. Entering into a new international market can gain Cisco Systems several opportunities. Although Cisco Systems has entered into international markets through China, the United Kingdom could lead the company into significant global success. By entering European markets, beginning in the United Kingdom, Cisco Systems can take advantage of their various unique strengths in a new market.
Cisco Systems can increase their success and expand their customer base through the United Kingdom’s markets. Through entering the United Kingdom’s markets, Cisco Systems can gain high potential for growth in revenues. Additionally, through entering the United Kingdom’s markets, Cisco Systems can gain various benefits. For example, Cisco Systems can reach a broader customer base with new perspectives and input. Entering into the United Kingdom’s market is a moderately new concept for Cisco Systems and may prove to be financially successful for the company through further analysis. Business relations with China limits Cisco System’s opportunities, because of the various conflict involved with China’s ideology and human rights beliefs. Cisco Systems can gain higher profits, international awareness, and prosperity through the United Kingdom’s markets.
In order to successfully enter into the United Kingdom’s markets, Cisco Systems must analyze the various costs associated with international marketing. The various costs associated with international marketing include transportation, foreign taxes, time devoted by managers, salaries, warehousing, market research, and advertising. Transportation costs include the commuting of managers, supplies, and employees to the United Kingdom. Foreign taxes include the taxes required to do business in the United Kingdom’s markets. Time devoted by managers include managers overseeing the business’s progress in the new market and assisting the new customers. Salaries include those for the various new employees that will be hired in the United Kingdom to help design a more convenient service for European customers. Warehousing costs include the storage of supplies, files, and products for Cisco Systems. Market research costs include statistical analysis, various customer evaluations, c!
ulture analysis, and economic evaluations of the United Kingdom’s environment. Advertising costs for Cisco Systems include the United Kingdom’s billboards, commercials, and advertising literature. Through an analysis of the various costs involved with venturing to the United Kingdom’s markets, Cisco Systems can gain a better understanding of their expectant success.
Venturing to the United Kingdom’s markets will take advantage of Cisco System’s distinctive competencies. Cisco System’s existing culture, management, and resources will support the alternate strategy of international commerce with some revisions. Cisco System’s culture will support the alternate strategy of international commerce, because the company has already ventured into China. The major revisions Cisco Systems must incorporate include doing business in a significantly different country than ever before. The United Kingdom has different needs, custom, and standards than the United States and China. In addition, Cisco System’s management must become accustomed to the various responsibilities of marketing in the United Kingdom. For example, Cisco System’s management must be able to balance their time and energy to the needs and desires of the customers in the United Kingdom. Lastly, Cisco System’s resources must be fully utilized and expanded to successfully market !
in the United Kingdom. For instance, Cisco System’s employees, products, services, and supplies must be fully utilized in order to successfully market in international areas.
There are several risks associated with doing business in the international market. The various risks that Cisco Systems is facing are financial, reputation, internal environment, and customer loss. Cisco Systems runs the major risk of losing a great deal of money on the event that the company fails in the United Kingdom. In addition, Cisco Systems runs the risk of damaging their reputation. For example, the United Kingdom’s Cisco Systems may not meet the United Kingdom’s standards, qualities, or ethics and therefore gain a poor reputation. Cisco Systems runs the risk of damaging their internal environment. For instance, some of Cisco System’s employees may quit as a result of Cisco Systems becoming a multinational organization. Lastly, Cisco Systems risks their relationship with other customers as a result of international dealings. Some of Cisco System’s customers may not agree with the ethics or culture in the United Kingdom and may cut ties with the company as a re!
sult of the United Kingdom’s business dealings. Cisco Systems, Inc. must compare the various risks involved with international dealing and determine if the benefits outweigh the risks.
Cisco should create a software package that would compliment their existing hardware products. Currently, medium to large sized organizations are purchasing Cisco’s hardware products, and then having to buy additional software packages, such as Tivoli or HP OpenView, from other companies. Cisco could generate higher profits as well as increase their customer base if they were to develop a software package of their own.
