The Pursuit of Shareholder Value: Cisco’s Transformation from Innovation to Financialization

Autor: Carpenter, Marie, Lazonick, William
Přispěvatelé: Département Management, Marketing et Stratégie (IMT-BS - MMS), Télécom Ecole de Management (TEM)-Institut Mines-Télécom [Paris] (IMT)-Institut Mines-Télécom Business School (IMT-BS), Institut Mines-Télécom [Paris] (IMT), Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) (LITEM), Université d'Évry-Val-d'Essonne (UEVE)-Université Paris-Saclay-Institut Mines-Télécom Business School (IMT-BS), Institut Mines-Télécom [Paris] (IMT)-Institut Mines-Télécom [Paris] (IMT), University of Massachusetts [Dartmouth], University of Massachusetts System (UMASS), Institut Mines-Télécom Business School (Institut Mines-Télécom), Institute for New Economic Thinking, LITEM-IMO
Rok vydání: 2023
Předmět:
JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G35 - Payout Policy
Sustainable investment
ICT Industry
JEL: E - Macroeconomics and Monetary Economics/E.E2 - Consumption
Saving
Production
Investment
Labor Markets
and Informal Economy/E.E2.E22 - Investment • Capital • Intangible Capital • Capacity
JEL: O - Economic Development
Innovation
Technological Change
and Growth/O.O3 - Innovation • Research and Development • Technological Change • Intellectual Property Rights/O.O3.O32 - Management of Technological Innovation and R&D
JEL: L - Industrial Organization/L.L2 - Firm Objectives
Organization
and Behavior/L.L2.L22 - Firm Organization and Market Structure
JEL: O - Economic Development
Innovation
Technological Change
and Growth/O.O1 - Economic Development/O.O1.O16 - Financial Markets • Saving and Capital Investment • Corporate Finance and Governance
JEL: E - Macroeconomics and Monetary Economics/E.E2 - Consumption
Saving
Production
Investment
Labor Markets
and Informal Economy/E.E2.E23 - Production
JEL: L - Industrial Organization/L.L6 - Industry Studies: Manufacturing/L.L6.L63 - Microelectronics • Computers • Communications Equipment
[SHS]Humanities and Social Sciences
JEL: M - Business Administration and Business Economics • Marketing • Accounting • Personnel Economics/M.M1 - Business Administration/M.M1.M10 - General
JEL: G - Financial Economics/G.G3 - Corporate Finance and Governance/G.G3.G34 - Mergers • Acquisitions • Restructuring • Corporate Governance
Financialisation of firms' strategies
JEL: D - Microeconomics/D.D2 - Production and Organizations/D.D2.D20 - General
JEL: L - Industrial Organization/L.L2 - Firm Objectives
Organization
and Behavior/L.L2.L21 - Business Objectives of the Firm
JEL: N - Economic History/N.N8 - Micro-Business History/N.N8.N81 - U.S. • Canada: Pre-1913
Innovation management
JEL: E - Macroeconomics and Monetary Economics/E.E2 - Consumption
Saving
Production
Investment
Labor Markets
and Informal Economy/E.E2.E24 - Employment • Unemployment • Wages • Intergenerational Income Distribution • Aggregate Human Capital • Aggregate Labor Productivity
Zdroj: Working Paper No. 202, Institut Mines-Télécom Business School (Institut Mines-Télécom); Institute for New Economic Thinking. 2023, https://www.ineteconomics.org/research/research-papers/the-pursuit-of-shareholder-value-ciscos-transformation-from-innovation-to-financialization
Popis: Once the global leader in telecommunication systems and the Internet, over the past two decades the United States has fallen behind global competitors, and in particular China, in mobile communication infrastructure—specifically 5G and Internet of Things (IoT). This national failure, with the socioeconomic and geopolitical tensions that it creates, is not due to a lack of US government investment in the knowledge required for the mobility revolution. Nor is it because of a dearth of domestic demand for the equipment, devices, and applications that can make use of this infrastructure. Rather, the problem is the dereliction of key US-based business corporations to take the lead in making the investments in organizational learning required to generate cutting edge communication-infrastructure products. No company in the United States exemplifies this deficiency more than Cisco Systems, the business corporation founded in Silicon Valley in 1984 that had explosive growth in the 1990s to become the foremost global enterprise-networking equipment producer in the Internet revolution. This paper provides in-depth analysis of Cisco’s organizational failure, attributing it ultimately to the company’s turn from innovation in the last decades of 20th century to financialization in the early decades of the 21st century. Since 2001, Cisco’s top management has chosen to allocate corporate cash to open-market share repurchases— aka stock buybacks—for the purpose of giving manipulative boosts to the company stock price rather than make the investments in organizational learning required to become a world leader in communication-infrastructure equipment for the era of 5G and IoT. From October 2001 through October 2022, Cisco spent $152.3 billion—95 percent of its net income over the period—on stock buybacks for the purpose of propping up its stock price. These funds wasted in pursuit of “maximizing shareholder value” were on top of the $55.5 billion that Cisco paid out to shareholders in dividends, representing an additional 35 percent of net income. In this paper, we trace how Cisco grew from a Silicon Valley startup in 1984 to become, through its innovative products, the world leader in enterprise-networking equipment over the next decade and a half. As the company entered the 21st century, building on its dominance of enterprise-networking, Cisco was positioned to upgrade its technological capabilities to become a major infrastructureequipment vendor to service providers. We analyze how and why, when the Internet boom turned to bust in 2001, the organizational structure that enabled Cisco to dominate enterprise networking posed constraints related to manufacturing and marketing on the company’s growth in the more sophisticated infrastructure-equipment segment. We then document how from 2002 Cisco turned from innovation to financialization, as it used its ample profits to do stock buybacks to prop up its stock price. Finally, we ponder the larger policy implications of Cisco’s turn from innovation to financialization for the competitive position of the US information-and-communication technology (ICT) industry in the global economy.
Databáze: OpenAIRE
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