Cisco Case Study
Cisco Systems, Inc. (NASDAQ: CSCO) is an American multinational corporation headquartered in San Jose, California, United States, that designs and sells consumer electronics, networking, voice, and communications technology and services. Founded by Len Bosack and Sandy Lerner, a married couple who worked as computer operations staff members at Stanford University, along with Nicholas Pham, founded Cisco Systems in 1984. For the first time in a decade Cisco experienced its first negative quarter in 2001. The loss of earnings was due to the economic down. Their sales declined by 30%, inventory surplus was written off as a loss to the tune of $2.2 billion, 8,500 workers were ...view middle of the document...
Cisco After was CEO John Chambers, admitting to The Economist that same month, "We never built models to anticipate something of this magnitude (Berinato)." The virtual close had a lot to do with Cisco’s success, but the heavy reliance on the forecasting software and not relying on common sense. The virtual close allowed Cisco to see into its own and the competitor’s future, the virtual close was marketed as a significant competitive advantage. The only problem was the virtual close was incomplete and flawed. The system could not accurately forecast human behaviors, “If an inventory manager asks for 120 when he needs 100, the software cannot intuit, interpret or understand the manager’s strategy. It sees 120; it believes 120; it reports 120. (Berinato)”. The system also could not predict outside factors, such as high demand for the same components Cisco used in making networking devices, by its competitors as well as Cisco. Cisco’s Top Management completely neglected their intuition and relied solely on technology. They allowed the software to dictate the planning, organizing, leading and controlling of the organization.
Cisco is a company that does not produce its own parts for making it networking equipment. When Cisco’s networking equipment was in short supply, the company decided to enter into long-term commitments with its manufacturing partners and certain key components makers. Promise us the parts, Cisco said, and we promise to buy them. No matter what, (Berinato). This left Cisco obligated to the manufactures even if business was not doing well or they had no need for the components.
Management at Cisco failed to recognize fault. CEO John Chambers blame the economy for his company’s failure; he left his management and the software without any blame. Instead of realizing that the overreliance on an inaccurate system and poor inventory control coupled with the economic downturn caused Cisco’s near implosion.
Strengths | Weaknesses |
* Market share leadership * Strong management team * Accusations * Outsourcing * Technology | * Poor supply chain * High risk in a company relying solely on Virtual Close * No Management Accountability * Outsourcing * Technology |
Opportunities | Threats |
* Technology * Transformational leadership * Innovation * Lean Production systems | * Competition * Pricing * Substitution * Change in target Market * Brand Loyalty |
Business Level and Corporate Strategy
Cisco’s success was due two main strategies outsources manufacturing and growth through acquisition. This proved to be very lucrative for Cisco before the 2001 crisis. “From the time it went public 11 years ago, Cisco was never not growing. Sometimes its growth was staggering. Its stock split 12 times in the ’90s. Its revenues went from millions to billions to tens of billions as fast as the Internet would let it. At its height, say, May 2000, 44,000 people worked at Cisco,...