CISCO Case PDF

For the exclusive use of S. Louis Jeune, 2019.
CASE: GS-66
DATE: 06/05/09
CISCO SYSTEMS, INC.: COLLABORATING ON NEW

PRODUCT INTRODUCTION
On November 13, 2007, more than 100 employees of Cisco Systems, Inc. assembled in classic
Cisco fashion: they dialed in from multiple locations around the world for an important meeting.
The purpose of the gathering was to get the green light from senior management to manufacture
a new high-end router that would make the giant networking company more competitive in an
age of surging Internet traffic.1
The project’s code name, Viking, said it all. The router for broadband service providers would
break ground in power and speed, reminiscent of the Norse warriors and explorers of Europe
during the eighth to eleventh centuries. The meeting represented a culmination of several years
of development work by a cross-functional, global team of Cisco specialists in engineering,
manufacturing, marketing and other areas. Just months earlier, in mid-2007, Cisco overhauled
the project by sharply boosting the router’s speed and capacity. This would allow the company
to leapfrog competitors and offer a low-cost, powerful new router platform for the next 10 to 15
years. That day in November, the Viking team was seeking an “execution commit” from senior
management in manufacturing. If it got the go-ahead, Cisco would be ready to commit the
resources to launch the new product.
But the Cisco team knew it faced many challenges. The Viking project would be one of the
company’s most complex new product introductions ever. First, even though the project had
been essentially re-started in mid-2007, Cisco was still aiming to announce the machine in
November 2008. That would give it just a year to line up manufacturing, supply chain and
marketing arrangements—an unusually accelerated schedule. Second, Cisco, which outsourced
virtually all its manufacturing, wanted to start making the high-end router immediately in a low-
cost location: China. This differed from Cisco’s past practice of outsourcing a complex new
product in the United States first and later shifting overseas once production matured. Third,
1
This case is based on interviews conducted by the authors from January 13, 2009 to March 9, 2009. All quotes
and references are from these interviews unless otherwise noted.
Maria Shao prepared this case under the supervision of Professor Hau Lee as the basis for class discussion rather
than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 2009 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order
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spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or
otherwise –– without the permission of the Stanford Graduate School of Business.
This document is authorized for use only by Sylviane Louis Jeune in SCM 6016 Fall-19 taught by RON MESIA, Florida International University from Oct 2019 to Dec 2019.
Cisco Systems, Inc.: Collaborating on New Product Introduction GS-66 p. 2
Cisco proposed to use one of its contract manufacturers, Foxconn Technology Group, to build
the product in Shenzhen, China, and to give Foxconn a broad role overseeing manufacturing and
the supply chain. But Foxconn had never made such a complex product for Cisco. Could
Foxconn handle the technical complexity while producing the router from Day One in China?
Could Cisco find ways to engage closely with Foxconn and mitigate the risks? Finally, Viking
would test Cisco’s well-honed new product introduction, or NPI, expertise. The project would
require tremendous global collaboration among far-flung teams within Cisco, and close
coordination with Foxconn’s manufacturing site half a world away from Cisco’s San Jose
headquarters and labs.
CISCO’S TRACK RECORD AND COMPETENCIES
Company Background
Cisco was a classic Silicon Valley story of success, rising from geeky start-up to world-class
corporation. The company was founded in 1984 by Len Bosack and Sandy Lerner, a husband-
wife duo of Stanford University computer specialists who experimented with networking
different buildings on campus. Their work led to the creation of the “multi-protocol” router that
enabled disparate computer networks to talk to each other, in much the same way as different
telephone networks were linked. 2,3
The company became the leader in selling networking gear to corporations; it quickly expanded
into sales to telecommunications and broadband service providers and, later, to consumers. In
the 1990s, Cisco emerged as a leader in networking technology for the Internet age, respected for
both its technology and management practices. At the helm was John T. Chambers, who became
chief executive officer in 1995 and went on to become one of the world’s most visible CEOs,
considered a tech visionary and management guru.
Cisco enjoyed meteoric growth during the 1980s and 1990s. It went public in February 1990.
Just eight and a half years later, its market value topped $100 billion, reaching that mark faster
than any company in history.4 In March 2000, for a brief time during the Internet boom, Cisco
became the world’s most valuable company, with a market capitalization of more than $500
billion.5
Even after the dot-com crash, the company grew at a healthy clip. Revenue increased at a
compound annual rate of 13.1 percent between 2002 and 2008. The company earned $7.3 billion
on sales of $34.9 billion in fiscal 2007, which ended July 28, 2007. It made a profit of $8.05
billion on revenue of $39.5 billion in fiscal 2008, which ended July 26, 2008.6
2
“Cisco Systems Corporate Timeline,” Cisco Systems, Inc., p.1,
http://newsroom.cisco.com/dlls/corporate_timeline.pdf (February 4, 2009).
3
“Cisco Systems, Inc.: Acquisition Integration for Manufacturing,” GSB No. OIT-26, January 1999 (revised
February 3, 2004), p.2.
4
Ibid., p.3.
5
“Cisco Systems Corporate Timeline,” op. cit., p.16 (February 5, 2009).
6
“Annual Report 2008,” Cisco Systems, Inc., 2008, p. 18
http://www.cisco.com/web/about/ac49/ac20/ac19/ar2008/financial_highlights/index.html (February 16, 2008).
Cisco’s foundation technologies were routers and switches. Routers allowed at least two
computer networks to “interconnect,” moving data packets, including text, voice and video,
among disparate networks. Routers were highly intelligent devices that determined the best path
for forwarding packets, and they typically provided communication over long distances.
Switches were simpler devices that commonly linked segments within a local area network,
passing along data by broadcasting packets to all other segments and generally involving less
intelligence than a router. (Routers traditionally operated at Layer 3, or the “network” layer of
the OSI Reference Model, a seven-layer topology for networking defined by the Open Systems
Interconnection initiative. Switches traditionally operated at Layer 2, the “data link” layer of the
OSI model.) Although both routers and switches played key roles in transmitting data, they did
so in different ways and typically by operating on different scales.7
By the early 2000s, Cisco had expanded well beyond routers and switches into fast-growing
“advanced technologies” that included home networking gear, security technology,
webconferencing products, and digital video set-top boxes. Cisco believed it had an annual
revenue opportunity of at least $1 billion in each product category within advanced technologies.
By 2007, switches accounted for 42.3 percent of the company’s net product sales, routers 23.5
percent and advanced technologies 27.4 percent.8 The networking giant was constantly
broadening its portfolio of products and services through internal development, partnerships and
an aggressive strategy of acquisitions. (Cisco purchased some 130 companies from 1993
through 2008.9)
Cisco’s success mirrored the Internet’s growth. By the early twenty-first century, broadband
access and Internet traffic had taken off. Advances in digitization allowed all kinds of
information, including text, data, voice, music and video, to be translated into the ones and zeros
of computer language, capable of being transported on a single, converged network. Having
staked its fortunes on supplying equipment for Internet Protocol-based traffic, Cisco found itself
at the center of this convergence.
Indeed, Cisco emerged as a company that truly understood—and zealously championed—the

