CISCO B2B E-Commerce – Business to Business

Introduction

Business to business (B2B) e-commerce can be defined as an enabling service or services that assist business to consumer (B2C) e-commerce transactions. However, this definition is not confined to the supply chain. In addition, B2B does not include buying to resale. Moreover, this action must be customer initiated. For example, a person would like to purchase more checks. If this person goes to their bank to purchase more checks, depending how the bank gets their checks, this service could be a business to business transaction. Once the customer puts in their check order to the bank, the bank then goes to a check printing company to make the check. The printed check will then be directly sent to the customer from the check printing company without going through the bank. Therefore, B2B transaction is the transaction between the bank and the printing check company to the customers.

In this case study, the role of the bank can be thought of as the intermediary, the customer as the client and the check printing company as the supplier. Figure 1 illustrates the transactions visually. Furthermore, the transaction must be client initiated and the transacted path must occur in the same path as the arrows. With this in mind, Cisco has a role as all three positions in business-to-business e-commerce transactions.

As the Internet and Intranet continues to grow exponentially, the impact increases and organizations all over the world are using e-commerce solutions in an increasing rate. Organizations used Internet and Intranet for cost savings, efficiencies, budgeting, resources research, and customer service and sales staff and others. B2B processes such as purchasing, supply chain management, manufacturing, human resources, sales and contact management are really uncommon right now among the growing companies as both the buyers and sellers can reap the advantages of the effect of the Internet and Intranet.

By taking advantage of e-commerce and the Internet, businesses can reap significant financial returns, improve their ability to attract and retain customers, reduce expenses, and reinforce their branding and corporate identity, while gaining a better return on investment. At the same time, they can enjoy operational gains in employee productivity, decision-making, employee retention, and streamlined processes.

The benefits of e-commerce extend to participants of all sizes, from small, growing organizations to industry giants. Armed with efficient B2B e-commerce capability, even small and mid-size suppliers can potentially establish trading partnerships with the more establish bigger corporations by placing their product and service information online.

Cisco Systems, the leader in networking solutions for the Internet is one company that took such advantage. Cisco not only makes hardware that allows B2B to work (routers, switches, and the like) but also serves as a model of how companies can best exploit the Internet. Cisco customers can visit its web site to check out product specs and make their orders. That information is then routed on the Internet through Cisco to its suppliers. A full 65 percent of the orders move directly from the supplier to the customer. Cisco never touches them. The products are built only after they are ordered, so little, if any, inventory is kept in warehouses (Holstein, 2000).

Cisco History

Leonard Bosack, Sandra Lener along with three other colleagues founded Cisco Systems in 1984. Bosack developed the technology to link his computer lab’s network with his wife’s network in Stanford University. To anticipate the market for networking devices, Bosack and Lener mortgaged their house, bought a used mainframe, put it in the garage, and use their home to develop new products. In 1984, Cisco hosted 1,000 computers on the Internet. One of the first business-to-business transactions that Cisco has participated is as the supplier. Businesses outsourced this need to Cisco when those companies felt their customers’ demand for it.

In 1986, Cisco ships its first product, the AGS router. Their primary product, the internetworking router, automatically selects the most effective route for data to flow between networks. The routers support for multiple protocols or data transmission standards and could link together different kinds of network with different architectures and different hardware such as IBM-compatible personal computers, Apple Macintosh computers, UNIX workstations, and IBM mainframes. The AGS network router was sold for the TCP/IP (Transmission Control Protocol / Internet Protocol) protocol suite. A year later, Cisco was selling $250,000 worth of routers per month.

Sales originally targeting universities, aerospace industry, and the government, the company, in 1988, expanded its marketing to include larger corporations. In 1988, a venture capitalist Donald Valentine of Sequoia Capital bought a controlling stake and became chairman of the company. With his entry, he brought new management to handle the company. However, in 1990 this brought conflict between the founder and the new management that led to the founders to leave the company.

