Marketing and Operations Management
2009 December 1st
Assignment 1 (First Semester)
Mass Collaboration, Virtual Communities, Web2.0 and Telepresence are a few buzz words that follow the new tag line - "welcome to the human network: changing the way we work, live, play and learn” - from one of the world's biggest networking dominators, Cisco Systems, Inc. Its CEO's statement, by the end of (once again) a thriving Q1 FY2010 "Cisco's strategy is based on catching market transitions—the market transitions that affect our customers”, may also imply that the company is confidently leading the market while driving its customers' future needs.
In 1984 two Stanford University students, Sandra Lerner and Leonard Bosack managed to overcome the limitations of data communication between different computer networks at the university by inventing a router - a special network device that connects different networks with different network protocols. Later joined by Richard Troiano, they founded Cisco Systems, and their new product was the basis for Cisco's business, which was a true technology start-up. Though Cisco was not the first company to develop and sell routers, they happen to be the first to sell with a commercial success. The company developed in the meantime into a mature business and into the world market leader in networking and Internet equipment. The company headquarters resides in San Jose, California, USA and at present it has 65,545 employees worldwide. (Cisco Systems Corporate Overview, 2009)
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and IT industry, and provides services associated with these products and their use. These products are installed at enterprise businesses, public institutions, telecommunications companies, commercial businesses and personal residences. (Reuters, 2009)
John T. Chambers is Chairman of the Board and CEO of Cisco Systems, Inc. since January 1995. When he assumed the role of CEO, the company has grown from $1.2 billion in annual revenues to $39.5 billion by 2008. (Cisco Systems Fact Sheet, 2009)
The market is represented by the key players - who are the producers of communication equipment (namely Alcatel-Lucent, Avaya Inc., Brocade Communications Systems Inc., Check Point Software Technologies Ltd., Cisco Inc., F5 Networks Inc., Huawei Technologies Co. Ltd., Juniper Networks, LM Ericsson, and Motorola being few of them), the manufacturers - considered to be the suppliers, and finally the end user buyers. The global communications equipment market reached a value of $51.5 billion by year 2008. Estimations show a steady growth rate in the market, with no changes in the trends. (Datamonitor GCE profile, 2009)
Other than the major players in the market, who drives the advancements in the technologies, the threat of substitutes are almost non-existent. The products, which are ranging from items such as wired LAN / WAN equipment, wireless network devises, and computer security appliances inherits specifications that vary greatly in technical detail. Therefore, the products have high levels of diversification relating to the methods that data is transferred through them and their industrial application. As a result the competition among the players always remains challenging. The effect is increased by the recently undergoing tie-ups with other IT business partners such as Microsoft and IBM. Besides, the buyer's power is controlled, but moderate, by the large number of existing and potential network consumers. (Datamonitor GCE profile, 2009) Obviously, almost all the product purchases in this market result in complex buying behavior patterns. (Kotler, Wong, Saunders, & Armstrong, 2005)
From the bridge-in a-box to DNA - the Cisco brand
Finally, in 2006, the company decided to drop the “Cisco Systems" bridge-in a-box idea in favor of a more integral symbol-enhanced word-mark, emphasizing on the brand name "Cisco". The new sleek and simple DNA tripe form of the logo is thought to deliver the perception of a content / collaboration / architectural-framework ICT company during their recent campaigns. (instead of the old network hardware player, who used to include the rigid word "Systems" in their logo) (identityworks review - Cisco, 2006) However, Cisco started building its intangible asset values from the very early stages of the business.
Back in the late 1990's, Cisco had become famous for 'being the hardware maker that did not make hardware.' The company implemented three new online portals, the MCO (Manufacturing Connection Online), the CCO (Cisco Online Connection), and CEC (Cisco Employee Connection) which were used for interacting with suppliers, manufacturers, customers and resellers, while company employees used the intranet for communicating about the status of orders. Additionally, a new EDI system, ICS (Integrated Commerce Solution) was introduced to large scale distributers. (ICMR Center for Management Research, 2002) Hereby, Cisco adopted an administered VMS structure, and focused on its customers in the value delivery network. From the start to date, Cisco gave more priority into building its most complementary asset, the brand image and capturing new technology markets.
Maintaining a high perceived value in the customer was definitely a challenging task, with other tech- competitors in the market. By 1993 Cisco was one of the first companies to have a system that customers were able to report their problems online. Foreseeing the rate of sales of its networking products, and the customers demand for product support, company started up with its own training certification tracks, technical documentation distribution and knowledge base development from the web site. By that time, an online system (which was integrated with the SCM process) that Cisco customers could order their customized configuration products was put into operation.
Parallel to the above advancements, (in 1995), the new CEO John Chambers initiate a strategy of aggressively acquiring many other start-up technology companies and succeeded more frequently than its competitors in integrating the revenue of its acquisitions. The acquisitions were planned solely on the
predicted marketing trends, customer capital gain and peer competitor product launches. With more spending on the acquisitions - and R&D operations, Cisco expanded its product range to cover most of the available internet hardware equipment by the time. In All of the actions were based on one simple attitude in mind - outsource supplies, manufacturing, and distribution to partners so we can deliver on the customers experience with our products. Cisco virtually did not manufacture products, but developed a brand asset through its customer centrality - a perfect eBusiness model with more image value and know-how technology wisdom, but having less physical assets. (Means & Schneider, 2001)
While the continuative acquisitions helped Cisco to converge from the horizontal monopoly of routers to a vertical domination of providing the Internet's backbone products, John identified that, it was important to own his customers, rather than the technology. Cisco commenced presenting itself to customers as an architecture consultancy provider, setting up best practice customized solutions for network implementation and support services. For instance, Cisco marketed “frameworks" that bundled their products for specifically optimized network platforms targeting corporate customer and teleco SP network requirements. These 'all-in-one', 'pay-as-your-network-grow' solutions produced happy customers around the world, whose ICT infrastructure (and eventually the business) greatly relied on the Cisco platforms.
Customer satisfaction became the team norm for the company, (even prior to John Chamber's presence in Cisco) starting CEO to the low-end employees dealing with the customers. John Chambers followed three fundamental rules, which he learned from his past experience in the industry: focus on the customer, avoid layoffs, and adapt with the technology. Decision making spanned vertically and horizontally in the organizational structure, and John managed to reduce the management layers between him and the customers. With less micromanagement in the company, and operational control handed over to teams, employers were able to focus on their clients rather than administrative tasks. In return employees were well rewarded on the level of customer satisfaction that they were able to deliver. (Bunnel & Brate, 2000)
Besides industry standard superior performance and hardware reliability of products, Customizing products based on the client's networks had the most positive effect on the company i]con value. Reinforced with the pioneer engineers of the tech-products, Cisco managed to provide timely product support with pre defined SLAs for customers who ran business critical networks. Further, Cisco did not hesitate to alter their operating system software, (the well known Cisco IOS), according to user requirements. By adopting such practices from the early stages of the industry, and the online technical support system, Cisco promised far more value for its customers than competitors did.
Accordingly, this commitment towards customer centrality was one significant differentiation that Cisco developed throughout the last decade, compared to the other peer brands in the market. Particularly in an industry like ICT, such gains have a positive and sustainable effect when technical customers make buying decisions, even though much cheep or technically competitive products exist today. (Tarpey & Payne, 1966)