power of information networks. The company often talked about “the network as the platform”
and it launched a branding campaign in 2006 called “Welcome to the Human Network” (later
called “The Human Network Effect”), which highlighted the power of technology to connect
people and change lives.10 It was a message that Chambers often espoused: “The network is
7
For more information on routers and switches, see “The Differences Between Hubs, Switches and Routers,”
http://www.webopedia.com/DidYouKnow/Hardware_Software/2006/router_switch_hub.asp; Curt Franklin, “How
Routers Work,” http://computer.howstuffworks.com/router.htm; and Jeff Tyson, “How LAN Switches Work,”
http://computer.howstuffworks.com/lan-switch.htm; and “Router”, http://en.wikipedia.org/wiki/Routers#cite_ref-13
(February 27, 2009).
8
“2008 Annual Report,” op. cit., p.26, http://www.cisco.com/web/about/ac49/ac20/ac19/ar2008/index.html
(February 5, 2009).
9
“Acquisition Summary,” Cisco Systems, Inc., February 19, 2009,
http://www.cisco.com/web/about/doing_business/corporate_development/acquisitions/ac_year/about_cisco_acquisit
ion_years_list.html (February 19, 2009).
10
“Cisco Systems Corporate Timeline,” op. cit., p.35 (February 5, 2009).
squarely at the center of innovation and is capable of changing the way people work, live, play
and learn,” he wrote to shareholders.11
Collaboration and Globalization
By 2007, nearly a quarter century after its founding, Cisco operated in more than 120 countries 12
and employed 61,535 people.13 The business was organized into more than 40 business units,
defined roughly by product spaces, such as core routing, edge routing, access routing or wireless
networking. Business units belonged to a half dozen broader groups such as service provider;
data center, switching and services; access networking and services; software; or consumer and
small business. The broader groups made up Cisco’s engineering or development organization,
which was run by a “development council” rather than a single executive. In addition, business
units had access to company-wide resources such as sales, services (known as customer
advocacy within Cisco), marketing or manufacturing. In effect, the company was organized both
vertically and horizontally—or in a series of overlapping circles, as some described it—in order
to promote multi-functional teamwork, a Cisco hallmark.
Chambers had begun remaking Cisco into a collaborative, cross-functional organization around
2001. He created “boards,” “councils,” and “working groups” comprised of some 500 senior
executives from across the company worldwide. These entities, which Chambers called the
“business equivalent of social networking groups,” pursued initiatives—such as environmental
sustainability or sports-related product development—through collaborative leadership.
Working groups were accountable to boards, boards to councils, and councils to the Cisco
“operating committee” that consisted of about two dozen senior executives. By one count, there
were at least a dozen councils and three dozen boards by early 2009. In Chambers’ view, this
system allowed Cisco to take on more initiatives, make decisions more quickly, and evaluate
opportunities broadly “instead of just viewing them by silo or by function.” Most importantly, he
believed, it moved Cisco away from hierarchical “command-and-control” management toward
collaborative leadership that tapped into “the collective expertise of all employees.” 14
Cisco also began reinventing itself as a fully global corporation. By 2007, 43 percent of the
company’s workforce was outside the United States.15 Forty-five percent of its sales came from
outside the United States and Canada.16 In December 2006, the company announced the
selection of India—where it already employed more than 2,000—as the site for its “Cisco
Globalization Center East,” the first in a series of globalization centers envisioned. The
11
“Letter to Shareholders,” Cisco Systems 2008 Annual Report, 2008, p.12,
http://www.cisco.com/web/about/ac19/ac/downloads/annualreport/ar2008/pdf/cisco_ar2008_complete.pdf (February
5, 2009).
12
“Cisco Selects India as Site for the Cisco Globalization Center,” Cisco Systems, Inc. press release, December 6,
2006, http://newsroom.cisco.com/dlls/global/asiapac/news/2006/pr_12-06c.html (February 5, 2009).
13
Form 10-K for fiscal year 2007 ended July 28, 2007, Cisco Systems, Inc., p.8 (February 19, 2009).
14
“Cisco Sees the Future,” interview with John Chambers, Harvard Business Review, November 2008, pp.72-79.
15
Form 10-K for fiscal 2007, loc. cit.
16
“Annual Report 2007,” Cisco Systems, Inc., 2007, p.24,
http://www.cisco.com/web/about/ac49/ac20/downloads/annualreport/ar2007/pdf/cisco_ar2007_financial_review.pdf
(March 8, 2009).
Bangalore center would develop new businesses and tap into India’s technical brainpower.
Cisco dispatched a senior executive from San Jose to head the center in Bangalore and to serve
as “chief globalization officer” for the company. 17 It was a step toward Chambers’ goal of
locating 20 percent of Cisco’s top leadership outside the United States by 2013, shifting the
company toward globally distributed, collaborative management.18
Cisco employees relied heavily on the company’s own products to work across functions, time
zones and national borders. These collaborative technologies included Cisco’s Internet-based
phones, WebEx webconferencing products and TelePresence, a video conferencing system that
projected high-definition images onto large screens, sometimes filling an entire room.
Summing up the networked mindset that defined Cisco, Chambers wrote to shareholders:
The network, coupled with widespread broadband Internet access, has created a
platform that eliminates time and distance as obstacles to working together toward
common goals…. This ability to collaborate across geographies and time zones
has the power to transform business models forever…. In order to realize the
opportunity ahead, we will transform our own business and change the way our
company is structured. At Cisco, this is an organizational and cultural revolution,
moving from a hierarchical command-and-control model to a collaborative
leadership approach governed by councils, boards and working groups.19
Creating a Global, Flexible Supply Chain
In fact, Cisco already had gone far down the road of globalization and collaboration by
transforming its supply chain management during the 1990s. Among tech companies, it was
considered a leader in creating a globally networked and adaptive supply chain.
The company moved early and aggressively to outsource manufacturing. By the early twenty-
first century, virtually all of Cisco’s production was done by contract manufacturers in their
network of factories around the world. Cisco believed that outsourcing enabled it to tap the most
cost-effective manufacturing resources worldwide and to leverage its supply chain partners.
Cisco itself would add value by managing the supply chain and focusing on product design and
development. As the outsourced model became more sophisticated, Cisco’s contract
manufacturing partners took on increased responsibility for components planning and
procurement, order scheduling, designing manufacturing processes, and overall supply chain
management.
Angel Mendez, Cisco’s senior vice president of worldwide manufacturing, said, “I think what we
are doing, which is somewhat unique, is driving an adaptive supply chain in a very large
17
“Cisco Selects India as Site for the Cisco Globalization Center,” op. cit.
18
Navi Radjou, “Cisco 3.0: A New Tech Star Rises in the East,” Forrester Research Inc., December 29, 2008.
19
“Letter to Shareholders,” 2008 Annual Report, op. cit. pp.14-15.
outsourced model across a very large spectrum of products and geographies. That combination
is an interesting thing.” 20
In the early twenty-first century, Cisco consolidated its base of contract manufacturers and
suppliers. It cut the number of contract manufacturers from 13 to 4 major ones by late 2006.
This enabled it to leverage spending while working more closely with them. In winnowing the
field, Cisco examined numerous aspects of its contract manufacturers: capacity to build in large
volumes in multiple locations, ability to support a broad range of Cisco products, as well as
design knowledge and new product introduction capabilities.21 Similarly, Cisco sharply reduced
the number of vendors in its extended supply network. In early 2001, Cisco had close to 1,500
suppliers and 80 percent of its spending went to about 200 of them. By late 2006, it had about
600 suppliers and 90 percent of spending was with just 95 of them. The changes made it less
costly and simpler to manage suppliers and also resulted in major cost savings on components.22
Many of Cisco’s manufacturing and supply chain improvements were made under its
Manufacturing Excellence or “MX” initiative, launched in 2005. The aim was to promote
general excellence in manufacturing by emphasizing major “aspirational” improvements rather
than incremental changes, according to Mendez.23
In early 2006, the company began shifting formally to a manufacturing model called Cisco Lean,
intended to boost efficiency and flexibility. The lean process, developed with Cisco’s contract
manufacturers and suppliers, was completed in mid-2007.24 The goal was to convert Cisco and
its extended supply chain to a system in which product was built only after a customer had
actually ordered it. Explaining Cisco Lean, Mendez said:
Traditional manufacturing operates utilizing a ‘push’ model. In other words, a

