Cisco’s Strategy in Recessionary Times Essay

Executive Summary This report is an examination into the strategic management practices used by Cisco Systems, Inc., over the dot com bubble from 1997 to 2000 and an overview of Cisco as a company, and its acquisitions over the past 20 years. The report was created by Alex Quigley, Eoin McCrann and Daniel Ozac, as part of a continuous assessment deliverable as part of BSHCE3, Hons Degree in  computing at the National College of Ireland. It is supported by a PowerPoint presentation of the same name, in the attached appendix. Introduction The report will first review the literature used during the research of the topic and outline the types of information resources used during the reports generation and an overview of these findings. There is an attached overview of Cisco as a company (Appendix A) which outlines how it was founded, and its current market position, and a brief history. Next, we will take a high level overview of their strategy and then identify the key strategic tools used by the company and how they differed at the time from their competitors in this regard. Next we will look in detail at Cisco’s acquisitions over the past 20 years since the company formed, and how this particular strategy was affected by the crash. After this we will look at Cisco’s financials and how their strategy has enabled such large growth. The importance of their strategic choices in developing this financial growth, and finally some of the possible risks associated with the key strategic tools used by the company during this period. Finally, a conclusion and summary of our findings and an appendix for the resource references used during the research, and an appendix of financial information. Literature Review  From the outset the base for all our research started with the case study (Indu, 2010). This gave us a very good overview of the company and how it has, over the past 20 years, faced great triumph in the face of adversity, and bounced back, particularly after difficult times throughout the company’s history In particular during recessionary times such as the dot com crash and the recent global economic downturn. The course notes from BSHCE3 Strategic Management were used to identify the key strategic management tools. Wikipedia was also liberally used to identify and further expand on some of these tools, their founders and also  as a high level overview of Cisco as a company. Other online resources that proved very informative during research were CNN and in particular the money section of the website which maintains detailed information on a large number of companies, and the NASDAQ website which also maintains (as expected) detailed stock and financial information. It’s also worth mentioning that Cisco’s own website is very informative, with detailed financial and organizational structure. Strategic Overview From the case study delivered during class (Indu, 2010) it is clear that Cisco’s goal was to increase market share and maintain a sustained growth. Added to this continued improvement to customer and supplier relations. The company’s current mission statement states that; ‘Cisco’s mission is to shape the future of the Internet by creating unprecedented value and opportunity for our customers, employees, investors, and ecosystem partners.’ (Cisco.com) With a strong customer focus at the core of their business, another strategy employed by Cisco is to position themselves close to not only the customer but suppliers too. This closeness and strength of supplier relations allows Cisco to respond quickly to changing customer and in fact market demands and trends. One of the strategic applications to enable growth and innovation was the use of acquisitions. From 1993 to present day Cisco has acquired over 150 companies in a wide range of Information Technology and Networking sectors. This is facilitating gaining and maintaining competitive advantage. However, proving the strength of the management and effective adaptation, Cisco has been able to change their strategy when required and in 2000, after the dot com bubble burst, its highly successful strategy of procurement was abandoned and under the leadership of John Chambers, the  company was able to successfully tighten its purse string, downsize the business and successfully ride out the storm. This leads to another strategy employed by Cisco, and one that has not been helped employee relations, the choice to downsize during periods of economic or market downturn. This retrenchment again shows Cisco’s effective adaptation, but has led to issues with morale among employees. Ciscos core business is networks, communication and information technology. So it is no surprise that in parallel to providing companies with the tools and information systems seen as ‘strategically important’, they themselves view these systems as paramount to the company’s success. Examples of this are the ‘bug alert’ system implemented in 93 and even earlier, the FTP site a database to allow customers and developers improve existing components and systems. One defining factor in all Cisco’s strategic choices has been to stick to the knitting. As Peter Drucker stated; ‘Think through the overall mission of a business, and ask the question: What is our business?’ In Cisco’s case, their business through numerous acquisitions and strategic changes has essentially remained the same. Chambers believed that there are 4 key elements that a company needs in order to survive a recession; 1. Being realistic about the CAUSE of your challenges – don’t just blame a recession, focus internally as well, is there something you’re doing as well? 2. Try to determine the length and intensity of the downturn – then respond appropriately 3. Prepare for the upturn – Survive and thrive, gain market share 4. Expand customer relationships – customers can give insight into when the recession may end And this isn’t always the best strategy, as it does not allow for innovation internally within the organisation. The lack of intrapreneurship has led to poor company ratings in terms of ‘great place to work’ scores. In order for Cisco to get new products or enter into a new market, they generally have to purchase a new company rather than use organic growth or in-house smarts. Their competitors on the other hand employ strategies of organic growth and are less inclined to purchase companies in order to gain entry into different markets. However there have been some key acquisitions that allowed direct competition to Cisco, which will be discussed in more detail in the next section. Cisco through every recession have maintained large assets and cash. They saw it as vital in order to survive. This allowed them to make bold decisions when most companies are cutting back, and also respond immediately when the market begins to pick up again. Something competitors have had difficulty with. Acquisition Timeline As stated previously, Cisco’s core business has been a factor in the type of businesses acquired over the company’s history. From 1993 to 2000, there was a sustained level of acquisition, increasing year on year. During this time Cisco has acquired over 150 companies, most of which were US based. Figure [ 1 ]| However, it’s clear from ‘Figure 1’ above that after the crash in 2000, Cisco drastically decreased acquisitions with only one acquisition in 2001. In the two years previous to this Cisco had acquired an amazing total of 40 companies. And once again in 2008 the company slowed acquisitions to match the downturn in demand for their products. Although not as drastically as 2001. They used these times to focus on new emerging markets, and develop new technologies. Figure [ 2 ]| Most of these businesses were related to the area of Computer Networking, Lan Switching, Gateways and Routers. This is in keeping with Cisco’s strategy of ‘stick to the knitting’. Second to these is the VOIP technology sector. By 2004, Cisco had returned to its acquisition strategy and sustains this level for a number of years. What is interesting is if you map the NASDAQ composite index, which is heavily populated with IT related companies; it almost perfectly matches the acquisition timeline for Cisco, as can be seen  in ‘Figure 3’ below. Figure [ 3 ]| Cisco didn’t just acquire the companies and integrate the management of them into their own structure. For the most part these companies were allowed to continue as individual entities, and keep their existing structure and organisational managers. Competitors Acquisitions Hewlett Packard One of Cisco’s competitors is HP, the computer hardware and software giant. In 2008, HP acquired Colubris Networks. Colubris Networks provide organizations with advanced wireless networking solutions that unify and integrate with existing network infrastructures, as well as security and management systems. This was an attempt by HP to try and take market share of Cisco’s strong hold on network infrastructure, and in this case the wireless LAN market. In 2009, HP purchased 3COM, the digital electronics manufacturer best known for its computer network infrastructure products, for $2.7 billion. This was a huge strategic move from HP to strengthen their position in the market which Cisco has been controlling. HP realized there were large gaps in its product line, mainly network switching, which would take too long to fill organically and needed a quick-fix. HP wanted to take on Cisco in this sector, and 3Com wanted to expand outside of China. This acquisition meant the Introduction of low-cost switches, which was a competitive advantage that Cisco was unable to match. Juniper Networks Another of Cisco’s direct competitors, Juniper networks, a networking equipment manufacturer based in Sunnyvale, California. In contrast, Juniper had no acquisitions between 2006 and 2009, and instead focused all their efforts on internal innovation and organic