Cisco Case AnalysisCisco Case Analysis
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- 1. Cisco Systems Inc.
- 2.Part One: Introduction and External Analysis
- 3.Cisco Systems - Introduction
- Founded in 1984
- 4.Incorporated on December 10, 1984
- 5.Have 72,935 employees
- 6.Surpassed 39 billion in revenue in 2008
- 7.Corporate headquarters located in San Jose, California
- 8.32 factories worldwide, 30 of them are outsourced.
- 9.Spends nearly $5.3 billion a year in R&D
- Cisco Systems – Intro – Recent Events
- Video Easier to Create, Consume, Search and Share Across the Enterprise
- 10.Cisco Demonstrates Leadership in Virtualized, Scalable, Cloud- Ready Data Centers with Customer and Technology Milestones
- 11.Cisco Connects Businesses to Consumers via Video
- Networking and Communication
- Industry: Networking and Communication supplies and services
- 12.Industry Consolidation – Few competitors in their main product area
- 13.In 2006 they had 70% of the share of its core router and switch market.
Cisco's Chambers Problem
- 14.Cisco’s Mission Statement
Shape the future of the Internet by creating unprecedented
value and opportunity for our customers, employees, investors,
and ecosystem partners.
Changing the Way We Work, Live, Play, and Learn.
Cisco has a very bland and basic mission statement that only ranks as an “ok” (5) on the MVV evaluation.
- 15.External Analysis
- Remote (Societal) Environment.
- 16.Industry (Task) Environment
- 17.Assessment of Competition
- 18.Most Crucial Threats and Opportunities, with score.
- Remote (societal) EnvironMent
- 19.Product and services expansion
- 20.Market of Airline Industry
- 21.Reusing existing Cisco gear to act as mobile POPs
- 22.Cloud Computing
- Economic slowdown
- 23.Price wars
- 24.Product substitution
- 25.Margin erosion
- 26.Consolidation trend
- 27.Consumer loyalty
- Industry/Task Environment
- Low supplier power, Cisco has taken control of its supply chain
- 28.Router and switch market share discourages new entrants
- 29.Switching costs are high(reduce buyer power)
- 30.Acquisitions removes some threat of startup success
- 31.Growth in the consumer market and cloud computing
- Flip Video – bargaining power of buyers.
- 32.MSFT – Threat of new entrant (bundle unified communications software)
- 33.GOOG –
Threat of new entrant (desktop video conferencing market)
- 34.Vyatta – Substitute (open source hardware)
- 35.Asterisk – Substitute (open source VoIP)
- Assessment of Competition
- Increase competition in bottom layer switch market
- 36.Smart Grid Technology
- 37.Asian Market – Tata Communications
- 38.Server growth – up 700%
- 39.Cloud-centric software
- Mirrorless SLRs are the response to Flip video
- 40.Juniper announced data center
- 41.Juniper entered into a partnership with IBM to handle network connectivity for the latter’s cloud computing
- 42.3COM emerging into markets like China
- 43.Juniper’s high-end switches (EX) and Junos OS
- 44.HP’s low cost switches
- Summary – Most Crucial Opportunities and Threats
- Increase competition in bottom layer switch market (9)
- 45.Server growth (10)
- 46.Cloud Computing (10)
- 47.Smart Grid Technology (10)
- 48.Asian Market (8)
- HP’s low cost switches (10)
- 49.MSFT – Threat of new entrant (bundle unified communications software) (7)
- 50.Consolidation trend (7)
- 51.Juniper/IBM (9)
- 52.Juniper’s data center (10)
Avg. ~ 43/5 = 8.6
O-T ~ 9.4 – 8.6 = .8
- 53.Part Two: Internal Analysis
- 54.Net Income Trends -CSCO & Benchmarks
- 55.CSCO Quarterly Earnings vs. Consensus Estimates
- 56.Revenue by product category and service
- 57.Key Income Statement Data FY2010
- 58.Key Balance Sheet Data FY2010
- 59.Cash flow Data fy2010
- 60.Important Financial Ratios FY2010
- 61.Applying Altman’sBankruptcy Formula
Z = 1.2*A + 1.4*B + 3.3*C + 0.6*D + 1.0*E, where;
A = Working Capital / Total Assets (%)
B = Retained Earnings / Total Assets (%)
C = EBIT / Total Assets (%)
D = Market Value of Equity / Total Liabilities (%), and
E = Sales / Total Assets
“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.”
