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Cisco Systems and National Australia Bank

Cisco Systems and National Australia Bank. MIS 204 Michael Reynolds Amanda Grove. Who Cares about Cisco Systems?. Founded by Stanford University computer scientists in 1984. In 1990 the company grew at a double digit rate.

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Cisco Systems and National Australia Bank

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  1. Cisco Systems and National Australia Bank MIS 204 Michael Reynolds Amanda Grove

  2. Who Cares about Cisco Systems? • Founded by Stanford University computer scientists in 1984. • In 1990 the company grew at a double digit rate. • Now Cisco has 85% of the Internet routing and switching equipment market.

  3. Why Cisco Prospered at first… • Adapted the first multiple-protocol software. • Cisco was the first to create the commercially successful multi-protocol router to allow previously incompatible computers to communicate using different network protocols. • Products first started hitting the internet in 1995 and by 2000 Cisco Systems were selling 50 million products a day online. • Internet Protocol

  4. Two main Cisco Systems Strategies • First: The company outsourced most of its production. • Second: The significant portion of its growth was through acquiring and investing in other companies especially suppliers.

  5. 555 Billion to 100 Billion??? • In 2000 Cisco was briefly worth $555 billion. • April 2001 it declined in value to nearly $100 billion. • The stock price peaked at over $80 per share in July 2000 • The stock price bottomed out at less than $14 per share in April 2001

  6. Cisco Systems Internet Sales • Customers use the Cisco Connection Online (CCO) to configure, price, route, and submit orders electronically to Cisco. • 50% of the orders entered on CCO are sent directly to the manufacturers, then shipped directly to the customers. • Delivery went from taking 6-8 weeks to less than 3

  7. Cisco Sales Database • Cisco’s sales database is updated THREE times daily. • Engineering managers receive email alerts if a big problem occurs that is not solved within one hour.

  8. Business to Business Supply Chain Extranet • Cisco created Manufacturing Connection Online for business transactions between manufacturers/suppliers with Cisco Sytems • Manufacturers could purchase supplies, make reports or submit forecasts and inventory information • Inventories for Cisco’s suppliers were reduced by 45% after the formation of this extranet

  9. Cisco’s Decline Starting in Spring 2000 • Cisco projected its sales to double over the next year so they made the “necessary” orders. • Telecommunications market was falling (dotcoms etc.) but Cisco wanted to expand as it had before (mid 90’s) • Year ended with 40% decline in telecommunication sales (largest market) • 6,000 employees released Ending in April 2001

  10. National Australia Bank and Computers Errors • 1998-National Australia Bank (NAB) was the largest bank in Australia. • NAB bought HomeSide Lending Inc. for around $1.2 billion. HomeSide was located in Jacksonville, FL and was the 6th largest home loan servicing company in the US (about 2 million).

  11. Problems from the beginning • In 2001 the US Federal Reserve lowered short term interest rates indirectly causing long term rates to fall especially for HomeSide. • Several of these long term interest rates included mortgage rates so HomeSide customers were refinancing at dangerously low rates. • HomeSide and NAB cost themselves a $288 million after-tax write-down that year.

  12. HomeSide Computer Forecasting Software Fails • HomeSide developed a model to forecast their income of loan servicing. • This forecast model was connected to another model and both had to use the same type of rates (either both net or both gross). • BIG MISTAKE: one model was using gross rate while the other was using net rate. • Complete overstatement was made in projection for the 2 years

  13. Costs for NAB • $1.2 Billion to buy HomeSide • $288 Million write down in beginning of 2001 • $400 Million write down in July 2001 • $760 Million for forecasting error 1999-2001 • Sold HomeSide for $1.9 Billion to Washington Mutual, the US largest savings and loans company • 2006 Money Magazine named NAB “Bank of the Year”

  14. References • Case Study. “Cisco Systems and Australia National Bank”. Binder in the Library. • Former VP of Sales for Commercial East Area Lou McElwain • Wikipedia Encyclopedia http://en.wikipedia.org/wiki/National_Australia_Bank

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