Gaining Competitive Advantage Through Internet Business Solutions IBSG
Gaining Competitive Advantage Through Internet Business Solutions IBSG 0499 © 1999, Cisco Systems, Inc. 1
Quantum Leap Building Solutions Orientation The Internet Future Company Preeminent Networking Vendor Router Company 1991 IBSG 0499 www. cisco. com 2
Cisco Growth vs. Industry— 1998 IBSG 0499 37% 10% Cisco Rest of Industry 2. 8% 14% Traditional Old World Competitors www. cisco. com 3
The Internet Is Changing the Way We: IBSG 0499 www. cisco. com 4
Technology Migration to Internet Mainframe Mini/WAN PC/LAN Client/Server Internet/Intranet 1960 s– 1970 s– 1980 s– 1990 s Applications # Users Adoption IBSG 0499 1990 s– 2000 s Operational Departmental Cross. Enterprise Business-to-Business and Consumer Small Moderate Consumers, All Workers 10+ Years 7+ Years 5+ Years 3+ Years www. cisco. com 5
Internet Being Adopted Faster Than Any Previous Technology Years to 50 Million Users 4 13 16 38 IBSG 0499 www. cisco. com 6
1999 Global Internet Users Asia/Pacific 14 M/7% Japan 12 M/6% Canada 12 M/6% United States 80 M/41% Rest of World 15 M/8% Western Europe 63 M/32% Total = 196 Million Users Source: IDC 3/99 IBSG 0499 www. cisco. com 7
Global Internet Commerce 1998 - 2003 Source: Forrester Research - Sizing Online Business Trade 10/98 IBSG 0499 www. cisco. com 8
Opportunities and Challenges in the Internet Economy Global Access to Customers Opportunity to Transform Business Models (The Virtual Enterprise) IBSG 0499 Entry of New Competitors Business Inefficiencies Removed (Supply Chain Integration) www. cisco. com 9
Examples of Changes in the Internet Economy Traditional Business Brokerage Inefficiencies Removed Intermediation (Broker) Fees Purchasing (Manufacturing) Sourcing by Fax and Phone Bookstores IBSG 0499 Bricks and Mortar www. cisco. com Trendsetters $120 Billion in Assets Purchasing Cost Reduced by $700 Million in Three Years 2. 5 Million Virtual Customers 10
Other Case Studies Finance/Insurance Manufacturing/Distribution Ford GE Tandem Boeing Chevron OTN Federal Express Charles Schwab Wells Fargo J P Morgan Royal Bank of Canada AIG IBSG 0499 Retail Government/Education Amazon. com Auto-By-Tel Kinko’s LL Bean Edgar Online IRS State of Florida Lightspan www. cisco. com 11
Traditional Business Models Employees Customers • Information silos with access limited to select few • Lack of universal access to relevant information Partners IBSG 0499 Suppliers www. cisco. com • Duplication of effort 12
“Internet Business Solutions” Create Competitive Advantage Employees Customers • Higher customer satisfaction • Lower costs • Competitive agility Partners Enterprise Suppliers Ubiquitous Connectivity where the Business Runs on the Network IBSG 0499 www. cisco. com • Accelerated time to market • Higher employee efficiency 13
The Cisco Story Challenge Results • Scale the company • Maintain high-quality customer support • Maximize return to shareholders in times of: Internet Business Solutions Higher customer satisfaction Rapid growth Faster time to market Technology change $825 M in financial benefits Acquisitions 20% improvement in productivity Shortage of experts IBSG 0499 • Dramatic competitive advantage through: www. cisco. com 14
Cisco’s Internet Business Solutions Development Mfg. Supply Chain Management Mktg. Sales Support Internet Customer Commerce Care Communications/Collaboration Workforce Optimization IBSG 0499 www. cisco. com 15
Customer Centric Model Customer Business Relationship Customer Relationship Management Sales Support Customer Facing Applications Internet Commerce Supply Chain Management Customer Supporting Technologies IBSG 0499 Products Customer Care Ease of Doing Business Customer Satisfaction One - To - One Marketing Collaboration Knowledge Management Data Management Warehousing Customer Supporting Applications Intranet/Internet www. cisco. com 16
Customer Care Cisco Connection Online Installation and Configuration Documentation Operation Support Software Library Problem Detection: Cisco. Works Problem Identification: Bug Navigator Problem Notification: Bug Alerts Problem Resolution: Open Forum, Troubleshooting Engine IBSG 0499 www. cisco. com 17
Customer Care Results August 1999 Registered Users Logins 304, 634 Questions Answered 79% Reg. User Satisfaction 4. 25 Reg. User Satisfaction 3. 4 IBSG 0499 www. cisco. com 18
“Full Service” Internet Commerce on CCO Pricing Configuration Registered Companies 1528 Order Placement Orders per Day $32, 200, 000 Order Status Yearly Run Rate $11. 7 Billion Orders online 80% Satisfaction 4. 24 out of 5 Service Order Invoice IBSG 0499 www. cisco. com 19
Internet Commerce at Cisco July 1999 Registered Companies 1, 528 Cumulative electronic orders - 1996 to date 512, 870 Orders-per-Day Run Rate 32. 2 Million Yearly Run Rate 11. 7 Billion 4. 24 Satisfaction 64 64 66 52 55 69 73 70 72 78 80 76 77 75 74 57 47 Percent of Orders 32 33 20 4 IBSG 0499 5 7 9 12 13 23 39 36 37 38 41 42 26 15 16 www. cisco. com 20
Marketing • Event and seminar registrations • Cisco product registration • CCO personal update • News release push • Publishing • Training registration IBSG 0499 www. cisco. com 21
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 IBSG 0499 www. cisco. com 22
