1ibsg 0499 © 1999, cisco systems, inc. gaining competitive advantage through internet business...

1IBSG 0499 © 1999, Cisco Systems, Inc.

Gaining Competitive Advantage Through Internet Business

Solutions

Gaining Competitive Advantage Through Internet Business

Solutions

2IBSG 0499 www.cisco.com

Quantum LeapQuantum Leap

Preeminent Networking

Vendor

Building Solutions

Orientation

FutureFuture

Router Company

Router Company

19911991

TheInternet

Company


37% 10% 2.8%2.8% 14%

Cisco Rest ofIndustry

TraditionalCompetitors

Old World

Cisco Growth vs. Industry—1998Cisco Growth vs. Industry—1998


The Internet Is Changing the Way We:


Small# Users

Applications Operational Departmental Cross-Enterprise

1960s–1970s 1970s–1980s 1980s–1990s 1990s–2000s

Small

Adoption

Business-to-Business and Consumer

Moderate Consumers, All Workers

10+ Years 7+ Years 5+ Years 3+ Years

Technology Migration to Internet

Client/ServerMainframe Mini/WAN

PC/LAN

Internet/Intranet


Years to 50 Million Users

0 10 20 30 40

Internet Being Adopted Faster Than Any Previous Technology

13

16

38

4


1999 Global Internet Users1999 Global Internet Users

United States80M/41%

Western Europe

63M/32%

Rest of World15M/8%

Asia/Pacific14M/7%

Japan12M/6%

Canada12M/6%

Total = 196 Million UsersSource: IDC 3/99


0

1,000

2,000

3,000

4,000

$ B

illi

on

s

Global High 80 170 390 970 2,000 3,200

Global Low 55 145 320 640 1,100 1,800

U.S. Total 51 127 284 551 919 1,439

1998 1999 2000 2001 2002 2003

Source: Forrester Research - Sizing Online Business Trade 10/98

Global Internet Commerce1998 - 2003


Business Inefficiencies Removed (Supply Chain Integration)

Business Inefficiencies Removed (Supply Chain Integration)

Global Access to CustomersGlobal Access to Customers

Entry of New Competitors

Entry of New Competitors

Opportunity to Transform Business Models (The Virtual

Enterprise)

Opportunity to Transform Business Models (The Virtual

Enterprise)

Opportunities and Challenges in the Internet Economy

Opportunities and Challenges in the Internet Economy


Purchasing(Manufacturing)

Sourcing by Fax and Phone

Purchasing Cost Reduced by $700 Million in Three Years

BookstoresBricks

and Mortar 2.5 Million Virtual Customers

Traditional Business Trendsetters

Intermediation(Broker) Fees

$120 Billion in Assets

Inefficiencies Removed

Examples of Changes in the Internet Economy

Brokerage


Retail Government/Education

Edgar OnlineIRSState of FloridaLightspan

Amazon.comAuto-By-TelKinko’sLL Bean

Manufacturing/Distribution

FordGETandemBoeingChevronOTNFederal Express

Finance/Insurance

Charles SchwabWells FargoJ P MorganRoyal Bank of CanadaAIG

Other Case Studies


Traditional Business Models

• Information silos with access limited to select few

• Lack of universal access to relevant information

• Duplication of effort

Employees

Partners

Customers

Suppliers


Ubiquitous Connectivitywhere the Business Runs on the Network

Enterprise

Employees

Partners

Customers

Suppliers

“Internet Business Solutions” Create Competitive Advantage

• Higher customer satisfaction

• Lower costs

• Competitive agility

• Accelerated time to market

• Higher employee efficiency


Challenge Results

• Dramatic competitive advantage through:

Higher customer satisfaction

Faster time to market

$825M in financial benefits

20% improvement in productivity

• Scale the company

• Maintain high-quality customer support

• Maximize return to shareholders in times of:

Rapid growth

Technology change

Acquisitions

Shortage of experts

The Cisco Story

Internet BusinessSolutions


Develop-ment

Mfg. Mktg. Sales Support

Customer Care

InternetCommerce

Supply Chain Management

Mktg.

