Cisco Systems. By Gediminas Sumyla. Company overview.
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Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Today, networks are an essential part of business, education, government and home communications, and Cisco Internet Protocol-based (IP) networking solutions are the foundation of these networks.
Cisco hardware, software, and service offerings are used to create Internet solutions that allow individuals, companies, and countries to increase productivity, improve customer satisfaction and strengthen competitive advantage. The Cisco name has become synonymous with the Internet, as well as with the productivity improvements that Internet business solutions provide.
1993 – Revenues reach $714 million. Cisco makes its first acquisition: Crescendo Communications and its 100-Mbps Copper Distributed Data Interface (CDDI) technology. With the acquisition of Crescendo, Mario Mazzola joins the company.
1994 – Revenues reach $1.3 billion. Cisco becomes the first major supplier of Multiprotocol internetworking products to be awarded ISO 9001 certification—an internationally recognized endorsement for quality management and quality assurance.
1996 – Cisco makes acquisitions with such companies as TGV Software, Inc., Stratacom, Inc., Telebit Corp’s MICA Technologies, Nashoba Networks, Netsys Technologies, Inc., and Metaplex, Inc.
1997 - Cisco makes its first appearance in the Fortune 500 at number 332. Revenues reach $6.5 billion. Makes acquisitions with more companies and corporations such as Ardent Communications. Cisco introduces first in a series of products aimed at the voice-over-IP and fax-over-IP markets; Outlines the first phase of voice/video/data integration strategy.
1998 – Revenues reach $8.5 billion. Cisco becomes the first company in history to achieve a market capitalization of $100 billion in just 14 years. Makes acquisitions with such companies as American Internet Corp., and Pipelinks, Inc.
1999 - Fortune magazine recognizes Cisco as one of the top 25 best places to work in America and the 8th most admired company in the world. Market capitalization reaches $300 billion. Makes acquisitions with about 20 companies and corporations. Cisco forms partnerships with 10 leading companies to create standards for wireless Internet technology.
2000 - Cisco became the world’s most valuable company, in terms of market cap, on March 27, with a high of $82 a share (market cap: $569B), closing at $80.06 (market cap: $555B). Makes acquisitions with about 30 companies and corporations.
2003 - Cisco entered home networking market with its acquisition of The Linksys
Group. Cisco receives Presidential Award for Corporate Leadership.
John Morgridge – he shaped the Cisco culture from day one, focusing on customer satisfaction, product quality, and frugality.
John Chambers – was known for his fair but ultra-competitive nature. He is a former IBM and Wang Laboratories marketing and sales veteran, fostered Cisco’s strong customer focus and was credited with continuing Cisco’s striking success in the networking industry.
Company was trying to expand rapidly and offer new services and products. The main element of Cisco’s strategy during this expansion phase was to maintain a passionate customer focus and consistently try to exceed customer expectations.
Company targeted three key markets: enterprise, service providers, and small/medium business.
John Chambers wanted to enhance and expand already recognized brand and increased Cisco’s marketing to include television, Internet, and print advertising.
Cisco also strove to maintain its product leadership in each of the market segments it already served. The product leadership strategy involved the innovation of Cisco’s engineering teams, complemented by alliances, acquisitions, and minority investments.
As the networking space became more competitive, and as minimizing time to market became more important, Chambers realized that Cisco could not keep up with the changing market needs solely through internal development.
Acquisitions and alliances to gain access to world-class technologies and people became a defining component of Cisco’s strategy.
This strategy is relatively unique: most high-tech companies considered looking to the outside for technological help a sign of weakness.
“The companies who emerge as industry leaders will be those who understand how to partner and those who understand how to acquire.” – John Chambers, CEO.
If Cisco did not have the technological capability, engineering capacity, or time to develop the product internally, the business development group would opt to acquire or partner with external player.
Historically there were three separate types of networks: phone networks for transmitting voice, computer networks for transmitting data, and broadcast networks for transmitting video – but advances in digitalization allowed these forms of communication to be translated into binary computer language.
This made it possible to transmit voice, data and video over one network more efficiently and economically than using three disparate networks.
Cisco believed that this transition to this new networking would enable to capture share in $250 billion market.
Cisco was already a leader in networking, had excellent engineering and management teams and saw this opportunity as the best match for company.
Ardent 101 requirements included ability to accept data, voice and video traffic, up to 2 Mbps traffic, support ATM, frame relay, and TDM trunks.
Milestones for Ardent 101 included: after six months company shall have completed the specifications for function, architecture, and design for the product; after twelve months begin integration of product, after fifteen months begin beta program for the product, after eighteen months first customer shipment should occur.
Cisco gave the founding team and employees a large ownership position – over 55% on a fully diluted basis.
Retaining employees: Cisco laid out a four-year vesting period for the options granted to employees – 25% would vest after the first year, with the remainder vesting monthly over the next three years.
The founding team proposed a simple put/call structure that would give Cisco the option to purchase the company at a prespecified price, but would also obligate Cisco to purchase the company if the new team succeeded in building the product.
Technological drivers of change: companies recognized the need for multiservice network. Growing technological world built a need for high-speed networking. Advances in digitalization allowed forms of communication to be translated into binary computer language. The ongoing deregulation of telecommunications and technology convergence were driving the trend toward the integration of voice, data and video networks. The evolution of network infrastructure was creating business opportunities in virtually every sector of networking.
Cisco wanted to become “get it right and get big” company. Most of the networking equipment market were Cisco’s products. Cisco was known for excellent brand, quality products and superior customer service. Cisco enjoyed 80% market share.
Cisco could have hired external talent and engineers to develop and build the product in the company. This could have saved money and problems that they faced making acquisitions with companies. This would also save money and time that Cisco spent on integrating those companies into Cisco business unit. This strategy would also give engineers and hired talent advantage of working within the company, cooperating with existing employees and using company’s experience.