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Wednesday, March 13, 2019

Cisco Products and Specific Customer Groups

In August of 2001, just months after lake herring System reported its first-year issue a a man corporation ($ 2. 7 cardinal), John chamber, president and CEO, proclaimed a study restructuring that would transform lake herring from a modify operation organized rough node radicals to a modify one counselinged on technologies. This restructuring non only risked destabilizing the boastful, complex organization during an economic downswing, only when more than importantly, jeopardise ciscos ability to remain guest- think, a h completelymark of the companys culture and achievement since its first harvest-feast was created in 1986.In smart set to maintain communication and stimulate ongoing collaboration among the newly self-sufficing operable areas, cisco introduced coordination mechanisms that enable the companies to remain guest-focused. Introduction John domiciliate became president and CEO of lake herring Systems in 1995. Over the course of the contermi nous several years, the lasts he made and the changes he go acrossed challenged traditional transaction practices, and resulted in incredible gain for the company. When house first started, lake herring was generating yearly r neverthe slightues of $2. 2 billion just six years later, the company was generating annual revenues of $22.3 billion.All of those results, however, were threatened in the 2001 market downturn. Earlier in the year, the explosive ontogenesis in the gross sales of hardware supporting the Internet began to show secure signs of slowing down, and lake herring Systems, like the rest of the technology industry, was facing the repercussions of the death of the Internet boom and the first economic downturn in more than a decade. Start-ups, which had enjoyed the benefits of a buoyant stock market, and telecommunications companies began cutting back their overext deceaseed IT and network budgets.As a result of the falling prerequisite, cisco inform its f irst loss as a public company ($2. 69 billion) in the financial quarter ended April 28, 2001 and cut 18% of its workforce. In August, Chambers announced a major organizational restructuring that would transform lake herring from a decentralized operation focused on specific guest groups to a centralized one focused on technologies. eon recognizing that a centralized, functional construction was necessary to head off product and resource redundancies, Chambers also k instantly that it risked making the company less client-focused.At the time of the announcement, Chambers asserted that ciscos node-centric culture would offset this drawback, but he knew that more needed to be done to ensure that an organization as large as cisco would remain customer-focusedtechnology companies simply could non afford to dope off 1 sight of the customer. Chambers knew and so that he needed to implement a formal, crossfunctional structure that would keep the company in touch with its custo mers. Chambers found himself considering an ambitious idea that, if executed, could transform both his company and stately organizational strategy.He asserted that if Cisco utilize a crossfunctional dodge of executive-level committees, or councils, that fostered a culture of teamwork and collaboration that the company could scale beyond what anyone else judgment possible. The benefits were clearthe cross-functional councils would bring the leaders of distinguishable functions together to collaborate and focus on the necessarily and issues of specific customer groups. Cisco could enjoy the benefits of universe a functional organization while retaining its customer-centricity. Still, implementing such a remains would be difficult.Many other companies had previously failed at facilitating collaboration across functions, particularly large organizations such as Cisco. Chambers began asking himself questions. Would Ciscos employees, many of whom were accustomed to a command-and- control system, accept a more collaborative model? Could they function in such a system, even with pedagogy? Would a cross-functional system work in such a large functional organization? Furthermore, if Cisco moved forward with this idea, how many councils should be formed? How large should they be? Who would sit on and chair them?W present would the decision making power reside? And finally, how could a system be implemented without creating a matrix organization that would impede decision making and give in conflict? These were all important questions, many of which for Chambers did not even demand answers. They were also questions that would discourage most executives from taking the chance. Still, Chambers mute Ciscos employees and knew what they were capable of. He also knew that if they could succeed, the company would live on even stronger financially and organizationally.With 2002 begining, and the organizational restructuring already being implemented now was the ti me to act. Market Transformation Despite the challenges registered by the 2001 market downturn, Cisco overcame the sudden drop in product demand. In fact, the company became even stronger after the downturn. By the end of July 2007, Cisco was generating more than $30 billion in revenue and employing 61,535 employees worldwide. Ciscos total revenue for FY 2007 ($34. 9 billion) was an increase of approximately 23% over FY 2006 revenues of $28. 5 billion.Net Income was $7. 3 billion GAAP and $8.4 billion non- GAAP, while Earnings per get by was $1. 17 GAAP (increase of 31% year over year) and $1. 