growth. However in 2010 they acquired Ankeena Networks for $100 million. This was a  move to directly compete against CSICO’s video conferencing market position. Ankeena Networks deliver new media infrastructure technology, and their technology is designed to help service providers deliver a better video experience on both fixed and mobile devices. Also in 2010, Juniper purchased Blackwave Networks in order to support Ankeena networks. Blackwave networks key business is to provide video storage and delivery. Both of these purchases were seen as Juniper bulking-up its video delivery capabilities in order to take on Cisco in this area. Polycom As with Juniper acquisitions in 2010, Polycom’s core business is in the area of video conferencing and in particular Telepresence and supporting infrastructure equipment. Between 2008 and 2010 they did not acquire any companies. In 2011 they acquired HP Visual Collaboration, a network and video management company for $89m. This move was in response to Cisco’s hostile $3.3bln takeover of Tandberg. The purchase was to strengthen Polycom’s position and ensure that they are strong enough to compete with Cisco. Strategic Tools A number of tools exist to assist organisations in developing strategies and insight on what industries and areas their business should focus on. Some of these are outlined below. SWOT Analysis A planning method used to determine the internal factors: strengths, and weaknesses, as well as the external factors: opportunities and threats, facing a project or organisation. The SWOT analysis helps project managers or organisations with the decision-making process. It is especially useful when considering entry into a new market, or when releasing a new product. It can be used to develop a strategy to help distinguish your organisation from your competitors. Porter’s 5 Forces A technique used to determine the intensity of competition within your market. The five forces are: threat of new entrants, threat of substitute products, and bargaining power of suppliers, bargaining power of buyers and the intensity of competitive rivalry. It is used to show the relative attractiveness of a particular market, and as such helps with the decision-making process for project managers and organisations. PEST Market Analysis Tool A tool used to help understand market growth or decline. PEST is an acronym for Political/Legal, Economic, Socio-Cultural, and Technological. Like SWOT and Porter’s 5 Forces, PEST is used to analyse or review a strategy or position at a given time and then help with the decision-making process. Other Other tools include Management by Objectives (MBO), TOWS Matrix, Internal Analysis, Value Chain and BCG Portfolio Model, but for this report we will focus on the three tools above, and how they relate to Ciscos management strategy. Strategic Tools on Cisco SWOT Analysis The SWOT analysis outlines internal strengths and weaknesses and external opportunities and threats. Strengths  In terms of internal strengths, Cisco is in a very good market position for its main core products (networking equipment) and is seen as the market leader in this area. Cisco has number of alliances with major players in the market, including Microsoft and IBM. Cisco also maintains a very strong balance sheet every year, ensuring a large supply of cash is available. Weaknesses Conversely, its main weakness is the high cost of its products, when compared to its competitors (e.g. HP and their low-cost range of network switches). This is not a major problem for Cisco however, as their focus is on reliability and customer satisfaction, not beating prices with competitors. Other weaknesses include the lack of a presence in the consumer market and the lack of innovation. Cisco’s growth and new product line comes from acquisitions rather than internal innovation and organic development. Opportunities Opportunities in the market include cloud computing, smart-grid technology, the home consumer market and the area of video conferencing thanks to its acquisition of Tandberg. Threats  The main external threat to Cisco is the unstable global economy. Chambers was initially very optimistic about the economic recovery; however he has recently toned-down his statements and has admitted that recovery may take longer than initially expected. Other threats include cheaper alternatives and their direct competitors: Hewlett-Packard, Juniper and IBM. Figure [ 4 ]| Porter’s 5 Forces Porter’s 5 Forces model helps to determine the level of a number of factors. Once established, this helps to determine the relative attractiveness of a particular market or sector. Threat of New Entrants: MEDIUM Large enterprises will generally only enter the market by acquiring specialist companies, and small companies will not really be able to compete due to the infrastructure and resources required. Any small, successful start-up will generally be acquisitioned by a larger one. Because of these factors the