A great deal of value can be added to Cisco with the development of a complimenting software package to their hardware products. The software would monitor and report computer problems when they occur. This would allow a company to know when their firewall, security, or intrusion detection is down and let them know that there is a problem that needs to be fixed. When displaying a problem, the software would be able to pinpoint the exact reason for the problem so it could be fixed as soon as possible. This also helps in saving money by knowing what to fix, instead of guessing at the problem area and spending money on something that was not related or a valid solution. Besides the warning of current system failures, a company could use the software as a forecasting tool to keep certain problems from happening in the future by monitoring current ones.
There are many costs associated with implementing this strategy. Research and development would be an initial cost in order to create a software package that would monitor and give solutions to certain computer problems. Other costs would include training and support for those involved in creating the software and also retraining systems engineers to install the new product at various companies. Testing would also be needed before the software is released.
Since Cisco already has different hardware products available, becoming more in depth in software marketing would fit well in the company. It would fit the company’s desire to expand in their product area. This may also fit Cisco’s desire to meet the needs of the customers, those who are currently buying the software packages from other companies.
Upon implementing this strategy, there would be financial risks. Although Cisco is a well-known and highly respected company, consumers may continue to buy software packages from other companies or stick with the ones they currently own and are comfortable with. Competitors may also lower the prices of their existing software packages in order to keep their current customers loyal instead of switching to Cisco. Even though there are risks in the implementation of this strategy, having a software package of their own would most likely benefit the company and potentially increase profits.
Globally Networked Business
This strategy is to develop and market as a new product the Globally Networked Business function Cisco uses internally as well as add to the network an accounting information system. Cisco designed its network to link all of the organizations core business systems. It allows employees, customers, suppliers, partners and prospective clients the ability to communicate easily with the corporation and access real-time information.
Selling the Globally Networked Business function will add value in a number of ways. First of all, it has the potential to increase the corporation’s already massive market share. With the rate of change in the progress in technology, it is important to be on the cutting edge in the networking industry. Cisco is setting an example with this system, and it could help to attract new clients. Secondly, being globally networked saved Cisco over $250 billion in 1997. If Cisco markets this to current clients and it saves the clients money, it will help to increase customer loyalty. Development of customer loyalty will not only help Cisco in the short-term, it will also help in the long term by securing their position in the industry. The addition of an accounting information system is important because it can easily be linked to the already existent portions of the global network, and therefore stops the need for double entry. All the information needed to process accounting!
reports is available in the business functions of the network; they only need to send the correct information to the accounting function. Of course it will be necessary for review, but that is the case with all accounting information. The addition of an accounting function will add value by saving money for the clients and even Cisco in this case.
The first major cost associated with this alternative will be the research and development of an accounting information system to work with the already established network. This should not be a major issue, however as the organization has already been successful in the developing the other portions of the software. Another associated cost is marketing. Cisco needs to conduct research to determine the most accessible market and the best way to approach this market. New employees will have to be hired to install the systems and train the client’s employees. These employees need to be educated and professional and therefore will be expensive.
This alternative will fit easily into the organization. It is consistent with the current direction of the corporation. As mentioned above, Cisco already has the expertise and resources to create Globally Networked Business applications. The organization simply needs to apply these characteristics to other corporations and market the concept efficiently. The management will definitely support the implementation of this alternative, especially John Chambers. He is a strong supporter of the Global Networked business model Cisco currently uses.
The largest risk associated with this alternative is the possible loss of reputation. This would occur if the corporation failed to design the global networks as efficiently for their clients and they have for themselves. It is a major risk for their clients to change from their fully functioning systems to a new system. If the system failed there would be a definite negative impact on Cisco’s reputation. In this industry reputations are extremely important, and a negative impact could cause the loss of customers, market share and income.
Summary and Recommendation
Obviously, there are several strategies that Cisco could implement. After judging all three alternative by such factors as: value added to the company, cost of implementation, organizational fit and risks involved, it was determined that developing a generic Globally Networked Business system with an accounting information system would be the corporation’s best option.