Supply Chain Management “Single Enterprise” with Suppliers • Extended ERP systems to suppliers • Automated routing data transfer through EDI • Eliminated need for purchase orders and invoices Cisco Product Supplier Money • Developed partnership with suppliers and created test cells on supplier line • Test procedures automatically downloaded on order configuration • Suppliers test using Cisco methodology IBSG 0499 Build Plan Automated Testing on Outsourced Supplier Line Cisco Central Control Supplier Test Cell www. cisco. com WAN 23
Supply Chain Management (Cont. ) New Product Introduction • Automated data gathering PDM • Engineers aggregate design information at the touch of a button Cisco Intranet ERP CDMS Cisco “One Button Push” Direct Replenishment • All companies in supply chain work off of same demand forecast reducing inventory costs Single Forecast for Entire Supply Chain Customer Cisco Distributor Direct Fulfillment • Suppliers ship directly to customer and do not require Cisco interface 3 Days Supplier IBSG 0499 WAN Supplier www. cisco. com Customer 24
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 IBSG 0499 www. cisco. com 25
Employee Services Cisco Employee Connection • Employee services Travel/expense Benefits enrollment Training registration Stock information Internal IT help desk Directory and organization chart IBSG 0499 www. cisco. com 26
Employee Services (Cont. ) • Workflow Purchasing/ORM Recruiting online • Decision support EIS IBSG 0499 www. cisco. com 27
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 IBSG 0499 www. cisco. com 28
Strategic Benefits of Internet Business Solutions • Greatly enhanced customer satisfaction • High employee satisfaction Develop- Mfg. ment • Continued profitable growth and market share increase • Vastly improved time to volume for new product introduction • Cost reduction for Cisco, customers and channel partners IBSG 0499 Supply Chain Management Mktg. Sales Support Internet Customer Commerce Care Communications/Collaboration Workforce Optimization www. cisco. com 29
Annual Financial Benefit of Cisco’s Internet Applications FY 99 Financial Benefit Customer Care $269, 000 Internet Commerce $57, 000 Supply Chain Management - Cost benefits $444, 000 - Profit contribution IBSG 0499 $175, 000 $269, 000 Workforce Optimization $55, 000, 00 Total Financial Impact $825, 000 www. cisco. com 30
Cisco Returns on Internet Commerce Investments over Time ROI to Date for All Commerce Tools In Existence, with Infrastructure, Hardware, and Software Costs Included 387% 328% 300+% (July ’ 99) 260% (Jan ’ 99) 282% (Cumulative) FY 1995 FY 1996 FY 1997 FY 1998 FY 1999 -9% -100% Preliminary IBSG 0499 www. cisco. com 31
Cisco’s Aggressive Technology Investment Strategy Relative Growth of IT vs. Other Spending 1996– 1998 CAGR Annual IT Spending Growth Annual Growth in All Other Spending IBSG 0499 68% 40% www. cisco. com 32
Cisco’s IT Spending Lower than Other IT Manufacturers…. Percent Revenue Spent on IT Average: 3. 03% Source: 1997 Worldwide Benchmark Report (Rubin Systems, Inc. ): Data from Info. Week 500 IBSG 0499 www. cisco. com 33
However, Employee Productivity Higher… Annual Revenues per Employee $K 660 516 278 296 315 338 Source: 1997 Worldwide Benchmark Report (Rubin Systems, Inc. ): Data from Info. Week 500 IBSG 0499 www. cisco. com 34
Cisco’s Superior Employee Productivity Annual Revenues per Employee $K* Total Employees Cisco 17, 124 3 Com 13, 371 Bay/Nortel 75, 000 Lucent 148, 000 * (Latest Quarterly Revenues x 4) /employees as of Q 3 99 IBSG 0499 www. cisco. com 35
Customer Retention • Reinvest profits to improve customer satisfaction: R&D Investments $ Millions Percent Revenue 9. 7% 10. 8% 11. 8% Higher quality product and services Superior customer support Customer facing organizations e. g. , IBSG 0499 Revenue Growth, 1995– 97 Cisco Bay 3 COM www. cisco. com 36
Network System Sales ($B) $14 Cisco $12 $10 Internet Applications $8 $6 Competitors $4 $2 $0 1991 1992 1993 1994 1995 1996 1997 1998 1999 Source: Bloomberg Notes: Dates are calendar years, Numbers are annualized from most recent reports IBSG 0499 www. cisco. com 37
Key Success Factor – Cisco’s Overall Approach Principles Approach • Prioritize Business Opportunities Based on Customer Need • Solve Customer Facing Problems First; Develop Networked Applications through “Customer Funded Projects” • Identify and Build Source of Competitive Advantage Using Technology • Leverage Relationships with Partners so Each Can Focus on Its Core Competence • Maintain Enterprise View of Business and Technology • Align Business and IT; and Organize Efforts—Process, Organization and Technology— around Successes • Achieve “Information Democracy” Using Network as Enabler and Changing Business Processes where Required • Create Ubiquitous, Enterprisewide Connectivity and Electronic Publication Model IBSG 0499 www. cisco. com 38
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 IBSG 0499 www. cisco. com 39
Significant 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 IBSG 0499 www. cisco. com 40
Cisco Internet Business Solution Programs Executive Advisory • Business and IT executive sessions – Awareness – Visioning – IT funding and governance models IBSG 0499 Internet. Powered Solutions • Internet commerce • Employee services • Supply chain management • Customer care www. cisco. com Infrastructure • IT architecture and approach methodologies – Application – Server – Security • Network readiness assessment 41
Cisco IBSG Programs Internet Business Solutions IBSG 0499 www. cisco. com 42
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