Having targeted the customer and offensively applied differentiation, supported by growth, innovation, and alliances as competitive strategies, while both internally using and externally providing information systems, Cisco Systems was in a position to execute. For over the last decade, the company has repositioned itself repeatedly, transitioning with the market and keeping pace with the changing needs and desires of its customers. Thus the company has grown from focusing on a single product to providing an end-to-end business networking solution.
Roles, Roles, and Relationships
The concept of roles, roles, and relationships is composed of three attributes: the role of information systems, the role of senior management, and the ongoing working relationship between senior management and the information systems organization. The role of information systems is focused on competitive priorities, while the role of senior management is critical in positioning and prioritizing the competitive role of information systems. The senior executive plays a key role by providing a long-term vision for the future of the business, communicating this direction to the information systems organization, and sponsoring the importance of data as an organizational resource. Managers of major business functions must understand the competitive role of information systems, identify requirements for new systems, provide financial justification, and sponsor their information systems on an on-going basis. Having the information systems executive function as a member of the senior management team can be very beneficial for the organization. Another important aspect of roles, roles, and relationships is the role of operational level people. Any competitive advantage achievable through the use of information systems cannot be attained without the cooperation of these users.
By establishing a regular flow of information between senior management and the information systems organization, the organization achieves a partnership critical in the pursuit of competitive advantage through the use of information systems.
The role of Cisco’s functional management and system users, in partnership with IT application teams, has five main facets. The first step is to identify automation opportunities, and calculate potential return on investment (ROI). The second is the evaluation and reengineering of business processes. Third, functional management must balance investment between automation efforts and headcount increases. Fourth, they must create clear business strategy that includes the role of automation. Lastly, each business unit is responsible for data ownership. Each of the above responsibilities of functional management must fit into the overall business plan set by executive management.
The role of Cisco’s executive management begins with the establishment of a corporate vision and a reward program that encourages prudent technical risk. Included are financial objectives that emphasize aggressive productivity goals. Executive management provides the big-picture view on a cross-functional and global level to minimize overlapping initiatives, architectural inconsistencies, and monitor business risk. They establish and maintain a culture of teamwork and cross-functional cooperation, as well as sponsoring continuous process improvement and reengineering.
Figure 12 It is the role of IT management to bridge the technical infrastructure capabilities and business requirements. Within this role lie responsibilities to educate clients within the company on new technologies, assess technical costs and risks in the calculation of ROI, participate in and drive technology standards, and partner in business process reengineering.29 As CIO of Cisco in 1993, Pete Solvik led the implementation of the Client Funded Project (CFP) model. The adoption of this model laid the foundation for Cisco’s IT evolution from cost center to business-enabling strategic advantage. As shown in the organization model for the Client Funded Project, Cisco’s IT department is cross-functional. The goal of CFP lies in balancing IT drivers, like infrastructure costs, with client drivers, such as business value.
At Cisco, recognition of IT’s value begins at the top. CEO John Chambers champions the Cisco commitment to be the best implementer of the products they sell. This commitment fits comfortably into the network-based culture of Cisco, and furthers the worldwide communication infrastructure necessary for supporting the company’s competitive strategy on a global scale.
In support of this interweaving of IT throughout the business functions of Cisco, the IT department, under the direction of CIO Brad Boston, reports to Customer Advocacy which is headed by CCO Douglas Allred. This promotes technical projects tightly matched with customer service.30 Redefine/Define
In deciding whether information systems can be used to help the organization gain and maintain a competitive advantage, it is important to remember that the ultimate goal lies in providing value to the customer. There are three areas the business can change or clarify to provide value to the customer: the business, products and/or services, and business processes.
Due to the nature of Cisco’s business and products along with its emphasis upon being the best model of IT business, Cisco has defined its business using information technology as well as redefining its products. However the major focus of this analysis is the redefinition of Cisco’s business processes. The driving factor behind this redefinition was the rapid growth of the company through acquisitions and market expansion, which led to increasing volumes and internal process problems. Thus, Cisco improved its initial systems using information technology as the vehicle.
Specifically, the implementation of the ERP system by Pete Slovik marked the transition from viewing the IT department as a cost center. Up to that point, the company had separate systems for financial, manufacturing, and sales. Thus it lacked the flexibility, scalability, and reliability necessary for supporting the rapid growth of the business. But at the same time, information systems had evolved into a key competitive advantage, generating most of Cisco’s sales. CEO John Chambers and the Cisco Board of Directors lent their full support to the project by making it a company strategic goal in 1995. By implementing ERP, Slovik aimed to more closely allow the company’s IT infrastructure to enable its business strategy.