threat of new entrants into Cisco’s core market (design and manufacture of networking equipment) is medium. Bargaining Power of Suppliers: LOW Cisco generally uses short-term contracts with its suppliers. This allows them to easily adjust their output depending on supply and demand. Cisco also uses a multitude of different suppliers across the globe. Their main focus is on reliability and customer satisfaction rather than competing on price. For these reasons the suppliers have a low level of bargaining power. Bargaining Power of Buyers: HIGH In terms of networking equipment and video conferencing facilities, there are a wide range of suppliers for customers to choose from. These include Hewlett-Packard, Juniper, and Polycom. There are also cheaper alternatives in the market. This gives the customers much more bargaining power. Threat of Substitute Products: LOW Organisations rely on networking equipment such as hubs, switches and routers. They are vital to networks and will not be replaced by substitute products. Therefore the threat to Cisco is low. Intensity of Competitive Rivalry: HIGH The sector is very competitive with HP and Juniper seen as Cisco’s main rivals. Cisco’s entry into the videoconferencing and Telepresence market has increased this rivalry. Cisco is still seen as the market leader. PEST Market Analysis This market analysis used to help understand market growth or decline and help to influence the decision-making process. Political & Legal  Political and legal considerations for Cisco include regulations regarding customer and employee data privacy and security. Given the market they operate in, their products need to adhere to many different standards and certifications. These include ISO, IEEE, IETF, ITU and Wi-Fi Alliance. As Cisco is an international organisation operating in many different countries across the globe, they must be aware of differing national laws and regulations. A major strategy of theirs is the acquisition of other organisations. They must therefore be aware of the laws and regulations governing this process in different countries and continents, e.g. the acquisition of TV software developer NDS had to be approved by the European Commission. Economic The current economic outlook is poor, with low growth and uncertainty about when it will end. There are high unemployment rates across the globe, low inflation rates and increased labour costs. Current rates of interest are also important. These are all factors that Cisco will consider with any new  venture. Socio-Cultural Demographics, language, culture, customs and religion are not really a huge concern for Cisco. One socio-cultural issue that may relate to them is the current trend of technical people leaning more towards open-source software and hardware products. This may have a negative impact on some areas that Cisco operates in, as Cisco IOS is closed-source. However Cisco does work with over 40 open source software projects. Another area that Cisco will consider is the green and renewable energy sectors. Cisco’s recycling and emissions and energy consumption reduction programs have worked well and even resulted in them becoming certified. Cisco is also one of the driving forces behind making purchases from women, veteran and minority-owned companies. Technological Cisco spends nearly $5.3 billion on research and development per year, ensuring that they stay at the cutting-edge of technology. In terms of innovation Cisco generally â€Å"stick to the knitting†, i.e. they stick to their core competencies and acquisition other organisations when moving into new areas. Areas of technological growth include video and teleconferencing, telepresence, unified communication, big-data, cloud computing and smart grid (overlaying a digital network onto the existing electrical network). Figure [ 5 ]| Financial Overview Looking at Cisco’s finances provides and insight into invest psychology. Going back to 1993 (Figure 6) we can see that Cisco had strong earnings growth. Cisco really suffered during the recession in 2001 as they were unable to predict economic downturn and net sales fell by almost 30 per cent. Chambers was forced to write off inventory of $2.2 billion, and 8,500 people were made redundant. Figure [ 6 ]| Reorganisation The reorganisation of its operations after the crisis in 2001 was followed by  strong growth. By looking at the Cisco’s last year’s financial statements (Figure 7) we observe that their bottom line, in other words, Net Income was pretty stable and year over year, has known a continued growth from 2003 onwards, except the last couple of years, starting with 2008 when the net income declined to 2009 and got back pretty much as the same level in 2010 and once again declined from 2010 to 2011 but then increased from 2011 to 2012 exceeding this time the 2010 level. Figure 7| Technology Bubble The orange line on the graph represents earnings per share growth and as we can see since 1993, the