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Cisco Case study

Applied Organization Behavior (San José State University)

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Study Case

Integrative Case 10.0 Cisco System: Evolution of Structure

BUS 161B

Professor Thomas Altura

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Background

Whether you are a Millennium or Generation-Z (gen-z), the purpose of technology is in the best

interests to provide us with the latest innovations, products, information systems, and along this

brings services that cover each of these criteria. Stanford Scientists Bosack and Lerner graduates

founded Cisco Systems in 1984 “created a multiprotocol router”. Some of the main attractions

are software, networking hardware, telecommunications, and other high- technology. After many

challenges along the way during the business process, Bosack and Lerner turned to venture

capitalist, Sequoia Capital. Ultimately, Bosack and Lerner were given no choice but to exit, and

under the new management, Cisco went public in 1990.

Organizational Structure

Cisco’s new structure has implemented more business councils to provide better service to reach

new customer segments. From the very start, the company faced challenges and was seeking to

better their culture to fulfill their expectations, needs, and this included adding new programs

that can spread to the new market. According to Richard Daft, “organizational structure has three

key components.” (pg 88, chapter 3) Organizational structure describes a written relationship,

several different levels of responsibilities, and distinguishes between managers and supervisors

in the hierarchy. These structures also classify groups that are put into roles that fit the whole

organization. It also includes the design system where employees could obtain information about

communication, organization and how groups can collaborate in the company. These three key

components belong both vertically and horizontally in the organization. The first two key

components are the structural framework. The last component specifies interaction in the

organization. Cisco’s new adaptation of organizational structure opened new opportunities to

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capture new market segments. In conclusion, Cisco's structure has evolved as the company

improved communication with their employees and customers.

Operating Goals

Cisco focused on the three divisions, the service products, enterprises, and small to mid-size

commercial companies. Each of the three divisions had its engineering, manufacturing, and

marketing functions. It was convenient that the three divisions had their teams, therefore Cisco

did not have to use outsourcing. These types of operating goals motivated employees to

collaborate efficiently within their division. The managers were recognized for their work and

received incentives for their performance. In the late 1990s, Silicon Valley took a downturn

financially where many high-tech companies struggled to survive. The three divisions were

dismissed where many of the engineers had formed into different groups to focus on the core of

technologies, which brought efficiency and reduced overlapping of similar projects. With these

changes, the top manager of Cisco focused on providing specific guidelines to many different

divisions and evaluate their performances accordingly now, with fewer employees, the top

managers can easily control the divisions. Each division only has to focus on specific tasks

where many products are created, and product lines are expanded globally. This method will be

profitable because employees are reduced, and each department can focus on their specific tasks.

Because Cisco is a rapidly growing company, many of the products are innovative and expanded

globally, so Cisco has many ideas in their future development. Therefore, Cisco’s goal is to have

their employees focus on specific tasks and collaborate with team members. Thus, Cisco can

provide the customer service that they are expected.

Organic Design

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To begin with, Cisco 1’s three divisions originally started with a decentralizing movement

continued with this structure for a short period of time. While the prominence is to continue to

progress towards organic design, it was also a reminder for the company to find balance with

these structures. Forcing your ways through people to follow its constraint environment can be

viewed as challenging, overpowering and these two do not fit well with a horizontal approach.

Cisco 1 was effective in the horizontal design for a short period of time, then transitioning to

Cisco 2 CEO John Chambers noted that Cisco’s dilemma had many of its engineers fail to

collaborate when designing a product given no clear communication, nor awareness between

engineers. Chambers switched to a vertical approach assigning managers for different

departments to keep track of the engineers and their sales performance, meanwhile, staff felt it

turned into a hierarchical mannerism seen with the managers.

In 2006, Cisco 3 decided to give horizontal design another try, but with changes in each of

business segments with assigned roles. According to author Daft, “The new structure added 12

business councils at the senior level, one for each key customer segment. Each council was

composed of approximately 14 executives VPs and senior VPs roughly one from each major

function”. ( pg 613, Richard Daft). Whether Cisco chooses to operate in a vertical, or organic

design the key is to find the balance between the two and create a healthy working environment.

Mechanistic Design

Cisco is a large mechanistic design company. It uses the vertical approach and the least amount

of resources since many of the departments are collaborating with each other. So, it is more

efficient which also makes the customers and the organization more stable because employees

are focusing on specific tasks and projects will not be overlapping. Therefore, Cisco had to

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restructure their organization to go with the times, and companies need to be innovative to move

forward.

Benefits:

The benefits for Cisco is that they went back to a horizontal collaboration using a matrix

structure to divide the different departments and to bring characteristics to the company. The

reason being is so that they can communicate with each other. The key to success is

communication. The divisions also started a new work culture that wasn’t there before which led

to better horizontal coordination. This also split up the vice presidents which allowed them to

coordinate the different departments they are designated to. Another significant benefit the split

brought to Cisco was that it helped them respond to change better. This also led to better

teamwork and they were able to share information needed to constant innovation.

Costs:

The costs of changing strategies cost the founders to be exited out of the company when new

management became part of the Cisco System. Early organizational strategies were focused more

on creativity rather than efficiency which works best in a dynamic and growing environment.

Due to the lack of communication and collaboration between divisions, Cisco found itself

redesigning a more functional structure that demanded to cut the workforce, vendors, suppliers,

and manufacturing plants. The company overlapped the major functions of the company to

streamline operations and cut costs. As the company expanded globally as well as to a horizontal

collaboration structure, some senior executives had difficulty adjusting to the new culture

evolution, an estimated 20 percent of these top executives were lost. Fast forward to 2014, the

CEO predicts more changes for the company in order to stay a major player in the IT industry.

Conclusion

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Cisco Systems has had to adapt to different organizational designs throughout its history. Starting

from a decentralized structure where its focus was to innovate, develop, and grow in an

organizational culture that had minimum or none communication and collaboration among each

division. Cisco navigated from a vertical design which led to the change to a horizontal design

that gave the company a more mechanistic structure that would concentrate on efficiency for

employees, customers, products, and services. Cisco Systems will more likely be changing its

organizational structure to stay competitive in a very dynamic and innovative environment.

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