Doing both

Cisco's strategic acquisitions have been pivotal in its expansion into new markets. By acquiring Linksys, a consumer networking company, Cisco entered the $74 billion home and small office networking market, benefiting from Linksys' retail and supply chain expertise. Similarly, Cisco's purchase of WebEx for $3.2 billion in 2007 allowed it to lead the emerging video collaboration software market, adopting WebEx's successful subscription revenue model.

Cisco also targeted the service provider market by acquiring Scientific Atlanta, a set-top box manufacturer, for $6.9 billion in 2005, subsequently increasing its revenue by 40% in two years. This acquisition strategy enabled Cisco to offer customized hardware and software solutions to telecommunications companies.

In the 1990s, the rise of the internet led to a significant boom that put immense pressure on Cisco's supply chain to keep up with the skyrocketing demand for networking equipment. Cisco, assuming that the internet-fueled growth would continue indefinitely, optimized its supply chain for this scenario and began producing specialized gear on consignment. However, when demand plummeted around 2000, Cisco was left with a massive inventory glut, leading to a $2 billion accounting charge for the unsold inventory. This situation forced Cisco to reevaluate its supply chain strategy. After this financial setback, Cisco conducted an in-depth examination of its supply chain and realized the need to shift from a conventional "supply-push" approach to a "demand-pull" model. This model meant that Cisco would only build products once customer orders were received, reducing the risk of inventory gluts. However, transitioning to a demand-pull model required Cisco to not just enhance its existing supply chain but to completely reinvent its manufacturing processes. Inspired by companies like Walmart, Dell, and Procter & Gamble, Cisco worked closely with its suppliers to improve sales forecasting accuracy and developed a sophisticated, responsive, and global supply chain capable of adapting to rapid technological changes.

Cisco has always placed a high emphasis on customer satisfaction, making it a core aspect of its culture and operations. This commitment is evident in the company's practice of measuring customer satisfaction daily and tying a significant portion of employees' bonuses—40 percent—to these satisfaction scores. Recognizing the crucial role partners play in its business, generating 80 percent of its revenue, Cisco has also focused on enhancing partner success. Initially, Cisco's approach to incentivizing partners through volume discounts led to counterproductive competition among them. In response, in 2001, Cisco shifted its strategy to value-based incentives, rewarding partners for adding comprehensive value rather than merely for the volume of products sold.

Many companies face challenges when entering emerging markets due to the application of strategies and products designed for developed markets without considering local needs. General Electric (GE) successfully navigated this by creating a simplified, lower-cost version of its diagnostic medical scanning equipment for China, which not only captured a leading market share there but also found success in established markets like the United States. This approach highlights the potential for developing countries to leapfrog developed ones by adopting high-tech solutions that offer significant performance at a fraction of the cost, without the burden of legacy infrastructures.

Cisco has been proactive in establishing a significant presence in emerging markets from early on, not just through sales offices and manufacturing facilities but by striving to become a trusted advisor to national, business, and academic leaders in these regions. Cisco's strategy involved elevating the importance of emerging markets within the company, creating products tailored to local needs, and engaging directly with government leaders to understand and address national challenges. In 2006, Cisco formed an Emerging Countries Council to enhance support for these markets and launched the "Smart Connected Communities" initiative to help manage urbanization efficiently. By 2007, Cisco had established a second world headquarters in Bangalore, India, emphasizing its transition from a multinational corporation to a global innovator.

Cisco adeptly balances nurturing exceptional talent with fostering a collaborative culture, ensuring both individual and collective success. The company identifies top talent by evaluating employees' ability to challenge norms, innovate, and improve operations. High performers are rewarded with significant bonuses, incentivizing excellence. Moreover, Cisco encourages all employees to pitch ideas directly to executives, who may provide resources for promising proposals. This approach has led to the advancement of numerous projects.

The company also emphasizes the importance of cross-departmental cooperation and selflessness among both staff and leadership, grading them on these aspects. This dual focus on individual brilliance and teamwork has led to initiatives like “StadiumVision,” developed by marketing manager Stuart Hamilton. With no initial budget or directive, Hamilton's interest in enhancing fan experiences through technology led him to explore opportunities in sports and entertainment. He rallied colleagues to create a prototype that combined wireless networking with internet-connected cameras, offering instant replays, concession orders, future ticket purchases, and traffic updates.

Command-and-control business models have been effective for many companies, but collaborative approaches have also proven successful. Cisco, for instance, began with a traditional hierarchical model but has evolved to incorporate both top-down and democratic elements. The company has established cross-functional councils and boards to drive new initiatives, while maintaining formal job titles and reporting structures. These councils, as Inder Sidhu described, focus on opportunities that could generate significant annual revenue and have the authority to approve plans without manager approval, enabling rapid market expansion, acquisitions, and resource allocation.

Cisco's councils are composed of senior, cross-functional members and are highly sought-after leadership roles. The company also operates numerous active boards that report to these councils and dissolve once their objectives are met. This dual structure allows Cisco to combine the efficiency of top-down management with the responsiveness of decentralized units.