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Gaining Competitive Advantage Through Internet Business Solutions

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  1. Gaining Competitive Advantage Through Internet Business Solutions

  2. Router Company 1991 Quantum Leap TheInternet Company Future Building SolutionsOrientation Preeminent Networking Vendor

  3. Cisco Growth vs. Industry—1998 37% 10% 14% 2.8% Cisco Rest of Industry Traditional Competitors Old World

  4. The Internet Is Changing the Way We:

  5. Technology Migration to Internet Client/Server PC/LAN Mainframe Mini/WAN Internet/Intranet 1960s–1970s 1970s–1980s 1980s–1990s 1990s–2000s Cross-Enterprise Business-to-Business and Consumer Applications Operational Departmental # Users Consumers, All Workers Small Moderate Small Adoption 10+ Years 7+ Years 5+ Years 3+ Years

  6. Internet Being Adopted Faster Than Any Previous Technology Years to 50 Million Users 4 13 16 38

  7. Canada12M/6% Japan12M/6% Asia/Pacific14M/7% United States80M/41% Rest of World15M/8% Western Europe63M/32% 1999 Global Internet Users Total = 196 Million Users Source: IDC 3/99

  8. Global Internet Commerce1998 - 2003 Source: Forrester Research - Sizing Online Business Trade 10/98

  9. Opportunities and Challenges in the Internet Economy Global Access to Customers Opportunity to Transform Business Models (The Virtual Enterprise) Entry of New Competitors Business Inefficiencies Removed (Supply Chain Integration)

  10. Examples of Changes in the Internet Economy Traditional Business Trendsetters Inefficiencies Removed Brokerage Intermediation (Broker) Fees $120 Billion in Assets Purchasing (Manufacturing) Purchasing Cost Reduced by $700 Million in Three Years Sourcing by Fax and Phone Bookstores Bricks and Mortar 2.5 Million Virtual Customers

  11. Finance/Insurance Manufacturing/Distribution Charles Schwab Wells Fargo J P Morgan Royal Bank of Canada AIG Ford GE Tandem Boeing Chevron OTN Federal Express Other Case Studies Retail Government/Education Amazon.com Auto-By-Tel Kinko’s LL Bean Edgar Online IRS State of Florida Lightspan

  12. Employees Customers Partners Suppliers Traditional Business Models • Information silos with access limited to select few • Lack of universal access to relevant information • Duplication of effort

  13. Employees Customers Partners Suppliers “Internet Business Solutions” Create Competitive Advantage • Higher customer satisfaction • Lower costs • Competitive agility • Accelerated time to market • Higher employee efficiency Enterprise Ubiquitous Connectivitywhere the Business Runs on the Network

  14. The Cisco Story Challenge Results • Dramatic competitive advantage through: • Higher customer satisfaction • Faster time to market • $825M in financial benefits • 20% improvement in productivity • Scale the company • Maintain high-quality customer support • Maximize return to shareholders in times of: • Rapid growth • Technology change • Acquisitions • Shortage of experts Internet Business Solutions

  15. Cisco’s Internet Business Solutions Develop- ment Mfg. Mktg. Sales Support Supply Chain Management InternetCommerce Customer Care Mktg. Communications/Collaboration Workforce Optimization

  16. Customer Centric Model Customer Business Relationship Customer Relationship Management Sales Support Ease of Doing Business Customer Satisfaction Products Customer Facing Applications Internet Commerce Customer Care One - To - One Marketing Data Management Warehousing Customer Supporting Applications Collaboration Knowledge Management Supply Chain Management Customer Supporting Technologies Intranet/Internet

  17. Customer Care Cisco Connection Online Installation and Configuration Documentation Operation Support Software Library Problem Detection:CiscoWorks Problem Identification: Bug Navigator Problem Notification: Bug Alerts Problem Resolution: Open Forum, Troubleshooting Engine

  18. Reg. User Satisfaction 4.25 Reg. User Satisfaction 3.4 August 1999 Registered Users 304,634 Questions Answered 79% Customer Care Results Logins

  19. “Full Service” Internet Commerce on CCO Pricing Configuration Registered Companies 1528 Orders per Day $32,200,000 Yearly Run Rate $11.7 Billion Orders online 80%Satisfaction 4.24 out of 5 Order Placement Order Status Service Order Invoice

  20. July 1999 Registered Companies 1,528 Cumulative electronic orders - 1996 to date 512,870 Orders-per-Day Run Rate 32.2 Million Yearly Run Rate 11.7 Billion Satisfaction 4.24 Internet Commerce at Cisco 80 78 77 76 75 74 73 72 70 69 66 64 64 57 55 52 47 42 41 39 Percent of Orders 38 37 36 33 32 26 23 20 16 15 13 12 9 7 5 4

  21. Marketing • Event and seminar registrations • Cisco product registration • CCO personal update • News release push • Publishing • Training registration

  22. Marketing Results • In an average month: • 10,000+ products registered • 24,000+ seminar registrations • 800+ CCO personal updates sent • 2,500+ news releases pushed • 500+ marketing documents published • 20,000+ customer and partner event registrations • 25,000+ training classes searched

  23. “Single Enterprise” with Suppliers Build Plan Cisco Product Supplier Money Automated Testing on Outsourced Supplier Line CiscoCentral Control Supplier Test Cell WAN Supply Chain Management • Extended ERP systems to suppliers • Automated routing data transfer through EDI • Eliminated need for purchase orders and invoices • Developed partnership with suppliers and created test cells on supplier line • Test procedures automatically downloaded on order configuration • Suppliers test using Cisco methodology