Significance of Telecommunications
Internet technology is enabling Cisco to achieve measurable gains in both employee productivity and cost avoidance. Employee accessibility to Web-enabled tools allowed Cisco to achieve revenue per employee of $54,000 in 2002, ranking the company as the most productive in the networking industry. Among the IP technologies that have helped Cisco increase productivity and cut costs are wireless LANs, secure IP virtual private networks (VPNs), multimedia e-learning, IP telephony, workforce optimization applications, e-sales, e-support, and supply-chain management.
Wireless access points in every building enable Cisco employees to use e-mail and other applications in nearly any location, while the Cisco Secure Access Control Server (ACS) authenticates users and encrypts all transmissions. Cisco estimates that the wireless LAN saves at least ten minutes per person per day in increased productivity due to greater network availability. This time savings translates into a cost saving of $1,000 per employee per year.
Secure IP virtual private networks (VPN) allows remote access for telecommuters and traveling employees, estimated to improve employee productivity by ten to forty percent with accompanying cost savings. The high-speed remote-access solution allows productivity increases of one to two hours a day per employee. Plus the flexibility and access to enabling tools lower help retain quality employees.
E-learning avoids costs and increases efficiency by reducing travel expenses, decreasing resource requirements needed for partner training, cutting time requirements, and saving printing costs by making content available online. Cisco depends upon three methods of multimedia content: Cisco IP/TV® broadcasts, virtual classrooms, and video-on-demand modules. The implementation of these methods have reduced the time and resource costs of training, allowing Cisco to offer more courses with the goal of creating a more skilled workforce. By integrating e-communications into the culture of Cisco and its partners, the company has saved millions of dollars.
In 2000, Cisco completed the largest deployment of IP telephony in industry history. This led to lower equipment and infrastructure costs combined with easier network management for a resulting decrease in the total cost of network ownership. By replacing the former PBX equipment, Cisco also eliminated leasing and maintenance expenses. In addition to reducing costs, IP phones increased productivity by allowing employees to connect anywhere a spare jack was available. This reduced telephone costs related to employee relocation from $150 per traditional phone to zero. This represented significant cost savings of about $50,000 per month, because at any particular time approximately 300 to 600 Cisco employees are changing office location.
IP-based workforce optimization applications increase employee efficiency in performing routine administrative tasks and managing human resource functions. For instance, a comprehensive, Web-enabled recruiting system has reduced the cost of recruiting and hiring candidates by US$4,000 per hire. Another example is Cisco's Web-based expense reporting application, which reduced the average cost of processing an expense report from $25 to $3, and allowed Cisco to avoid increasing headcount by ten full-time employees. These and other measures have resulted in more than $34 million in annual savings.
Individual departments at Cisco benefit strategically from specialized IP applications. The e-sales portal, for example, streamlined the sales process and boosted productivity by making pertinent sales data available in one location, freeing the salespeople to spend twenty percent more time with customers or generating new leads.
The self-service approach provided by the Cisco Technical Assistance Center (TAC) Web site addresses high-volume, low-complexity problems that allow customers to help themselves. This significantly reduces the need for much costlier call center support. In addition, software downloads and electronic orders significantly reduce shipping and transaction costs, respectively.
Cisco automates the flow of supply chain information, providing a platform available to all supply-chain partners for solution-based selling and collaborative problem solving, and better performance from the supply chain as a whole. Handling more than 200,000 documents a day, the exchange also manages fourteen different early warning alerts, ad hoc reporting, and analysis.
Through the utilization of its own IP technologies in the areas of customer care, workforce optimization, supply-chain management, and e-learning, Cisco estimates that it saved almost $2 billion for 2002 due to cost avoidance and increased time efficiencies.31
Success Factor Profile
The Success Factor Profile can be used in three ways: to focus the initial planning process of information systems upon competitive issues, to assess how new systems are meeting competitive objectives, or to audit mature systems and ascertain whether the dynamics of the competitive environment have shifted.
The success factors chosen vary upon the business in question and the factors selected address the areas of competitive advantage, senior and information systems management roles, current business strengths and needed improvements.
Culture is the value system and spirit of the organization. As a senior management, value-driven factor it contributes key ingredients to competitive strategy by emphasizing customer service and quality products or services. Strong culture can be used to gain employee acceptance of new systems which can be critical for competitive success.