company builds product based on what it forecasts customer demand to be. With a
push model, the extended supply chain including contract manufacturers and
suppliers are dependent on the accuracy of forecasts, which can vary. Lean
manufacturing is a “pull” model, which means that product is not built until the
customer has already placed the order. This is also known in the industry as “just
in time” manufacturing.25
The benefits of lean manufacturing included reduced inventory across the extended supply chain,
more predictability in lead times and on-time shipment, and simplified processes, according to
Mendez.
20
Neil Shister, “The 21st Century Supply Chain: A Conversation with Cisco’s Angel Mendez,” World Trade, March
2007, pp.42-44.
21
James Carbone, “Supply Chain Manager of the Year: Steve Darendinger, Champion of Change,” Purchasing,
September 21, 2006, p.42.
22
Ibid., p.39.
23
Ibid., p.39.
24
Form 10-K for fiscal 2007, op. cit., p.8.
25
“Improving Customers’ Experience Through World Class Supply Chain Management Processes,” Q&A with
Angel Mendez, senior vice president of worldwide manufacturing, Cisco Systems, Inc., March 15, 2007,
http://newsroom.cisco.com/dlls/2007/hd_031507.html (February 8, 2009).
Cisco was a leader in using technology to create information links throughout its extended
supply chain. Its Autotest system, for instance, captured real-time data from the facilities of
contract manufacturers, providing a “one window” view of production lines around the world.26
In addition, according to Mendez, Cisco used information networks to collaborate with
customers, contract manufacturers and suppliers in areas such as demand management and
planning, product quality improvement, and lean manufacturing.27
Innovating in New Product Introduction
Cisco’s business model called for boosting growth in part through rapid, aggressive introduction
of a wide range of communications products. Indeed, the company brought more than 250 new
products to market in fiscal 2008. 28
The company had a well-oiled machine for new product introduction, or NPI. The effort was led
by a business unit’s product development teams, with coordination and support from many other
functions and groups within Cisco, as well as customers and supply chain partners.
New product development required both technical expertise and management talent to
understand the market, translate market needs into a product, and bring the product to market
quickly. At the outset, marketing and engineering would talk to customers and define the
product features. Then engineering and manufacturing would work together to ensure that the
product design met market requirements and could be cost-effectively produced. Employees
from finance would help with budgeting and calculating a project’s return on investment. The
supply chain organization would work closely with the NPI team to influence which
technologies and suppliers Cisco would use in the new product. Manufacturing specialists would
ensure that the supply chain arrangements would facilitate a smooth ramp-up to commercial
production and allow for lower manufacturing costs later in a product’s life cycle, when profit
margins would shrink.
Cisco’s NPI process involved three major stages: strategy and planning; execution; and
deployment. The process included a series of checkpoints, or “gateways,” between each stage
(Exhibit 1). 29
The “concept commit” gateway came at the beginning of the first stage, after designers had
brainstormed design ideas. This checkpoint ensured that a cross-functional team had approved a
“product requirement document” and an associated business plan. This gateway also ensured that
sufficient resources would be committed to get to the product design point. Once a project
cleared the “concept commit” checkpoint, the design would be fully defined and verified. By the
26
Shister, World Trade, op. cit. p.36.
27
Angel Mendez, “Building on Experience,” Cisco Systems, Inc., October 14, 2008,
http://www.cisco.com/en/US/solutions/collateral/ns856/ns870/Building_on_Experience.pdf (February 8, 2009).
28
“Letter to Shareholders,” 2008 Annual Report, op. cit. p.12.
29
Information on Cisco’s NPI process was adapted from interviews and from “Cisco Systems, Inc.: Acquisition
Integration for Manufacturing,” GSB OIT-26, January 1999 (rev’d February 3, 2004), pp. 5, 28-29.
end of the first stage, designers would have developed a definitive design specification for the
product.
Next came the “execute commit” checkpoint, which ensured that the cross-functional team
agreed on design specifications and was committed to dedicating the resources needed to ship the
product on a particular date.
The project then entered the execution phase in which engineering worked with manufacturing to
develop and test prototypes. Manufacturing would do a thorough “design for manufacturability”
review early in the prototype development and would help engineering develop a product that
was easily testable. Normally, Cisco aimed to do two rounds of prototyping, although additional
prototyping sometimes was needed. A final “technical readiness review,” or TRR, would go
through results of the prototyping, such as manufacturing yields and quality metrics.
After prototyping, there would be a “pilot” build of the product at the manufacturing site. At this
point, primary responsibility for the new product would shift to manufacturing from engineering.
Near the end of the execution phase came the “orderability” checkpoint, which ensured that
Cisco could hit the targeted ship date, meet the expected ramp-up in demand, and that suppliers
were lined up and ready.
Following the orderability gateway, the product would be added to Cisco’s price list and entered
into the deployment stage. It was ready for release, meaning it could ship in the volumes and at
the quality levels required. This stage included “first customer shipment,” or FCS, when the
product was released to one or more lead customers that typically had given input on defining
product features.
After FCS, there was another gateway, known as “time to quality and volume,” or TTQV. This
checkpoint, which included analysis on production yields and costs, would ensure that Cisco’s
contract manufacturing sites were achieving six-sigma quality goals and could make the product
cost-effectively in high volumes. The TTQV check typically was done two to three months after
production had begun.
Finally, there was a “post-production assessment” to identify and capture lessons learned from
the project. The team would discuss what had gone well or not so well, and how to incorporate
the successes and avoid the mistakes in future development projects.
VIKING PRODUCT AND MARKET
The Viking router was four years and $200 million in the making. In late 2004, Cisco had
started work on a router that would let broadband service providers consolidate their data, voice,
video and mobile traffic in a single box. But as Cisco worked with a few lead customers to
define the product, it became apparent that it would not meet the escalating needs of service
providers. By fall 2007, Cisco completely redesigned the proposed router for increased speed
and capacity.
In November 2007, Cisco management committed to producing a much more powerful router
than originally envisioned. But the company did not change the original target launch date of
November 2008.
Only a year later, on November 11, 2008, Cisco unveiled a key addition to its product portfolio:
the ASR 9000 router, or Aggregration Services Router. The ASR 9000 would allow carriers to
consolidate data streams from disparate networks based on Ethernet, a popular networking
protocol. When fully loaded, the machine could transmit 6.4 terabits of data per second, enough
capacity to deliver high-definition video streams to all 1.2 million homes in Los Angeles
simultaneously. This would achieve a new high point among routers of its class.
Market Needs
The ASR 9000 represented a new generation of “edge” router. The device was aimed at easing
bottlenecks at the network “edge,” where service providers’ long-haul networks met end users’
local networks. The router would consolidate voice, data, video and mobile traffic into larger
data streams to feed into the core of service providers’ networks. This was akin to a postal
system with local post offices feeding central sorting facilities. Carriers were seeking technology
to help them cope with the flood of traffic and to move Internet content to the network edge,
where it would be closer to users and thus more easily and quickly accessed.
Cisco expected the edge router market to grow significantly between 2007 and 2011. The ASR
9000 would be a critical asset for Cisco in the charge to expand the company’s presence and
market share in this important market.
Cisco saw a major market transition happening as network traffic soared, fueled by greater
broadband access and increased use of video technologies such as YouTube, high-definition
television, movie downloads and mobile video. The company predicted that global Internet
Protocol-based traffic would grow at a compound annual rate of 46 percent from 2007 to 2012,
nearly doubling every two years. As a result, bandwidth demand would reach approximately 522
exabytes, or more than half a zettabyte, in 2012. This demand would be equivalent to
downloading 125 billion DVD movies a month. 30,31
Broadband carriers needed infrastructure for what Cisco called “visual networking in the
zettabyte era.” They needed equipment designed specifically to handle the demands of video,
which used far more bandwidth than other types of data. Ron Westhauser, senior director of
product operations at Cisco, noted, “Video had a huge and rather sudden impact on the amount
of network traffic.”
30
“Cisco Delivers the Carrier Ethernet Foundation for the ‘Zettabyte Era’: The New Cisco Aggregation Services
Router 9000,” Cisco Systems, Inc. press release, November 11, 2008.
http://newsroom.cisco.com/dlls/2008/prod_111108.html (February 11, 2009).
31
An exabyte is 1 quintillion bytes, or 1 billion gigabytes.
See http://searchstorage.techtarget.com/sDefinition/0,,sid5_gci212085,00.html. A zettabyte is 1,000 exabytes, or 1
billion terabytes. See http://searchstorage.techtarget.com/sDefinition/0,,sid5_gci963097,00.html (February 11,
2009).
The Viking’s “speeds and feeds” would be major competitive factors, according to Henrik
Jensen, director of product operations. Service providers wanted high speeds and high capacity
as well as a compact footprint, power efficiency, low costs per connection, and importantly, the
ability to scale up the router’s capacity over a number of years by adding denser circuit cards.
Carriers also wanted hardware and software features in the router that would let them better
manage their networks and offer customers revenue-generating services, such as ad insertion.
