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Cisco Case Analysis

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Used for a 75 min speech in a Strategic Management class.

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Cisco Case Analysis

  1. 1. Cisco Systems Inc.<br />
  2. 2. Part One: Introduction and External Analysis<br />
  3. 3. Cisco Systems - Introduction<br /><ul><li>Founded in 1984
  4. 4. Incorporated on December 10, 1984
  5. 5. Have 72,935 employees
  6. 6. Surpassed 39 billion in revenue in 2008
  7. 7. Corporate headquarters located in San Jose, California
  8. 8. 32 factories worldwide, 30 of them are outsourced.
  9. 9. Spends nearly $5.3 billion a year in R&D</li></li></ul><li>Cisco Systems – Intro – Recent Events<br /><ul><li>Video Easier to Create, Consume, Search and Share Across the Enterprise
  10. 10. Cisco Demonstrates Leadership in Virtualized, Scalable, Cloud- Ready Data Centers with Customer and Technology Milestones
  11. 11. Cisco Connects Businesses to Consumers via Video</li></li></ul><li>Networking and Communication<br /><ul><li>Industry: Networking and Communication supplies and services
  12. 12. Industry Consolidation – Few competitors in their main product area
  13. 13. In 2006 they had 70% of the share of its core router and switch market.</li></ul>Juniper Networks and Hewlitt-Packard selected as benchmarks.<br />Cisco's Chambers Problem<br />Cisco Competition<br />
  14. 14. Cisco’s Mission Statement<br />Shape the future of the Internet by creating unprecedented<br />value and opportunity for our customers, employees, investors,<br />and ecosystem partners.<br />Vision<br />Changing the Way We Work, Live, Play, and Learn.<br />Cisco has a very bland and basic mission statement that only ranks as an “ok” (5) on the MVV evaluation.<br />
  15. 15. External Analysis<br /><ul><li>Remote (Societal) Environment.
  16. 16. Industry (Task) Environment
  17. 17. Assessment of Competition
  18. 18. Most Crucial Threats and Opportunities, with score.</li></li></ul><li>Remote (societal) EnvironMent<br />Opportunities<br /><ul><li> Innovation
  19. 19. Product and services expansion
  20. 20. Market of Airline Industry
  21. 21. Reusing existing Cisco gear to act as mobile POPs
  22. 22. Cloud Computing</li></ul>Threats<br /><ul><li>Economic slowdown
  23. 23. Price wars
  24. 24. Product substitution
  25. 25. Margin erosion
  26. 26. Consolidation trend
  27. 27. Consumer loyalty</li></li></ul><li>Industry/Task Environment<br />Opportunities<br /><ul><li>Low supplier power, Cisco has taken control of its supply chain
  28. 28. Router and switch market share discourages new entrants
  29. 29. Switching costs are high(reduce buyer power)
  30. 30. Acquisitions removes some threat of startup success
  31. 31. Growth in the consumer market and cloud computing</li></ul>Threats<br /><ul><li>Flip Video – bargaining power of buyers.
