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© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 1
BuildingEurope 2.0
Chris Dedicoat, President European Markets,Cisco
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 2
Innovation Heritage
The European Union Is 50 Years Old
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 3
Globalisation
Global Warming
Encouraging Democracy and participation
Europe in the World
What Will The Next 50 Years Bring Us?
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 5
Highly competitiveexternal growthenvironment
Highly concentrated EU economy International expansion already exploitedAvailability of talent
Constrainedorganic growth
Increasing customer acquisition costDeclining success of new product launchesOff-shoring of key functions
European EconomyMixed GDP growthSlow population growthLimited productivity gainsHigh Unit Labour Cost
* Period 2000–2005Source: Flash Euromonitor Survey on Entrepreneurship, The Economist;
2211 33
The European Climate
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 6
Business Leaders’ Greatest Concerns
Pricing pressures
Decreasing customer loyalty
Competition from lower-cost markets
Commoditisation of products and Services
Lack of productivity growth
Disruptive potential of new technologies
0% 10% 20% 30% 40% 50% 60% 70%
Level of threat the follow risks pose to your company between now and 2020 [survey Q2]
25-10-06
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 7
The Productivity GapWill Continue To Be An Issue
Growth of Overall Productivity of Labour(%-age change from previous year)
0.0%
Source: EIU
1.0%
2.0%
3.0%
4.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
United States
Western Europe
25-10-06
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 8
The Growth of Personalisation
Customer priorities now and in 2020
Personal relationships with employees
Brand values
Quality of customer service
Price competitiveness
Quality of product/service
Now (select up to three)
2020 (select up to three)
Personalisation of product/service52%
34%
25-10-06
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 9
Global Information Technology Report 2006/2007
Networked Readiness Index 2006-2007 (Top Ten)
Countries Rank 2007-06 Rank 2006-05 Change
Denmark 1 3 +2
Sweden 2 8 +6
Singapore 3 2 -1
Finland 4 5 +1
Switzerland 5 9 +4
Netherlands 6 12 +6
United States 7 1 -6
Iceland 8 4 -4
United Kingdom 9 10 +1
Norway 10 13 +3
+23028Portugal
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 10
Early Internet Days…
Universities Finance Enterprise SP
Consumers Become
Driving Force in Latest
Disruption
Today…
Consumer SPUniversities Enterprise
Changing Pattern of Technology Adoption
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 11
Europe Is In Transition
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 12
What’s Hot And What’s Not In
Peer production, co-creation, clip culture
Passive consumers,subscription content
Personalised products, niche marketing, dynamic advertising
Mass production, mass marketing, mass advertising
Cross channel content; mobile to web, TV to Mobile, IPTVParallel channels
Consumer driven supply chains
Supply chains basedon historical data
Virtual business modelsCommand & control business models
InteractionsTransactions
Euro
pe 1
.0
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 13
The New Economic Drivers In
People Power Social networkingNew B2C
interactions,virtual models
Intelligent IP architectures
Description Business Impact Cisco Solution
Video UnlimitedAny video, anywhereany format
New ways tocommunicate
VT Advantage, ANS Video Ready
Networks
Personalise ItLoyalty from
unique experiences
Customisable products +
services
IP/NGN – SEFUnified Comms,
Data Centre
Carbon Reduction Eco-efficiency Reduce travel,
telecommutingTelePresence
Unified Comms
Buy it Now Innovation throughacquisition
M & A to enternew markets
Experience of buying
120 companies
All Access Economy
Applications on theweb
Easy-to-use onlinecustomer tools Everything on IP
Source: Wired, Cisco
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 14
* Concise Oxford English Dictionary
Easier access to information
Growing influence of social networks and communities
Changes in media consumption
Increasing expectation of unique experience
Polarization of shopping behaviour
Consumer Power Has Created New Environments and Opportunities
EmpoweredConsumer /
Individuation
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 15
Serving the Long Tail
Mainstream luxury through customisation