Product Features and Positioning
The ASR 9000 could be configured and upgraded according to a carrier’s needs. There would be
two “chassis” choices—a box 93.35 centimeters (36.75 inches) high weighing up to 170.45
kilograms (375 pounds) or a box 44.45 centimeters (17.5 inches) high weighing up to 140.55
kilograms (230 pounds).32 The box would have up to eight slots inside for “line cards” or circuit
boards. Each card would have “ports,” or connections, for plugging in cables and handling data
traffic. Initially, each card could handle traffic at 80 gigabits per second (or 160 gigabits per
second of full duplex traffic, which counted data sent and received at the same time). A card
could be upgraded, with more ports, to process up to 400 gigabits per second of traffic (or 800
gigabits per second of full duplex traffic). So the machine, when fully loaded and upgraded,
would have a total capacity of 6.4 terabits per second. That would give carriers lots of room to
expand in order to meet the explosion in network traffic. Cisco viewed the ASR 9000, which
carried an entry-level price of $80,000,33 as an edge router platform for the next 10 to 15 years
(Exhibit 2).
The router would allow Cisco to leapfrog competitors. Its total capacity of 6.4 terabits per second
would be about six times greater than that of competing routers. In late 2007, Juniper Networks
Inc. and Alcatel-Lucent had newer edge routers on the market than Cisco had. Juniper had
launched its MX960 machine in early 200734 and Alcatel had introduced its 7750 router, the
result of an acquisition, in 2003.35 Cisco’s previous high-end edge router, the 7600, had been
released in 2001.36 Juniper’s MX960 could be scaled up to 1.1 terabits per second of capacity
over 11 high-density circuit cards, according to an internal Cisco assessment. Cisco’s 7600
router could process 720 Gbps of traffic.37
32
“Cisco ASR 9000 Series Aggregation Services Routers,” Cisco Systems, Inc. data sheet, November 11, 2008,
http://www.cisco.com/en/US/prod/collateral/routers/ps9853/data_sheet_c78-501767.html (February 12, 2009).
33
“Cisco Delivers the Carrier Ethernet Foundation for the ‘Zettabyte Era’: The New Cisco Aggregation Services
Router 9000,” op. cit.
34
“Juniper Networks Showcases Industry’s Largest Capacity Carrier Ethernet Platform at MPLS World Congress,”
Juniper Networks Inc. press release, February 1, 2007, http://www.juniper.net/company/presscenter/pr/2007/ma-
070201.html (February 12, 2009).
35
“Alcatel completes its acquisition of TiMetra, strengthening IP portfolio for delivery of higher-margin data
services,” Alcatel press release, July 18, 2003, http://www.home.alcatel.com/vpr/archive.nsf/DateKey/18072003uk
(February 13, 2009).
36
“Cisco Introduces the Cisco 7600 Optical Services Router,” Cisco Systems, Inc. press release, February 20, 2001,
http://newsroom.cisco.com/dlls/prod_022001b.html (February 13, 2009).
37
“Cisco 7600 Series Routers: Introduction,” Cisco Systems, Inc., September 11, 2008,
http://www.cisco.com/en/US/products/hw/routers/ps368/index.html (February 13, 2009).
The ASR 9000 would be a successor to the 7600 router; it could be used as either a replacement
for it or a complement to it.
It also could help Cisco pull further ahead of Juniper in the edge router market. While Cisco
accounted for 54 percent of the service provider edge router market in the third quarter of 2007
and commanded an 84 percent share of the enterprise router market, according to market
researcher Dell’Oro Group, Juniper had chipped away steadily in the carrier edge router market,
holding a 16 percent share.38 Cisco knew it had to exceed the Juniper MX960’s capacity.
Time-to-Market Pressure
By November 2007, the Viking team also realized it had no time to spare. Cisco wanted to jump
on the market transition to video networking. Service providers needed bandwidth at lower
prices. If Cisco did not meet that demand within 12 months, it could lose market share.
Recalling the urgency, Westhauser said:
The explosion of video happened faster than anyone could have expected due to
the explosion in traffic from YouTube, iPods and iTunes, and the extension of
video-on-demand downloads to the living room. A product that could provide
lots of bandwidth at a lower price point—it was just what the market wanted….
It’s part of Cisco’s culture to catch market transitions. It was a huge market
transition happening with a lot of customers willing to spend a lot of money
buying new equipment.
The upshot was that, after the Viking project was “reset” in November 2007, Cisco would have
only one year to launch the beefed-up router. This was much faster than the typical three to five
years it took to develop a high-end router for service providers.
Cost Pressure
The Viking team faced huge cost pressures. Bandwidth prices were constantly falling and
customers expected continuous improvements in price-performance on their equipment. In the
aggregation router space, competitor discounting was intense. The Viking router would have to
be very advanced but very cost-effective to replace service provider equipment that already was
fully depreciated. “It was a very cost-challenged space,” according to Westhauser.
There were two specific challenges: keeping the machine’s cost per port low and ensuring that
carriers could upgrade by using line cards with higher port count. Early on, Cisco set targets for
both cost per port and port density. These targets would be achieved through sound product
design and optimal supply chain arrangements. Indeed, the Viking team had a clear target cost to
meet. Leticia Jensen, senior manager of product operations, said, “We knew we had to
implement the most cost effective-supply chain at launch.”
38
Jim Duffy, “Cisco Betting Big on New Edge Router Line,” Network World, March 10, 2008, p.47.
Other Considerations
The Viking router’s technical complexity would be immense. Inside the metal chassis were 10
multilayered printed circuit cards, including eight cards for handling data traffic and two cards
for overall processing. There were processors, specialized ASICS chips, pins, connectors, 65
custom parts, up to six power modules and two fan trays. In all, the router contained about
300,000 components, about 30 times more than in a small business router.
Cisco also faced the challenges inherent to outsourcing production of such a complex machine.
The contract manufacturer would have to put all the pieces together with the highest quality,
reliability and on-time performance required in the demanding service provider market. Cisco
would have to work closely with the contractor to reduce production and supply chain risks.
Finally, Cisco needed to ensure that the router would be attractive to service providers
worldwide. Emerging markets were the fastest-growing part of Cisco’s business, so keeping the
router’s costs down was important to its global success.
FACING THE VIKING CHALLENGE
The Viking team, which at one point involved at least 300 Cisco employees, faced a series of
decisions in carrying out the complex program. Its objectives were to: 1) identify the market
needs and define the product features, including the price-performance balance; 2) produce a
design that met customer requirements; 3) design and set up the optimal supply chain for cost-
effective manufacturing; 4) take steps to ensure success, such as doing extensive prototyping,
testing and debugging during the development process; 5) set up a marketing and pricing plan
that would ensure sales success and help meet financial objectives for the product. Throughout
the process, close collaboration was imperative, both inside and outside Cisco.
The project followed Cisco’s CPDM (Cisco Product Development Methodology) and NPI
methodology that included extensive checklists and “gateways” to ensure discipline and rigor as
decisions were made. Each step would involve numerous tasks to be completed before
development could proceed to the next step. Cisco employees used a web-based tool called “NPI
Metrics” to monitor and track progress. The NPI Metrics “to-do list” for Viking contained up to
325 tasks to be completed over 12 major phases—from “concept commit” in June 2007 through
“time to quality and volume” in May 2009. Each task was assigned an “owner,” a due date, and
a definition.
Yet, Viking was not by any means Cisco’s largest development project. That distinction
belonged to Cisco’s CRS-1, a massive 92-terabit-per-second core router launched in 2004 that
took more than four years, $500 million and 500 engineers to develop.39 The CRS-1 was a
mega-project that represented an “engineering marvel,” according to Sri Hosakote, vice president
of engineering. By contrast, Viking was “a very complex execution marvel,” he said, since it
involved many different geographies, close cooperation among numerous teams within Cisco,
and an accelerated development schedule.
39
Charles Waltner, “A New Era for Communications Begins with CRS-1,” Cisco Systems, Inc., May 25, 2004,
http://newsroom.cisco.com/dlls/2004/hd_052504c.html (February 13, 2009).
Early Customer Engagement
From the outset, Cisco engaged telecom customers closely in order to define the product’s
features. In fact, it was the early feedback from several lead customers that had prompted Cisco
in mid-2007 to revamp the project by sharply increasing the proposed router’s capacity and
speed.
Noting the importance of establishing a two-way street with customers, Brendan Gibbs, senior
director of product marketing, recalled:
This was a big strategic decision very early on. We started working with some
very, very large strategic customers of ours. We agreed to modify the product
definition and the road map based upon what their needs were, the idea being that
if we partnered very early, we'd not only get very candid and good feedback to
product development, but it would also help these customers and our mutual
relationship. And we really based the whole program of development on that.
Later, Cisco continued the tight relationship by giving key customers sneak peeks at initial
prototypes, as early as nine months before first customer shipments were scheduled. The lead
customers also tried out and gave feedback on Viking prototypes.
Building in a Low-Cost Location
It became clear early on that the router would have to be built in a low-cost, overseas location.
But offshoring production from the get-go would be a departure from the way Cisco previously
had launched complex products. In the past, a new high-end router would initially be produced
in a contract manufacturer’s U.S. facility. Later, after production had matured and stabilized, the
contract manufacturer would shift manufacturing offshore, typically to Thailand or Malaysia.
Manufacturing of the 7600 router, introduced in 2001, had been launched in Florida and moved
