Reference no: EM133257094

Case: Cisco Systems, one of the leaders in the computer networking equipment industry, outdistanced its competitors in revenues during the market boom of the late 1990s and admirably survived the industry's economic downturn in 2001. At its highest point, in 2000, the company reported revenues $20 billion greater than its closest competitor, 3Com. According to one assessment of the company, "Cisco is to networks what Microsoft has been to PC software."* While many factors contribute to Cisco's performance, much of the company's success has been attributed to its culture, which is both customer-centric and aggressive.

Cisco's culture of customer advocacy was built from the ground up. Almost as soon as Sandy Lerner and Leonard Bosack, a married couple living near San Francisco, built the first router and began to market it out of their kitchen, they recognized the importance of listening to their customers, most of whom came to the pair through word of mouth. Lerner noticed early that her best marketing strategy was to build solutions for customers rather than find customers for her technology. Based on her experience, she created a division in the fledgling company she termed "Customer Advocacy," a group that attended to customer needs. Lerner's Customer Advocacy group became a company mainstay through three changeovers in management and a major reorganization. According to Mike Volpi, senior vice president of Switching and Services and former chief strategy officer, most of Cisco's competitors define themselves as "technology companies," while the most basic belief of Cisco's management and employees is that they are a customer solutions company that employs technology as the means to this end. He said, "We have to make sure that the innovation that occurs within the product group is driven by the notion of solving the customer's problem."*

This customer-centric orientation has been fostered more recently by John Chambers, who took over as chief executive officer (CEO) in 1995. For Chambers, a customer-focused culture means that customers' issues aren't relegated to one division of the company. Everyone bears responsibility for the customer. Employee bonuses are partially based on results of a customer satisfaction survey. Company values are printed on the back of employee badges, including a motto that reads "No technology religion," a platitude intended to reinforce the company's focus on the customer.

Chambers also brought with him another value that has had a long-lasting impact on the company's culture and subsequent success. Chambers came to Cisco after working for IBM, where he was dissatisfied with IBM's overcautiousness, certain that IBM's reticence to act was at least partially responsible for its diminishing edge in the market. When Chambers took over at Cisco, he was determined not to make the same mistake. He made decisions that were often risky and aggressive, something he believed was necessary in the fast-paced networking industry.

Many of these decisions were focused on aggressive growth; Chambers oversaw the acquisition of 71 companies between 1993 and 2001. Most of the companies Cisco acquired were small start-ups offering technological innovations that allowed Cisco to provide complete solutions to its customers but whose potential for success was yet to be established. A few of these merger and acquisition gambles were expensive failures; most, however, were successful. Cisco achieved many successes because it tried to acquire companies that were a good cultural fit and had a customer-centric mentality. But even with small companies that are culturally similar, assimilation requires some changes. Chambers required all acquired companies to do the change. He provided extensive orientation for acquired employees, allowing them to ingest the culture and incorporate Cisco's values.

As Cisco's numbers grew, in both employees and customers, and later as the economic downturn hit the industry, the company was challenged to maintain its intimate, customer-focused culture. In 2002, after enduring a recession, Cisco's executives restructured the company in response to market changes. The new alignment reorganized the company's groups around its eight types of technologies rather than around its customer types, as it had been organized previously. While the company hoped the new structure would help achieve aggressive long-term goals, it was aware that the new structure didn't reflect the company's cultural orientation. Management decided to reinforce the customer-focused culture by launching the Customer Focus Initiative. Under this initiative, Cisco followed a large number of customers to identify trends and speculate on their needs. The company collected all of the information it had about each customer and used this data to find customer-based solutions. The motto of this initiative was "Listen - Share - Deliver."* As it listened, shared, and delivered, Cisco found increased intimacy with and loyalty from customers.

While Cisco has changed to meet the environmental conditions in which it operates, it has maintained a steadfast focus on its core values-customer service, innovation, and prudent risk-taking. These values became embedded in the fabric of the company, and employees are expected to live by them if they want to succeed.

Case in Point

Cisco Systems

Question 1: How did the founders of Cisco influence its culture?

Question 2: How was Customer Advocacy an artifact of Cisco's culture? Did this cultural artifact differentiate Cisco from its competitors?

Question 3: When John Chambers became CEO of Cisco, how did he continue the legacy of a customer-focused culture?

Question 4: Why was Cisco so successful with most of its acquisitions?