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ERP Implementation - CISCO

Enterprise resource planning case on CISCO, how enterprise resources change with increase in scope of the firm

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Vipin Kumar
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191 views

ERP Implementation - CISCO

Enterprise resource planning case on CISCO, how enterprise resources change with increase in scope of the firm

Uploaded by

Vipin Kumar
Copyright
© © All Rights Reserved
Available Formats
Download as PDF or read online on Scribd
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Case 4-1 Cisco Systems, Inc Solvik, Ciseo Systems’ chief information zr (CIO), considered the last remaining line 1 of his enterprise resource planning (ERP) jolsmentation budget. Cisco had a history of scwanding performance with cash bonuses, but fae amount allocated for rewarding the ERP sam, over $200,000, was unprecedented. To be sary, they had delivered a lot in a time frame that ne one had believed possible. It had not been 223y, either. The team members, Solvik included, vad taken a risk in joining the project. Rewards should, and would, be generous. The size of the boaus pool, though, made Solvikx think: They trad done well, but how well? What had gone «? What had gone wrong? Given another project of this magnitude and risk, would they be able to do it again? History of Cis Cisco Systems, Inc., was founded by two Stan- ford computer scientists in 1984 and became publicly traded in 1990, The company’s primary product is the “router,” the combination of hard- ware and software that acts as a traffic cop on the somplex TCP/IP* networks that make up the In- temet (as well as corporate Intranets). With the rise of Internet technologies, demand for Cisco's co's This case was prepared by Postdoctoral Research Eetlow Mark J, Cotteleer under the supervision of Professors Robert D. Austin and Richard L. Nol ‘Copyright © 1998 President and Fellows of Harvard college. Harvard Business School case 699-022, “Transmission Control Protocol and Internet Protocol (TEPIP) provided a robust standard for routing sages between local area networks (LANs) and eeted the potential to connect all computers on an Implementing ERP! products boomed and the com; to dominate its markets. By 1 on the Fortune 300, Cisco ranked among five companies in return on revenue on assets, (See Exhibit 1 for Ci performance.) Only two other companies—Intel and Mictosofi—have ever matched that fe Perhaps even more impressive, on July 17, 192, Just 14 years after being founded, Cisco sav its inatkel capitalization pass the $100 billion mar (05 times 1997 sales). Some industry pundits predicted that Cisco would be the third dominant company—joining Microsoft and Intel—to shape the digital revolution, Don Valentine, partner of Sequoia Capital and vice chairman of the board of Cisco,” was the first to invest in Cisco: he took a chance on the young company when other venture capital- {sts were more cautious. One way Valentine pro- tected his $2.5 million initial investment was reserving the right to bring in professional man- agement when he deemed it appropriate. In 1988 Valentine hired John Morgridge as chief executive officer (CEO). Morgridge, an experienced executive in the computer industry, immediately began to build a professional man- agement team, That team soon clashed with the founders, and after Cisco's initial public offering in 1990, both founders sold all their stock and left the company. That departure left Morgridge free to continue his plans to install an extremely disciplined management structure Morgridge believed that many Silicon Val- ley firms decentralized too quickly and did not soon began Valentine was previously the outside executive chairman of the board of Cisco. Cisco has maintained its chairman of the board as an outside director, Currently, John Morgridge serves as an outside director and chairman of the board, S02 Wadule Four Mavacing and Loading a Nerworked JF Organisation EXHIBIT 1 Financials and Other Cisco Statistics Years Ended July 25,1998 July 26, 1997 July 28, 1996 July 30, 1995 Net sales $8,458,777,000 $6,440,171,000 $4,096,007,000 $2,232,652,000 Income before provisions §2.302,466,000 $1,888,872,000 $1,464,825,000 $737,977.00 for income taxes ‘Net income" $1,350,072,000 $1,048,679,000 $913,324.00 $456,489.00 Net income per common $0.84 50.68 sost $032 share (diluted)* Shares used in pershare _1,608,173,000 _1,551,038,000 1,490,078,000 —_1,425,247,000 calculation (diluted) Total assets $8.916,705,000 $5,451,984,000 $3,630,232,000 _$1,991,989,000 Stock price the Friday $65,167 $35.417 $22.33 $12.458 before fiscal year end” 1 Number of employees’ 15,000 11,000 8,782 4,086 Net sales per employee $563,918 $585,470" $466,409 $546,415 Net income per employee $90,005 $95,334 $103,999 $111,720 emaset came an ele er arcing tise omega oo! wd hn eek se ot rn fr aru pe RAD pense oS ion and ie uno tea o's mee) toc nema '1S3mulion Po foma net none an ite et eae er