offshore starting in 2004.
By November 2007, the Viking team was proposing that manufacturing be launched in China,
which had an ever-expanding and ever-improving electronics manufacturing base. The team had
weighed the benefits and risks of launching in China. Cisco would get the benefit of low-cost
production right away. Avoiding a transition to another manufacturing site later on would save
money, time and effort. Cisco would open up the long-term possibility of using China as a
manufacturing base for other complex products. The risk was that the Chinese factory might
prove unable to handle the router’s technical complexity or would fall short on the quality,
reliability and on-time delivery needed for a carrier-class product on which there was virtually no
room for error.
Selecting Foxconn
In mid-November 2007, Cisco made a bold decision: it awarded the Viking manufacturing job to
Foxconn, a fast-growing contract manufacturer with extensive operations in China. One of four
global contract manufacturers that Cisco regularly used, Foxconn had never built such a complex
product for the big networking company. In the past, Cisco’s high-end routers had been
produced by its three other major contract manufacturers—Flextronics, Jabil and Celestica.
Foxconn had produced simpler, high-volume items for Cisco, such as Voice-over-IP phones,
desktop switches and wireless network routers.
Foxconn had been progressing well in meeting Cisco’s expectations. It had won “Transformation
Partner of the Year” awards from Cisco twice in the previous three years. In August 2007, the
company had just received its “Level 3” qualification from Cisco, after passing tests qualifying it
to build the most complex products for the networking company. Cisco rated and qualified its
contract manufacturers using three levels, with Level 1 indicating the simplest products and
manufacturing processes, Level 2 indicating a middle ground, and Level 3 indicating the most
complex products and processes. Flextronics, Jabil and Celestica previously had qualified at
Level 3.
Before officially awarding the Viking job, though, Cisco did a full technical assessment of
Foxconn and asked it to build and run dozens of test circuit boards through its soldering,
assembly and other key processes to validate full capability. The result was that the Viking router
would be built at Foxconn’s massive, walled manufacturing site in Shenzhen, China, where less
complex Cisco products were made.
Foxconn had won an opportunity to move up the food chain. Leticia Jensen said, “Over the
assessment period, we noted the high executive level commitment, excellent team, and a
demonstration of processes and technical capability. Foxconn proved they were committed and
ready to take on this challenge.”
For Cisco, choosing Foxconn was a high-risk, high-reward decision. The upside would come
from validating this partner’s ability to successfully make a complex but extremely cost-sensitive
product. But there would be a downside if Foxconn proved unable to handle the Viking router’s
technical complexity with the quality, reliability, speed and low costs that Cisco needed.
The question for the Viking team was: Should Cisco take the technical risk or the cost risk?
“Option A” would be to pick a proven, technically savvy partner and work with it to reduce
technical risk and drive down costs. “Option B” would be to select a low-cost provider with less
experience in this technology and complexity and work through the learning curve with it,
according to Westhauser. He said, “When we did the analysis, we decided to go with low cost.
You find when you design processes, it’s harder to turn a Mercedes into an entry-level Toyota
than to turn an entry Toyota into a Lexus. Mercedes has never been able to put out a low-cost
car, but Toyota was able to migrate from entry-level cars up to Lexus.”
A major argument for Option B was that low-cost manufacturing required certain fundamental
disciplines that were hard to teach. Westhauser observed:
There are disciplines and mindsets in achieving low costs. One of the mindsets is
a passion for eliminating and finding waste. It's a mindset of do it right the first
time. It's a mindset of do it as simply as possible. We thought we would better be
able to teach someone with a low-cost mindset and low-cost disciplines to handle
the complexity.
There were also long-term benefits to Cisco from developing a low-cost supplier—even if it had
to spend more time, money and effort in the short term to go through the extensive validation
that was required. If Foxconn succeeded with Viking, Cisco would gain flexibility in its choice
of contract manufacturers for future generations of high-end products. Leticia Jensen said, “If
Foxconn proved that they could manufacture high-quality, high-end products, they would be
another choice in our portfolio. In the ideal supply chain, all our partners are capable of
manufacturing all our products.”
The Viking Supply Chain
But the trump card was Foxconn’s vertical integration. Cisco liked the idea that many different
pieces of the Viking manufacturing could be done on a single campus in China, sometimes in
adjacent buildings. Foxconn’s massive site in Shenzhen could handle a wide range of tasks.
These included making tooling and molds; performing sheet metal and plastics work; using
surface mount technology to load components onto circuit boards; doing product assembly;
making key parts such as the metal chassis; and doing testing and integration work. In addition,
Foxconn, as the world’s largest electronics contract manufacturer, had deep experience in
procuring components, an area where it enjoyed extensive buying power and economies of scale.
Cisco carved out a broad role for Foxconn. The contract manufacturer would be responsible for
all major subassemblies, except power modules, fans, and optical technology plug-ins, which
would come from other vendors. Foxconn would assemble the router’s chassis, “backplane,”
circuit boards, power tray, and fantrays in Shenzhen. These subassemblies would be trucked to
Foxconn’s “direct fulfillment” site in Hong Kong, about a two-hour drive away. The Hong Kong
site would do final assembly, testing and customer configuration of the product, which would be
shipped out by a third-party logistics company located at Foxconn-Hong Kong. There would be
about a dozen major suppliers, although Foxconn would buy components from a few hundred
suppliers in all (Exhibits 3 and 4).
The Viking supply chain was tightly focused on a single company. In the past, by contrast,
Cisco might bid out work on the chassis, backplane, printed circuit board assembly, system
integration, and direct fulfillment to separate suppliers to be done at different sites. In Viking’s
case, Leticia Jensen said, “We were looking to streamline the whole supply chain to a mega-site
where we had all the different elements being manufactured real-time and coming together very
quickly. A single site being accountable for all the major pieces of the supply chain created an
agile structure. The ability to react to market demand shifts with speed was very big for us.”
In addition, the extended supply chain was concentrated in Asia, to be near Foxconn and to tap
the region’s strength in low-cost production. Foxconn would be purchasing electronic parts from
a list of suppliers qualified by Cisco’s global supply chain management group. Most of the
components would come from suppliers in China, Malaysia or elsewhere in Asia. Monica Patel,
new lead product program manager observed, “What they’re trying to do here is satisfy end-to-
end as much as they can in Asia long-term. It makes it much easier and more cost-effective.”
Foxconn’s Vertical Integration
The Viking team saw numerous benefits in Foxconn’s high degree of vertical integration. It
could make manufacturing more flexible, responsive and efficient, resulting in lower costs,
easier logistics, shorter lead times, simpler information flow, and easier coordination. Leticia
Jensen noted, “Foxconn could provide us with a fully integrated solution that not only provided a
responsive and cost-efficient supply chain, but it also improved the ease of doing business for
our team.” (Exhibit 5)
With Foxconn handling many aspects of manufacturing in Shenzhen and overseeing final
assembly in Hong Kong, most of the Viking production could be located within a two-hour
drive. For instance, printed circuit boards could be trucked to the direct fulfillment site in Hong
Kong rather than being transported by ship between, say, Malaysia and Mexico. This could
sharply cut transportation costs and save days of shipping time. It could also reduce inventory
needs and save money tied up in holding inventory. Cisco could react more quickly to
fluctuations in customer orders; the Hong Kong fulfillment center, for instance, could quickly
replenish its inventory of circuit boards, since they were assembled in Shenzhen, just north of
Hong Kong. The arrangements could result in shorter lead times to get product to customers.
Foxconn’s vertical integration also meant Cisco could eliminate price markups that normally
came with having numerous layers of suppliers. Kevin Sin, manager of program management
for Foxconn, said, “One of the reasons we have a lower cost is that we are so integrated.”
The “one-stop shopping” that Foxconn offered could make it simpler and easier for Cisco to
manage Viking manufacturing, since it was dealing mostly with a single contractor. Relying on a
single supplier to handle many manufacturing tasks on a single campus also could simplify
information flow throughout the supply chain. Sin noted, “Everything can be done internally (to
Foxconn). It’s the same campus. If there’s a problem, I can ask them to come over to talk to us.
Nothing can beat face-to-face.”
Yet, there were tradeoffs to Foxconn’s vertical integration. Cisco ran the risk of being overly
dependent on a single supplier and whatever financial and operational constraints it had. This
could present a higher risk for this product than if the supply chain were fragmented. Leticia
Jensen acknowledged, “You’re basically putting all your eggs in one basket and making a bet on
your partner’s long-term success.”
The tight integration also meant that Cisco could miss out on the chance to use suppliers that
might be even more efficient or skilled than Foxconn at individual steps in manufacturing. And if
there were a natural disaster in southern China or a catastrophe or poor performance at
Foxconn’s manufacturing site, a tightly focused supply chain would suffer a more devastating
impact than if production resources were more dispersed.
Incentives in the Partnership
Both Cisco and Foxconn had strong motivations to work together closely. Leticia Jensen noted,
“The key mitigation to risk in this project was the fact that both partners had a lot at stake. We
