Enterprise Risk Management at Cisco
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Case Code : ERMT-014
Case Length : 16 Pages
Period : 2003
Pub Date : 2003
Teaching Note :Not Available
Organization : Cisco
Industry : Information Technology
Countries : Global
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Overview of Risks
Political turmoil in many parts of the world, including terrorist and military
actions, had increased global economic uncertainty. These adverse economic
conditions worldwide had contributed to slowdowns in the communications and
networking industries and could affect Cisco's business in various ways:
• Reduced demand for the company's products as a result of a decrease in capital
spending by customers, particularly service providers.
• Increased price competition for the company's products, partially as a
consequence of customers disposing of unutilized products.
• Increased risk of excess and obsolete inventory...
Rapidly changing technology, evolving industry standards, launch of new
products, and evolving methods of building and operating networks characterized
the markets for Cisco's products. Cisco's competitive position depended on its
ability to develop and introduce new products in existing and new markets...
A substantial portion of Cisco's business depended on the growth of the
Internet. The economic slowdown and the reduction in capital spending by
telecommunications service providers on Internet infrastructure had adversely
affected Cisco's business...
Risks Associated with Strategic Alliances and M&As
Cisco had several strategic alliances with large and complex organizations and
other companies with whom it worked to offer complementary products and
services. These arrangements were generally limited to specific projects,
typically to facilitate product compatibility and adoption of industry
Cisco's growth and ability to meet customer demand depended on its
ability to obtain timely delivery of parts from its suppliers. In
the past, Cisco had experienced component shortages that had
adversely affected its operations. If shortages or delays persisted,
the prices of these components might increase, or the components
might not be available at all...
Supply Chain Risks
Effective management of the supply chain was a critical factor in
Cisco's business. There had been occasions when Cisco's shipments
had exceeded net bookings. Costs increased when there were irregular
shipment patterns. There might be periods of underutilized capacity
and periods when overtime expenses might be incurred...
Cisco had major operations in many countries outside U.S.A. Cisco depended
heavily on the overseas operations of its contract manufacturers and
In the early 2000s, few laws or regulations applied directly to the Internet.
Cisco might be adversely affected by changes in regulations relating to matters
such as voice over the Internet, encryption technology, and access charges for
Internet service providers...
Human Resources Risks
Cisco's success depended significantly on its ability to attract and retain
highly skilled technical, managerial, sales, and marketing personnel. In spite
of the economic slowdown and job losses, competition for good people remained
intense, especially in Silicon Valley where the company was based...
Cisco's corporate headquarters, and some of its R&D and manufacturing
facilities, were located in Silicon Valley, a region known for seismic activity.
Some of the company's facilities were located near rivers that had experienced
flooding in the past...
Cisco had invested in numerous privately held companies, many of which were in
the startup or development stages. These investments were inherently risky as
the market for the technologies or products they had under development might not
materialize. The possibility of losing the entire initial investment in these
companies could not be ruled out...
Exhibit I: Cisco: Segment Information and Major Customers
Exhibit II: Cisco: Product Wise Breakup
Exhibit III: Cisco: Sales Distribution Geography Wise
Exhibit IV: Cisco: Break Up of Important Expenses
Exhibit V: Cisco: Acquisitions Completed In Fiscal 2002 And 2001
Exhibit VI: Cisco: Interest Rate Sensitivity of Financial Instruments
Exhibit VII: Cisco: Equity Risk
Exhibit VIII: Cisco: Currency Forward & Option Contracts
Exhibit IX: Interview with: Jackie Hair, Director, Global Risk Management, Cisco
Exhibit X: Cisco: Consolidated Statements of Operations
Exhibit XI: Cisco: Five Year Financial Highlights
Exhibit XII: Cisco: Stock Price Movement