Cisco Systems, Inc.: Implementing ERP Case Analysis

Executive Summary

The following report presents a case analysis of Cisco Systems Incorporated. Specifically, the company’s challenging but successful ERP (Oracle) implementation is analyzed across five dimensions: i) case description, ii) goals and strategies, iii) problem analysis, iv) evaluation of IS implementation, and v) conclusions and recommendations. On the basis of Porter’s value chain model, findings of the report indicate that the Oracle ERP implementation was a relative success for Cisco. The Oracle ERP implementation, in short, helped the company link its main functional areas (order entry, human resource, and manufacturing) such that breakages in the value chain sequence were largely eliminated. Most importantly, the project was delivered within budget and on time.

Cisco Systems, Inc.: Implementing ERP Case Analysis

The following report presents a case analysis of Cisco Systems Incorporated. Specifically, the company’s successful, yet challenging ERP (Oracle) implementation is analyzed on the basis of: i) case description, ii) goals and strategies, iii) problem analysis, iv) evaluation of IS implementation, and v) conclusions and recommendations.

Case Synopsis

Cisco Systems, Inc. had a legacy software/IT package supporting the company’s core transaction processing - financial, manufacturing, and order entry. The system was, however, deteriorating in terms of its capacity to support the growth of the business. In considering an upgrade of the existing system, Cisco Systems Chief Information Officer (CIO) Pete Solvik recognized that the system could not support a company with ambitions of being a $5 billion-plus organization. Solvik initially chose to avoid an ERP “mega-project” solution - choosing instead to allow each functional area to follow common architectures and databases. Over the following year, however, it became evident that departments were doing little more than band-aid solutions. The legacy system began failing in dramatic fashion - even a malfunction and corruption of the central database occurred such that the company had to shut the system down for two days (Austin, Nolan & Cotteleer, 2002, p. 3). In deciding what type of system to implement, Solvik involved diverse stakeholders, (members of the business community in the organization and members from an integration partner - KPMG). After 75 days, Oracle was chosen for three main reasons: i) Oracle manufacturing support, ii) long-term system functionality, and iii) Oracle's proximity (Austin et al., 2002, pp. 4-5). The board approved the $15 million project (to be finished within the year) and the implementation team was expanded to 100 - including a cross-section of the CISCO business community and KPMG staff members. Implementation was arranged in phases called "Conference Room Pilots (CRP) - the purpose of which was to establish stages of deepening understanding of the Oracle software and its functioning in the business environment (Austin et al., 2002, p 7). The first CRP0 involved training the implementation team and setting up the technical environment. For CRP1, team members generated detailed scripts that documented the purpose of procedures used to complete a process (see Exhibit 1 in Appendix for sample business process script). With CRP2, project scope expanded to include major modifications, a new after sales support package, and development of data warehousing to enable a single source for information needs. CRP3’s focus was on testing the full system and assessing the company’s readiness to “go live.” The initial success of Cisco's “going live” was not exactly promising or encouraging. On average the system went down nearly once a day while on-time shipping fell from 95% to 75% (Austin et al., 2002, p. 10). It was determined that the primary problem was the hardware architecture and sizing. Fortunately for Cisco, the responsibility for fixing the problem fell on the vendor. Still, a second problem was the ability of the software to handle the transaction volume in the Cisco environment. Over the next 3 months, nonetheless, Solvik and the implementation team stabilized the situation with software testing and re-testing. In the end, the Oracle implementation had worked like a charm. Solvik signed off on the bonus distribution and pondered questions about the how the project had been so successful - i.e., a $15 million replacement in 9 months (Austin et al., 2002, p. 11).

Cisco Systems, Inc. Business Model, Goals and IS Strategies

This section of the current study covers the Cisco Systems Inc. business model, business goals, and business/IS strategies.

Business Model

Cisco’s business model can be conceptualized according to: target customer segments, distribution channels, customer relationships, and core capabilities/product lines. As for customer, Cisco identifies four major segments: i) enterprises, ii) service providers, iii) small/medium-sized businesses, and iv) consumers. Enterprise-level customers (corporations, government agencies, utilities, and educational institutions) are large organizations with 500 or more employees and complex networking needs; these companies, in most cases, span multiple locations and have different types of computer/IT systems (Anderson, Govindarajan & Trimble, 2001, p. 2). Service providers (a.k.a., ISPs) are companies that provide communication services (data, voice, and video) to businesses and consumers/households. Small/medium–sized businesses are companies with fewer than 500 employees. SMEs have significant networking needs but lack higher order expertise and in-house capability in this area. Consumers require a variety of home networking products - most often routers to support Internet connectivity. In the customer support dimension, Cisco insists on remaining flexible and dynamic. In fact, all Cisco products are scalable and easy to upgrade, thus allowing Cisco to provide customers with maximum flexibility in the design and implementation of networks (Anderson et al. , 2001, p. 3). The company sells through various channels - most notably the so-called IBSG. The IBSG is a direct sales force that consists of third-party distributors, value-added resellers, service providers, and system integrators] (Anderson et al., 2001, p. 3). Finally, Cisco’s product offerings are divided into the following major categories: routing, LAN-switching, WAN-switching, access solutions, SNA (Systems Network Architecture), Internet appliances, and Cisco IOS software. Thus, in a nutshell, Cisco’s business model is fully supportive of the design, manufacturing, and selling of networking technology and equipment for a broad customer base.