average operating earnings growth rate has averaged 24.5% a year. The black line represents the monthly closing stock prices. As we can see at the beginning the earnings in price track each other very closely and then between 1997 and 2000 we observe that Cisco stocks became overpriced which matched the other trends in the technology market during the dotcom bubble. It climaxed on March 10, 2000, with the NASDAQ peaking at 5132.52 in intraday trading before closing at 5048.62. (Jesse Colombo, 2012). We can clearly see how during this period Cisco became disconnected from growth and earnings. The price collapsed as a consequence. However, since 2002 – 2003 Cisco stocks has traded more in line with its operating earnings growth (Appendix A, Earnings Growth). Price Earnings Ratio Although Cisco is trying to ensure a dominant position in all of its markets (and reflected in last quarterly results) their earnings were above expectations. This doesn’t give a clear picture of the potential for continued growth for investors. Price Earnings Ratio demonstrates investor psychology in the (Figure 7). It illustrates value in relation to the company’s earnings and is strictly related their yearly financial statements translated into net income. The higher the price earnings ratio the more the market is willing to pay for the company’s earnings. Conversely, a low P/E may indicate a â€Å"vote of no confidence† by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these â€Å"diamonds in the rough† before the rest of the market discovered their true worth. (Ken Little. 2012). Looking closer at earnings growth rate for the time frame 2003 – 2012, we observe that Cisco is averaging at almost 20 per cent stock growth a year (Figure 8) and since 2003 there was a time when the P/E ratio was much higher. Figure 8| By looking below at the P/E graph (Figure 9) we can see that by Fiscal Year End 2003 was nearly 40, by Fiscal Year End 2004 it dropped to 28 and then by Fiscal Year 2005 again to 21. We can see a continuous drop, in 2012 was just over 10 and currently the P/E ratio is around 12.0 based on the closing price of March 28th 2013. Figure 9| Finances over the Last Decade Looking at Cisco’s financial statements for 2003 – 2013 and the historical stock price trends, we can see that Cisco had an accelerated earnings growth. The graph below (Figure 10) outlines this cyclical nature. Figure 10| They had a growth rate of 89 per cent in 2003, 43 per cent in 2004 but by 2009 there was a 19 per cent decrease. This was during the global economic downturn and reflected in their financial statement. Despite that, it’s clear that the company was very profitable. Their earnings increased 24 per cent and are forecasted to reach 20 per cent by the end of the fiscal year 2013. Financial Observations Below are observations on Cisco’s last Financial Results for Q2 2013 released  February 13, 2013. Cisco reported so far a very strong FY 2013 earnings, maintaining their leadership positions in key areas of IT infrastructure such as Switches and Routers, while the firm’s financial strength in terms of cash flow allow them to catch up and surpass other companies in areas such as Wireless, where it wasn’t initially a market leader. Figure 11| The data above, (Figure 11) illustrates Q2 net sales of $12.098 billion, with an increase of 5% year over year. GAAP net income and GAAP earnings per share, for the second quarter of fiscal 2013, included total tax benefits of approximately $926 million or $0.17 per share (Julie Bort, 2013). Product revenue grew 3% while services revenue grew an impressive 10%. Cash flow from operations was well over $3 billion and the company continues its prodigious free cash flow production, which according to Frank Calderoni the CFO, Cisco: â€Å"Cash is King. It enables us to make bold moves.† Gross margins have been very stable around 62% lately for Cisco, exhibiting the strength of the brand versus its competition. According to the analysts, Cisco’s Services business is a key differentiator between it and its competition, and because the margins are higher on Services than Products, the company’s total gross margin should continue to improve slightly (Tim Travis, 2013). According to John Chambers, Cisco chairman and chief executive officer: â€Å"Cisco delivered earnings per share this quarter and record revenue for the 8th quarter in a row in a challenging economic environment. We continue to drive the innovation, quality and leadership our customers expect, and we remain focused on consistent returns to our shareholders†. Strategic Risks Innovation Momentum According to Forbes magazine Cisco lost its â€Å"innovation momentum† and that’s because they relied more on external acquisitions for new product  development: the reliance on external rather than internal sources of innovation, e.g., the purchase of start-ups with promising products. The problem with this strategy, however, is that it is costly, destructive, and