34 non-GAAP (increase of 22% year over year). Part of Ciscos post-downturn resiliency and success was the result of a transformation in its market focus and product offerings. Signs of this transformation were evident shortly before the downturn, when Cisco invested in its first comprehensive advertising campaign, including television and print, that asked the question, Are You Ready? with the terminus of raise consumer awareness of its networking-equipment business and its plans to connect Internet users with its routers and switches.Because Cisco effected that it could not solely rely upon existing demand, the company began diversifying the products it offered and who it was selling those products to. By 2007, Cisco had successfully expanded into move on technologies such as structured communications, radio local area networking, home networking, application networking services, network security, storage 2 area networking, and video systems. These advanced technologies resulted in the growing of Ciscos enterprise (large business) and service provider segments.For instance, by 2007, more than 8 million unified IP phones had been installed worldwide (Cisco was the market share leader in the enterprise voice marketplace) Ciscos Catalyst 6500, a highperformance modular switch that converges data center, campus, and wide-area network in a single system, surpassed $20 billion in sales and Ciscos enterprise customer installed base recently surpassed the 3 million wireless access points milestone. 3 Cisco was also able to successfully commingle the aforementioned advanced technologies with its aggregate routing and switching technologies in products such as its Integrated run Routers.Additionally, Cisco announced in June 2007 that it had shipped 900 of its Carrier Routing System (CRS-1), which provided continuous system operation to telecommunications service providers and research organizations, since its introduction in 2004. Cisco claimed that customers understood the leadership, total cost of ownership, flexibility, and investment protection advantages they would receive when they installed a Cisco product, which was designed to allow customers to easily and cost-effectively add marketleading voice, data, security, wireless, and other capabilities to their existing Cisco networks.This strategy differentiated Cisco from many of its compet itors, which are usually present in only one or two product categories or customer segments, and often do not integrate their products from an architectural perspective. In a conference call discussing Q4 and FY 2007 financial results, Chambers commented on the vastness of this ratio and integration We believe that there are a image of factors that are unique to Ciscos ability to grow.First is our unique balance across over two dozen product areas, four customer segments, and across major developed and emerging countriesFrom a product perspective, we approach the market with an end-to-end architecture where the products are first loosely then tightly integrated together, rather than focusing on individual routers, switches, security, wireless, storage, unified communications, or other standalone products. In addition to diversifying its product and service offerings, Cisco transformed its market focus by finding new growth opportunities in developing economies.Because Chambers k new these opportunities would not get the attention they needed from standard geographic sales coverage, he created a new sales playing field called emerging Markets, which included 138 countries just about the world, regardless of location. Instead of individually household having several emerging markets in their portfolio viewed as low priorities, all the emerging markets were unified into one theater with the similar resources and expectations of the other theaters. While several sales leaders functioned through and throughout the emerging markets, one sales precedential vice president (SVP) was ultimately responsible for each theater.Members of the Emerging Markets sales team met with government and business leaders in non-homogeneous countries to discuss how Cisco could help their countries develop a stronger economy through Internet access to education, healthcare, and business opportunities. These and other efforts throughout the theater compensable offgrowth for FY 2007 in Ciscos Emerging Markets theater was 40%, the highest growth rate of all five theaters (e. g. North the States Europe Asia Pacific Japan and Emerging Markets).This performance made Chambers even more confident about the value of emerging markets. Our architectural strategy in emerging markets is working extremely well, he utter in the conference call. Barring just about major economic or political surprises across many of these emerging countries, I would expect this theater to have the potential to grow more than twice the average growth rate of the other four theaters, if we execute effectively. 3 2001 Organizational Restructuring Cisco also transformed and expanded its market focus through acquisitions.Before the downturn (19932000), Cisco was known for its acquisitions it acquired 71 start-up companies that specialized in both its core and advanced areas, with 41 of those acquisitions occurring between 1999 and 2000. While emerging markets and acquisitions were key in helping Cisco survive the downturn, the companys 2001 organizational restructuring vie an even more important role. In its early days as a start-up, Cisco Systems was organized as a centralized engineering organization. As the company grew cursorily after going public in 1990, it adopted a business unit structure that was organized round primary product groups.This structure lasted until 1997, when the company reorganized itself around troika semi-autonomous lines of business, each focusing on a distinct customer lineament service providers, large enterprises, and small and medium-sized businesses, which Cisco characterizes as the commercial segment. at nailt this structure, each of the one-third lines of business developed and marketed its own products to its specific customer groups. This decentralized organization was created to meet the differing requirements of service providers and SMBs, two groups of customers