Business Goals and IS Strategies

As indicated in the case study, CIO Pete Solvik and company expressed the primary business goal of becoming a $5 billion-plus company (Austin et al., 2002, p. 2). To support this overarching organizational goal, Cisco developed and pursued key business/IT strategies: i) meeting specific customer needs, ii) capturing new market adjacencies, and iii) delivering value to customers faster and more reliably.

Meeting Specific Customer Needs. A supporting business/IS strategy for Cisco is to meet specific customer needs. Cisco’s four market segments (hence four types of customers) bring diverse networking needs to the table. To meet these needs, Cisco not only aligns product manufacturing with the four segments, but the company also maintains a commitment to making all products configurable and flexible enough to meet the specific needs of customers. In this way, Cisco achieves a product/service differentiation effect in the marketplace - one that helps the company standout amongst its competitors.

Capturing New Market Adjacencies. A second supporting business/IS strategy for Cisco is to capture new market adjacencies. In so many words, market adjacencies refer to new (and even unknown) areas for the company. During the 1990s (the time frame and setting of the current case study), for example, Cisco began venturing into the emerging consumer market as household users began connecting, en masse, to the Internet. Cisco has also been on the forefront of the wireless revolution and has successfully captured a major part of this market segment. In all cases, Cisco has insisted that its in-house IT system supports the company’s ambitious market expansion efforts. Thus, plainly put, Cisco’s business/IS strategy (a.k.a., capturing new market adjacencies) has proven quite effective and successful for the company.

Delivering Value to Customers. A third supporting business/IS strategy for Cisco is to deliver value to customers. Delivering value to customers involves knowing the customer needs, having the organizational capabilities to meet the identified needs, and possessing the service/support abilities to ensure customer satisfaction. In this respect, Cisco’s decision to implement the Oracle ERP solution is fully supportive and aligned with the overarching goal of the company to grow into a $5 billion-plus organization. In fact, the driving rationale for the Oracle ERP implementation was to make the business smart and seamlessly integrated. By doing so, all the various functions in the organization would become more able to add value to Cisco products/service and, hence, deliver greater value to customers - specifically, by leveraging "the value of their information networks and the Internet as a source of business advantage" (McJunkin, Reynders, Saloner, & Spence, 2000, p. 3).

Problem Analysis

This section of the current study provides a problem analysis. Topics include i) firm- based value chain model, ii) model application, and iii) implementation opportunity.

Firm-based Value Chain Model

Michael Porter’s Value Chain model is a tool for helping organizations like Cisco analyze and understand potential sources of competitive advantage. Simply put, the value chain model provides a framework for describing the primary and supporting activities of the organization that add value to the product/service equation. Primary activities are those business behaviors that directly support the creation and/or delivery of a product or service. Accordingly, primary activities are grouped into five main areas: “inbound logistics, operations, outbound logistics, marketing and sales, and service” (Recklies, 2001, p. 1). Each of these primary activities is further linked to supporting activities which help to improve the operational effectiveness of the primary activities. In this respect, Porter identifies four main areas of support activities: procurement, technology development (including R&D), human resource management, and infrastructure (systems like Cisco’s newly implemented Oracle ERP for planning, finance, quality, and information management) (Recklies, 2001, p. 1). Perhaps most importantly, Porter contends that the value chain illuminates a company’s source of competitive advantage. He says, in fact, that the “ability to perform particular activities and to manage the linkages between these activities is a source of competitive advantage” (Recklies, 2001, p. 1). As such, Porter’s value chain system, at least in theory, makes it possible for companies to better understand strengths and/or weaknesses in the sequence of business activities that are required for delivering products and/or services to the marketplace. In sum, the insights and understandings garnered from application of Porter’s value chain model can help companies like Cisco can advance the organization’s marketplace strategies.