- 63.Index of Sustainable Growth
g* = [P(1-D)(1+L)] / [T-P(1-D)(1+L)], where
P = (Net Profit before Tax / Net Sales) x 100
D = Target dividends / Profit after Tax
L = Total Liabilities / Net Worth
T = (Total Assets / Net Sales) x 100
- 64.Inventory Turnover FY2010
- 65.Credit Ratings
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.
- 66.Cisco Stock Price History
- 67.CSCO Stock Price – 5 year trend
- 68.CSCO Stock Price – 2 year Trend
- 69.Financial success Statement
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.
- 70.ANALYSIS OF MARKETING POSITION
- 71.Cisco long term Total sales From 2006-2010
- 2006 = 23.38 Billion
- 72.2007 = 34.90 Billion
- 73.2008 = 39.60 Billion
- 74.2009 = 36.10 Billion
- 75.2010 = 40 Billion
- Cisco long term Quarterly sales from 2006-2010
Quarter 1: 6.50 Billion Quarter 1: 9.60 Billion
Quarter 2: 6.60 Billion Quarter 2: 9.60 Billion
Quarter 3: 7.30 Billion Quarter 3: 9.60 Billion
Quarter 4: 7.98 Billion Quarter 4: 10.40 Billion
Quarter 1: 8.20 Billion Quarter 1: 10.30 Billion
Quarter 2: 8.40 Billion Quarter 2: 9.1 Billion
Quarter 3: 8.90 Billion Quarter 3: 8.2 Billion
Quarter 4: 9.40 Billion Quarter 4: 8.5 Billion
- 76.Cisco Long Term Quarterly Sales from 2006-2010 cont.
Quarter 1: 9.00 Billion
Quarter 2: 9.80 Billion
Quarter 3: 10.40 Billion
Quarter 4: 10.80 Billion
- 77.Sales by strategic business units in quarter 1 and 2 of 2011
- 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.
Q1 IN MILLIONS Q2 IN MILLIONS
ROUTERS - $1,835 ROUTERS - $1,672
SWITCHES - $3,532 SWITCHES - $3,151
NEW PRODUCTS - $3,104 NEW PRODUCTS - $3,202
OTHER PRODUCTS - $229 OTHER PRODUCTS - $211
TOTAL PRODUCT – $8,700 TOTAL PRODUCT - $8,236
- 78.Market Share of stocks
- 79.Marketing Tactics
- 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.Timing Tactics
- Market Location Tactics: Offensive
- 81.Marketing Tactics
- Market Location Tactics: Defensive
Some factors of Porters they use are:
Offering a full line of products in every profitable market segment to close off any entry points.
Keep their items reasonably priced for their most popular products and services.
- 82.Cisco Success statement
- Cisco has had many success stories throughout the years which is a large part in being a industry leader.
- 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.
- Cisco success statement cont.
- An example of a success story is:
- 84.Marketing problems
- The dominance in network switches that Cisco holds is waning.
- 85.Hewlett-Packard has been particularly aggressive in the switching market since they have entered.
- 86.Cisco’s video-conferencing system for living rooms has been a strange product to market.
- 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.
- Analysis of Management Position
- 88.Corporate management team
- Frank A. Calderoni
- John T. Chambers
- Mark Chandler
- Blair Christie
- 89.Corporate management team cont.
- Robert W. Lloyd
- Gary B. Moore
- Randy Pond
- 90.Management Team - Diversity
- Board – 13 members, 2 internal
- 91.65 Executives
- 92.56 men
- 93.9 women
- 94.Executive compensation
- 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:
Have no employment or severance agreements, special benefits, supplemental executive retirement plans, perquisites, or tax equalization.