  32. 32. MSFT – Threat of new entrant (bundle unified communications software)
  33. 33. GOOG – Threat of new entrant (desktop video conferencing market)
  34. 34. Vyatta – Substitute (open source hardware)
  35. 35. Asterisk – Substitute (open source VoIP)</li></li></ul><li>Assessment of Competition<br />Opportunities<br /><ul><li>Increase competition in bottom layer switch market
  36. 36. Smart Grid Technology
  37. 37. Asian Market – Tata Communications
  38. 38. Server growth – up 700%
  39. 39. Cloud-centric software</li></ul>Threats<br /><ul><li>Mirrorless SLRs are the response to Flip video
  40. 40. Juniper announced data center
  41. 41. Juniper entered into a partnership with IBM to handle network connectivity for the latter’s cloud computing
  42. 42. 3COM emerging into markets like China
  43. 43. Juniper’s high-end switches (EX) and Junos OS
  44. 44. HP’s low cost switches</li></li></ul><li>Summary – Most Crucial Opportunities and Threats<br />Opportunities<br /><ul><li>Increase competition in bottom layer switch market (9)
  45. 45. Server growth (10)
  46. 46. Cloud Computing (10)
  47. 47. Smart Grid Technology (10)
  48. 48. Asian Market (8)</li></ul>Threats<br /><ul><li>HP’s low cost switches (10)
  49. 49. MSFT – Threat of new entrant (bundle unified communications software) (7)
  50. 50. Consolidation trend (7)
  51. 51. Juniper/IBM (9)
  52. 52. Juniper’s data center (10)</li></ul>Avg. ~ 47/5 = 9.4<br />Avg. ~ 43/5 = 8.6<br />O-T ~ 9.4 – 8.6 = .8<br />
  53. 53. Part Two: Internal Analysis<br />
  54. 54. Net Income Trends -CSCO & Benchmarks<br />
  55. 55. CSCO Quarterly Earnings vs. Consensus Estimates<br />
  56. 56. Revenue by product category and service<br />
  57. 57. Key Income Statement Data FY2010<br />
  58. 58. Key Balance Sheet Data FY2010<br />
  59. 59. Cash flow Data fy2010<br />
  60. 60. Important Financial Ratios FY2010<br />
  61. 61. Applying Altman’sBankruptcy Formula<br />Z = 1.2*A + 1.4*B + 3.3*C + 0.6*D + 1.0*E, where;<br />A = Working Capital / Total Assets (%)<br />B = Retained Earnings / Total Assets (%)<br />C = EBIT / Total Assets (%)<br />D = Market Value of Equity / Total Liabilities (%), and<br />E = Sales / Total Assets<br />“Scores below 1.81 indicate significant credit problems while scores above 3.0 indicate a healthy firm. Scores falling between 1.81 and 3.0 indicate question marks.”<br />
  62. 62. Z-Value<br />
  63. 63. Index of Sustainable Growth<br />g* = [P(1-D)(1+L)] / [T-P(1-D)(1+L)], where<br />P = (Net Profit before Tax / Net Sales) x 100<br />D = Target dividends / Profit after Tax<br />L = Total Liabilities / Net Worth<br />T = (Total Assets / Net Sales) x 100<br />
  64. 64. Inventory Turnover FY2010<br />
  65. 65. Credit Ratings<br />March 9, 2011-Standard & Poor's Ratings Services said today that it assigned its 'A+' issue rating to San Jose, Calif.-based Cisco Systems Inc.'s (Cisco) three tranches of senior unsecured notes.<br />
  66. 66. Cisco Stock Price History<br />
  67. 67. CSCO Stock Price – 5 year trend<br />
  68. 68. CSCO Stock Price – 2 year Trend<br />
  69. 69. Financial success Statement<br />In fiscal 2010, we saw a solid return to balanced growth across geographies, product and customer markets exemplified by Cisco reaching over $40 billion in fiscal year revenue. We focused our efforts on defining true innovation and operational excellence within our company. And we improved our position as a strategic partner to customers worldwide by showing how the network has become, in our view, the most strategic asset in communications and information technology (IT) today.<br />
  70. 70. ANALYSIS OF MARKETING POSITION<br />
  71. 71. Cisco long term Total sales From 2006-2010<br /><ul><li>2006 = 23.38 Billion
  72. 72. 2007 = 34.90 Billion