Cisco’s CEO John Chambers continually emphasizes and works to reinforce the company’s culture. He believes so strongly in the importance of culture that he addresses it every time he appears before employees, and requires each manager to spend a minimum of one minute per company meeting addressing culture. His enthusiasm provides a driving force that keeps the culture strong and very much in the minds of all employees. The badges that each employee carries clearly state that all other facets of the Cisco culture lead to and support customer satisfaction. According to Chambers, the four most important elements of Cisco’s culture are customer success, quality team, empowerment, and stretch goals. Customer success is by far the most important, and to achieve it the best possible team must be assembled and then empowered. Quality team means recruiting the best people, those who are talented, creative, results-oriented problem-solvers. Recruiting the best people is also important because at Cisco empowers employees at lower management levels to make decisions. The various business units own budget, production, and technology decisions, and are knit into a cohesive strategy at the executive level. This encourages entrepreneurial spirit and helps business strategy. A significant facet of that business strategy involves stretch goals so far above the current level that they can only be accomplished through creative change. Every Cisco executive has two sets of goals each year: the original goals and stretch goals. Through this constant striving and improvement, Chambers hopes that Cisco continues to build the culture and confidence to do things differently.32
Executive and Information Systems Management Partnership
For information systems to add competitive advantage to the business through support of business strategy, an open dialogue and on-going working relationship between the senior management and the information systems management is vital. Senior management must believe in IS as a competitive resource, and encourage the establishment of this attitude throughout the company. Information Systems management must understand the direction and priorities of the business because these indicate how IS can best be used in support of business strategies.
John Chambers places great importance on the role of information systems at Cisco. The company continually strives to be the best example of implementation regarding the technologies it sells. This emphasis on integrating IS throughout the business is evidenced by the distributed structure of many information systems personnel into business units.
An understanding of the business is critical for effective utilization of a company’s information technology, and CIO Brad Boston has a wealth of executive experience to draw upon. At Cisco the Information Technology department, under the direction of Boston, reports to the heart of the company: Customer Advocacy. By having IT, Customer Service, and Product Design all report to one person, Cisco aims for technical projects tightly matched with customer value. The head of the Customer Advocacy department, Wim Elfrink reports directly to CEO John Chambers.
Linkage to Suppliers and/or Other Business Partners
The driving factor in establishing systems linking a company to its suppliers and/or business partners is value and increased management of information along the entire spectrum of the cooperative relationship. Cisco’s Manufacturing Connection Online (MCO) includes a supplier portal and access to operational data used by contract manufacturers. MCO increases process efficiency and the effectiveness of results monitoring. The benefits derived from the supply-chain systems architecture include higher productivity, more effective global inventory management, faster problem resolution, and declining process costs. All of these factors add value and increase customer satisfaction.33 Linkage to Customers
The primary question when businesses consider adding customer system is whether increased information access can redefine product and service value. It is possible for the delivery method to become as important as the products and services through enhanced information content.
Cisco believes that to earn the loyalty of your most profitable customers while expanding your market, you need to unify customer communication across all functions.
Thus, the company has integrated information systems throughout its processes, to increase efficiency and effectiveness, gain a competitive advantage, and add value to customers.
Figure 13 Linkage to Customer Service
With fixing the problem as the main target, customer service systems are driven by information value and accessibility. Three levels of implementation involve increasingly complex technological solutions. The information system may be primarily utilized by the company’s customer service personnel. Or the system may be set up to enable customers to fix problems themselves. Or the vendor system may be directly tied with the product for on-line diagnostics and sometimes even repair.
Cisco Systems aims to take the second approach and enable customers to help themselves as much as possible, for greater customer convenience and satisfaction, and company cost savings. A good example is Cisco Connection Online, a Web-enabled system for online sales, service, and procurement introduced in 1994. CCO has grown to be the company’s primary marketing channel with more than thirty-nine percent of orders. Addressing the areas of commerce, manufacturing, interactive marketing, and service/support the system has produced a twelve percent productivity gain and more than $330 million annually in savings.
