Corporate social responsibility in high technology companies: Cisco Systems

Corporate Social Responsibility in High Technology Companies

Cisco Systems

Cisco Systems is the world leader in the development, design, manufacturing and selling of home, small business and enterprise networking, telecommunications and online security. The company's thousands of products are used for building networks that make the transmission of voice, data and video across offices, campuses, cities and continents possible. Founded in 1984 by a group of computer scientists who worked on the fundamentals of router technologies at Stanford, Cisco grew exponentially during the networking and Internet growth periods of the late 1980s and 1990s. During the 1990s specifically Cisco's Mergers and Acquisitions (M&A) Department was responsible for between 40 and 50 acquisitions per year, with only a fraction of them being publicly announced. The company's M&A activities were at one time so active that the Vice President of Business Development, who runs the M&A activity for the company is written about often in blogs and mainstream media including the article, Cisco's Connections (2006) a profile of the M&A activity and the growth-by acquisition strategy the company has had throughout the 90s. As the M&A strategies of the company has been mainly responsible for its growth, several other key announcements also led to the growth of Cisco. These include the strategic acquisitions of Grand Junction Networks and Stratacom in 1996, which gave Cisco Ethernet products that, would become the basis of interlinking companies to the Internet. The acquisition spree continued into 2001 and 2003 where Cisco began purchasing companies to p[penetrate the wireless and home networking markets, the most notable acquisition being Linksys Technologies, a wireless home networking provider. In 2005 Cisco and EMC announced plans to create enterprise storage systems that could span multiple locations globally, a technological achievement no other company has matched. Also in 2005 MCI and Cisco worked together on a series of joint marketing and development activities globally to increase bandwidth speeds for emerging markets including China.

Cisco today has grown to employ over 39,000 professionals including 6,800 in manufacturing and service, 13,900 in engineering, 14,200 in Sales and Marketing, and 4,100 in Finance and Administration. The company is organized in five business segments that are categorized by product class. These include switches, routers, advanced technologies, services and other products. Switches are the majority of revenue at 40.7%, with routers contributing 22.2% followed by Advanced Technologies at 17.8% and other products and services contributing the remaining 3.4% and 15.9%. Cisco also has organized its sales operations into the Americas Region, Europe, Middle East and Africa (EMEA), and Asia-Pacific and Japan. The company further defines its four main categories of customers as large enterprise businesses, service providers, commercial customers, and consumers.

Financial Reports and Analysis

Throughout the last five years of Cisco's financial performance, the company has gotten the reputation of looking to continue its impressive growth rates through major acquisitions. The many smaller acquisitions that fueled their leadership position in the home and enterprise wireless markets did inflate revenues, yet John Chambers, CEO of Cisco, advises that the company does not necessarily need large acquisitions to continue its growth pace. Chambers contends that the Emerging Market sector will deliver significant growth over the long-term. The latest financial results reported by Cisco show this to be the case. Figure 1, Revenue and Gross Margin Breakdown by Major Geography, shows the strength of Emerging Markets in the latest financial quarter ended September 30, 2006. For purposes of this analysis Emerging Markets is defined by Cisco as Middle Eastern and Eurasian nations.

Figure 1, Revenue and Gross Margin Breakdown by Major Geography

Cisco is finding success in emerging global markets mainly as a result of its strong distribution channels and excellent partnerships in these areas of the world. Overall performance and year over year growth is strong globally with the exception of Japan.

In evaluating their overall financial performance, Figure 2, Financial Ratio Analysis of Cisco Systems, shows why this is considered one of the best-run companies in the tech sector of the U.S. economy today. While gross margins are typically very thin in networking products in general and more specifically in the wireless markets where pricing competition is fierce, Cisco has been able to deliver a 120% Return on Investment and a consistently stable level of Return on Equity and Gross Margin. For an Income Statement Analysis of Cisco Systems please see the Appendix.