  73. 73. 2008 = 39.60 Billion
  74. 74. 2009 = 36.10 Billion
  75. 75. 2010 = 40 Billion</li></li></ul><li>Cisco long term Quarterly sales from 2006-2010<br />2006 2008<br /> Quarter 1: 6.50 Billion Quarter 1: 9.60 Billion<br /> Quarter 2: 6.60 Billion Quarter 2: 9.60 Billion<br /> Quarter 3: 7.30 Billion Quarter 3: 9.60 Billion<br /> Quarter 4: 7.98 Billion Quarter 4: 10.40 Billion<br />2007 2009<br /> Quarter 1: 8.20 Billion Quarter 1: 10.30 Billion <br /> Quarter 2: 8.40 Billion Quarter 2: 9.1 Billion<br /> Quarter 3: 8.90 Billion Quarter 3: 8.2 Billion<br /> Quarter 4: 9.40 Billion Quarter 4: 8.5 Billion<br />
  76. 76. Cisco Long Term Quarterly Sales from 2006-2010 cont. <br />2010<br /> Quarter 1: 9.00 Billion<br /> Quarter 2: 9.80 Billion<br /> Quarter 3: 10.40 Billion<br /> Quarter 4: 10.80 Billion<br />
  77. 77. Sales by strategic business units in quarter 1 and 2 of 2011<br /><ul><li>Strategic Business Units = divisions or groups of divisions composed of independent product-market segments that are given primary responsibility and authority for the management of their own functional areas. </li></ul>CISCO<br />Q1 IN MILLIONS Q2 IN MILLIONS<br />ROUTERS - $1,835 ROUTERS - $1,672<br />SWITCHES - $3,532 SWITCHES - $3,151<br />NEW PRODUCTS - $3,104 NEW PRODUCTS - $3,202<br />OTHER PRODUCTS - $229 OTHER PRODUCTS - $211<br />TOTAL PRODUCT – $8,700 TOTAL PRODUCT - $8,236<br />
  78. 78. Market Share of stocks<br />
  79. 79. Marketing Tactics<br /><ul><li>Tactics = specific operating plans that detail how a strategy is to be implemented in terms of when and where it is to be put into action.
  80. 80. Timing Tactics </li></ul> Historically a first mover supported by being a first mover in technology. They specialize in routers, switches, wireless, security, optical networking, etc. Cisco is also considered a industry leader.<br /><ul><li>Market Location Tactics: Offensive</li></ul> Cisco has always been known to take a frontal assault because they are a market leader. They go head to head with its competition.<br />
  81. 81. Marketing Tactics<br /><ul><li>Market Location Tactics: Defensive</li></ul> Cisco takes the path of raising structural barriers. They do this to block challenger’s logical avenues of attack.<br /> Some factors of Porters they use are:<br /> Offering a full line of products in every profitable market segment to close off any entry points.<br /> Keep their items reasonably priced for their most popular products and services. <br />
  82. 82. Cisco Success statement<br /><ul><li>Cisco has had many success stories throughout the years which is a large part in being a industry leader.
  83. 83. Customers drive our business strategies to achieving success and excellence in everything we do, and will continue to be our key focus for developing products and services that accelerate their capability to prosper in the Internet business.</li></li></ul><li>Cisco success statement cont. <br /><ul><li>An example of a success story is:</li></ul> In 2001 the cost of direct DSL and ISDN access increased markedly. Cisco transitioned tens of thousands of teleworkers and remote office workers worldwide to remote access VPNs. To determine if additional capacity was needed, Cisco used Cisco NetFlow in conjunction with various open-source tools to characterize existing traffic and then extrapolate expected traffic. With this business intelligence, Cisco successfully transitioned 22,000 users to VPN in only three months. <br />
  84. 84. Marketing problems<br /><ul><li>The dominance in network switches that Cisco holds is waning.
  85. 85. Hewlett-Packard has been particularly aggressive in the switching market since they have entered.
  86. 86. Cisco’s video-conferencing system for living rooms has been a strange product to market.