unsustainable. It is costly because the would-be acquirers end up buying start-ups that fail to produce any marketable products. It is destructive because it eventually distances would-be acquirers from their end customers. It is unsustainable because it often ends up fuelling bidding wars, as the owners of these smaller companies demand higher and higher premium to compensate them for the risks they assume. (Panos Mourdoukoutas, 2012) Acquisition Strategy Over the period 1993-2013, Cisco acquired one hundred and fifty six companies. Some of the latest acquisitions are Meraki (2012) operating in the Wired and Wireless Cloud networking market, SolveDirect (2013) operating in the Cloud Services market, Intucell (2013) operating in the Mobile Software market†¦etc. By relaying your company strategy only on acquisition you forget to cultivate innovation and creativity across your own organisation and we believe that Cisco strategy in the long run might bounce back as a failure and affect their core competencies. Core Competencies By definition the core competencies differentiate an organization from its competition. The Core Competencies create a company’s competitive advantage in the marketplace and typically, a core competency refers to a company’s set of skills or experience in some activity, rather than physical or financial assets. If we look at the case study (Indu, 2010) and where Cisco stands today within the IT market, we realise indeed that their resources in terms of reputation, brand, financial assets and products are still strong, but in terms of capabilities and talent which help to sustain innovation as a key differentiator between market leaders and their rivals, they have chosen the wrong path. New Markets There is no doubt that Chambers is a successful CEO. This can be seen in Cisco’s last year’s financial statements but since Cloud computing technology has gone mainstream and greater use of mobile telephony networks. Cisco has been unable to innovate, launch and grow new markets for services or applications. According to Forbes Magazine, Chambers has reorganized the company 3 times – but it has been much like rearranging the deck chairs on the Titanic: â€Å"Lots of confusion, but no improvement in results† (Adam Hartung, 2012). Strategic Vision Another risk to be noted is the â€Å"Where to go vision† – distraction and lack of a long-term vision adopted by Cisco is a major risk for the company. In one of his statements, Chambers said: â€Å"I don’t make my decision on the next quarter or on the next year. I make my decision three or five years out so I do not adjust my strategy based on what’s the spending is going to be next quarter or three quarters.† With instability shown in the financial markets for the last couple of years and the prolonged economic recession along with low consumer confidence there is a disjoint with Chambers strategic statements. Consumer Market Penetration Cisco’s growth has been based on a strategy of acquisitions. The main reason behind this was the penetration or expansion of new market opportunities. Cisco have made several ambitious moves into the markets for enterprise tablets, video conferencing and consumer products. Some of these decisions have been ineffective in competing in these markets. In some cases, due to excessive prices and faster development and deployment cycles of competitors. In today’s competitive tech environment those who are slow in bringing innovation and new products to the market will fail to succeed. An example of reinventing the wheel could be Cisco’s Flip camcorder which they acquired in 2009 from Pure Digital. The product failed and the $590 million investment was lost. Customers’ needs are constantly changing and want their technology suppliers to offer those sophisticated services and equipment. Like other tech giants, Cisco is struggling to adapt to changing market conditions and demand in terms of technology and products. Building Revenue Erik Suppiger, an analyst with JMP Securities in San FranCisco, said Cisco â€Å"did a good job managing costs, and keeping their margins up, but there’s a lot of concern about what they can do to build revenue. Building a cloud and wireless business eats into your traditional product lines. If you have a wireless laptop, you don’t need a desktop computer connected to your office network† (Quentin Hardy, 2013). It seems that Chambers, who has led Cisco for 18 years, is well aware of this problem, in one of the latest interviews he said: â€Å"We’d gotten too fat. And when you get fat, you’re slow in decision-making. It had been so easy to say we’re the best in our industry, we don’t need to change, but that’s exactly how you disappear† (Charlie Rose, 2012). Although Cisco reported Q2 earnings more than Wall Street expected, Chambers warned of â€Å"a challenging economic environment.