that were growing rapidly at that time.By creating clas sify business units, Cisco attempted to meet the needs of each without compromise. However, as the market downturn brought about slowing demand and falling revenues, the negative aspects of the segment-centric grouping became clear. Organized behind lines of business focused on the different segments, redundancies in technological development were certainly not surprisingcoordination across all technologies relevant to a customer group came at the expense of replicating technology development across customer groups.Still, redundancies became more noticeable at Cisco in the harsh economic purlieu faced by the company. Each business unit designed and exchange its own products to customers in a particular industry, even though each business line produced some similar, if not interchangeable, products. Moreover, differences between customer segments had begun to pig some enterprise business products suited service provider needs, but the service provider business lacked knowledge of, and access to, them. In some cases, each line of business had a different technology or solution for the same problem.By summer 2001, for example, Cisco had eight different teams developing technology to transmit telephone calls over Internet protocol (IP) networks. As one manager stated, Before, we had a service provider customer, enterprise customer, and SMB customer, and we construct a complete product line for that customer set. What that did cause was a great deal of redundancy of engineering and innovationwe had to build the same thing three times over and make things that are 80% the same three times over to satisfy the three requirements. set about the realities of the market downturn, Cisco made a change.On August 23, 2001, the company announced a major restructuring that, CEO John Chambers enthused, would bring Cisco c regressr to its customers, encourage teamwork, and eliminate product and resource overlaps. Cisco shifted from a decentralized operation focused on spec ific customer groups to a centralized one focused on technologies. Engineering was reorganized around eleven technology groups Access, Aggregation, Cisco IOS Technologies, Internet Switching and Services, Ethernet Access, Network watchfulness Services, Core Routing, Optical, Storage, Voice, and Wireless.Although the product groups were divided based on 11 technologies, Cisco retained three sales groups based on customer type. amongst the technology and sales groups, a central marketing organization was installed to integrate products and technologies into solutions for the customer. A cross-functional solutions engineering team was charged with bringing the 4 different technologies together in a lab, testing them to ensure integration, and then creating blueprints that the customer would use to implement the solution.Marketing and engineeringpreviously segmented by customer typewere centralized under the head marketing officer and the chief development officer, respectively. Cisc o also expected the new structure to drive more rapid technical innovation by eliminating overlap in R&D. The old structure inhibited the exchange of ideas because engineers worked in separate silosa solution in one area might have suggested a solution in another, but, claimed one executive, You might not hear about it for six months if you are in another business unit.Implementing the shake-up While a centralized, functional structure would help Cisco avoid product and resource redundancies, it also carried the risk of making the company less customer-focused because the company was organized around product, and not customer, groups. Whereas before each of the three lines of business developed and marketed its own products to its specific customer groups, each functional unit was now committed to a specific technology, which entailed the risk of dismissing the customer.Despite this risk, however, Cisco moved forward, trusting that its customer-centric approach would offset the ef fects of a functional structure. Customer advocacy had been imprinted on the company during its founding, when Cisco engineers were building customized products for end users with fairly idiosyncratic needs When we started, we made routers, which were basically software devices, and the sales people would literally go out, talk to the customer, the customer would say I need this protocol, and theyd say, Weve got that.Well get the code to you in a week. They would go back, tell the engineering guys that they had to develop it, and the engineers would do it, said a senior manager. That kind of stuff really sets the culture of the company your job is to manikin out what problem you are solving for the customer. And what you do everyday, setting up your activities, your tasks, your programs, your projects, your priorities, is in alignment with that notion of solving the customers problem.The goal was to try and preserve this customer-focused culture that had been engrained in Cisco ev er since its founding. However, managers realized even at the time of the 2001 reorganization that maintaining the same level of customer focus would become increasingly difficult as Cisco grew big in size. Because the reorganization threatened to push the company away from the customer and towards a more functional structure, Chambers knew that Cisco could not lose its customer-centricity.When asked in 2007 how Cisco was able to maintain its customer focus through the reorganization, he said, Customer focus has been deeply embedded in our DNA since I came here almost seventeen years ago, and while Im a very collaborative leader, there are certain aspects of our culture, our vision, our strategy, which are non-negotiable, and customer focus is one of them. To ensure that this culture would not change, Cisco responded in various ways during the reorganization.

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