When evaluating the strategy along with the SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), the third strategy, being the development of a Globally Networked Business with an accounting information system, would be recommended.
This also went along with the SWOT analysis in numerous ways. The implementation of this strategy will help strengthen the company because of its potential to increase the corporation’s market share. It will also save customers money, therefore strengthening customer loyalty and securing Cisco’s position in the industry. Opportunity wise, the development of the global network would help to increase Cisco’s reputation, allowing for the expansion of the customer base. Competition would become less of a threat once Cisco has properly designed the global networks to run as efficiently as possible for their clients. Overall, there are many ways in which this strategy could be successful. We believe that the implementation of this plan will prove that this is the best alternative for the company.
Implementation and Control
Recommendation with Strategic Direction
This recommendation fits well with the company’s strategic direction. The firm obviously believes that interactive networking is inherent for the future of business; otherwise they would not have implemented it internally. Cisco System’s strategic direction has been gradually leading to the development of a Globally Networked Business system. Cisco Systems has gradually been setting new standards with the goal of making the Internet the key distribution and communication channel for companies. For example, according to Chris Sinton, director of Cisco Connection, "the first challenge is moving beyond viewing the network only as an information-sharing tool to using the network as a foundation for applications linked to core business systems that serve all business constituents. " Cisco System’s core assumption is the belief that businesses must communicate and develop relationships through a network connection in order to exist in the business world. Developing a generic Globally Networked Business system that includes an accounting information system will allow Cisco to continue to develop products and increase market share.
Marketing Strategy Decision Areas
Through efficient marketing, Cisco Systems will accomplish global awareness of the new Globally Networked Business capability along with the new accounting software. By means of market research, target customers, and product positioning analysis, the corporation will establish an efficient marketing strategy to promote the new Globally Networked Business capability. The various marketing strategy decisions made by Cisco Systems will determine the success of the new Globally Networked Business capability.
Through various forms of market research beginning around September 1, 1999, Cisco Systems can determine the optimal target customers, product position, and advertisement strategy for the new Globally Networked Business system and the new accounting software. Market research will include past market information, current surveys, and current computer networking statistics. Past market information based on Cisco System’s statistics will illustrate the customers that utilize Cisco System’s products and services. Statistics show that 87 percent of the company’s customers are professionals (Cisco Connections Online). They also demonstrate that 68 percent of Cisco System’s customers are companies and various institutions that practice long distance business relationships. For example, some of Cisco System’s customers are companies that are branching out into new foreign markets. As a result of the overall past market information it can be assumed that Cisco System’s customers w!
ould have great use for a Globally Networked Business system with special accounting features to keep in touch with business associates. The new Globally Networked Business system will be targeted to organizations and professionals that practice international business. Further research via surveys, questionnaires, and polls will determine the various special features of the Globally Networked Business system. Using the provided statistical data, Cisco Systems can narrow their target customer base for the new Globally Networked Business system.
Since 32 percent of international businesses uphold their business relations through the Internet, the new Globally Networked Business system will mainly target the import/export and transnational companies. However, the government, small businesses and professionals will also benefit from the new product. This system can also be used in universities and non-profit organizations. The potential use of the Globally Networked Business system is unlimited.
Through specialty product positioning, Cisco Systems can appeal to their current customer base and expand on it. The new Globally Networked Business system will have a specialty product position and will be marketed as a superior method to handle international relationships and dealings. It will be distributed only through Cisco Systems and will be available to all participating customers. Cisco System’s current and future customers will appreciate the high quality of the new Globally Networked Business system.