Model Application

On the basis of Porter’s value chain model, the Cisco value chain can be illustrated as follows:

(Illustration omitted for preview. Available via download)

Overall, Cisco value chain activities can be summed up in the following organizational statement:

Value chain activities cut across the end-to-end value chain organization and include internal collaboration with our product design and engineering, government affairs, and corporate affairs organizations. Consequently, we take a holistic, coordinated approach to value chain management, focusing on all nine major nodes of activity associated with meeting our customers’ expectations for Cisco quality solutions (Cisco Systems Incorporated, 2009, p. 14).

In so many words, analysis of the Cisco value chain reveals that the company integrates supply chain considerations across all phases/stages of the product/service lifecycle - i.e., from inception (point of product and sale) to the end of the product/service utility/life. Specifically, Cisco’s design/plan component is all about aligning customer and marketplace networking needs with company activities. As for the order/source function, Cisco’s strategic sourcing management team takes aim at ensuring diversity and redundancy of suppliers. In fact, the team adopted an inclusion commitment “that pledges to include at least one diverse supplier in every bidding process in which we engage” (Cisco Systems Incorporated, 2009, p. 22). Cisco also adds value the production/manufacturing process by making training available to all employees. The training helps employees learn how to conduct business most appropriately and effectively and with the diverse set of Cisco suppliers. In short, this value chain strategy helps the company ensure that zero breakages/lapses will occur in the supply chain and in the manufacturing of products.

In the area of manufacturing, Cisco coordinates extensively with value chain partners according to tight requirements and specifications for ensuring sustainable manufacturing and production. Cisco, in this respect, closely and rigorously adds value to their products/services by monitoring the use of controlled materials and complies with chemical and hazardous substance directives such as the European Union’s RoHS and REACH regulations, as well as Cisco’s Controlled Substances (Cisco Systems Incorporated, 2009, p. 15). As for, shipping/delivery, Cisco’s value chain is enhanced by a customer operations group that aims to keep customers happy and satisfied. Part of the value addition in this area has stemmed from Cisco’s product maximization take-back for reuse, refurbishment, and recycling. In fact, Cisco requires “all electronics manufacturing services partners, contract repair manufacturers, and distribution depots to submit unused end-of-life or excess materials and products for reuse or recycling” (Cisco Systems Incorporated, 2009, p. 18). Perhaps most impressively, this value recovery activity has helped the company save millions as refurbished equipment is placed with the right customers. Even in cases where refurbishing and/or re-manufacturing is not possible, Cisco “de-manufactures, shreds, and sorts materials into fraction commodities that are either sold or given to downstream recyclers for use in new products” (Cisco Systems Incorporated, 2009, p. 18). As for the service/management end-of-life component, Cisco provides comprehensive and full support for customers. This not only includes ongoing call center support, but it also entails making technicians and other knowledgeable Cisco employees available to customers who are in need to help. In sum, these commitments help make Cisco a socially responsible company - thus adding immeasurable value, in many ways, to the overall manufacturing/service output in the minds of the growing market segment of buyers who care about people and planet.

With respect to the supporting activities of the value chain (namely, infrastructure, human resource management, technology development, and procurement), the case study indicates Cisco’s commitment to having all of these components in place and working properly. In other words, CIO Pete Solvik, the board members, as well as other executive and stakeholders at Cisco are obviously committed to having the necessary infrastructure and supporting components in place to advance the company’s aggressive growth objective of becoming a $5 billion-plus company. The executive steering committee led the charge while overseeing the program management office which, in turn, managed: order entry tracking, manufacturing track, finance track, sales/reporting track, and technology track. By virtue of the company’s commitment to its primary stakeholders (i.e., customers and employees), the supporting components help make order entry, finance, and manufacturing value adding functions. Thus, it can be concluded that the overall characteristics of the value chain structure at Cisco help make the company a leader in the industry and marketplace.

In sum, application of Porter’s value chain model provides a bird’s eye view of Cisco in terms of linkages across the value generating processes of the organization. The main problem, nonetheless, is that Cisco needs to improve communication and information flow across the enterprise such that no breakages occur at any point in the value chain. Without a successful ERP solution (or something similar), Cisco has no hope of achieving this type of structural and operational effectiveness. The value chain challenge (assuring the integrity, thereof) must, therefore, be viewed opportunistically by CIO Pete Solvik and other Cisco stakeholders.