sur, cving te nomen smn! a ronldbays ca 41889300 en $0 ie 88 tian ‘Suber af enplyses wa ken the appreciate the proven ability of the functional organization to grow without sacrificing eon: trol. Accordingly, Morgridge maintained a centralized functional organization, While product marketing and research and develop ment (R&D) were decentralized into three “lines of business” (enterprise, small‘medium business, and service provider), the manuf ‘uring, customer support, finance, human re- information technology (IT), and sales organizations remained centralized sources, History of IT at Cisco Pete Solvik joined Cisco in Jamuary 1993 as the company's CIO. At that time Cisco was a $500 million company sunning a UNIX-hased soft ‘ware package to suppor its core transaction pro- us wou have br $515,230 an 30.3, een. = s set ce November 197, an temo fine epee functional areas supported by the package included financial, manufacturing, and order entry systems. Cisco was “far and away” cistonter of the software vendor that application.* Solvik's experience and the company’s significant growth prospects conyanced him thar Cisco needed a change: ‘We wanted to grow to $5 billion-plas, The upplication didn’t provide the degree of redun- any, reliability, and maintainability we needed, We woten’t able to make changes to the application to meet eur business needs anymore. It had became too much spaghetti too customized, The software vendor did offer {an upgraded version}, but when we looked at “Most customers of the zoftwvare vendors ranged from $50 milion to $250 milion in revenue. 1% ve thought, “By the time we're done our ‘sysienis will be more reliable and have higher ‘ssshucaney, but it will stil be a package for S200 nnillion companies and we're « St billion eller company: ‘ik’ initial inclination was to avoid an ERP solusion. Instead he planned to let each functional see make its own decision regarding the applica- Son and timing of its move, Keeping with Cisco's Seong tradition of standardization, however, all Saeeifonal areas would be required to use a com- sa aichitecture and common databases. This seqrvach was consistent with the organizational and budgetary structures Solvik had installed ‘span his arrival, Solvik fet strongly that budget- ‘= decisions on TT expenditures should be made by finctional areas while the IT organization re- posted directly to him, Solvik’s objection 10 ERP solutions was also born out of concerns about the Ss of “meyaprojects” ERP implementations fen became A Defining Momen 4 the following year little progress was made, Sandy Pond, a director in mamufacturing” and the seentual coleader of the project, described the stlemma facing the functional areas in late 1993 We knew we were i trauble if we did nat do something. Anything we did would just run ‘over the legacy systems we had in place. It tured into an effort to constantly Band-Aid ‘our existing systems. None of us were individ ually going to go out and buy a package. . ‘The disruption to the business for me to go to the board and say “Okay, mamufucturing wants to spend $5 or $6 milfion to buy a package, and by the way it will ake a year or more to 2? in” was too much to justify. None of us ‘Was going to throw out the legacies and do something hig. “Supsequent to the implementation Randy Pein! wes promoted to the vie president level in mari uring at cisco, Cisco Stee: Bie Implemenng ERP 803 The systems replaceinient difficulties of functional areas perpetuated she deterioration of Cisco's legacy environment, Inererentsl mod fication continued while the corny an 80 percent annual growth rate. Syston ages became routine, Product shortewitiigs ex acerbated the difficulties of recove: outages. Finally, in January 1994, Cisco's legacy vironment failed so dramatically that tne comings of the existing systems could aw longer be ignored. An unauthorized metiiod for accessing the core application database—a work-around that was itself motivated by the inability of the system to perform—malfunc- tioned, corrupting Cisco's central database. As ‘result, the company was largely shut dawa for two days, Cisco's struggle to recover from this major shutdown brought home the fact that the com- pany’s systems were on the brink of total failure Solvik, Pond, and a number of other Cisco pan ‘agers came to the conclusion that the au- tonomons approach to systems replaccmcot they had adopted was not going to be suiticicat An alternative approach was needed, Solvik de- scribed what they did ‘We said, “We can’t wait casually by wile forder entry, finance, an rian ‘out and make three separaze decisions” would take too long to get ase applications inplace, We needed ta ike faster sation. that point we got sponsorship om ihe senior vice president of manufscruring. Cah Redfield. H2e was with Diginal Befice PC manufzewuring. He sook tie Jed “Okay, let's getoa with this. Lat chasing gergestive and see if vsad financial rested sa doing & Je interated seplacersent of all the appli-

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