The form of advertisements that will be utilized by Cisco Systems includes commercials, billboards, posters, and Internet and literature ads. Cisco can use their already efficient marketing characteristics to promote the new Globally Networked Business System and accounting information system. After the completion of the market research, the target customers and product position will be determined. The commercials that will be utilized by Cisco Systems will include the new Globally Networked Business system’s product position and distribution channel to inform the public of the products location and quality. The use of posters, billboards, and literature ads will be set in locations related to Cisco System’s target customers. For example, literature ads will be set in magazines that are read by business professionals, such as BusinessWeek and The Wall Street Journal. In addition, posters and billboards will be set in locations that are densely populated with Cisco System’!
s target customers. For instance, billboards will be placed in highly metropolitan areas to inform Cisco System’s target customers of the new product. Additionally, Internet ads will be placed on websites that appeal to Cisco’s target customers such as The Wall Street Journal’s website. Cisco’s new Globally Networked Business system will be advertised with the slogan "Key into the business world." Through efficient advertising such as properly placed posters, billboards and Internet and literature advertisements Cisco Systems can gain proficient product awareness.
Research and Development Plan
Research and development efforts are crucial for the success of the strategic implementation plan proposed. Research and development involve various tasks, such as engineering and technical support. Through valuable research and development, Cisco Systems can successfully implement the new Globally Networked Business system and accounting information system.
Cisco is planning to implement a new innovation, a generic version of their Globally Networked Business and an accounting information system. Product selections for the new products will be based on the information gathered through the marketing studies that would be done in September of 1999. After all the information is given to the research and design team, they will begin tests to determine what different types of products will be necessary to develop a more generic version of their current internally used Globally Networked Business. It is important that the system is designed generically in order to be functional in all types of businesses. The accounting information system must also be developed at this time. The design team has to keep in mind that the products used have to be top of the line products in order to maintain Cisco’s quality image. These systems must be thoroughly tested in both alpha (internal to Cisco) and beta (offered to the public as "test softwa!
re" which is usually a time-limited version of the full product) modes. Cisco’s own system works very well so alpha testing will be minimal, as it has already been implemented for a number of years. In November of 2001, the organization will offer the Globally Networked Business System and the accounting information to different companies in beta testing. As an added bonus, and to boost the company’s reputation to its customers, those who are invited into the beta testing can also receive discounts on servers, workstations, and other hardware necessary for these businesses to conduct accurate testing. While the product will most likely be near error-free upon beta testing, the discounts on the hardware will reinforce "best practices" in software testing and ensure that the company’s network will continue to run as normal should there be any problems with the software. It will also allow them to show perspective clients examples of systems that are up and running.
Engineers and analyst will have to work to develop an efficient and effective process to manufacture the new generic Globally Networked Business and accounting system. The organization can base the new process on their extremely successful internal process, Globally Networked Business, which has proven to be a huge success for Cisco. With the help of the creative design team, Cisco will develop a way to produce the generic Globally Networked Business Systems on a large scale. Currently, they have only their program, so they do not have a production design. However, it will not be mass production as the applications are too technically advanced. For the new accounting information system that they will also implement, it will be necessary to design special-purpose equipment that can efficiently produce the system. Since the systems are going to have to be customized and configured to a specific organization, Cisco also has to test and experiment with how the systems will run!
for all the different types of organizations that will be using these systems. They will also need to have various training techniques. By January of 2001, the testing should be completed.
Quality strength is a major focus in the production process because it is part of Cisco’s image to have products of high quality. These new systems will have to be consistent with the rest of the products Cisco has to offer. Since these systems are generic, the design team will have to focus on quality in their process and also in the choice of products. Keeping Cisco’s image and status through these new systems is a key point. Cisco customers are loyal because of the reputation of quality the corporation possesses and the new product needs to reinforce Cisco’s reputation with the public.
Cisco’s Human resources will play a vital role in the rollout of the company’s Globally Networked Business package. They have much to do before the new system becomes commercially available in October of 2002. Much of this division’s role in the process involves training new or existing employees on the intricacies of the system. It is necessary to design the system generically, to allow functionality in a variety of business environments. However, this generic quality will require specialized configuration for each company that uses it. Employees need to be trained in the set up and configuration of the system. The division must do much more than just train the employees though. The training program itself must be designed from the ground up and must also match the high standards set by Cisco’s other programs such as the CCNA (Cisco Certified Network Associate) and CCIE (Cisco Certified Internet Engineer) certification programs. Cisco’s certification programs are top-n!
otch and have much credibility and respect in the information technology field, and this program must be no exception to the rule.