Maximum convenience for minimum effort
Individual experience at universal store
Peer communication with customers
1
2
3
4
5
Early Strategies for Individuation
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 16
Source: Forrester; Team analysis
57%
2002
84%
2005
31%
2002
51%
31%
2005
65%
50%
2002 2005
28%
42%
FINANCIAL PRODUCTS EXAMPLE
The number of individuals evaluating alternative products before purchasing has increased by 50-80%
Easier Access To Information
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 17
Source: Neopets Youth Study; Annual Reports; Press Clippings; McKinsey analysis
… as individuals switch to online media…
General population
Teen population
Daily hours spent at activity
5.0
2.0
TV
0.5
2.5
Internet
450
21777
900
450
21777
900
2003 2004 2005 2006
… resulting in increased online advertising spend
Google UK advertising revenue
£m
1,300
800
TV advertising is losing effectiveness…
1990 2010
Advertising rates increaseDVR penetrationMulti-taskingSaturation
Indexed impact of TV advertising
100
40
-60%
Channel4
ITV 1
Changes In Media Consumption
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 18
0
5
10
15
20
25
Apr
-03
Nov
-03
Jun-
04
Dec
-04
Jul-0
5
Jan-
06
Source: Veronis Suhler; Forrester; IntelliSeek; McKinsey analysis
The number of blogs doubles every 6 months
Number of blogsm
Consumers trust peer referrals 2x as much as traditional media
USTrust level by advertising medium%
DoublingDoubling
Newspaper
Branded web sites
Recommendation from consumers
Online banner ads
Search engine ads
TV/Radio
56
70
90
10
35
47
Doubling
Doubling
Growing Influence of Social Networks and Communities
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 19
25 industries or product categories – 10 in Europe, 9 in North America, and 6 at global level; Growth rate for each tier represents weighted average of industries and product categories studied; CAGR = Compound annual growth rateSource: McKinsey analysis
9%High end
-6%Middle
4%No frills/value
Market average
Value growth of tier products and services*CAGR 1999–2004; %
< € 200
> € 900
€ 200–900
Volume growth Value growth
Volume and value growth by price pointCAGR 1999–2004; %
EU REFRIGERATOR MARKET
5%
-3%
21%
24%
2%
14%
The middle-market is shrinking as the luxury and value segments grow
This trend is true both in value and volume terms
Polarization of Shopping Behaviour
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 20
* Data compiled for food and beverage categories in France, Germany, UK, Italy and SpainSource: Information Resource, Inc. (IRI); World Retail Banking Report, Cap Gemini; Global New Products Database; McKinsey Analysis
Number of segments Number of food and beverage launches*
Companies are using micro-segmentation to satisfy individuals…
…and launching ever more new products to target niche customers
66
3,000
1995 2006 2006
100,000
Tesco Capital One
10,972
18,197
2000 2005
+66%
Increasing Expectation ofUnique Experience
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 21
My Son’s Mini
Enterprises are Capturing the Empowered Consumer Opportunity
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 22
By applying luxury BMW configurability to the mainstream Mini . . .
. . . Mini has established a profitable and successful model
* Internal estimateSource: Press clippings; JP Morgan;
Dresdner Kleinwort; Global Insight; company interviews; company websites
Units sold since launch yearThousand Mini
BeetleSmart
Profit per car£’000
1.8No rebate
0.5 0.5Extra options
1-3Brand premium
0.53.3Total
Revenue
Gross profit
Incremental value vs. competitors£’000
900
450*
-2,700
050
100150200250300
0 2 4 6 8 Years
Pric
e
Configurability for luxury cars
Customisation for mainstream cars
Luxury To Mainstream Through Customisation Is Good Business
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 23
BMW spend 4 times more than their counterparts on Cisco’s technology
Targeted demographic advertising
Consumer driven
Limitless personalised combinations
Active, creative social blog network… customer feedback/user generated content affecting next generation cars
The Mini Experience
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 24
John Chambers,President and CEO, Cisco Systems
“Cisco’s strategy is a story based on change—the market transitions that affect our customers. Through multiple transitions in the last decade and over the next 3–5 years, the network will evolve from the plumbing of the Internet—providing connectivity—to the platform that enables people to experience life.”
