A nod to the past and eye to the future: Cisco’s success story
“We must constantly transform,” he said, with a nod to the past and an eye to the future. “We need to constantly make changes in order for Cisco to stay relevant over the next three, five, 10 years — especially in today’s rapidly changing environment.”
As an industrial engineering student seeking a career in business development, I was inspired to write about Cisco Systems because I was fascinated with its business transformation process.
It is more difficult to maintain supply chain excellence than to achieve it. For the past 3 years, Cisco has maintained its top position in the Gartner Supply Chain list.
“Adapting in various ways to a changing environment, leveraging the cloud for its markets and operating models, and keeping sustainability top of mind earned Cisco its place on our list. Cisco has made progress in greenhouse gas reductions, virgin plastic reductions, sustainable packaging and a 99.9% reuse or recycle of products returned.”
This is the topic I’ll discuss in further detail in another article (How Cisco survived the dot-com bubble burst and remainted on top of the Gartner Supply Chain list).
In this article, I’ll discuss the strategies Cisco took to achieve supply chain excellence in e-business along with the difficulties it encountered before the dot-com bubble burst.
But first, let’s do a quick background check.
What is Cisco Systems?
Early History
Cisco was founded by Stanford University computer scientists Sandy Lerner and Leonard Bosack, who recognized the need for large-scale computer networks based on industry standard technologies. With so many mismatched technologies, employees and students found it difficult to share information electronically.
After achieving widespread success on campus, Lerner and Bosack departed Stanford to found their own business. They initially built routers themselves in their living room. They gave their products the name Cisco, which was formed from San Francisco’s final five letters.
Until this point, the company relied heavily on word-of-mouth referrals and most of its customers were tech-nerds. When they realized they needed to expand into new markets, they were able to secure $2.5 million in funding from a single investor.
With 4 principals in charge, there were many differences of opinion. This caused the original founders to leave the company for good in 1990. By the end of fiscal year 1990, Cisco’s yearly revenues had grown from $1.5 million in 1987 to $70 million.
After John Chambers was hired as the new CEO, a lot was bound to change in the company.
Timeline
In 1991, Cisco officially launched its online footprint, which mainly provided company and product information. Between 1991–1993, Cisco made crucial changes in order to offer better customer service:
- trained customers, offering networking classes to 400 people how to service their own networks;
- established an internal system to prioritize telephone calls;
- hired more engineers as quickly as possible, with 160% percent growth each year;
- offered consultation services;
- set up electronic bulletin boards;
- began using Telnet site for tech support, which resulted in 5000 visitors a month.
By the end of the 1993 fiscal year, Cisco had 1,000 workers, a net profit margin of 26%, $649 million in revenue, and an average annual growth rate of almost 270 percent.
The big leap
In early 1994, Cisco decided to implement Oracle ERP System for $15 million, which was 3 times the last year’s IT budget. This turned out to be a revolutionary change in Cisco’s e-business development.
Cisco enhanced the Cisco.com site and launched the Cisco Information Online. Customers could log on to the website, review current information, and solve the majority of issues without having to wait to speak with a technician.
The IT department started trying different Internet-related strategies. Three distinct Internet initiatives were launched as a result of the department’s efforts: Manufacturing Connection Online(MCO), Cisco Employee Connection(CEC), and Cisco Connection Online (CCO, for customers)
Cisco Connection Online (CCO)
By early 1996, customers could contact technical support, reprint invoices, and browse product information without assistance, but they had to talk with a sales representative whenever they wanted to make a purchase.
No one is better motivated to help the customer than the customers themselves.
Considering this, Cisco started to think about how it could use the web as a purchase tool. In 1995 the company appointed an Internet Commerce Group (ICG) to look at different ways to leverage the Internet.
In July 1996, the e-commerce website was completed and made public.
Internet purchasing accounted for 27% of all orders in 1997, a much higher percentage than the ICG had anticipated.
As a result, Cisco:
- dropped its customer-order error rate from 25 percent to 1 percent;
- sold $75 million worth of products on the Internet within 4 months;
- 60% of the technical support from customers and resellers was now delivered automatically via the web, saving Cisco close to $150 million a year.
Cisco Employee Connection (CEC)
The intranet at Cisco is called the Cisco Employee Connection (CEC). It was initially intended to serve as an internal newsletter and an archive for company information. Following the ERP integration, Cisco made the decision to compile personnel data into a single database.
All HR forms — for new hires, health insurance, donations, etc. — were included on the CEC. The CEC also enabled employees to access certain personnel information, including a directory of all Cisco employees, their calendars, and their positions within the company, including to whom they reported. If they wished, employees could upload additional information, including their photographs.
Despite all the efforts of building this system, employees didn’t interact with it as much, and kept My Yahoo! as their homepage.
Instead of banning Yahoo, ignoring the problem, or forcing all employees to have the CEC as their home page, Cisco approached Yahoo! about setting up a customized My Yahoo! website for Cisco employees. The site was intended to allow Cisco employees to view sports scores, horoscopes, weather, and other areas of interest, in addition to automatically uploading certain Cisco-only announcements.
Manufacturing Connection Online (MCO)
As the demand was surging for its products, Cisco had to find a solution to meet the demand. Faced with a choice between limiting or outsourcing manufacturing, Cisco chose to outsource.
Cisco started developing stronger ties with its suppliers in an effort to reduce inventory costs and speed up client deliveries. It sought integrated partners, not just suppliers.
Cisco asked these partners and contract manufacturers to integrate and network their supply chains with its own. The result was an automated order fulfillment process.
The process of order fulfillment with MCO:
Once a customer placed an order on the Cisco.com site, the manufacturing partner was immediately notified. Each order was issued a specific order number and product number, and all orders were customized. Once the manufacturing partner received the information electronically, the order was sent to the assembly line and placed in the queue — all without human intervention. The manufacturer then built the product to order.
Once an order was ready for shipment Cisco’s shipping partner was automatically alerted, the order was assigned a shipping number, picked up at the manufacturer, and delivered by Federal Express to the customer.
Multiple products that needed assembly by different manufacturers or required completion at different times were delivered all at once or as ready, according to the customer’s preference. Federal Express’s Merge-In-Transit service (see fig1) managed all shipping regardless of location to ensure orders were delivered to the customer’s specifications. Neither Cisco nor the contract manufacturer was responsible for the order once Federal Express picked it up.
Because the MCO and the CCO were integrated, customers could check on their order’s status at any time.
In summary:
Flexibility, adaptation, and responsiveness are essential for success in today’s digital economy.
- Cisco’s ecosystem first standardizes and focuses on internal procedures. As a result of successful implementation of CEC with the help of ERP System, Cisco was able to reorganize its internal functions.
- Information availability across all supply chain stages is a crucial step to achieve supply chain excellence. The seamless integration of Cisco’s clients and partners led to information exchange between all parties.
- Cisco has established strategic partnerships and long-term alliances with suppliers and clients based on a win-win strategy and mutual trust.
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