Implementation Opportunity

Interestingly, application of Porter’s value chain model leads to some useful insights and conclusions about the implementation opportunities for Cisco. Most noticeably, Cisco has the opportunity to create a seamless enterprise system whereby the main value adding functions (order entry, finance, and manufacturing) are unified. Stated in different terms, the legacy system Cisco operated prior to the move to Oracle was fragmented in the sense that information and data silos had emerged. With the new Oracle ERP, Cisco has the opportunity, however, to ensure that the company will, never again, experience a meltdown of the central database and repository. Even further, with the enhanced data warehousing and communication capabilities of the Oracle ERP system, the company has the opportunity to bring together all the various employees and stakeholders in a more concerted and cohesive manner. Cisco, in this way, should be recognized as a one-of-a-kind organization that has placed itself on the forefront of the networking revolution. The ability of the company to tap into the vast (collective) knowledge of the organization should be viewed as a golden opportunity to further leverage the true source of sustainable competitive advantage - namely, innovation. In summation, with the new Oracle ERP, Cisco has the full opportunity to increase its position as the industry and marketplace leader.

Evaluation of the IS Effectiveness for Solving the Problems

In the aftermath of the Oracle ERP implementation, CIO Pete Solvik and company were literally ecstatic over the perceived success of the project. Nevertheless, it yet remains to be determined and discussed as to the IS effectiveness for solving the problems. Foremost, the problem facing Cisco concerned the fact that the existing legacy system was not scalable and supportive of a larger organization like Cisco that was taking aim at becoming a $5 billion company. Even more, the initial response from Pete Solvik was based on the assumption that the different units (ordering, human resource, manufacturing, etc.) could possibly develop their own in-house systems according to common architecture principles and standards. Solvik also expressed an aversion for undertaking a huge project like an ERP implementation. Therefore, the company was faced with the dubious challenge of finding a way to use its dysfunctional and inadequate IT/IS system to support aggressive growth agendas.

Implementation Effectiveness

With the above problem clarification and background in mind, it becomes obvious in the final assessment that the Oracle ERP solution was a fundamental success. Foremost, it was completed within the prescribed $15 million budget. And what is more, the Oracle ERP project was completed in a timely manner (see Exhibit 2 in Appendix). The project was launched, in fact, early June, 1994. By January 30, 1995, it was time to go live with the system. Approximately 90 more days of work was required to tweak and fix the system, but in the end it was running quite smoothly and effectively - hence, Solvik’s welcomed problem of deciding how to distribute more than $200,000 in bonuses to team members. Even beyond the obviously successful cost and time frame factors, the implementation effectiveness can be understood in other ways. Foremost, CIO Pete Solvik and other team members were wise enough to recognize that the Oracle ERP system offered new procedures that employees would need to accept, not resist. By emphasizing the need for the organization to adapt to the new Oracle EPR system (not the other way around - i.e., trying to modify and reprogram the ERP system to meet the existing procedures and behaviors of employees), Solvik and the hit team of more than 100 cross-section members was able to transform the way the organization does business. The Oracle ERP system implementation, in this respect, was a grand institutionalized success - something not always common in a business world where many CEOs and other executives look for a silver bullet solution to information and communication technology challenges.

Conclusions and Recommendations

In the final comment, Cisco’s challenging but successful ERP (Oracle) implementation has been analyzed across five dimensions: i) case description, ii) goals and strategies, iii) problem analysis, iv) evaluation of IS implementation, and v) conclusions and recommendations. Most critically, Cisco had reached a point in terms of its existing IT system such that it no longer could effectively support the company’s overarching strategic goal of becoming a $5 billion-plus organization. The deteriorating legacy system was also completely incapable of supporting other strategic objectives such as: i) meeting specific customer needs, ii) capturing new market adjacencies, and iii) delivering value to customers faster and more reliably. By identifying and assessing Cisco’s value chain configuration, it can be concluded, most importantly, that the Oracle ERP implementation advanced the company’s competitive viability and standing. In fact, with respect to primary activities like design/plan, order/source, manufacture, ship/deliver, and service/manage to end of lifecycle, the Oracle ERP implementation helped integrates supply chain considerations across all phases/stages of the product/service lifecycle - i.e., from inception (point of product and sale) to the end of the product/service utility/life. The Oracle ERP implementation, in short, helped the company link its main functional areas (order entry, human resource, and manufacturing) such that breakages in the value chain sequence were largely eliminated. Most importantly for those Cisco stakeholders primarily interested in the single bottom-line metric, the project was delivered within budget and on time. In the final comment, it can be concluded that CIO Pete Solvik was, therefore, correct in his assessment of the success of the Oracle ERP project.

