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Tech History

Reporting on the business of technology, startups, venture capital funding, and Silicon Valley.
Case Study of Cisco

Nature of E-Commerce: The Case Study of Cisco

E-commerce, otherwise well known as internet business, has been under constant development. While others see internet business as a revolution, it is more of an evolution basing on the level of innovativeness and use of strategic tactics to succeed where others have failed (Shinal, 2012).

In both developed and developing markets, e-commerce has experienced outstanding growth especially with the introduction of non-banking players in the payments sector. According to Capgemini Strategic Analysis Group, (2013) by 2011, global e-commerce sales stood at $661 billion. By 2016, it is expected that e-commerce sales would have surpassed the $1 trillion sales mark (Oracle Endeca, 2012).

Notably, the hasty increase in the utility of broadband connections, smart phones and post-modern payment services have been the major drivers of the e-commerce evolvement. However, despite the increased evolvement, security remains a major concern for internet business (Centanaro, 2015). Basing on consumer behavior, online retailers are re-aligning their strategies to allow shoppers to shop at their own comfort whether in the office, at home or even when travelling (Narwhal, 2012).

According to Shinal (2012) significant evolvement of internet business has been attributed to the changes experienced in consumer behavior due to increased availability of cheap, affordable and dependable technology. However, studies have shown that the contribution of online retail sales to the general global retail sales is still low (Arthur, 1996).

Despite the fact that this could gradually become high, the evolution road ahead may not be as smooth as it seems for internet business (Capgemini Strategic Analysis Group, 2013). Challenges from multiple fronts keep hitting the e-commerce industry owing to the fact that it is a relatively new industry. A huge number of online retailers still do not have what it takes to successful venture in e-commerce.

The presence of exemplary digital marketing skills is limited while most of the online retailers still lack appropriate governance configurations in place. Security has been one of the most challenging issues in e-commerce. With increased advancement in technology, the sophistication and complexity of online fraud has been an intricate worry (Cash Run, 2012). Nevertheless, the constantly developing and innovative dynamics of internet business implies that evolution is gradual but successful.

Cisco is one of the most successful e-commerce giant retailers across the globe. It is currently a leader in the networking equipment industry (O’Reilly, 1998). The company was started in 1984 and has seen consistency in its growth and development despite corporate hurdles.

Attributed to its success is the constant use of e-commerce, the internet and associated IT as part and parcel of its broad business strategy. Kraemer & Dedrick, (2001) note that e-commerce has helped Cisco achieve quite a significant number of objectives. First, the company has been able to create a business ecosystem which has been crucial in the reinforcement and strengthening of its control of fundamental technology standards across all networking equipment markets (Centanaro, 2015).

Secondly, the firm has been able to create a virtual organization. According to Arthur (1996) this has helped in the outsourcing and operations of customer services while focusing more resources on the main product innovation tactics. More significantly, the use of e-commerce has helped the firm to display its individual utility of the internet as a significant marketing tool (Shinal, 2012). Internet business by Cisco has generally, evolved to an extent where customers, suppliers and personnel have been tied together in a virtual organization (Kraemer & Dedrick, 2001).

Cisco was successful in the establishment of its own IOS (Internet Operating System). Being a leader in the creation of a virtual organization, Cisco has relied relentlessly on other business partners for its success (O’Reilly, 1998). The evolution of Cisco’s e-commerce saw exemplary growth during the 1990s although after the millennium, briefly, Cisco was hit by the collapse of other internet business companies who were major partners (Kraemer & Dedrick, 2001). This reversal could see a different strategy in the use of internet business by the company as a major driver of sales and profit margins.

To understand the nature of maturity and evolution of e-commerce, this paper analyzes and discusses Cisco’s e-commerce strategy and how it has evolved over the years. Constant development and innovativeness are the key components of the internet business utility in this case (Narwhal, 2012). Allied to these prime components, are significant e-commerce elements and related outcomes that depict the growth, development and maturity of e-commerce.

Evolution of the Internet Strategy at Cisco

According to Kraemer and Dedrick, (2001) the success of internet business at Cisco is not attributed to any particular design, but, to experimentation. Initially, in 1990, Cisco created a simple bulletin board where its customers could post information requests. However, three years later, the firm started using a mosaic browser as the major edge and border line of customer information requests. Notably at this time, the web was not available for commercial use (Arthur, 1996).

This implies that Cisco was a pioneer in the internet business industry as it first relied on dial-up connections created through the mosaic browser. The web became available for sales purposes in 1995. This was the period for instance, when coffee cups were made virtually accessible (Kraemer & Dedrick, 2001). It is during this period that Cisco started offering its networking equipment for sale through its website on the internet. Remarkably, online sales contributed to a large share of the overall sales of the firm. Moreover, O’Reilly, (1998) agrees that rapid increase in the online sales volumes proved that internet business was a strategic part of the firm’s general business model.