had very strong incentives to succeed together.”
For Cisco, engaging closely with the contract manufacturer would help ensure the success of a
key new router platform and reduce the risks of using Foxconn in the untested situation of
making a sophisticated carrier-class product. In addition, Cisco had long-term incentive to
develop the contract manufacturer. If Foxconn performed well in making a high-end router in a
low-cost manufacturing environment, Cisco would have more flexibility for future products.
For Foxconn, a major incentive was the chance to prove itself on a more complex product, thus
opening up new business opportunities. Foxconn’s Sin said, “We always wanted to move to
high-end products. High-end products have more value-added content and better market
diversification. If we perform well, it is pretty obvious that we will get more projects.” (For
Foxconn’s perspective, see Appendix 1.)
The two companies also had contractual provisions and built-in processes to help manage their
relationship and the risks to both sides. Contracts between Cisco and its contract manufacturers
typically established cost targets, quality goals, pricing, materials markups and timelines. But
they were reviewed quarterly, with the possibility of terms being renegotiated. In addition, Cisco
did quarterly evaluations of its contract manufacturers and their individual production sites,
informing them of how they scored relative to other contract manufacturers.
Ensuring Success
Cisco’s NPI process required that steps be taken to reduce the risks inherent in new product
development. Because Viking was a major and complex program, the team knew that “risk
mitigation” measures would be more crucial than ever.
Cisco engaged its Viking supply chain partners early on to help simplify product design and
manufacturing processes. The goal was to maximize the ease and efficiency of manufacturing, a
concept known as “design for manufacturability.” Early on, for example, it contacted suppliers
of the 65 custom parts that would be in the router, and incorporated their feedback when building
prototypes. Compared with the 7600 router, the Viking machine had 16 percent fewer
mechanical parts, a greater amount of reusable hardware, and shorter assembly times.
Getting Foxconn closely involved early in development was another way of lowering risk and
ensuring success. In early 2008, Foxconn sent three of its Chinese engineers to work alongside
Cisco engineers in the laboratories of Cisco’s Building 20. They stayed for several months
working on early prototypes.
Leticia Jensen said, “The Foxconn engineering team was involved in bringing up proto units,
setting up test equipment, helping with debug, and putting together documentation very early
on.”
Westhauser added, “We never before had our partner’s engineers with cubicles in the Cisco
design buildings and benches in the laboratories. They've been right there with us and hands-on
as equal team members.”
Later on, Cisco sent eight engineers to Shenzhen as consultants, but with Foxconn engineers
responsible in early manufacturing, according to Westhauser.
The two companies cooperated intensely on prototyping in order to reduce the risk of technical
failure. The first two batches of Viking prototypes were built at Foxconn’s prototype facility in
San Jose, only a few miles away from Cisco headquarters. The third batch was made in
Shenzhen, marking an unusually early shift from lab to manufacturing site. The goal was to
transfer knowledge and experience as early as possible from Cisco’s engineering labs in San Jose
to Foxconn’s manufacturing floor in Shenzhen.
Cisco and Foxconn adhered to a strict schedule for developing, producing and testing prototypes.
More than 100 prototype chassis were built and about 1,000 prototype line cards were produced.
The unusually large number of prototypes was needed for distribution among the far-flung
software and hardware engineering teams that were working on Viking.
Collaborating with Technology
The Viking project represented a major exercise in global, cross-functional teamwork, supported
by a host of technology tools. More than 300 Cisco employees worked on the Viking project,
estimated Hosakote.
Just within the engineering organization, five sites were involved: San Jose; Research Triangle
Park, North Carolina; Petaluma, California; Boxborough, Massachusetts; and Bangalore, India.
To keep development going on a compressed schedule, prototype hardware had to be shipped
continually by Federal Express among the sites for engineers to work on. The “sheer logistics”
were immense, said Hosakote. In addition, there were four different sites working on software
for the router, presenting a challenge of getting “culture aligned,” he said. For instance, an
engineer in Massachusetts might be called on to influence and motivate developers in North
Carolina—via Cisco’s WebEx webconferencing or its TelePresence teleconferencing system.
Hosakote commented, “We needed to listen to each other and help each other no matter where
we were. How do you get people in San Jose helping someone in North Carolina that might be
falling behind? The project gets done no matter where you are.”
Viking team members used Cisco’s NPI Metrics, a web-based tool that provided a single view of
timelines and tasks for the far-flung team. Once a week, project managers in San Jose ran
meetings with multiple Cisco sites participating by dialing in or videoconferencing.
In the last three months before product launch, the Viking team used the difference in time zones
across the globe to keep the work going 24/7 among seven locations—California, Massachusetts,
North Carolina, Bangalore, Shanghai, Malaysia and Shenzhen. They held dial-in meetings three
times a day, at 8 a.m., 2 p.m., and 8 p.m. California time, so that multiple sites could join in.
They used a “wiki” web site to share and update information and to hand off work daily between
California and China. Westhauser commented, “This was probably the most globally developed
product that Cisco has ever had.”
Technology links between Cisco and Foxconn also helped ensure smooth collaboration. For
instance, Cisco engineers could log in remotely to Foxconn in San Jose or Shenzhen to test,
diagnose and troubleshoot prototype boards and routers. The contract manufacturer had access
to Cisco’s ERP, or enterprise resources planning, software system and to its software tools for
creating the bills of materials needed in procurement.
Marketing Decisions
The Viking team faced a series of decisions on how to position and launch the product. Overall,
the router had to be competitive on two fronts—the cost per port needed to be low and the
machine needed to be upgradeable to a high density of ports on each circuit card. Early on,
Cisco set targets for both. In addition, Cisco benchmarked against prices competitors were
charging and looked at historical pricing data on its previous routers.
Cisco also wanted to ensure that the ASR 9000’s pricing would not disrupt the company’s pre-
existing business selling the 7600 router. Gibbs explained, “We have a very large, established
business with the (7600) platform. We wanted to price at parity with the 7600. That gave us a
well-established price per port target.”
Viking was a major new platform, so Cisco was determined to make a broad splash with the
marketing launch. A key goal was to portray the router as a next-generation edge router platform
that could carry service providers through the next 10 to 15 years.
Cisco orchestrated the product launch in a major new way—by using the latest Web 2.0
technologies and pitching the service provider router like a consumer product. To build buzz in
the months before the launch, the company created a fictitious blog featuring humorous video
clips of a bumbling tech reporter, Ira Pumfkin, chasing down Cisco executives, including CEO
Chambers, to ferret out details of a big, upcoming product announcement. There was a
downloadable video showing off the router’s speed and power. Developed jointly with ad
agency Ogilvy & Mather, the video evoked a television ad for a luxury sports car. Both the
reporter’s blog and marketing video were posted on YouTube. To market as well as entertain
customers, Cisco created an online video game about piloting a rocket ship while managing data
packets on a high-speed network. In addition, the company briefed 155 industry analysts and
reached out to business and trade journalists, resulting in more than 100 articles following the
ASR 9000 launch on November 11, 2008.
Commenting on the new-style marketing launch, Gibbs said, “We realized there are a lot of
different ways people get their information now. The Viking introduction took it to a whole new
level. This was significantly more complex (than past product introductions).”
CONCLUSION
In late 2007, as the Viking team looked ahead to launching the major new router, it hoped to set
a new bar for sophistication in Cisco’s product development efforts. The Viking program would
test Cisco’s NPI expertise as never before. Cisco had to launch the product extremely quickly.
It wanted to break ground by outsourcing manufacturing of a high-end product to a low-cost
foreign site from Day One. It proposed to elevate its contract manufacturer, Foxconn, to a new
level of product and process complexity. The Viking program would require an unprecedented
amount of global, cross-functional collaboration within Cisco and with its business partners.
How could Cisco best meet these challenges?
STUDY QUESTIONS:
1. What are the challenges and risks faced by technology companies in new product
introduction?
2. What were the risks and benefits of using Chinese contract manufacturing from the start?
3. In selecting Foxconn and expanding its role in the supply chain, what were the potential
risks and values to Cisco?
4. What should Cisco do to mitigate these risks and ensure successful development and
launch of the Viking router?
Exhibit 1
Cisco’s New Product Introduction Process
Brainstorm design ideas
Product Requirement Document and Business Plan approved
Concept Commit
Define and verify product design Phase 1:
Create product design specifications Strategy &
Planning
Execute Commit
Agree on design specifications
Agree on revised Product Requirement Document
Commit resources
Prototyping
Goal: 2 rounds of prototyping, P1 & P2 (sometimes more needed)
Design for Manufacturability review
Develop product testable on Autotest system
Phase 2:
Execution
Final Technical Readiness Review
Review results of prototyping (e.g. yields, quality measures)
Release to AO or pilot
Pilot Build
Done at manufacturing site
Orderability Review
Are suppliers ready?
Can ship date be met?
Can ramp-up in demand be met?
Add to Cisco price list
Ready to release
First Customer Shipment