Figure 2: Financial Ratio Analysis of Cisco Systems

7/29/2006

7/30/2005

7/31/2004

7/26/2003

7/27/2002

Profitability Ratios

Return on Equity (%)

23.34

24.77

19.24

12.77

6.61

Return on Assets (%)

12.88

16.94

13.96

9.64

5.01

Return on Investment

28.62

23.74

12.94

Gross Margin

0.066

0.067

0.069

0.07

0.064

EBITDA of Revenue (%)

29.1

33.97

35.09

34.29

25.78

Operating Margin (%)

24.56

29.9

28.54

25.86

15.43

Pre-Tax Margin

26.8

32.4

31.72

26.55

14.33

Net Profit Margin (%)

19.59

23.15

19.96

18.95

10.01

Effective Tax Rate (%)

26.9

28.56

28.95

28.63

30.15

Liquidity Indicators

Quick Ratio

1.87

0.97

1.21

1.21

1.67

Current Ratio

2.27

1.37

1.65

1.62

2.08

Working Capital/Total Assets

0.33

0.1

0.16

0.14

0.24

Debt Management

Current Liabilities/Equity

0.47

0.41

0.34

0.3

0.29

Total Debt to Equity

0.26

Long-Term Debt to Assets

0.15

Asset Management

Revenues/Total Assets

0.66

0.73

0.62

0.51

0.5

Revenues/Working Capital

1.98

7.05

3.91

3.69

2.09

Internship Opportunities

In terms of hiring interns from local colleges and universities, Cisco is one of the few companies to actually post open positions in their open jobs database accessible by anyone on the Internet. Cisco Internship Positions (2006) shows twenty six positions open today, all of them paying jobs, where the interns receive a stipend, and if their performance on the job is strong enough, the chance to come back after they finish their degrees and work for Cisco full-time. Numerous senior managers and directors in the company have completed their internships and come back to work for years at Cisco, progressing through the ranks of the company. It is commonplace to find at least two or three Vice Presidents at Cisco who have had this career progression as well. The company seeks interns in San Jose, California, the Research Triangle area of North Carolina, and at smaller engineering locations throughout the world.

Social Responsibility and Corporate Citizenship

Cisco is considered to be one of the most ethically astute and well-run companies in the United States today, receiving many awards for their work on Social Responsibility Initiatives and Corporate Citizenship. The company employees well over 30 people to just manage their Corporate Citizenship Programs, which have won awards from all major cities in the Bay Area, including the economically disadvantaged areas of Oakland. Cisco Corporate Citizenship (2006) also has a report equal and scope and size as the entire corporations' annual report and details the company's major initiatives to the a world leader in the best practices of citizenship as a corporation globally. The company's code of conduct is 16 pages long and has grown as a result of the company's many mergers, acquisitions and moves into emerging markets, which are very successful according to the analysis completed earlier in this report. The Cisco Code of Business Conduct (2006) is designed to minimize the interruption and disruption Cisco would potentially make when entering a new market in an unfamiliar culture, and also strives for the highest levels of transparency and ethics possible. The fact that the ethics creed is on every employee badge at Cisco is a testament of how deeply John Chambers believes in this strategy of continually reinforcing ethical behavior. Not a single executive at Cisco has been indicted on insider trading or any other ethical lapses -- a rare feat given the rampant behavior of Enron and others in the late 90s and throughout the early 21st century

Cisco Charitable Giving Programs

Cisco leads all bay Area companies with charitable contribution programs, including a global initiative to take the lessons learned in the Bay Area and propagates them throughout the major geographies the company competes in. Cisco Community and Philanthropy (2006) shows the extent of the commitment at Cisco to these programs, as does the Cisco Grants and Donations Guidelines (2006) that also highlight how flexible it is for any nonprofit charity to gain valuable funding and support from Cisco. Cisco is considered a leader in this area and works to bring the role of charitable giving and volunteerism into their corporate governance strategies and global corporate citizenship. The overall effect of these strategies is enhance the company's reputation while serving others in the community who need support and funding to help those disadvantaged and needing assistance.

Corporate Social Responsibility at Blizzard

Modeling Cisco's CSR Programs and Initiatives

Cisco is considered to be one of the most ethically astute and well-run companies in the United States today, receiving many awards for their work on Social Responsibility Initiatives and Corporate Citizenship. Many academicians who study the link of corporate ethics and CSR programs point to the approach Cisco uses to manage its Corporate Citizenship as the overarching initiative to keep all CSR programs in synchronization with each other. For Blizzard, this is a pragmatic consideration; creating first a Corporate Citizenship strategy that includes support for the areas of educational outreach to low-income children, Blizzard University for high school and college-age students who want to also learn about game programming, and grants and subsidies for local nonprofit organizations who need their assistance. Taking this platform-based approach and modeling it after Cisco, Blizzard stands a very good change of sustaining its performance and results achieved on CSR initiatives for the long-term.

