When Cisco Systems announced a $2.2 billion inventory write-down in the second quarter of 2001, skeptics immediately proclaimed the fall of the network business model that Cisco exemplifies.1 Superior information technology and real-time management, the critics reminded their readers, were supposed to have enabled networked companies to avoid precisely such setbacks.
Cisco’s vaunted supply chain systems were indeed meant to provide greater notice of impending demand slowdowns than they did in this case. But reports of the demise of the network model—in which companies go far beyond outsourcing and actually collaborate in the delivery of products and services to customers—are much exaggerated. "Network orchestrators" like Cisco might be experiencing their first real taste of adversity, but the network strategies they deploy look stronger than ever.
Indeed, Cisco outperformed its peers not only during the boom years of 1995 to 2000 but also during the first-quarter-2001 downturn (Exhibit 1). By most measures, its fellow network orchestrators—such as Charles Schwab, CNET Networks, eBay, E*Trade, Palm, and Qualcomm—did so as well. Our analysis shows that network orchestrators have reached their market milestones more quickly and earned greater value per employee than have their peers (see sidebar, "Still looking good?...