Ship to initial customer(s) from pilot build
Phase 3:
Time to Quality and Volume Deployment
2-3 months after First Customer Shipment

Analyze production yields and costs
Can product be made cost-effectively in high volumes?
Can manufacturing costs be reduced later in product lifecycle?
Was Six Sigma achieved?
Post-Project Assessment
What went well and not so well?
Discuss successes and lessons for future projects
Source: Information adapted from interviews and from “Cisco Systems, Inc.: Acquisition Integration for
Manufacturing,” GSB OIT-26, January 1999 (rev’d February 3, 2004), pp.5, 28-29.
Exhibit 2
Viking Product Photo
Source: Reprinted with permission from Cisco Systems, Inc., marketing brochure for the ASR 9000 router.
Exhibit 3
Viking Comprehensive Supply Chain
Carriers
(Sheet Metal
Trays)
Printed
Circuit Board
Fabrication
Printed Circuit Logistics Center - US, Canada
Board North America
Customer
Assembly
San Jose
Connectors Foxconn China
Logistics Center Japan

Direct Fulfillment & Customs -
Bulk (labels, Japan Customer
accessory Logistics
kits) Foxconn HK Center
Hong Kong
Logistics Center- APAC
Fan Tray Asia Customer
Foxconn China Hong Kong
Power Tray
Logistics Center- EU
Foxconn China Europe Customer
Optical Netherlands
Power Pluggables
Modules
Chassis with
Backplane
Foxconn China
Source: Reprinted with permission from Cisco Systems, Inc.
Exhibit 4
Viking Key Mechanical Supply Chain Components
Backplane Fabrication
Backplane
AC/DC Power Supply Assembly Connector
Modules Foxconn China
Bus Bar
Electro-Mechanical
Integration and Test
Foxconn China
Direct Fulfillment Chassis
Foxconn Hong Kong Foxconn China
Fantray Assembly and Power Tray Mechanicals