CEO compensated below targets and median of the peer group of three out of the last five years.
Compensation Committee is solely independent directors.
- 95.Top Five – 2010 Compensation & Tenure
John Chambers – $18.9 million in 2010
- 96.Direction of top management team
- Continue to seek to expand share of Cisco’s customers’ information technology spending.
- 97.Focus on core networking capabilities while expanding into product markets where the network as a platform is increasing.
- 98.Focusing primary attention include those related to the increased role of virtualization/the cloud, video, collaboration, and networked Web 2.0 technologies.
- Top Management Performance Indicators
Strategic Direction (4)
Implementing Strategy (5)
Building Mgt. Team (4)
Management Qual. (5)
Labor Relations (4)
Technology Leader (5)
Board Relations (4)
Investor Relations (5)
Return on Assets (5)
Return on Investment (4)
Return on Equity (4)
Return Meas. Trends (4)
Cash Flow (4)
Profit Growth (4)
Dividend Payout (4)
Stock Price (4)
Total Return to SH (1)
Total = 44
Total = 38
- 99.Management Analysis
- Chambers recently introduced collaborative decision making. 70% of decisions made by groups.
- 100.20% of senior leaders have left since the switch
- 101.30 new businesses, 20 more to come
- 102.Average Tenure – 11.5 years
- Part Three: Current Strategic Position
- Current core competencies
- 103.Distinctive Competencies
- 104.Corporate-level strategies
- 105.Short Term & Long-Term
- 106.Core SBU Level Strategies
- 107.5 Critical Performance Indicators
- Current Core Competencies
Hardware product development
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.)
Network Flexibility/Scaling (data center/hardware/software capacities) and virtualization
Strategic Alliances (AT&T, Dell, HP, Intel, IBM, Microsoft, Nokia, etc…)
- 108.Distinctive Competencies
Smart-grid technology (form of routing or switching) as noted by CEO John Chambers.
- 109.Current Long-term Corporate Strategies
Strategy: One Cisco
- Grow faster than the market
- 110.Protect and extend product market leadership
- Current Short-term Corporate strategies
Internal innovation - $5.3B+ spent on R&D annually
Acquisition – continued integration of Pari Networks, Inlet technologies, and newScale, Inc.
Enter into new markets:
- Media solutions
- 112.Sports and entertainment
- 113.Smart Grids
- 114.Virtual healthcare
- MIS/Information Age Readiness
- Incredible website
- 116.Use the products they develop
- 117.Recently upgraded their ERP to Oracle 11i
- 119.Data Storage
- 120.Technical Support
- 121.Borderless Networks Group
- Comprised of Routers and Switches
- 122.Increased their revenue by 33% from ‘09 to ’10
- 123.Q2 ‘FY11 Sales down $132 million
- 124.70% of the market share
- 125.Improve application velocity and enhance collaboration while reducing branch IT operational expenses by up to 70 percent
- Collaboration Group
- Webex and TelePresence and other VoIP technologies
- 126.90 percent of frequent users save at least two hours of work time per week through video collaboration
- 127.It is possible to achieve 100% ROI in 5 years and payback periods of 21-40 months
- 128.Reduction of 21 percent in corporate travel spending
- 130.Cloud Computing GroupData Center and Virtualization
- Energy efficiency
- 131.Reduce energy costs
- 132.Optimize use of space, power, and cooling infrastructure
- 133.Infrastructure Consolidation
- 134.Business Continuance
- 135.Workforce Productivity
- 136.California Telemedicine Pilot Project
- Contributing $10 million of product, services and support
- 137.Care-at-a-distance technology that combines video, audio and medical information
- 138.Patients will be able to view the medical exam
- 139.Easiness of meeting
- Identification of sbu Level strategies and tactics
- As mentioned earlier Cisco’s strongest market is with their switches.
- 140.The revenue has declined 7% in the latest quarter because they are under attack by competitors such as HP.
- 141.Cisco’s consumer products such as Linsksys routers, Flip video cameras, etc. don’t stand a chance against Apple.