Workforce Optimization

Communications/Collaboration

Cisco’s Internet Business Solutions


Customer

Business Relationship

SalesSupport Products

Internet Commerce

One - To - OneMarketing

CustomerCare

CustomerSatisfaction

Ease of Doing Business

Supply ChainManagement

CollaborationKnowledge

Management

Data ManagementWarehousing

Customer

Supporting

Applications

Intranet/InternetCustomer

Supporting

Technologies

Customer Centric Model

Customer

Facing

Applications

Customer Relationship Management


Problem Detection:CiscoWorks

Problem Notification: Bug Alerts

Problem Identification: Bug Navigator

Operation Support Software Library

Cisco Connection Online

Problem Resolution: Open Forum, Troubleshooting Engine

Installation and Configuration Documentation

Customer Care


Customer Care ResultsCustomer Care Results

Reg. UserSatisfaction

4.25

Reg. UserSatisfaction

3.4

August 1999

Registered UsersRegistered Users

79%79%Questions AnsweredQuestions Answered

304,634304,634

Logins


Configuration

Service Order

Order Status

Order Placement

Pricing

Invoice

“Full Service” Internet Commerce on CCO

Registered Companies 1528

Orders per Day $32,200,000

Yearly Run Rate $11.7 Billion

Orders online 80%

Satisfaction 4.24 out of 5


Internet Commerce at CiscoInternet Commerce at Cisco

3837 3941

Percent of Orders

4247

5255

57

64 64

6669

4 57 9

12 13 15 1620

2326

32 3336

70 72

73 74

75 76 77 78 80

July 1999Registered CompaniesRegistered Companies 1,5281,528

512,870512,870Cumulative electronic orders - 1996 to dateCumulative electronic orders - 1996 to date

Orders-per-Day Run RateOrders-per-Day Run Rate 32.2 Million32.2 Million

Yearly Run RateYearly Run Rate

SatisfactionSatisfaction

11.7 Billion11.7 Billion

4.244.24


Marketing

• Event and seminar registrations

• Cisco product registration

• CCO personal update

• News release push

• Publishing

• Training registration


Marketing Results

• In an average month:

10,000+ products registered

24,000+ seminar registrations

800+ CCO personal updates sent

2,500+ news releases pushed

500+ marketing documents published

20,000+ customer and partner event registrations

25,000+ training classes searched


Supply Chain Management

• Extended ERP systems to suppliers

• Automated routing data transfer through EDI

• Eliminated need for purchase orders and invoices

• Developed partnership with suppliers and created test cells on supplier line

• Test procedures automatically downloaded on order configuration

• Suppliers test using Cisco methodology

Automated Testing on Outsourced Supplier Line

CiscoCentral Control

Supplier Test Cell

WAN

Product

Cisco

Supplier

“Single Enterprise” with Suppliers

Build Plan

Money


Supply Chain Management (Cont.)

• Automated data gathering

• Engineers aggregate design information at the touch of a button

• All companies in supply chain work off of same demand forecast reducing inventory costs

• Suppliers ship directly to customer and do not require Cisco interface

New Product Introduction

Cisco “One Button Push”

Direct Replenishment SupplierSingle Forecast for

Entire Supply Chain

Distributor

Supplier Customer

Direct Fulfillment

CiscoIntranet

PDM

CDMS

ERP

WANCustomer Cisco

3 Days


Supply Chain Management Results

• 55% of unit volume directly shipped without Cisco touch

• New product introduction time to volume accelerated by a quarter (annual contribution margins enhanced by $269 million)

• Lead times reduced from six to eight weeks to one to three weeks

• Engineering change notice time down from 25 days to 10 days

• Annual operating costs reduced by $175 million


Employee Services

• Employee services

Travel/expense

Benefits enrollment

Training registration

Stock information

Internal IT help desk

Directory and organization chart

Cisco Employee Connection


Employee Services (Cont.)

• Workflow

Purchasing/ORM

Recruiting online

• Decision support

EIS


Communication/Collaboration

• IP/TV for sales/product training

• Company-wide employee meetings and broadcasts

• Collaboration with suppliers for new product design

• Stanford Engineering courses online


Strategic Benefits of Internet Business Solutions

• Greatly enhanced customer satisfaction

• High employee satisfaction

• Continued profitable growth and market share increase

• Vastly improved time to volume for new product introduction

• Cost reduction for Cisco, customers and channel partners

Develop-ment

Mfg. Mktg. Sales Support

Customer Care

InternetCommerce

Supply Chain Management Mktg.