Cisco has a specific department just for its Corporate Citizenship Programs, which have won awards from all major cities in the Bay Area, including the economically disadvantaged areas of Oakland. Cisco Corporate Citizenship (2008) also has a report equal and scope and size as the entire corporations' annual report and details the company's major initiatives to the a world leader in the best practices of citizenship as a corporation globally. The company's code of conduct is 16 pages long and has grown as a result of the company's many mergers, acquisitions and moves into emerging markets, which are very successful according to the analysis completed earlier in this report. The fact that the ethics creed is on every employee badge at Cisco is a testament of how deeply CEO John Chambers believes in this strategy of continually reinforcing ethical behavior. Not a single executive at Cisco has been indicted on insider trading or any other ethical lapses -- a rare feat given the rampant behavior of Enron and others in the late 90s and throughout the early 21st century. Given the pervasive belief in doing well by doing good within the Cisco culture, Blizzard needs to work very hard to emulate these practices in defining their educational programs for low-income children and also for high school and college students.

Blizzard Needs To Supplant Education-Based CSR Programs

What Blizzard also must do as part of their education-based CSR strategy is to seek out nonprofit educational institutions that also require funding and assistance as Cisco does in the San Francisco Bay Area to funding technology-related teaching programs. Blizzard can do the same. Two of the critical building blocks of a corporate-wide CSR programs are defining the Blizzard Community and Philanthropy Program and the Blizzard Grants and Donations Program. Cisco has comparable programs in place for each of these strategies and has found it necessary from a purely administrative standpoint to have these two departments supporting their educational efforts as well. Both of these departments would also be given the reasonability of targeting which urban suburban and rural elementary schools to provide grants and financial aid to in the form of PCs, networks and programming courseware. Cisco has developed an entire application process by which elementary schools can apply for network started kits and advanced networking tutorials that, in conjunction with grants for the purchase of PCs and networking equipment, form the foundation for any school to be able to provide programming instruction and teaching. Blizzard needs to have these two departments, the Blizzard Community and Philanthropy Program and the Blizzard Grants and Donations Program, concentrate on creating a shared strategy for reaching out to schools who need their assistance the most and supporting them across both philanthropy and grants and donations. The focus on the former is geographically launching and then supporting the Blizzard programming educational support, and the latter, with continually funding the programs once they have been launched. Cisco has found that having an overarching CSR strategy that coordinates these two departments specifically gives them greater responsiveness to individual school and nonprofit organization requests. Creating this type of comparable structure is critical for Blizzard to launch and then sustain CSR programs with the goal of teaching programming techniques and new languages.

The Next Step: Creating Internship Opportunities

Taking another lesson learned from Cisco, Blizzard needs to also consider the progression of learning from fundamental concepts taught to elementary and middle school students to internships for high school and college-age students as well. In terms of hiring interns from local colleges and universities, Blizzard would be one of the few online gaming companies to actually create an introductory career path for interns to move directly out of their schools and into programming positions with the company. The internship positions would all be paying jobs where the interns receive a stipend, and if their performance on the job is strong enough, the chance to come back after they finish their degrees and work for Blizzard full-time. In other software companies who have done this including IBM, Microsoft and others, senior managers and directors in the company have completed their internships and come back to work for years at these organizations often progressing through the ranks of the company. It is commonplace to find at least two or three Vice Presidents at high tech companies including Cisco who have had this career progression as well, all begun from the company's CSR programs. The reciprocal nature of successful CSR programs benefits both the company and those they train, often finding innate talents within those most benefiting from the program as well (Berens, van Riel, van Rekom, 253, 254).

Summary

The bottom line is that CSR programs actually contribute to the growth of ethical climates, norms, values and behavior in organizations, which is a fascinating link between giving managers responsibility for serving others while re-defining their perspective of ethics (Cacioppe, Forster, Fox, 684, 685). While there certainly is a link between CSR programs and the benefits of more educated workers to companies that sponsor these programs in the long-term (Berens, van Riel, van Rekom, 234, 235) there is also the more fundamental aspect of changing how organizations enrich the communities that support them. Cisco has been used as a model for Blizzard to follow in this paper, and in defining a CSR program to educate low-income children about programming and also provide them a potential career path; Blizzard is in fact also re-shaping its own corporate culture for the good by making these investments as well.