cisco

Cisco’s business strategy reflected the experience of CEO John Chambers and chairman, John Morgridge. Morgridge, who had been CEO of Cisco from 1988 to 1995, established many of Cisco’s core business principles, including the importance of customer satisfaction, time-to- market, and frugality. Chambers, who took over as CEO in January 1995, had spent most of his career at IBM and Wang, and had watched both companies suffer crippling declines as a result of not adapting quickly enough to changing market conditions. Morgridge, Chambers, and Ed Kozel (then Cisco’s chief technology officer) crafted a strategic plan for Cisco in 1993 which was still being executed in 1998. The plan consisted of four main components:

1) assemble a broad product line in order to provide customers one-stop-shopping for networking solutions,

2) systematize the acquisition process,

3) define industry-wide software standards for networking equipment

4) pick the right strategic partners.

An inherent part of Cisco’s strategy was using acquisitions and partnerships to gain access to new technologies. This strategy was relatively unique in the high-tech world, where many companies viewed looking to the outside for technological help as a sign of weakness. However, Chambers believed that this was just the sort of insular thinking that had led to IBM and Wang’s downfall. He viewed partnership and acquisitions as the most efficient means of offering customers an end-to-end networking solution and developing next-generation-products. For example, Cisco’s partnership with Microsoft enabled the company to develop a new technology for making networks more intelligent in just 18 months. Cisco insiders estimated that it would have taken Cisco four years to develop the product itself without the Microsoft partnership.

From its beginnings, Cisco was structured as a highly centralized organization. Morgridge believed that too many start-up companies decentralized too quickly, and therefore were unable to benefit from the advantages of scale and control associated with a centralized organization. However, in 1995 Cisco established three separate “lines of business”—Enterprise, Small/Medium Business, and Service Provider—each of which had two to nine separate “business units” reporting to them. Although Cisco had moved to a more decentralized structure, most of the company’s functional areas still remained centralized as of mid-1998, including manufacturing, customer support, finance, information technology, human resources, and sales. Only engineering and marketing were decentralized at the business unit level.

Cisco operated three manufacturing facilities: two in San Jose, “Tasman” and “Walsh,” and a third in South San Jose, “Silver Creek.” Tasman and Walsh were Cisco’ s first manufacturing plants, and they produced most of the company’s enterprise routers and LAN switches. The Silver Creek facility was inherited through the 1996 acquisition of StrataCom, Inc., and it produced most of Cisco’s high-end Internet backbone products for service providers (e.g. Sprint, MCI). In addition to these three owned and operated manufacturing facilities, Cisco utilized “external factories” to outsource production of some of its high volume products.

Cisco’s manufacturing strategy was heavily dependent on outsourcing. The company outsourced many manufacturing activities, such as board stuffing and board testing, to contract manufacturers since these activities required a significant investment in “bricks and mortar,” were less scaleable, and generated lower returns compared to Cisco’s core business. For example, in the case of Cisco’s higher-end, more highly configured products, Cisco would outsource subassembly; bring in completed subsystems, and conduct final testing and assembly in-house, in one of its three manufacturing facilities. At the other end of the spectrum, Cisco utilized external factories to build, test, and ship its less configured, high volume products, such as its low-end routers.

Carl Redfield, senior vice president of manufacturing and logistics at Cisco, explained the strategy: “I want my people focusing on the intellectual portion, establishing the supply base, qualifying new suppliers, and developing better processes, not managing direct labor. We supply the intellect; they supply the labor.”

Tom Fallon, vice president and plant manager at Cisco, added: “If we can make it cheaper, we do. But even then, we look for suppliers who can match our costs. Strategically we want to outsource.”

Approximately 25 percent of Cisco’ s revenue and 50 percent of its unit volume was manufactured and shipped out of external factories. While external factories were not owned by Cisco, and their employees were not Cisco employees, Cisco did supply them with Cisco information systems and test systems to ensure that they met Cisco’s standards for quality and customer satisfaction.

Cisco reported fourth quarter net sales of $11.2 billion, net income on a generally accepted accounting principles (GAAP) basis of $1.2 billion or $0.22 per share, and non-GAAP net income of $2.2 billion or $0.40 per share.

Cisco products, most notably IP phones and Telepresence are frequently sighted in movies and TV series. The company itself and its history was featured in the documentary film Something Ventured which premiered in 2011.

Cisco was a 2002–03 recipient of the Ron Brown Award, a U.S. presidential honor to recognize companies "for the exemplary quality of their relationships with employees and communities". Cisco commonly stays on top of Fortune "100 Best Companies to work for", with position No. 20 in 2011

According to recent data from Telegeography, revenue from enterprise telephony equipment sales fell by 4 percent during the second quarter of 2011 over the same period last year. Though retaining its leading share of 30 percent of the market, Cisco’s leading position narrowed as rival Avaya gained 3 percentage points to hit 22 percent market share.

Cisco is the largest telecom hardware vendor in the world and competes with firms like Alcatel-Lucent, Siemens, Avaya and Juniper Networks, among others.