TECH SAVVY MANAGEMENT UPDATE
Separating The Wheat From The Chaff NASDAQ keeps on falling and it keeps getting tougher to believe in New Economy companies.
I am not a financial expert. However, in my years as a management consultant, I have observed that companies with sound business strategy that are run according to good business principles are the ones that are the most successful in the long run. This may sound like a truism, but it bears repeating during this time of doom and gloom about the New Economy.
There is a wealth of chaffout there, but there is some wheat.As you know, Cisco (www.cisco.com) is one of the key players in providing the infrastructure for the Internet. They claim to be 'the worldwide leader in networking for the Internet'. They have continued for almost 15 years to be the top provider of 'routers' - the servers that move traffic over the Internet. There is no indication that anyone is seriously threatening their position in the foreseeable future. And, of course, the Internet is continuing its projected exponential growth.
Cisco's recent annual report (http://www.cisco.com/warp/public/749/ar2000/) for the year ending 7/29/2000 showed an increase of 55% in sales (to $18.93 billion) and 32% in profits (to $2.6billion). Its earning per share in the latest quarter exceeded the projections of the analysts. Yet the company's stock is selling at or near its low point for the year.
I have had the opportunity to spend a day at their headquarters in Santa Clara, California. During that day I met with over a dozen of their executives and heard from them about Cisco's history, business model, strategy and acquisition approach. My impressions from that visit include:
1. This is an exceptionally well run company. They know how to consistently satisfy customers and generate sales growth profitably.
2. They have a clear mission that is understood by the management and employees - to be #1 or #2 in every market they serve. They have achieved this goal in 16 of the 17 markets served by the company.
3. They have an outstanding process to identify, acquire and integrate into the Cisco culture immediately other companies.
4. Every executive's remarks reflected a clear understanding of the company's goals and strategy and their particular responsibility to help implement the strategy.
5. The physical facilities were first class, but not lavish. Their ability to control costs effectively, while still providing a quality environment, was demonstrated in these facilities. This seems to be an integral part of their culture.
6. They have a 'virtual close' for their books compared to the 14 days it took to close them just 5 years ago so managers can react to financial statements quickly.
Several comments from John Chambers, Cisco's CEO, in the recent annual report stood out to me:
1. "Over the next two decades, the Internet economy will bring about more dramatic changes in the way we work, live, play and learn than we witnessed during the last 200 years of the Industrial Revolution."
2. "The Internet economy's workforces now surpasses the entire active U.S. military, insurance, communications, and public utilities industries and is twice the size of the airline, chemical and allied products, legal and real-estate industries."
3. "...the 'Network Effect'...is the result of information technology being networked and Internet applications being used to reengineer business processes."
The transient stock market notwithstanding, I believe in this company for the long haul (and am investing some money accordingly). This company is pure whole grain wheat.
Cordially,
Harry
Harry L. Nolan, Jr., President
Certified Management Consultant
Management Advisory Services, Inc.
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Business - Separating Wheat From Chaff In New Economy