Sales leaped from $1.5 million in 1987 to $28 million in 1989. In 1990, Cisco made their initial public offering with the launch of the World Wide Web. From 1990 to 1997, fiscal year earnings would almost double every year. In 1993, Cisco started acquiring as many companies as they could. Acquisition strategy began from 1993 onwards. Cisco started purchasing companies such as networking company Crescendo Communications, Ethernet switch maker Kalpana (1994), asynchronous transfer mode (ATM) switch maker LightStream (1995). In 1996, Cisco’s 1996 acquisition of ATM product maker StrataCom began a chain of consolidations within the networking industry. From 1993 through 1997 they acquired 21 different companies spending $6.9 billion in acquisitions. In 1997, Cisco signs a multi-tiered partnership with Alcatel, GTE, HP, Intel, and Microsoft. In fiscal year 1997, sales were $1.5 million, and the company had only eight employees at that time.

CISCO’s Business-to-Business: 1984-1997
1997 Electronic Data Interchange (EDI)

Cisco handles business-to-business electronic commerce by providing applications for their consumers. Their applications “allow companies to sell products and services and manage customer and partner relationships over the Internet” (Cisco, 2001a, Solutions). They not only make hardware that enables business-to-business transactions (routers, switches), but they also serve as a model of how companies can best utilize the Internet. Customers can visit Cisco’s web site to check out product specifications and make their orders. That information is then routed on the Internet through Cisco to its suppliers. A full 65 percent of the orders move directly from the supplier to the customer. Cisco never touches them. Things are built only after they are ordered, so little, if any, inventory is kept in the warehouses (US News, 2001).

Unfortunately, one business transacting with another business, does not qualify as a business-to-business relationship in this paper. With the technology and infrastructure that Cisco possesses, they do not desire or obtain many business-to-business relationships. Cisco sees suppliers as a time and labor intensive expense (Cisco, 2001c). Instead, Cisco has realized that the “traditional” business model can be changed or helped along. They have declared the “traditional” business model outdated. Whether it is outdated or not, is a different paper. With the creation of Cisco’s Global Network Business model, they have created the demand for a product that can ease and speed up business to business transactions.

Therefore, the creation of Electronic Data Interchange (EDI) was created. Cisco tries to cut down any intermediaries to increase profit margins and competitive advantages. Cisco has gained real-time access to supplier information; experienced lower business costs in processing orders (an estimated $46 per order); improved the productivity of its employees involved in purchasing (78% increase); and as seen order cycles reduced substantially. In 1995, for example, Cisco saved $250 million per year in business expenses through its networking applications (Cisco, 2001c).

The closest business-to-business relationship that Cisco had was to provide a networking services and solutions to users, via their multi-tiered partnership with Alcatel, GTE, HP, Intel, and Microsoft. However, the transactions between these companies stretch the definition of business-to-business as defined in this paper. It became even more difficult for Cisco to transact in such relationships as they acquired more and more companies.

CISCO’s SWOT Analysis as in 1997

Strengths

One of the strengths that Cisco possesses is solid management. Cisco’s management team is headed by John T. Chambers. They were named number four in Business Week Top 50 best overall performers of the S&P 500 (Cisco, 2001b). In addition, since 1994, revenues had exceeded $1 billion, essentially, allowing Cisco to acquire most of their competition. Since their competition was smaller companies, the companies could find a niche and specialize and improve in that area. Cisco was so big to concentrate on specialization or did they have the time or patience to specialize. As for its image, Cisco Systems Inc. was the king of the networking world (Cisco, 2001b). With this image, Cisco could strategically choose their alliances.

Weaknesses

The rapid acquisition that began since 1993 may indicate the lack of management depth. The expansion of the companies that have different management style may produce different outcomes when merged with Cisco. As they try to get adjusted as one company, some of the management depth may be lost due to the need to comply with the parent company. Consistency throughout the company may dwindle. In addition, although, Cisco created their new global network business model, they failed to consider the economic impacts. By acquiring these companies, Cisco fails to identify other market segments and fails to realize potential supply chain strategy.

