Main Takeaways



Main Takeaways

1. IT should be considered more than simply an expense within operations. Technology can

actually drive business from within an organization and provide productivity levels and efficiencies to support the company’s growth.

2. The implementation of modern systems cannot be performed using an autonomous approach but with integration between different processes and business groups.

3. An internal network and the Web can support internal and external processes to drive down costs and promote communication and information-sharing.

4. The implementation of network and Internet-based infrastructures was vital to Cisco’s operations and to their primary business of providing networking products and services.

5. The alignment of IT and business strategy.

6. Emphasis on IT standards.

7. IT and value disciplines.

Case Discussion / Digest Questions

1. How was the decision made to implement ERP? And how was the system selected?

Cisco Systems decided to implement an Enterprise Resource Planning (ERP) application after a defining moment when their legacy system failed and became inaccessible for two days in January 1994. Even before this dramatic failure, the CIO, Peter Solvik, realized he faced two major challenges when he joined Cisco a year earlier. One, the IT department was treated as a cost center and therefore, focused only on internal issues. Two, the existing system was not scalable to support Cisco’s tremendous growth.

Solvik oversaw three changes to address the issue of the traditional structure of Cisco’s IT. First, the company restructured the organization so that IT reported to the Senior Vice President of Customer Advocacy. Second, the IT budget was largely determined by the individual functional groups and not treated as General and Administrative expense so that IT application projects could be client funded. Finally, the line organizations decided IT investments in application projects but continued to be implemented by the central IT group.

Still, these changes could not overcome the dramatic failure of the legacy systems. The shutdown highlighted the issue that Cisco might witness total failure of their entire system. Solvik and a group of Cisco managers concluded that they must consider a single integrated solution to meet the requirements of all of the major business processes such as Order Entry, Finance, and Manufacturing. The managers also concluded that the formation of a team comprised of the most essential individuals from each business unit was required to meet the business needs that the application must address. At the beginning stage, Cisco chose the consulting firm, KPMG, as a partner to assist in the selection and implementation process of the new application solution.

With the new formed team and new partner, Cisco used several approaches to identify the best solutions available from the software market. The team requested information from large corporations, the “Big Six” accounting firms, and organizations like The Gartner Group. They also conducted a RFP process over approximately three weeks and spent time visiting reference clients of each vendor. Soon, Cisco focused on two candidates and also concluded that the eventual vendor must be at a comparable size to Cisco. Cisco’s decision to select Oracle as the vendor rested on three major decisions. First, the project concentrated on manufacturing and Oracle had a strong manufacturing capability compared to competing vendors. Second, Oracle agreed to long term development of the software package functionality. And, third, Oracle’s proximity to Cisco’s headquarters provided additional flexibility to the project. After the selection, contract negotiations were performed and the team began to construct a proposal to present to Cisco’s board of directors for final approval which turned their attention to the length of the project timeframe and the project cost.

2. Identify the main benefits of Cisco's web enablement (Internet and Intranet) strategy.

To take advantage of their implemented ERP system and IP-based open standards architecture, Cisco began to integrate Internet and Intranet based applications. This web enablement allowed the company to reap benefits both internally and externally.

Through their Intranet, Cisco developed several components to drive business from within: employee self-service, communication and distance learning, collaboration and workflow management, web-enabled legacy systems, and Executive Information Systems (EIS) and Decision Support Systems (DSS). For example, the corporate intranet Cisco Employee Connection (CEC) provided a central resource to information, tools, and additional resources for the 40,000+ employees to increase process efficiencies, provide a knowledge base, and maximize productivity. Distance learning modules were available via the Intranet to enhance employee training. Web-enabled legacy systems allowed internal users to access integrated data and tools via a web browser as the primary user interface. The EIS and DSS systems provided Cisco employees access to sales tracking and reporting data that supported all executive and decision functions.

Cisco developed Internet applications that enabled the following components: extranet supply chain management, customer self-service, net commerce, marketing, and external access to Cisco resources via the web. Since Cisco outsourced most of its manufacturing to contractors, Cisco formed partnerships from these relationships with suppliers and used the automated supply chain to support five key areas: integrate these suppliers into its own production system, therefore creating a “single enterprise”, address new product introduction (NPI) so that unnecessary delays between the design and manufacturing stage could be avoided, create an “autotest” environment whereby Cisco developed test cells and provided these standardized tests so that testing could be performed by and quality issues addressed directly by the supplier, “direct fulfillment” by the suppliers so that product was shipped directly to the customer from the source, and “dynamic replenishment” whereby real-time demand and supply information was made available to reduce inventory and minimize delays and errors. and registered users of Cisco Connection Online provided users especially customer users access to an on-line resource to answer questions, diagnose network problems and provide the necessary 24/7 customer support. Order placement and tracking over the Internet represented almost all of Cisco’s total revenue so that productivity gains were realized by Cisco, customers, and resellers. Each of these examples represents the various methods that external users accessed Cisco resources only via the Internet.

(Also, think about these benefits using value disciplines (customer intimacy, operational excellence, etc) or Porter’s five-force framework)

3. To what extent and how does IT contribute to the Cisco strategy?

CEO John Chambers created a four-part plan in 1993 with Ed Kozel, CTO, and John Morgridge that explained Cisco’s strategy. First, assemble a broad product line to serve as one-stop shopping for business networks. We see that NPI and net commerce facilitated this element and increased efficiencies in both areas. Second, systematize acquisitions as an efficient business process. We find that about a third of Cisco’s technology derived from partnerships and acquisitions. Cisco’s IT group handled speedy acquisition integration by eliminating non-standard technology and integrating the acquired company’s resources into the Cisco architecture. Third, set industry wide software standards for networking. This element is in line with Cisco’s philosophy to incorporate standards-based technology throughout the organization. Fourth, pick the right strategic partners. Currently, this initiative incorporates Internet and network efforts by partnering with companies to develop standards for security, premium Internet services, and Internet-based corporate computing systems. These areas further support Cisco’s focus on network-based and Internet-based access to resources to enhance the overall productivity and efficiencies of this model. By presenting leadership in the area of Internet-based architecture, this further supports demand for Cisco’s networking products and services.

4. What are the main take-aways from this case?

See first section above.

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