  87. 87. There is little market for such a product when consumers can video chat for free over the internet instead of paying $600 for the equipment and a $25 a month service fee. </li></li></ul><li>Analysis of Management Position<br />
  88. 88. Corporate management team<br /><ul><li>Frank A. Calderoni</li></ul> Executive Vice President, Chief Financial Officer<br /><ul><li>John T. Chambers</li></ul> Chairman and Chief Executive Officer<br /><ul><li>Mark Chandler</li></ul> Senior Vice President, Legal Services, General Counsel and Secretary <br /><ul><li>Blair Christie</li></ul> Chief Marketing Officer, Worldwide Government Affairs, Corporate Communications<br /><ul><li>WimElfink</li></ul> Executive Vice President, Cisco Services and Chief Globalization Officer<br />
  89. 89. Corporate management team cont. <br /><ul><li>Robert W. Lloyd</li></ul> Executive Vice President, Worldwide Operations<br /><ul><li>Gary B. Moore</li></ul> Executive Vice President, Chief Operating Officer<br /><ul><li>Randy Pond</li></ul> Executive Vice President, Operations, Processes and Systems<br />
  90. 90. Management Team - Diversity<br /><ul><li>Board – 13 members, 2 internal
  91. 91. 65 Executives
  92. 92. 56 men
  93. 93. 9 women</li></ul>Executive Biographies<br />
  94. 94. Executive compensation <br /><ul><li>Compensation Governance. The core of Cisco’s executive compensation continues to be pay for performance, and the framework includes the compensation governance features discussed below:</li></ul>Provides shareholders with the opportunity to cast advisory votes on compensation<br />Have no employment or severance agreements, special benefits, supplemental executive retirement plans, perquisites, or tax equalization.<br />CEO compensated below targets and median of the peer group of three out of the last five years.<br />Compensation Committee is solely independent directors.<br />
  95. 95. Top Five – 2010 Compensation & Tenure<br />John Chambers – $18.9 million in 2010<br />
  96. 96. Direction of top management team<br /><ul><li>Continue to seek to expand share of Cisco’s customers’ information technology spending.
  97. 97. Focus on core networking capabilities while expanding into product markets where the network as a platform is increasing.
  98. 98. Focusing primary attention include those related to the increased role of virtualization/the cloud, video, collaboration, and networked Web 2.0 technologies. </li></li></ul><li>Top Management Performance Indicators<br />Qualitative Factors<br />Quantitative Factors<br />Strategic Direction (4)<br />Implementing Strategy (5)<br />Building Mgt. Team (4)<br />Management Qual. (5)<br />Succession (4)<br />Labor Relations (4)<br />Technology Leader (5)<br />Board Relations (4)<br />Investor Relations (5)<br />Com./GovRel’ns(4)<br />Return on Assets (5)<br />Return on Investment (4)<br />Return on Equity (4)<br />Return Meas. Trends (4)<br />Cash Flow (4)<br />Profit Growth (4)<br />EPS (4)<br />Dividend Payout (4)<br />Stock Price (4)<br />Total Return to SH (1)<br />Total = 44<br />Total = 38<br />
  99. 99. Management Analysis<br /><ul><li>Chambers recently introduced collaborative decision making. 70% of decisions made by groups.
  100. 100. 20% of senior leaders have left since the switch
  101. 101. 30 new businesses, 20 more to come
  102. 102. Average Tenure – 11.5 years</li></li></ul><li>Part Three: Current Strategic Position<br /><ul><li>Current core competencies
  103. 103. Distinctive Competencies
  104. 104. Corporate-level strategies
  105. 105. Short Term & Long-Term
  106. 106. Core SBU Level Strategies
  107. 107. 5 Critical Performance Indicators</li></li></ul><li>Current Core Competencies<br />Hardware product development<br />Acquisitions - “Buy-the-startups” (Cisco's acquisition strategy is best-in-world and we particularly look for acquisitions that capitalize on market disruption through new technologies and new business models.)<br />Collaboration Services<br />Network Flexibility/Scaling (data center/hardware/software capacities) and virtualization<br />Strategic Alliances (AT&T, Dell, HP, Intel, IBM, Microsoft, Nokia, etc…)<br />
  108. 108. Distinctive Competencies<br />Acquisitions<br />Smart-grid technology (form of routing or switching) as noted by CEO John Chambers.<br />
  109. 109. Current Long-term Corporate Strategies<br />Strategy: One Cisco<br /><ul><li>Grow faster than the market
  110. 110. Protect and extend product market leadership