As for recommendations, Solvik’s final questions concerning how and why the project was so successful become quite relevant and poignant, Solvik’s first question asked: what factors had made the difference between success and failure? Foremost, for other companies seeking to discover best practices for an Oracle ERP implementation or similar, the main thing that CIO Solvik and company did correct was commit to the change. Specifically, Solvik was not about to engage in a protracted piecemeal transition process that would leave components and elements of the deteriorating legacy system in place. By creating the cross-section team, CIO Solvik and his supporters were able to champion widespread acceptance of the need for the new Oracle ERP system. They also made it clear that Cisco employees would not be allowed to carry over legacy practices and behaviors. The one-two punch of this change management strategy helped eliminate change resistance and set the organization on course for a profound and successful institutionalized change. In sum, the emergent recommendation for CIO Solvik, stakeholders at Cisco, and others in the MIS field is to recognize the imperative nature of championing a large project with a vision and resolve such that employees and all stakeholders fall in line with the objectives and requirements of the initiative.

CIO Solvik’s next question was: where had they been smart? In addition to the proper approach to change management described above, Solvik and company were smart to bring in outside consultants. Few, if any, organizations possess the know-how and resources to undertake a project as immense and challenging as an ERP transition. By using the services of the integration partner (i.e., KPMG), CIO Solvik and his coterie of Cisco stakeholders were able to make the right ERP product choice after just 75 days of analysis. Specifically, they chose Oracle for three main and very good reasons: i) Oracle manufacturing support, ii) long-term system functionality, and iii) Oracle's proximity (Austin et al., 2002, pp. 4-5). As the basis of another recommendation for CIO Solvik, stakeholders at Cisco, and others in the MIS field, upfront planning and feasibility assessment is always advisable. Despite the investment factor, in the long run, making the right decision about which ERP solution to buy had been paramount. Cisco, in this way, enjoyed all the benefits of foresight and planning as the Oracle ERP platform proved to be an excellent fit for the company.

CIO Solvik’s next question was: where had they been just plain lucky? The short answer to this question is that successful ERP implementations do happen by virtue of luck. Nevertheless, if any luck was in the equation it was the timing of the legacy system failure. CIO Solvik and company had been aware of the problems with the legacy system for over a year. They had exhausted low cost options for resolving the problem. The two-day meltdown of the legacy system was, in this respect, an example of the so-called perfect storm for Cisco. It provided the red flags and alarms for board members and other top decision makers to realize that the time had come for the biggest capital investment in the company’s history - an investment to the tune of some $15 million. Luck also presented itself to CIO Solvik and company when the initial problems presented themselves in the wake of going live with the system. Cisco enjoyed the benefit of having the hardware problems solved the third party vendor - thus preventing cost overruns for Cisco. In any case, as the basis of another recommendation for CIO Solvik, stakeholders at Cisco, and others in the MIS field, luck is probably part of every successful ERP implementation. But nobody should rely on it.

Finally, CIO Solvik’s next question was: could they do it again if they had to? The short answer to this question is, yes. Although Cisco did enjoy the benefit of some fortunate mishaps that proved to be opportunities at the right time, the company did a lot of things the right way - namely, upfront planning and feasibility assessment, team construction, purchase of third-party support, and more. Thus, as the basis of another recommendation for CIO Solvik, stakeholders at Cisco, and others in the MIS field, these types of best practice commitments better ensure the successful implementation of a huge undertaking like an Oracle ERP implementation.

References

Anderson, P., Govindarajan, V. & Trimble, C. (2001). Cisco Systems (A): Evolution to E-Business. Case #1-0001, Glassmeyer/McNamee Center for Digital Strategies, Tuck School of Business at Dartmouth. Retrieved from http://digitalstrategies.tuck.dartmouth.edu/cds-uploads/case-studies/pdf/1-0001.pdf

Austin, R.D., Nolan, R.L. & Cotteleer, M.J. (2002, May 6). Cisco Systems, Inc.: Implementing ERP. Case # 9-699-022, Harvard Business School.

Cisco Systems Incorporated. (2009). Section Six: CSR and Our Value Chain. Cisco 2009 Corporate Social Responsibility Report. Retrieved from http://www.cisco.com/web/about/ac227/csr2009/pdfs/CSR_09_ValueChain.pdf

McJunkin, J., Reynders, T., Saloner, G. & Spence, M. (2000 February). Cisco Systems: A Novel Approach to Structuring Entrepreneurial Ventures. Case # EC-15, Graduate School of Business Stanford University. Retrieved from https://gsbapps.stanford.edu/cases/documents/ec%2015.pdf

Recklies, D. (2001). The Value Chain. Recklies Management Project GmbH. Retrieved from http://www.fao.org/fileadmin/user_upload/fisheries/docs/ValueChain.pdf

(Appendix: Exhibits 1 & 2 omitted for preview. Available via download)