- 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.Cisco just unveiled a new home-entertainment system in January to hopefully “reinvent the entire TV experience.”
- Corporate Social ResponsibilityKey performance indicators
- 144.Corporate social responsibility key performance indicators
- 145.Corporate social responsibility key performance indicators
- 146.Corporate social responsibilitykey performance indicators
- 147.Part Four: Current Overall Position
- Internal Strengths, Weaknesses
- 148.Strategy Choice (Grand Strategy Matrix)
- 149.Overall Problem/Success Statement
- Strong Market Position (9)
- 150.Strategic alliances (9)
- 151.Robust Balance Sheet (9)
- 152.Human Network/Smart Grid (9)
- 153.Strong Management (8)
- Lack of presence in consumer market (8)
- 154.High pricing - cheaper alternatives(8)
- 155.Constant re-engineering (7)
- 156.Brand Recognition (6)
- 157.Acquisition Integration (9)
Avg. ~ 44/5 = 8.8
Avg. ~ 38/5 = 7.6
S-W ~ 8.8 – 7.6 = 1.2
- 158.Swot Matrix and Grand Strategies
Cisco – (1.2, 0.8)
- 159.General Statement of Conditions
- Leader in almost all of our product markets
- 160.Strong strategic alliances with MSFT, IBM, AT&T, Dell, Intel
- 161.All sales in all geographic locations went up
- 162.Low market share in consumer products
- 163.Strategy of buy, build and partner
- 164.Strong financial position
- Part 5: strategic Assessment
- Long-Term Prospects and Options
- 165.Short-term Prospects and Options
- 166.How strategy options support long term survival.
- Long-Term Success – Consumer Product
- Although Cisco has a huge line of products and services a long -term goal would be to improve their consumer products.
- 168.Cisco can go about that by developing brand recognition within their consumer market.
- 169.Market different products:
- Long-Term Success – Smart Grid
- 49% of cyber security threats to the electrical infrastructure initiate from breaches of physical security.
- 171.Cisco partnered with German electricity company Yello Strom to launch a smart-grid pilot project in 70 German homes and businesses.
- 172.Eliminate blackouts and brownouts
- 173.Promises to be a $20-billion-a-year business
- Long-Term Success – The Human Network
The Human Network - this
- 174.Short Term Imperatives
- 175.BAMGSustainability ExerciseCisco Systems
- 176.1. Responses to CDProject.net
- 177.2. Other Related Goals & Performance
- Optimize business operations and cut costs
- 178.Extend lifecycle / reduced power consumption
- 179.Optimized processes
- 180.Simplified architectures
- 181.Reduce Greenhouse gas emissions
- 182.Innovative software added to the Cisco Catalyst switching portfolio
- 183.Available for customers to download
- 184.This reduces GhG emissions, saves energy and reduces costs
- Goals Continued
- Reduce energy consumption and cost
- 185.Power management
- 186.Tracking and reporting
- 187.Infrastructure consolidation
- 188.Comply with government directives
- 190.Use end-of-life programs that reduce the overall impact of the environment
- 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.Create competitive differentiation
- 193.Virtual worker
- 194.Remote collaboration
- 195.Resource virtualization
- 3. Smart Grid
- 196.4. Supplier Environmental Responsibility
Global Supplier Enrollment Package
- Supplier Profile Form, EFTP Enrollment Form, Certifications, Tax Requirements, and Supplier Diversity Policies
- 198.Data Usage and Protection Certificate (Certificate I)
- 199.Code of Ethics Certificate (Certification II)
- 200.Supplier Environmental Health and Safety Certificate (Certificate III)
- 201.Supplier Diversity Policies
- 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.
- 5. Doing Enough?
Yes, we think they are doing enough because:
- They have produced many programs that make them socially and ethically responsible.
- 203.Optimize operations
- 204.Reduce GHG emissions
- 205.Reduce energy consumption
- 207.Create differentiation
- 208.Supplier certifications and environmental requirements.
- Are they Challenged?
"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.“
- 209.Any Questions?
Category: Case study