Centanaro (2015) acknowledged that; since the initiation of web-based sales, Cisco has constantly been developing and reinforcing its corporate information systems to support and control significant business processes. Apart from creating architectural designs and structures for the company, Cisco has also built a full-bodied IT infrastructure alongside the implementation of the Oracle ERP suite application (Kraemer & Dedrick, 2001). The intense use of the internet as a sales and marketing tool at Cisco has been attributed to the creation of an IP-based open standards structural design and rigorous IT infrastructure.

Currently, owing to the large use of e-commerce the interaction of Cisco’s personnel with customers and suppliers is virtual and/or network-based. At Cisco, presently, about 98% of all applications are web-based and/or have a web interface for the consumer (Cisco, 2014). The firm has established close to 300 applications whose use is explicitly and entirely web-based. Cisco’s e-commerce and internet utility strategy is based on three vital elements; Internet, Extranet and Intranet.

Internet: Cisco’s Online Connection

CCO (Cisco’s Connection Online) refers to the firm’s website. The website, so far, has been considered as an all-inclusive resource center for investors, suppliers, customers, re-sellers, employees and business partners. Kraemer and Dedrick (2001) observe that CCO serves as an information portal where data stored in the firm’s ERP systems can be accessed.

There are also links to client-server systems and the supplier/business partner network. Cisco’s website has four major components; customer service, marketplace, technical assistance, and the inter-networking product center. The marketplace refers to a virtual shopping center. Here, customers are able to purchase products online. Products offered in clued software, promotional items, networking products and training material (Thurm, 2000).

The marketplace has pricing and purchase requisition tools and a configuration where shoppers can print out applications for compliance with the firm’s purchase orders. Through the marketplace, customers are offered with links to channel partners while resellers and distributors are also able to make their orders online.

The technical assistance interface allows Cisco to offer technical answers to customers and business partners. Through this interface, shoppers are able to download software updates linked to their original purchases. Customers are offered tools to fix application bugs and identification procedures where intervention measures can be taken on Cisco’s products (Accel Partners, 211). The software download and updating prompt has so far saved the company quite a significant amount of expenses.

Previously CD-ROMs could be shipped to the customers (Kraemer & Dedrick, 2001). This attracted a huge delivery cost especially when not in bulk. The interface also has an open forum where questions are answered by experts interactively. On the other hand, customer service refers to the non-technical assistance service offered on self-help basis (IBSG, 1998). This is majorly conducted on product-prices, latest products, software updates and service order status. This service is available online 24 hours a day and 7 days a week (Cisco, 2014).

Internetworking product center refers to a matching set of applications basically for processing orders. This interface enables the user to configure and submit electronic orders (LeClaire, 2005). The system advises a customer if mandatory information on their order is missing. This ordering portal reduces the chances of rework for it ensures that order information is complete.

Through this system, the order management system is linked to the firm’s scheduling system. Conspicuously, it can be seen that CCO is indeed a powerful tool owing to the various components allied to it (Kraemer & Dedrick, 2001). The CCO supports the distribution channel fully. The firm notes that its website is a product-based and aimed at handling transaction, information requests and ensuring that shoppers get the best shopping experience and services.

Extranet: Cisco’s Supplier Connection

Cisco ensure utility of web-based EDI technologies and extranet to manage its suppliers. CSC (Cisco Supplier Connection) is available on the firm’s website and accessible to registered users. The interface links Cisco’s ERP suite order fulfillment programs to first-tier supplier to an extent where they can take action on customer requests in real time (IBSG, 1998).

Notably, when a customer makes a request or order, it is correlated to the firm’s production forecast automatically. In case of deviations or mismatch, suppliers are notified immediately. Once notified, the supplier responds to the request instantaneously (O’Reilly, 1998). Through the system, Cisco is also able to track and at the same time transfer inventory between different suppliers so that they can respond to shortages (Arthur, 1996).

Invoices and related purchase orders are processed electronically trough this system by use of various applications including the new product introduction, direct fulfillment, dynamic replenishment and the autotest (Kraemer & Dedrick, 2001). At a glance, it can be seen that indeed e-commerce has developed. With such systems, online retail business has grown smoother to an extent where analysts view it as the maturity stage (Capgemini Strategic Analysis Group, 2013). It is anticipated that the smooth conduct of internet business has reached its optimal stage and can rarely surpass that level (Oracle Endeca, 2012). However, at Cisco, e-commerce seems to be just in its infancy stages.

Intranet: Cisco’s Employee Connection

E-commerce can never be complete without the personnel’s input. CEC (Cisco’s Employee Connection) is a virtual interface set to provide information services to an extent where the firm’s employee’s needs are met. Kraemer and Dedrick, (2001) acknowledge that this system provides close to 150 interactive tools and other information for various purposes. These include, travel arrangement, training materials, sales and marketing, facilities, technical documents, human resources and financial matters (Thurm, 2000).