  111. 111. Innovate</li></li></ul><li>Current Short-term Corporate strategies<br />Internal innovation - $5.3B+ spent on R&D annually<br />Acquisition – continued integration of Pari Networks, Inlet technologies, and newScale, Inc.<br />Enter into new markets:<br /><ul><li> Media solutions
  112. 112. Sports and entertainment
  113. 113. Smart Grids
  114. 114. Virtual healthcare
  115. 115. Education</li></li></ul><li>MIS/Information Age Readiness<br /><ul><li>Incredible website
  116. 116. Use the products they develop
  117. 117. Recently upgraded their ERP to Oracle 11i
  118. 118. Purchasing
  119. 119. Data Storage
  120. 120. Technical Support</li></ul>About Cisco<br />
  121. 121. Borderless Networks Group<br /><ul><li>Comprised of Routers and Switches
  122. 122. Increased their revenue by 33% from ‘09 to ’10
  123. 123. Q2 ‘FY11 Sales down $132 million
  124. 124. 70% of the market share
  125. 125. Improve application velocity and enhance collaboration while reducing branch IT operational expenses by up to 70 percent</li></li></ul><li>Collaboration Group<br /><ul><li>Webex and TelePresence and other VoIP technologies
  126. 126. 90 percent of frequent users save at least two hours of work time per week through video collaboration
  127. 127. It is possible to achieve 100% ROI in 5 years and payback periods of 21-40 months
  128. 128. Reduction of 21 percent in corporate travel spending</li></li></ul><li>
  129. 129.
  130. 130. Cloud Computing GroupData Center and Virtualization<br /><ul><li>Energy efficiency
  131. 131. Reduce energy costs
  132. 132. Optimize use of space, power, and cooling infrastructure
  133. 133. Infrastructure Consolidation
  134. 134. Business Continuance
  135. 135. Workforce Productivity</li></ul>Cloud Computing Explained<br />
  136. 136. California Telemedicine Pilot Project<br /><ul><li>Contributing $10 million of product, services and support
  137. 137. Care-at-a-distance technology that combines video, audio and medical information
  138. 138. Patients will be able to view the medical exam
  139. 139. Easiness of meeting</li></li></ul><li>Identification of sbu Level strategies and tactics<br /><ul><li>As mentioned earlier Cisco’s strongest market is with their switches.
  140. 140. The revenue has declined 7% in the latest quarter because they are under attack by competitors such as HP.
  141. 141. Cisco’s consumer products such as Linsksys routers, Flip video cameras, etc. don’t stand a chance against Apple.
  142. 142. They need to market their products more efficiently and spend more money on marketing popular products than products that serve a small niche market.
  143. 143. Cisco just unveiled a new home-entertainment system in January to hopefully “reinvent the entire TV experience.”</li></li></ul><li>Corporate Social ResponsibilityKey performance indicators <br />
  144. 144. Corporate social responsibility key performance indicators<br />
  145. 145. Corporate social responsibility key performance indicators<br />
  146. 146. Corporate social responsibilitykey performance indicators<br />
  147. 147. Part Four: Current Overall Position<br /><ul><li>Internal Strengths, Weaknesses
  148. 148. Strategy Choice (Grand Strategy Matrix)
  149. 149. Overall Problem/Success Statement</li></li></ul><li>Strengths:<br /><ul><li>Strong Market Position (9)
  150. 150. Strategic alliances (9)
  151. 151. Robust Balance Sheet (9)
  152. 152. Human Network/Smart Grid (9)
  153. 153. Strong Management (8)</li></ul>Weaknesses:<br /><ul><li>Lack of presence in consumer market (8)
  154. 154. High pricing - cheaper alternatives(8)
  155. 155. Constant re-engineering (7)
  156. 156. Brand Recognition (6)
  157. 157. Acquisition Integration (9)</li></ul>Internal Strengths and Weaknesses<br />Avg. ~ 44/5 = 8.8<br />Avg. ~ 38/5 = 7.6<br />S-W ~ 8.8 – 7.6 = 1.2<br />
  158. 158. Swot Matrix and Grand Strategies<br />Cisco – (1.2, 0.8)<br />
  159. 159. General Statement of Conditions<br /><ul><li>Leader in almost all of our product markets
  160. 160. Strong strategic alliances with MSFT, IBM, AT&T, Dell, Intel
  161. 161. All sales in all geographic locations went up
  162. 162. Low market share in consumer products
  163. 163. Strategy of buy, build and partner
  164. 164. Strong financial position</li></li></ul><li>Part 5: strategic Assessment<br /><ul><li>Long-Term Prospects and Options
  165. 165. Short-term Prospects and Options
  166. 166. How strategy options support long term survival.