Delivering the Experience: The Network as a Platform…
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 25
From the Plumbing to the Platform
In the First Phase of the Internet, Networks
Provided the pipes to connect people with personal computers to the World Wide
Web—transporting data around the globe and enabling pervasive and ubiquitous e-mail, e-
commerce, instant messaging and other Web-based applications.
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 26
From the Plumbing to the Platform
Are capable of moving more sophisticated forms of human expression - voice and video -
beyond personal computers to Internet telephones, cell phones, PDAs, iPods, video game consoles, and televisions.
The Networks in the Next Phase of the Internet
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 27
From the Plumbing to the Platform
Life’sExperiences
Life’sExperiences
People Are Co-Creating, Collaborating and Communicating
On networks that inextricably link them to a human network of family members, friends, colleagues, customers and partners.
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 28
0%
4%
8%
12%
16%
20%
CQ4 '06 CQ3 '06 CQ2 '06 CQ1 '06
Intel Microsoft IBM Dell Cisco
R&
D a
s %
of R
even
ue
$4.06B R&D SPEND
Source: Yahoo Finance, Company Financial Statements *Total FY’06
*R&D Commitment
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 29
Cisco—The Technology Innovator
$4.06 billion R&D investment, annually
Over 16,000 engineers working in more than 1110 labs worldwide
120 acquisitions to quickly enter new markets and add talent
More than 2000 patents have been issued to Cisco inventors
TelePresence— IP-based visual conferencing
CRS-1 Carrier Routing System
IOS XR—self-defending, self-healing operating system software
Recent Innovations
Development
Acquisitions
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 30
AON,IP Telephony, WirelessTelepresence
Develop New Technology
Different Types of Innovation
Network Admission Control(Microsoft, Symantec, others)
Partner w/ Other Companies
Design New ProductsCRS-1, IOS XR,IntegratedServicesRouter
Start New Business Models
Linksys, Meeting Place, NetSolve
Andiamo
Spin in Investments
Pursue Acquisitions
120 Acquisitions
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 31
Process Starts with Acquisition StrategyCisco Core Competency: 120 Acquisitions Since 1993
SharedVision
Short-Term“Win-Win”
Geographic Proximity
Long-Term “Win-Win”
ChemistryAnd
Execution
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 32
New Market Entry Market Expansion
Acquire leadership, channels and experience necessary to succeed
Access to large, new revenue sources
Expand product line
Strengthen current advanced technologies
Acquire technology and talent to drive leadership
Allow expansion into adjacent growth markets
ALL DEALS STRENGTHENOUR CORE BUSINESS AND PRODUCTS
+The Role of Acquisitions at Cisco
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 33
Wireless
New Market Entry Market ExpansionStorage Networking
Home Networking
Digital Video
Security
Data Center Networking
Voice
Home NetworkingCore Business
BCN Systems, Inc.
Voice
Acquisitions Since 2002
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 34
Hercules Sales Centre
– European Sales Operations Centre, Lisbon, Portugal
– € 24-36 million investmentover 3yrs
– Provides Sales SupportthroughoutEurope fromApril 2007
34
Investment in Europe
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 35
Play Learn
LiveWork
Changing the Way We Work, Live, Play, and Learn
The Cisco Vision is a Reality
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 36
Welcome To The Human Network
The Human Networkrelies on The Network as a Platformto deliverThe Quadplay everywhereto enableLife’s Experiences
Our Positioning Of Cisco’s RoleIn Web 2.0 To The World
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 37
In Government
In Business
We are the Pioneers
Europe 2.0will change the face of Europe and Europe’sglobalposition
Europe 2.0 is happening NOW
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 38
Our Key Objectives for Capturing the Next wave of Opportunities
Using network as a platformto enable business transformation
Developinglong termstrategicrelationships
Enhancing the way we sell
© 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 39
Europe is transitioning to a 2.0 world
Productivity growth & personalisation are key competitive drivers
The Network is the Platform to enable this change
In Summary
Cisco Greece Expo 2007 © 2007 Cisco Systems, Inc. All rights reserved. Cisco Confidential 40