† Distinction Considering Cisco’s latest acquisitions (Intucell, Jan 2013; Solve Direct, March 2013) in mobile software and cloud services, there are signs of progress. However, it is unclear whether Cisco will succeed before Chambers retires in two to four years. His greatest achievement may be building software and services that are distinct from its existing core competencies and product line. Conclusion After in depth analysis of Cisco’s strategic management practices it is clear the company is not without its faults. People in the business community do not agree with some of the strategic decisions made by chambers and this has in some cases lead to a lack of confidence in the company’s progress. It’s also worth mentioning the workforce have ranked the company low in terms of ‘great place to work’ scores. Acquisitions prevent entrepreneurship, and  the lack of solid competition has meant that it is unclear whether Cisco would be able to cope with less of the market share if another big player offering cheaper products was to gain momentum. However, Cisco is a large company with a huge workforce, a substantial stockpile of cash and assets, strong share price and excellent revenue. So for the time being, Chambers and Cisco, have put their critics in their place. References Jim Duffy. (2009). HP’s 3Com acquisition: An inside look. Available: http://www.networkworld.com/news/2009/111309-hp-3com-haas.html?nwwpkg=hp. Last accessed March 2013. John Dix. (2009). HP puts the net pedal to the metal. Available: https://www.networkworld.com/news/2009/091409-haas.html. Last accessed March 2013. wikipedia. (2013). HP puts the net pedal to the metal. Available: http://en.wikipedia.org/wiki/List_of_acquisitions_by_Hewlett-Packard. Last accessed March 2013. wikipedia. (2013). Juniper Networks. 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(2013). 12 Years After The Bubble Cisco Is Ripe For The Taking: Update. Available: http://seekingalpha.com/article/1183801-12-years-after-the-bubble-Cisco-is-ripe-for-the-taking-update. Last accessed 30th March 2013. Hardy, Quentin. (2013). Cisco Struggles to Adapt, Even as Profit Rises. Available: http://www.nytimes.com/2013/02/14/business/Cisco-tops-expectations-with-rise-in-profit-of-44.html. Last accessed 1st April 2013. P, Indu . (2010). Cisco strategy in recessionary times. Under the direction of Vivek Gupta Cisco Overview Cisco Overview Appendix A In 1984, a small group of computer scientists, namely Leonard Bosack, Sandy Lerner and Richard Troiano, created an Internet Operating System in San Jose. This OS was loaded into a box for routing and facilitated the communication between two computers. It’s interesting to note that ‘In search of Excellence’ (1982, Peters and Waterman) states that one of the key themes for a successful company are to stick to the knitting. In other words stay with the core business. Cisco, since 1984 have done just that. Their popularity grew and they implemented an FTP site to allow customers and developers to access a DB of bug information. By 1990 the company had gone public and had sales in the region of $70m with a net income of almost $14m. They had massive amounts of support centre calls, and supplied routers to the biggest players in the telecom world at the time. By 1992, ‘Fortune’s second fastest growing company in the US, had achieved sales of almost $340m, and had branched out to Europe and beyond. In 1993 they again showed strong customer focus by creating bug tracking systems, to support large corporation who used their products. In 1993 the company completed their first large scale acquisition of Crescendo communications for $95m and the following year New Port solutions for $93m. These were the first in a long list of acquisitions for Cisco and by the mid 90’s the company had a strong brand signature, excellent customer focus and a global footprint. By 1999, the company had revenues of over $12bn. This surge continued and in 2000 market capitalization grossed over $450bn. The company acquired over 40 companies over these 2 years, and demand was so high the production of equipment could not meet the customer demands. Customers began to look elsewhere, and at the same time the cracks in the IT market began to show. Cisco began stock piling, which was not in keeping with their practices, and in the ensuing recession, the company were forced to downsize, with 8500 job losses, and reported loses of almost $2.7bn, a complete reversal of the growth and fortunes up to that time. Figure 12 Figure 12 With John Chambers at the helm, the company drastically slowed down acquisitions, reduced the number of suppliers and resellers and began to steadily grow the company once again, and by 2009 emerged as a pioneer in data management with 75% of the world’s data being managed in some form by the company. One of the few companies to successfully withstand economic slowdown, Cisco, at present sits at number 64 of the fortune 500 list, with total equity of $51bn and 73k+ employees worldwide. Appendix B Earnings Growth Earnings Growth Acquisitions