The design of Cisco’s GNBS (Globally Networked Business Specialist) certification program is scheduled to take place during the early part of 2001. The Human Resources department must draw up a list of requirements necessary for those in the training program to complete. Also, they must develop a list of the computer hardware and software necessary to conduct the training sessions properly. The requirements analysis should not be all too difficult to complete, since Cisco has a very good prototype of this "system" on their corporate network. Their own system, as well as the employees who must use, administer, and configure it, will be invaluable resources for this phase. They are the ones who know the system best and would also make very good trainers. The requirements analysis should be finalized no later than September of 2001.
The first training sessions will likely take place around the first month of 2002. The sessions’ first students will be Cisco employees, who will be the first to implement this system when it becomes commercially available. This program will follow the common information technology certification model of attending a week of lectures, studying, then taking tests on their own time. Much of the one-week session is hands on exercises in installation, configuring and troubleshooting. The typical "study/book work" is done at home. There will be between six and eight training sessions, which will take place in one-week increments. After each week a test is available for the students to take. A student must place in the 80th percentile or higher to successfully pass the test, and must also pass every test in order to receive the GNBS certification. The first graduating class of Cisco’s GBNS certification program will complete their tests by April of 2002.
Cisco should keep their training program in-house at first in order to work out any imperfections with the program, as well as to make any necessary changes in its curriculum. Their reputation in the field is at stake with each certification program offered, and this program must be as close to perfect as possible. Should Cisco decide to release their program to the public at all, it should only be offered to institutions with all of the proper requirements and a very high reputation in its area. This will preserve the quality image of Cisco’s program and the company overall. Any public offering of the GNBS certification program will be done after initial product rollout, in November of 2002 based on a decision of the Board of Directors.
Objectives and Assumptions
If the implementation of marketing of the internal network is successful, Cisco should realize a significant increase in sales, market share and brand loyalty. The project should be tested in various stages of implementation. For example, if market research will determine inadequate level of demand, the strategy should be abolished. However, the answer to whether the project was successful or not will be possible after a few months of sales. If the company won’t generate enough profit after six months of sales, it should stop the production. In addition to the level of profit, the company should look out for such signs as price of stock, imitation by competitors, volume of orders and etc. The drop in stock’s price can signal that market rejected the new product. The emergence of similar products made by competitors will indicate that the strategy is going in the right direction. The increase in volume of orders can stem not only from introduction of the new product, but also!
an increased confidence in the rest of Cisco’s products.
It must also be noted that since Cisco’s new product will be much more generic and customizable than most other information systems companies would consider purchasing, the company must also be able to handle any emergencies arising from it. It is assumed that Cisco’s help desk and/or 24-hour support hotlines will receive adequate training in order to troubleshoot any issues related to the Globally Networked Business solution. This training does not have to be as extensive as the proposed certification program curriculum but must cover major issues that may arise from the implementation of the plan. While those who receive the certification will be the best resource for a business implementing this solution should any problems occur, Cisco must also have support in case a certified professional is unavailable to the company.
Given Cisco’s past history of always attempting to push their products to their possible limits, never limiting themselves to any single protocol or small set of protocols, and spending vast amounts of time in researching and developing new products to drive the information age, it is no wonder the company has the market share and popularity it does when it comes to computer networking. The Globally Networked Business solution, upon successful implementation, will only serve to push out the Cisco name even further and give the company an entirely new revenue stream from enterprise management software. The success of the solution will also likely drive up sales in Cisco’s other products, such as switches and routers, because not only will they be necessary in order to get the Globally Networked Business solution up and running in most businesses (those who do not have Cisco networking equipment previously implemented), but with the system in place most companies will be more
likely to purchase other Cisco products given the gains the solution has given them. This is a win-win situation for Cisco and we highly suggest they look into releasing the Globally Networked Business to the corporate world.