Opportunities

Vertical and horizontal expansions of Cisco business are one of Cisco’s biggest opportunities. Cisco has created the need for networking solutions; they should build on top of that. They have the opportunity to offer the entire package of network solutions, from the software to the hardware. With new companies such as Crescendo Communications, StrataCom, and NetSpeed give Cisco the ability to offer a wider range of products.

Threats

While Cisco dominates the router market, it still faces a threat from competitors. This is because with the large expansion to new markets, existing businesses in those markets will become Cisco’s new competitors. Small companies can take over a specific niche market. This can either be a threat if Cisco does not keep their eyes on their competitors.

Considerations and Concerns

The goal of Cisco Systems is to develop business solutions using Internet technologies to help businesses improve productivity and maximize profits. If I were heading up Cisco, I would expand Cisco to include the small businesses that want to develop an Internet presence as well. A separate web site can be set up as a portal for small businesses. Cisco employees are consultants to businesses, which will continue to utilize that consulting experience.

Streamlining business practices translates to all areas of the organization, not just customers and suppliers, but within the company as a whole. Cisco should help Human Resources departments by developing Intranets for companies to further optimize their workforce. It is all about leveraging Internet technologies to maximize people’s time so they can focus on their main job responsibilities. Intranets are a network of computers within a company using Internet technologies such as web browsers and e-mail. Workforce optimization and training are just one component of HR. Cisco can also utilize their experience with the Internet to develop recruitment strategies.

To expand on the e-learning part of the business I would develop a “virtual university” where businesses can send there employees to one web site called virtualuniversity.com, for their training and development needs. Cisco is well recognized and respected by the business community for their knowledge of Internet technologies. Cisco employees are eager to support programs such as this. In fact, Cisco employees have been known for coming together and contributing large sums of money to launch a web site, such as the netaid.org web site. These efforts will be Cisco’s way of preparing the world’s workforce to participate in the Internet economy.

Acquisitions

With the acquisitions, Cisco should prompt these companies to find and specify particular niche markets. They should look at accomplishing economies of scale in this manner. Cisco has the money and revenues to sustain acquisitions. However, it should be strategically designed to accomplish economies of scale. In addition, they need to make sure that they are not growing too big too fast. Management should be solid and structurally sound as the company changes. This will benefit the company as the company grows.

CISCO 1998 to the Present

Cisco acquired several niche companies in 1998, and its market capitalization passed the $100 billion milestone. In 1999, Cisco approved to invest $1.5 billion for a 20 percent stake in KPMG’s consulting business, and it teamed with Motorola to acquire the fixed wireless assets of Bosch Telecom. This formed a joint venture with SpectraPoint Wireless to provide high-speed networking services to businesses. On the other hand, most of Cisco’s acquisitions are aimed towards being the king of networking equipment. The largest acquisition thus far is Cerent (fiber-optic network equipment) for $7 billion. In the same year, Cisco and Qwest communications began to collaborate on what will be the biggest Internet-based network in the U.S. In 2000, Cisco teamed up with GTE, Whirlpool, and Sun Microsystems to develop the “home gateway”, a device that will tie together PC’s in a network. Another product that will be introduced from this team is the “Smart Appliances” over a home’s phone line. Other acquisition includes Pirelli’s fiber optic telephone equipment operations for more than $2 billion, Arrow Point Communications, a network switches maker, for about $5.7 billion.

Cisco’s Business to Business Today

Currently, Cisco serves customers in three target markets: enterprise, service providers, and commercial sector. The enterprise customers are “large organizations with complex networking needs, usually spanning multiple locations and types of computer systems, [which includes] corporations, government agencies, utilities, and educational institutions” (Cisco, 2001, Facts). Service providers can be defined as “companies that provide information services, including telecommunication carriers, Internet service providers, cable companies, and wireless communication providers” (Cisco, 2001, Facts). Cisco defines their commercial target market as “companies with a need for data networks of their own, as well as connection to the Internet and/or to business partners” (Cisco, 2001, Facts).