  24. PDM ERP CDMS New Product Introduction Cisco Intranet Cisco “One Button Push” Direct Replenishment Supplier Single Forecast for Entire Supply Chain Customer Cisco WAN Distributor Direct Fulfillment 3 Days Supplier Customer Supply Chain Management (Cont.) • Automated data gathering • Engineers aggregate design information at the touch of a button • All companies in supply chain work off of same demand forecast reducing inventory costs • Suppliers ship directly to customer and do not require Cisco interface

  25. Supply Chain Management Results • 55% of unit volume directly shipped without Cisco touch • New product introduction time to volume accelerated by a quarter (annual contribution margins enhanced by $269 million) • Lead times reduced from six to eight weeks to one to three weeks • Engineering change notice time down from 25 days to 10 days • Annual operating costs reduced by $175 million

  26. Employee Services Cisco Employee Connection • Employee services • Travel/expense • Benefits enrollment • Training registration • Stock information • Internal IT help desk • Directory and organization chart

  27. Employee Services (Cont.) • Workflow • Purchasing/ORM • Recruiting online • Decision support • EIS

  28. Communication/Collaboration • IP/TV for sales/product training • Company-wide employee meetings and broadcasts • Collaboration with suppliers for new product design • Stanford Engineering courses online

  29. Strategic Benefits of Internet Business Solutions • Greatly enhanced customer satisfaction • High employee satisfaction • Continued profitable growth and market share increase • Vastly improved time to volume for new product introduction • Cost reduction for Cisco, customers and channel partners Develop- ment Mfg. Mktg. Sales Support Supply Chain Management InternetCommerce Customer Care Mktg. Communications/Collaboration Workforce Optimization

  30. Annual Financial Benefit of Cisco’s Internet Applications FY99 Financial Benefit Customer Care $269,000,000 Internet Commerce $57,000,000 Supply Chain Management - Cost benefits - Profit contribution $444,000,000 $175,000,000 $269,000,000 Workforce Optimization $55,000,00 $825,000,000 Total Financial Impact

  31. Cisco Returns on Internet Commerce Investments over Time 300+% 387% ROI to Date for All Commerce Tools In Existence, with Infrastructure, Hardware, and SoftwareCosts Included (July ’99) 328% 260% (Jan ’99) 282% (Cumulative) FY1995 FY1996 FY1997 FY1998 FY1999 -9% -100% Preliminary

  32. Cisco’s Aggressive Technology Investment Strategy Relative Growth of IT vs. Other Spending 1996–1998 CAGR Annual ITSpending Growth 68% Annual Growth inAll Other Spending 40%

  33. Cisco’s IT Spending Lower than Other IT Manufacturers…. Percent RevenueSpent on IT Average: 3.03% Source: 1997 Worldwide Benchmark Report (Rubin Systems, Inc.): Data from InfoWeek500

  34. However, Employee Productivity Higher… Annual Revenuesper Employee $K 660 516 338 315 296 278 Source: 1997 Worldwide Benchmark Report (Rubin Systems, Inc.): Data from InfoWeek500

  35. Cisco’s Superior Employee Productivity Annual Revenues per Employee $K* Total Employees Cisco 17,124 13,371 3 Com 75,000 Bay/Nortel Lucent 148,000 * (Latest Quarterly Revenues x 4) /employees as of Q3 99

  36. Customer Retention R&D Investments $ Millions Percent Revenue 9.7% 10.8% 11.8% • Reinvest profits to improve customer satisfaction: • Higher quality product and services • Superior customer support • Customer facing organizations e.g., IBSG Revenue Growth, 1995–97 Cisco Bay 3COM

  37. $14 $12 $10 $8 $6 $4 $2 $0 1998 1997 1996 1995 1990 1991 1992 1993 1994 1999 Network System Sales ($B) Cisco InternetApplications Competitors Source: BloombergNotes: Dates are calendar years, Numbers are annualized from most recent reports

  38. Key Success Factor – Cisco’s Overall Approach Principles Approach • Solve Customer Facing Problems First; Develop Networked Applications through “Customer Funded Projects” • Leverage Relationships with Partners so Each Can Focus on Its Core Competence • Align Business and IT; and Organize Efforts—Process, Organization and Technology— around Successes • Create Ubiquitous, Enterprise-wide Connectivity and Electronic Publication Model • Prioritize Business Opportunities Based on Customer Need • Identify and Build Source of Competitive Advantage Using Technology • Maintain Enterprise View of Business and Technology • Achieve “Information Democracy” Using Network as Enabler and Changing Business Processes where Required

  39. Cisco’s IT Philosophy • Business units determine highest-impact applications based on their business needs • Business Units fund IT projects. IT spending charged to Business Unit cost centers, only infrastructure expense goes into G&A • Cross-functional project teams help align technology and business goals • Standards based infrastructure deployed throughout the organization

  40. Significant Lessons Learned • Business and IT Alignment • Buy don’t build • Get users involved early - demonstrate quick early wins • Provide new value with new applications …end-to-end processes • Focus on the “low-hanging fruit” • Don’t BOIL the ocean - avoid MEGA projects • Leverage experience of others to reduce time to market • Phase functionality to reduce time-to-market - 80/20 rule • Web as point of entry for all information and self-service • Universal connectivity reaches everyone

  41. Cisco Internet Business Solution Programs Executive Advisory Internet- Powered Solutions Infrastructure • Business and IT executive sessions • Awareness • Visioning • IT funding and governance models • Internet commerce • Employee services • Supply chain management • Customer care • IT architecture and approach methodologies • Application • Server • Security • Network readiness assessment

  42. Cisco IBSG Programs Internet Business Solutions