Routing profits from the
InternetC10
Cisco Systems is driving down costs with
an innovative suite of software tools and
online databases
David Akin
Financial Post
For all practical
purposes, Cisco
Systems Inc. is the
Internet's general
contractor.
Cisco has an 85%
market share in
routers -- the
machines that direct
data traffic around a
network -- and is the
most frequently
found brand on other
equipment at the
heart of the global networked computers that is the Internet.
Its equipment is most often found deep within the bowels of Internet
service providers and large corporations, redirecting data around a
network and serving it up to end-users.
Now, the company that built the thing is using it for all it's worth,
moving most of its major business functions on to the Net. Through
its Web site, dubbed Cisco Connection Online or CCO, the
company is driving down costs with an innovative suite of software
tools and online databases.
"It's immensely valuable to the business," said Don Thompson,
Toronto-based partner in the customer dynamics practice with
Deloitte & Touche Consulting Group. "They've been able to shrink
their sales force and support staff dramatically, replace them with
customer self-service and therefore their costs have gone way down
and their profitability has gone way up."
Through CCO, San Jose, Calif.-based Cisco has been able to
achieve some remarkable bottom-line results.
Consider these numbers:
- It is now booking $15-million (US) a day electronically with no
human intervention. By comparison, Dell Computer Corp., long
considered the poster-child for the e-commerce direct sales model,
does about $6-million (US) a day in business via the Web. At the
end of July 1998, 62% of Cisco's worldwide bookings were
coming in via the Web.
- Orders are now shipped with a 100% accuracy rate. Prior to
CCO, one in four orders were incorrectly configured, requiring
extra paperwork, aggravation, and costs for both Cisco and its
customers.
- Cisco has one customer service representative in Canada and two
in San Jose that look after nearly $500 million (US) a year in
Canadian sales. Cisco's customer satisfaction, measured internally,
went from a 3.2 out of five rating to a 4.1 out of five rating.
- The time it takes Cisco to go from new product introduction to
volume manufacturing has been reduced by 90 days, contributing
$100-million (US) to improved gross margin.
- CCO is worth an annual financial contribution to Cisco of
$538-million (US). Cisco's total selling, general and administrative
costs, incidentally, are about $3-billion (US).
Experts say CCO gives an advantage over its competitors, which
include Canada's the Bay Networks division of Northern Telecom
Ltd., Newbridge Networks Inc. as well as traditional Silicon
Valley-based rivals such as Ascend Communications Inc. and
3Com Corp.
But despite the demonstrable and quantifiable benefits of CCO,
Cisco's competitors are barely out of the gate when it comes
business-to-business e-commerce initiatives. Most say their
businesses are too complicated to take to the Web; that Cisco's
business model lends itself to an online model and their business
model does not.
Newbridge, for instance, argues its customers are large telephone
and telecommunication companies while Cisco's customers are
largely private sector firms of varying sizes. "It's very different
markets," said Paul Goyette, a public affairs officer with Kanata,
Ont.-based Newbridge.
3Com, too, said we were comparing apples to oranges. 3Com
moves its products to a handful of distributors, such as Ingram
Micro, who then move the product to resellers before it's finally sold
to a customer. Cisco, by contrast, often sells directly to end-users.
"Where 3Com owns the network is on the edge of the network --
network interface cards, hubs, small business gear, modems, things
like that. That's where 3Com's really strong," said Brian Johnson, a
public affairs officer with the Santa Clara, Calif.-based company.
But some experts say the more complicated and decentralized the
business, the greater the opportunity to achieve efficiencies by going
to the Web.
Web-based tools, for instance, can help simplify an ordering
process through software that carefully incorporates a firm's
business rules. "The Web is about hiding complexity," said Bruce
Temkin, a senior analyst at Cambridge, Mass.-based Forrester
Research Inc.
"A lot of what the leading-edge tools do is mask complexity with
simplicity. That's how they cut down on errors and make people
happy."
Cisco first went to the Web in 1995 with an early version of a
software transaction processor called Mosaic, developed to deliver
customer service over the Internet. From there, Cisco added
functions every few months.
A full suite of customer service functions was soon online, followed
quickly by a set of tools that lets customers place orders and track
shipping status. From there, Cisco put dozens of marketing
functions, such as seminar and event registration, online.
Customers love it.
GE Capital Information Technology Solutions Inc. of Mississauga,
Ont., for instance, spends $60-million to $70-million a year buying
equipment from Cisco Canada, all of it through CCO.
"It's unbelievable how easy it is," said Scott Hassal, director of GE
Capital's Internet Group. "We're filling out online orders worth
hundreds of thousands or millions of dollars without a glitch," Mr.
Hassal said.
Experts agree it's less difficult now to convince CEOs and
corporate decision-makers of the value of moving various business
processes to the Web. Even with successful examples such as
Cisco, though, it's still a challenge to get business leaders to think
about their customer care, sales, marketing, and manufacturing
systems in a different way.
"They're still like deer in the headlights," said Mr. Thompson.
"They're still startled. They still don't know what to do with it but
they know they have to do something.
"It's getting much less difficult to convince businesses that they are
going to have to do something, but the 'what' is the big deal still."
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