Power Tray Foxconn China
Test
Foxconn China Assembly and Test
Foxconn China Power Printed Circuit
Board
Fan Circuit Foxconn China
Board Assembly Fan Assembly
Foxconn
Power Supply Fabrication
Fan Circuit Board

Fabrication
Source: Reprinted with permission from Cisco Systems, Inc.
Exhibit 5
Foxconn Vertical Integration
Source: Reprinted with permission from Foxconn Technology Group.
Appendix 1
Foxconn’s Perspective
Foxconn was the trade name for Hon Hai Precision Industry Co. Ltd., a publicly traded company
in Taiwan that, by 2007, had become the world’s largest contract manufacturer of electronics and
China’s biggest exporter.40 Operating anonymously from its network of factories around the
globe, Hon Hai churned out an array of brand-name tech gear for clients, including iPods and
iPhones for Apple, Wii game consoles for Nintendo, PlayStation game machines for Sony as
well as products for Dell, Hewlett-Packard, Motorola, Cisco and others. Hon Hai’s success,
along with the growth of other top-tier, global contract manufacturers, contributed greatly to
China’s emergence by the twenty-first century as the electronics factory of the world.
The Hon Hai group notched up $40.6 billion in revenue for 2006 and $53 billion in revenue for
2007 by serving customers in the “3C” fields—computer, communications and consumer
electronics. The group had nearly two dozen production facilities, with more than 40 million
square feet of factory space, and 16 research and development facilities around the world. 41
In China, Hon Hai by 2007 employed some 450,000 workers, including 270,000 at its massive
facility in Shenzhen, near Hong Kong. The Longhua Science & Technology Park was essentially
a company town that had dozens of assembly lines and dormitories. It had its own fire brigade,
hospital, stores and television network. Even the manhole covers were stamped “Foxconn.”
Massive dining halls served tens of thousands of meals a day.42 The company even produced its
own robots for making dumplings.
Hon Hai had come far since Terry Gou founded a business in 1974 to make plastic knobs for
televisions. In the early 1980s, Gou expanded into the personal computer business, making
connectors linking parts inside the PC. In 1988, he opened his first Chinese factory, in
Shenzhen. Hon Hai grew quickly as it moved into producing other components such as metal
enclosures and printed circuit boards. By the early twenty-first century, Hon Hai could offer
customers a broad portfolio of services, including building entire boxes, system integration, final
test and assembly, procurement, supply chain management, prototyping, test design, and product
design. It also possessed key manufacturing skills such as making tooling and molding. Hon Hai
could make many of its own parts, helping it with cost competitiveness. 43
Viking’s Significance to Foxconn
Getting the Viking business was a coup for Foxconn, since it represented a step up in the
complexity of product Foxconn was entrusted to make. Sin commented, “If we can prove that
we can build a higher-end product, then it’s a lot more business opportunity for us.” The project
helped change “perception” about Foxconn’s capabilities, according to Sin.
40
Jason Dean, “The Forbidden City of Terry Gou,” The Wall Street Journal, August 11, 2007,
http://online.wsj.com/public/article/SB118677584137994489.html?mod=blog (February 18, 2009).
41
“Company Profile,” Hon Hai Precision Industry Co. Ltd. presentation, October 2, 2008.
42
Dean, op. cit.
43
Ibid.
In addition, Foxconn saw an advantage in the Viking router’s long product life cycle, which
contrasted with a consumer electronics gadget that had many new releases and needed frequent
engineering and manufacturing changes. A router platform intended to last 10 to 15 years could
mean greater cost savings in production and higher profit margins over the long term for a
contract manufacturer.
Of course, the risk of taking on a more complex product would be whether Foxconn could
execute well. Sin noted, “This product is shipping to the service provider. So the quality level,
the reliability level, are really high. Basically you cannot make any mistakes.”
It did not take a huge stretch in Foxconn’s manufacturing, supply chain management and
procurement skills to handle the Viking project, according to Sin. But there were some new
areas where the company had to develop expertise: quality inspections and testing/debugging.
With a product for the carrier market, quality inspections were more stringent and prototype
testing was more intensive.
Working closely with Cisco engineers, Foxconn put much effort into mastering the intricacies of
prototype circuit boards, produced first in San Jose and later in Shenzhen. Besides sending
several Chinese engineers to work in Cisco’s San Jose labs for a few months, the contract
manufacturer later dispatched a team of engineers from home base in Taiwan to support testing
and debugging at the manufacturing site in Shenzhen. Eventually, Foxconn’s engineers would
have to write the debugging manual for the Viking, so it was imperative to get the technical
knowledge and hands-on experience with the boards transferred as early as possible to
Foxconn’s engineers from their counterparts at Cisco.
Overall, Foxconn devoted major resources to the high-priority Viking project. At least 100
Foxconn staffers in the United States were involved in the project, according to Sin, who
recalled, “This was one of the top priorities … because we knew it was a test for us.”

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For the exclusive use of S. Louis Jeune, 2019.

CISCO SYSTEMS, INC.: COLLABORATING ON NEW

CISCO’S TRACK RECORD AND COMPETENCIES

Indeed, Cisco emerged as a company that truly understood—and zealously championed—the

Collaboration and Globalization

Creating a Global, Flexible Supply Chain

Traditional manufacturing operates utilizing a ‘push’ model. In other words, a

Innovating in New Product Introduction

VIKING PRODUCT AND MARKET

Product Features and Positioning

FACING THE VIKING CHALLENGE

Early Customer Engagement

Building in a Low-Cost Location

The Viking Supply Chain

Foxconn’s Vertical Integration

Incentives in the Partnership

Collaborating with Technology

First Customer Shipment

2-3 months after First Customer Shipment

Logistics Center Japan

Source: Reprinted with permission from Cisco Systems, Inc.

Fantray Assembly and Power Tray Mechanicals

Fan Circuit Board

Source: Reprinted with permission from Cisco Systems, Inc.

Source: Reprinted with permission from Foxconn Technology Group.

Viking’s Significance to Foxconn

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