Workforce Optimization

Communications/Collaboration


FY99 Financial Benefit

Customer Care

Workforce Optimization $55,000,00

Supply Chain Management- Cost benefits

- Profit contribution

$444,000,000$175,000,000$269,000,000

Internet Commerce $57,000,000

Total Financial Impact $825,000,000

Annual Financial Benefit of Cisco’s Internet Applications

$269,000,000


282%

(Cumulative)(Cumulative)

-100%

(Jan ’99)(Jan ’99)

-9%

328%

387%

260%

ROI to Date for All Commerce ToolsIn Existence, withInfrastructure, Hardware, and SoftwareCosts Included

Cisco Returns on Internet Commerce Investments over Time

Cisco Returns on Internet Commerce Investments over Time

Preliminary

300+%

(July ’99)(July ’99)

FY1995 FY1996 FY1997 FY1998 FY1999


Annual ITSpending Growth

Annual Growth inAll Other Spending

Relative Growth of IT vs. Other Spending 1996–1998 CAGR

Cisco’s Aggressive Technology Investment Strategy

68%

40%


Cisco’s IT Spending Lower than Other IT Manufacturers….

Cisco’s IT Spending Lower than Other IT Manufacturers….

Percent RevenueSpent on IT

Average: 3.03%

Source: 1997 Worldwide Benchmark Report (Rubin Systems, Inc.): Data from InfoWeek500


However, Employee Productivity Higher…However, Employee

Productivity Higher…

Annual Revenuesper Employee $K

Source: 1997 Worldwide Benchmark Report (Rubin Systems, Inc.): Data from InfoWeek500

278296 315 338

516

660


Cisco

Bay/Nortel

3 Com

Lucent

Total Employees

17,124

75,000

13,371

148,000

Annual Revenues per Employee $K*

Cisco’s Superior Employee Productivity

* (Latest Quarterly Revenues x 4) /employees as of Q3 99

222

236

422

660


R&D Investments$ Millions

Revenue Growth, 1995–97

Cisco

Bay

3COM

PercentRevenue

9.7% 10.8% 11.8%

50.4%

35.7%

69.8%

399698

955

1996 1997 1998

Customer RetentionCustomer Retention

• Reinvest profits to improve customer satisfaction:

Higher quality product and services

Superior customer support

Customer facing organizations e.g., IBSG


19991990 1991 1992 1993 1994 1995 1996 1997 1998

$14

$12

$10

$8

$6

$4

$0

$2

Source: BloombergNotes: Dates are calendar years, Numbers are annualized from most recent reports

Cisco

Competitors

InternetApplications

($B)

Network System SalesNetwork System Sales


Key Success Factor – Cisco’s Overall Approach

Principles Approach

• Solve Customer Facing Problems First; Develop Networked Applications through “Customer Funded Projects”

• Leverage Relationships with Partners so Each Can Focus on Its Core Competence

• Align Business and IT; and Organize Efforts—Process, Organization and Technology— around Successes

• Create Ubiquitous, Enterprise-wide Connectivity and Electronic Publication Model

• Prioritize Business Opportunities Based on Customer Need

• Identify and Build Source of Competitive Advantage Using Technology

• Maintain Enterprise View of Business and Technology

• Achieve “Information Democracy” Using Network as Enabler and Changing Business Processes where Required


Cisco’s IT Philosophy

• Business units determine highest-impact applications based on their business needs

• Business Units fund IT projects. IT spending charged to Business Unit cost centers, only infrastructure expense goes into G&A

• Cross-functional project teams help align technology and business goals

• Standards based infrastructure deployed throughout the organization


Significant Lessons LearnedSignificant Lessons Learned

• Business and IT Alignment

• Buy don’t build

• Get users involved early - demonstrate quick early wins

• Provide new value with new applications …end-to-end processes

• Focus on the “low-hanging fruit”

• Don’t BOIL the ocean - avoid MEGA projects

• Leverage experience of others to reduce time to market

• Phase functionality to reduce time-to-market - 80/20 rule

• Web as point of entry for all information and self-service

• Universal connectivity reaches everyone


Cisco Internet Business Solution Programs

Cisco Internet Business Solution Programs

ExecutiveAdvisory

ExecutiveAdvisory

Internet-PoweredSolutions

Internet-PoweredSolutions InfrastructureInfrastructure

• Business and IT executive sessions– Awareness– Visioning– IT funding and

governance models

• Internet commerce• Employee services• Supply chain

management• Customer care

• IT architecture and approach methodologies– Application– Server– Security

• Network readiness assessment


Internet BusinessSolutions

Cisco IBSG Programs

1ibsg 0499 © 1999, cisco systems, inc. gaining competitive advantage through internet business...

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