Currently, Cisco offers business-to-business solutions through their web site. Although it is unclear how they transact with one another, the companies are differentiated enough to assume that these companies are acting as the supplier. These companies include Ariba, Great Plains, J.D. Edwards, Lawson, NetObjects, NetSales, OneCore, PeopleSoft, QuickMarketing, and Works.com.

Cisco uses their business-to-business e-commerce by acting as an intermediary. Cisco “eliminates multiple layers of wasted effort from a vast array of transactions” (Cisco, 2001a, Solutions). Ariba, Inc. is one of the businesses that act as a supplier to Cisco in their business-to-business relationship. Ariba is a business-to-business electronic commerce software and network services platform provider. They provide software, network access and commerce services that enable corporations to electronically automate and optimize business. “Customers can do this by both automating their existing relationships with their buyers and suppliers and by building a marketplace that brings buyers and suppliers together to buy and sell electronically” (Market Guide, 2001, Description). “In addition, the Company offers commerce services such as content management, electronic payment, electronic sourcing and electronic logistics, among others” (Yahoo, 2001, Profile). “The Ariba B2B Commerce Platform consists of four primary components: Ariba Buyer, the Company’s Internet-based procurement application, Ariba Commerce Services Network, its Internet-based commerce services application” (Yahoo, 2001, Profile).

Cisco is also a customer and the supplier in their relationship with Spirent Communications. Cisco purchases network test system from Spirent. Spirent then outsources this to Adtech; Inc. Adtech Inc. is a company that creates extreme broadband testing. They then work directly with Cisco to create the network system tester for Cisco’s software. The product that they provide for Cisco is the AX/400 Broadband Test System. In this example, Cisco is the client, Spirent is the intermediary, and Adtech is the Supplier. Between Spirent and Adtech, there is a business-to-business relationship.

Conclusions

Currently, Cisco is dramatically downsizing and reorganizing and restructuring their company. Their stock plummeted, along with the other technical stocks. Recovery will be tough, but not impossible with their company. This reorganization is an indication of weak management and strategy. Cisco should still strive for their ideal economies of scale. However, this time it should be carefully managed. This industry is a volatile industry where only the stable will survive. Cisco should increase their supply chain and business-to-business relationships until they are back on their feet. In addition, Cisco should consider some of the considerations and concerns in this paper.

From 1998 to 2001, Cisco grew too big, too fast, with out the right management. Although they created their own global network model, they failed to understand the traditional business model and how it relates to international business. It doesn’t matter if their model is wrong, it mattered that they didn’t realize the fundamentals.

References

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Cisco. (2001b). Cisco System Fact Sheet. Retrieved [on-line] at: http://www.cisco.com/warp/public/750/corpfact.htm March 15, 2001.
Cisco. (2001c). The Global Networked Business: A Model for Success. Retrieved [on-line] at: http://www.cisco.com/warp/public/756/gnb/gnb_wp.htm March 12, 2001.
Cisco (2001d). Manufacturing on the Pulse. Retrieved [on-line] at: http://www.cisco.com/warp/public/750/iq/man/fea/pul/man_fea_pul_0004/man_fea_pul_0004_1.shtml. March 15, 2001.
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Holstein, W. (2000, April 4th). Rewiring the ‘old’ economy Retrieved [on-line] at: U.S. News Available: http://www.usnews.com/usnews/issue/000410/b2b.htm
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Pederson, J. (2000). International Directory of Company Histories. Farmington, MI: St. James Press.
U.S. News. (2001). Rewiring the ‘old economy.’ News and Views. Retrieved [on-line] at: http://www.usnews.com/usnews/issue/000410/b2b.htm March 12, 2001.
Yahoo. (2001). Profile of Ariba, Inc. Retrieved [on-line] at: http://biz.yahoo.com/p/a/arba.html. March 15, 2001.

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