The system is characterized with a number of repositories and group linkages where potential employees can access significant information services. FAQs and other information services are available to new recruits as well as information about the company. Professional staff and human resources are also provided with job-specific tools that are related to the different professions available in the firm such as software engineering (Solomon et al, 2011)

Development of IT and Global Networked Business Model

Simplification of both internal and external process at Cisco has seen the firm’s ability to expand its market scope as well as the ability to cut costs and deliver products to customer more quickly. Furthermore, the overall effect of increased e-commerce has been exemplary customer service and experiences (Ernst Young, 1998).

Improvements in internet business at Cisco include direct shipment of products to customers by CMs, online provision of training materials, online recruitment of employees, provision of relevant technical support to customers, networking suppliers and distributors, integrating manufacturers and the online distribution of software updates and manuals (Kraemer & Dedrick, 2001).

Remarkably, the ability of Cisco to simplify both internal and external processes is attributed to the complexity and sophistication of the internet application, IT and e-commerce strategies integrated in the firm’s business model. The firm’s internal applications have been integrated with a large number of web-base applications to foresee the success of online retail sales (LeClaire, 2005.

Although the management of e-commerce at Cisco has come up with a high cost, the firm strives to match its online investment with its returns (Ernst Young, 1998). The firm’s CEO once noted that Cisco, more often than not, thrives to adopt new technologies every now and the faster than it might prefer (Kraemer & Dedrick, 2001).

He further notes that the firm’s model is what most internet businesses are bound to follow in the internet era. Notably, the era has seen the rise of robust internet businesses including Facebook which started only a few years ago although they have been able to grow extensively to a global-level form of recognition.

Cisco is however, a modern-day manifestation of a virtual networking equipment firm. Its product line has considerably been a perfect match for internet business. While other firms may strive and fall in the wake of online frauds and cyber crime insecurity, Cisco seems to have stood firm in its e-commerce strategy (Cash Run, 2012). The standards of internet business can thus, be seen to have risen over the years.

The incorporation of global networks where customers can interact with suppliers not only on a transaction basis but, also on a technical support basis implies that e-commerce is under constant development (Oracle Endeca, 2012). It can be anticipated that it will not take long before another online interactive interface/system is introduced as part of internet business (Schlender, 1997).

Promoting Cisco’s E-commerce Model

A few years after Cisco had begun its online sales; the firm developed a new system unit referred to as the IBSG (Internet Business Solutions Group) (IBSG, 1998). This system allowed customers to employ and correspondingly apply the firm’s global networked business model in their individual businesses (Thomson, 2013).

The business unit is generally a customer services and is specifically used to promote the firm’s e-commerce model (IBSG, 1998). The system offers different solutions to businesses including supply chain management, e-publishing, employee optimization, web foundation, customer care and e-commerce (Kraemer & Dedrick, 2001). Through short term consulting engagements and training, advisory solutions are offered to customers through supplier integration.

As a means of reinforcing its internet business strategy, Cisco offers software vendors effective software solutions, IT implementation services and re-engineering solutions through the IBSG (IBSG, 1998). The firm has partnered with IBM, Netigy, First Consulting Group and other business partners to see the success of this system (Ernst Young, 1998). Notably, for most of its services, IBSG does not charge.

However, the allied business partners do charge a small fee. IBSG is used to promote and evangelize the Cisco message while allowing customers to employ Cisco technology (IBSG, 1998). Arthur, (1996) point out that the ultimate result has been a tremendous expansion of the firm’s consumer base, increased online retail sales volumes and a significant pay-off e-commerce model whose integration into the firm makes the whole Cisco story a tale of business success.

Success, Benefits and Cost of E-commerce Development at Cisco

Although Cisco claims to be the largest global e-commerce user, there lacks statistical evidence in comparison to other internet businesses. Currently, approximately 94% of its sales returns are attributed to online sales (Nolan, et al, 1998). Furthermore, due to increased sophistication and innovativeness of e-commerce, about 86% of customer inquiries at the firm are done through the internet (Kraemer & Dedrick, 2001).

According to the firm’s self-reports, e-commerce has brought large benefits to the firm. Its consistent and continuous success is attributed to the manner in which the firm has been able to develop the online platform to a more product-oriented interactive platform (Thurm, 2000). The firm reports that it saves close to $800 million annually due to reduced costs of transferring sales transactions to the internet.

However, business analysts have come out to criticize the continuous and rapid development of e-commerce as not being a cost-saving strategy. Rather, they view it as a cost-avoidance strategy. For instance, increased use of e-commerce reduces the need to hire more labor due to automation. This is evidently clear in the case of Cisco. During the early initiation period of e-commerce in the firm between 1995 and 1998, sales increased four-fold (Cisco Annual Report). However, the number of support engineers at the firm only doubled.


Analytically, if the firm had not developed the technical support application on the website, additional engineers would not have been hired. Thus, the correlation is indirectly proportional. Through e-commerce, Cisco has been able to promote and enhance professionalism through the global networked model it employs (Cisco, 2014). Nevertheless, investment in e-commerce is costly and requires precision as Cisco’s CEO notes. The initial cost, operating cost and maintenance costs of e-commerce require heavy investment to guarantee constant development and innovativeness.

References

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