  167. 167. Summary</li></li></ul><li>Long-Term Success – Consumer Product<br /><ul><li>Although Cisco has a huge line of products and services a long -term goal would be to improve their consumer products.
  168. 168. Cisco can go about that by developing brand recognition within their consumer market.
  169. 169. Market different products:
  170. 170. http://www.theflip.com/en-us/products/design-your-own.aspx</li></li></ul><li>Long-Term Success – Smart Grid<br /><ul><li>49% of cyber security threats to the electrical infrastructure initiate from breaches of physical security.
  171. 171. Cisco partnered with German electricity company Yello Strom to launch a smart-grid pilot project in 70 German homes and businesses.
  172. 172. Eliminate blackouts and brownouts
  173. 173. Promises to be a $20-billion-a-year business</li></li></ul><li>Long-Term Success – The Human Network<br />The Human Network - this<br />
  174. 174. Short Term Imperatives<br />
  175. 175. BAMGSustainability ExerciseCisco Systems<br />
  176. 176. 1. Responses to CDProject.net<br />
  177. 177. 2. Other Related Goals & Performance<br />GREEN GOALS<br /><ul><li>Optimize business operations and cut costs
  178. 178. Extend lifecycle / reduced power consumption
  179. 179. Optimized processes
  180. 180. Simplified architectures
  181. 181. Reduce Greenhouse gas emissions
  182. 182. Innovative software added to the Cisco Catalyst switching portfolio
  183. 183. Available for customers to download
  184. 184. This reduces GhG emissions, saves energy and reduces costs</li></li></ul><li>Goals Continued<br /><ul><li>Reduce energy consumption and cost
  185. 185. Power management
  186. 186. Tracking and reporting
  187. 187. Infrastructure consolidation
  188. 188. Comply with government directives
  189. 189. Recycling
  190. 190. Use end-of-life programs that reduce the overall impact of the environment
  191. 191. These end-of-life programs are designed to reuse or harvest the material commodities contained in the equipment collected and return those materials to the market where they are made into new products
  192. 192. Create competitive differentiation
  193. 193. Virtual worker
  194. 194. Remote collaboration
  195. 195. Resource virtualization</li></li></ul><li>3. Smart Grid <br />Smart Grid<br />
  196. 196. 4. Supplier Environmental Responsibility<br />Global Supplier Enrollment Package<br /><ul><li>Supplier Profile Form, EFTP Enrollment Form, Certifications, Tax Requirements, and Supplier Diversity Policies
  197. 197. Certifications
  198. 198. Data Usage and Protection Certificate (Certificate I)
  199. 199. Code of Ethics Certificate (Certification II)
  200. 200. Supplier Environmental Health and Safety Certificate (Certificate III)
  201. 201. Supplier Diversity Policies
  202. 202. Cisco believes purchasing products from small, women-owned, small disadvantaged, minority, disabled veteran, and HUBZone enterprises are key to the economic vitality of both Cisco and the community.</li></li></ul><li>5. Doing Enough?<br />Yes, we think they are doing enough because:<br /><ul><li>They have produced many programs that make them socially and ethically responsible.
  203. 203. Optimize operations
  204. 204. Reduce GHG emissions
  205. 205. Reduce energy consumption
  206. 206. Recycle
  207. 207. Create differentiation
  208. 208. Supplier certifications and environmental requirements.</li></li></ul><li>Are they Challenged?<br />"Are they challenged? Absolutely. But outside of Apple and Google, we don't see a company in the technology space that is as well positioned for growth.“<br />-Unknown<br />
  209. 209. Any Questions?<br />

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