Section IV: Final Analysis
Success of Business Strategy and IT Use to Date
The ability and willingness of Cisco Systems Inc. to reinvent itself not only in times of crisis, but on a continual basis in pursuit of growth and new opportunities is breathtaking. CEO John Chambers provides vision, enthusiasm, and shapes the global company into a cohesive whole through frequent communication and an emphasis upon culture. The impressive speed with which the company executes to position itself for market transitions has been highly beneficial in capturing market share and establishing positions in emerging market segments. The importance of creating their own best example within the company itself casts information systems into a critical role as a competitive enabler of Cisco’s business strategy. Both internally and externally, Cisco strives to implement information systems to provide more information in an increasingly timely manner to add value and increase efficiency, effectiveness, and competitive advantage. The company has a major information system for each player in its value chain: suppliers, partners, and customers. The company has grown phenomenally over the last decade, both due to market expansion and its acquisitions strategy. Not content to rest upon success, a healthy paranoia pervades its quest for continual improvement. Some would say that Cisco’s success was merely a case of selling the right technology at the right time. While the helpfulness of market conditions cannot be denied, Cisco has proven itself to possess more than just luck. Even with the market downturn of the last couple years, Cisco quickly evaluated the changes necessary and restructured the company accordingly.
Have the Above Factors Positioned Cisco for the Future?
Reflecting investor optimism, the Bloomberg U.S. Telecommunications Index, which includes Cisco and Nortel Networks, rose nearly thirteen percent in January alone. This increase followed a fifty-two percent climb during 2003. Analysts predict improved market conditions for companies in the Telecommunications Network Equipment Industry during 2004. Money will flow to newer technologies such as wireless and Voice over Internet Protocol and the companies that sell products that make use of them, analysts said.34
With its healthy cash flow and established presence in both the wireless and VoIP technologies, Cisco Systems is poised to take advantage of the coming upturn. Leaner and warier than before, this global giant is on-guard against the overconfidence that tripped it before and emphasizing customer communication more than ever.
Kiger, Patrick J. “Cisco's homegrown gamble: the company that believed buying talent was key to success now relies on growing its own stars. Not everyone is convinced the strategy will keep Cisco on top.” Workforce , March 2003
Callon, Jack. Competitve Advantage Through Information Technology. McGraw-Hill Companies, Inc. 1996
3 Best Sources for Cisco Research
Raider, Rhonda, “Putting the IT in Productivity”, Cisco.com. 2002
http://www.cisco.com/en/US/about/ac123/ac114/ac173/ac205/about_cisco _packet_netizen09186a00801014f7.html This article was invaluable in describing the internal implementation of information technology at Cisco. It provided functional detail, while also including the benefits and importance of each technology.
Slater, Robert. The Eye of the Storm. New York: HarperCollins 2003
This book was extremely helpful for gaining an overall sense of Cisco as a company, particularly in the last five years. It also included background information of the time period when Cisco was established as a company and dealt with the formative influence which many key people had upon the shaping of Cisco’s culture into the strong resource the company draws upon today.
“Cisco IT Financial Management Approach”, CiscoExpo Belgrade 2002 Opening and Keynote
http://internet.fon.bg.ac.yu/download/cisco/Poslovna%20Primena/CiscoITFinancialManagementApproach.pdf This slide collection provided a wonderful overview of the role of information technology as a business strategy enabler at Cisco. It focused on the Customer Funded Project model as an important transition point in the way IT was viewed and used at Cisco.
22 McLean, Dan. “A Chat with Chambers Offers Some Frank Feelings”. Lexis-Nexis. Oct. 2003.
23 “Cisco Chief: Future May Lie in Virtual Networks” USA Today. Nov. 12, 2001
24 “Cisco IT Financial Management Approach”, CiscoExpo Belgrade 2002 Opening and Keynote
25 “International Telecommunication Union and Cisco Systems Join Forces to Bring Networking Skills to Governments in Developing Countries and Economies in Transition”. Oct. 16, 2003
26 Kiger, Patrick J. “Cisco's homegrown gamble: the company that believed buying talent was key to success now relies on growing its own stars. Not everyone is convinced the strategy will keep Cisco on top.” Workforce , March 2003
27 Heskett, Ben. “Chambers' tale of Icarus”.
28 Kiger, Patrick J. “Cisco's homegrown gamble: the company that believed buying talent was key to success now relies on growing its own stars. Not everyone is convinced the strategy will keep Cisco on top.” Workforce , March 2003
29 “Cisco IT Financial Management Approach”, CiscoExpo Belgrade 2002 Opening and Keynote
30 Waters, John K. John Chambers and the Cisco Way
31 Raider, Rhonda, “Putting the IT in Productivity”, Cisco.com. 2002
32 Slater, Robert. The Eye of the Storm. New York: HarperCollins 2003
33 Mello, Adrian. “Benefits of Supplier Portals” iQ Magazine Nov. 2002
34 Cox, Jonathon B. “Walking Out of the Basement”. NewsObserver. Jan. 18, 2004