What Went Wrong at Cisco in 2001

4) What advice would you offer John Chambers in managing Cisco’s culture through the transition?

Cisco was able to recognize that a centralized and functional structure was necessary in order to avoid product and resource redundancies; however by doing so, Cisco also risked losing its customer-centricity focus that had set it apart in the market for years. To help mitigate these risks as well as encourage and ease the change transition, Chambers decided to implement a cross-functional system of executive level councils.

Doug Allred was Vice President of Customer Advocacy organization of the Cisco’s corporation. This organization was erected to consolidated all functions that directly touched the customer but sales to provide high-quality customer service. Since August 2001, the IT market turned down and brought severe challenges to Cisco as the company had to lay off 18% of its employees and reorganized its structure, transforming from decentralized organizational structure with three business units to centralized organization. However, these changes stabilized the volatile situation of the economy but threatened Cisco’s customer focus, a

Peter Solvik joined the Cisco team in January 1993 as their new CIO. He saw that there were two challenges that needed to be addressed in the company. First, Cisco’s Information Technology department was too traditional in the sense that it was viewed as a cost center that reported through the Finance department, and it was too internally oriented. There were three ways that he approached this: The IT-reporting relationship was changed from Accounting to Customer Advocacy, the IT budget pertaining to the functions were returned to the functions leaving just a small portion left in General and Administrative expense, and the central IT steering committee was disbanded and replaced with a structure where IT investment decisions on application projects were pushed out to the

To make matters worse, Nortel’s Board of administrators failed to have one member that had monetary experience. The twelve-member board was freelance of Nortel, however, most of the members had alternative directorships. This created it troublesome for them to

Accordingly, “major new-product development activity was replaced by incremental product line extensions” (p.56) that resulted in a major revenue stall. The premature core abandonment cause is illustrated with the Kmart example. While the company was investing in a range of unrelated businesses searching for growth, Wal-Mart developed effective distribution and inventory systems. Kmart’s management failed to monitor and match these systems and fell far behind its rival. Hitachi’s example illustrates the talent bench shortfall. One of the leading causes of the stall was the company had executive management that lacked capabilities.

1a. How did Cisco find itself in trouble with regard to its intended IT prior to Brad Boston's arrival?

As a hot deal in a hot market, competition among venture capital (VC) firms had driven the pre-money valuation from $17 million to $27 million, with a post-money close at $35 million. Although the Series C round had been slated for November/December 2000, Papa had noted the increasingly difficult financing environment and managed to make his funds last for 18 months, rather than the anticipated 12. The company had hit every milestone on its original plan. Its product had been installed at several marquee customers, including Tower Records and one of the world’s largest asset management companies, and it was about to be in trials at Putnam and a major investment bank—Dean Stanley Goldman Credit Partners (DSGCP). A veritable who’s who of potential customers was seriously considering the technology. Papa expected that $7 million would take his company to break-even,

2. Given the industries in which the Cisco competes, what are the implications for the major types of buying situations?

Cisco not only failed to forecast a market downturn and also reportedly its problems were largely caused by inherent defects in the company systems. Below are some of the reasons why Cisco landed in financial trouble in early 2001. There were several factors that play a part for Cisco’s crisis in early 2001. But the main culprit was the misalignment of Cisco’s interest with this of its contract manufacturers which leaded to communication breakdown in the overall supply chain process. Stanley et al., (p.10, 2007) mentioned that “a supply chain is made up of a series of linked company-level value chains where communication up and down the supply chain can help build processes that enable the entire chain to make and deliver winning products and services”.

1. Cisco suffered from inertia when an attempt was made to engage business management in selecting software for their individual areas, and/or agreeing to participate in the ERP implementation project. List and explain reasons why management would hesitate to become engaged in the IT process/project.

Jim Collins and his research team of 20 compared and contrasted how many companies made the leap to greatness and how other companies didn’t. Based on bundles of evidence and a large quantity of data, he and his team uncovered how

Over the last several years our management team at The Fresh Connection has been working diligently to turn around a fledgling company and improving its position in the global market and with the stakeholders. When we inherited this task our company had an ROI of almost -13%, and there was an extensive list of outstanding issues. From less than optimal capacity utilization to product obsolescence, there were issues in every aspect of the supply chain that were combining to drive the overall ROI down. Our team focused on developing an aggressive front end strategy to combat the ROI, anticipating that change may not come as quickly as we would like. Ultimately, we believe we have gotten to a point now where we know what our root causes are, and have found a solution that has started to pay off.

While costs and benefits are the ultimate management decisions, a coherent strategy from management allows IT professionals to more accurately estimate these value decisions. This is the critical area where CP made its mistakes. Due to the financial situations caused from 9/11, the new airport and China taking back Hong Kong; CP shifted to survival mode and cut costs by outsourcing indiscriminately. This damaged the company a few years later, because many of those decisions were reversed with the EVOLVE IT strategy.

Page eight of the case begins to outline some of the challenges that the HP-Cisco alliance had already faced concerning the sale of joint products. For example, we learn that at HP, Cisco products did not count towards a sales representative’s quota and this resulted in a decline in sales of Cisco equipment by HP sales representatives. Further, if HP or Cisco sales staff had to master not only their parent company product line,