Muhammad Nauman (02-111162-138)

ADVANCED APPLICATIONS OF IT

Case Bundle-7
 CISCO SYSTEMS INC. Implementing ERP

Introduction
Cisco Systems, Inc. is a big player in the Internet technologies field, manufacturing their
primary product – the router. Two Stanford computer scientists founded the company in
1984, unbelievably by 1997, Cisco became a fortune 500 company and in the following year
Cisco’s market capitalization was over $100 billion dollars.  With the gigantic growth
experienced Cisco needed to look into their future regarding their existing Enterprise
Resource Planning package. 

Unreliability and common outages brought into question the validity of trying to enlarge the
current system to meet the Cisco’s constantly growing needs. The current system was a
UNIX-based software package that supported financial, manufacturing, and order-entry
systems.  An upgrade was made available to Cisco, but would be a fix that offered more
reliability and redundancy without maintainability or room for growth.  The management
structure in 1993 provided that each functional business unit make its own decisions
regarding the future of their IT systems. Each department head knew that “ban-aiding” the
current system was not going to be sufficient in coordination with the company’s rapid
growth. However, no individual was willing to approach the board with a costly and lengthy
proposal for replacement of the legacy systems.  Pete Solvick CIO of Cisco did not primarily
want to undertake a huge companywide ERP project, but in January of 1994, a system
failure halted nearly the entire business for two days, and the problem could no longer be
ignored.

Solvick, along with other managers put together a plan to take on replacement of all faulty
legacy applications in a single ERP project that would provide a common data architecture
throughout each business unit.

ERP Implementation Scenario – (Why ERP required?)

In 1994, Cisco Systems Inc. made the decision to implement a new company wide ERP
system.   Initially, a large ERP solution was not a choice Cisco was willing pursue because
of the nature of large project to become out of control and largely over budget.  However,
the legacy system in place constantly needed maintenance and the available upgrade was
much too small for Cisco, which was growing at an astonishing 80% per year. The analysis
details Cisco’s choices, good and bad during the implementation process, and the
circumstances involving intelligent and lucky decisions associated with the success of the
project. Also, discussed is the degree of success the implementation had in terms of cost
and performance. Finally, examined is the possibility of replication of Cisco’s ERP
implementation model by other firms, and a summary section of lessons learned. Lessons
learned contains summaries of the major success drivers and flaws in place, which
contributed to the successful rollout of Cisco’s 15 million dollar ERP project in only nine
months. In early 1994, Mr. Solvik put together an investigation team to select an ERP
product. Hee did not want the project to be just an IT-only initiative so he pressed that the
team would include internal and external resources. The internal resources were of people
from all areas of the business community. To compliment the internal resources, Cisco
needed a strong partner to help them with the selection and implementation. Cisco selected
KPMG as their partner because KPMG’s people were very experienced with the industry.

The investigation team was about 20 people including KPMG. They conducted an
information search built on the experiences of others. The team contacted large
corporations and the “Big Six” accounting firm to obtain information on ERP systems. Also,
the team reviewed documents from research companies such as the Gartner Group. [1] A
Request for Proposal (RFP) was constructed and sent to vendors. The vendors were given
two weeks to reply. After Cisco reviewed the RFPs, vendors were invited for a three-day
demonstration of their software. From the process, Oracle ERP product was selected based
on Oracle’s:

Emphasis on manufacturing.

Promises of a long-term development of functionality of the package.

Approach to IT decision making

Cisco had traditionally employed a reactive approach to development of any new IT
advances, upgrading or repairing their systems only after problems arose.  Solvick had
always allowed autonomy within departments concerning what improvements were
necessary and when they should be implemented.  IT representatives from each
department were asked to report expenses to Solvick, who maintained a strict management
structure over the departments.  This system was not in line with an ERP system, because
each department was very independent of one another.  In late 1993, Pond came to the
realization that these continuous modifications of the system were insufficient, and called for
an overhaul of the system.  In January of 1994, Cisco experienced their worst outage ever it
was so severe it shut down the business for nearly two days.  This prompted management
to immediately begin research into implementing an ERP system, a solution that they had
previously attempted to avoid.  Management at Cisco had been nervous to begin an ERP
implementation in the past because of the potential such projects have for spiraling into
“megaprojects” that cost more and take much longer than estimated.  Cisco’s second option
was an upgrade of their legacy system, which was meant to run a 300 million dollar
company that Cisco no longer was. With the need for a much larger system for their
growing company Cisco decides to purchase a single ERP system.   

Implementation approach
The success of the ERP implementation at Cisco was dependent on strong leadership,
smart planning, and a bit of luck.  From the initial conception of the project the project
leaders Solvick, Pond, and Redfield knew what they wanted; a large system in a short
amount of time that contained the ability to adapt and grow concurrently with their business,
and a provider that was going to be around to support their product well into the future.  The
decisiveness of the leaders on what they wanted pushed the selection process forward in a
short amount of time.  Senior management fully backed the project, and was kept informed
on every step. From the very beginning, a strong schedule and the backing of the entire
corporation helped to insure success of the project.  

Selection of an integration partner and vendor was another key point in the implementation
process.  KPMG was the perfect partner for Cisco because they were willing to give them
the expert resources that Cisco required to complete such a large project in as short a time
as possible.  KPMG sent in their program manager, Mark Lee, who had previous
experience with ERP application implementations.  Lee immediately began research of
software package vendors, and spent ten days drafting RFP’s.  After researching several
software vendors, Cisco made an excellent choice selecting Oracle.  The selection of
Oracle as the vendor for the project was beneficial for several reasons.  Oracle offered
strong manufacturing capability and long-term functionality, and was also very flexible
because of their proximity to Cisco headquarters.

The quick and concise execution of selection and planning partnered with strong backing by
senior management would be the success drivers of the entire project however, luck would
not be without its part in the project’s success.  The contract the company had agreed upon
with Oracle contained amazing benefits in value and other aspects.  Cisco stipulated that
capacity would be covered by the vendor relieving themselves of many out-of-pocket
expenses later in the project.  Because of this contract, Cisco saved money and avoided
allocating more resources because of inaccurate estimation of the system’s capacity.  The
project’s contracts proved to be the saving grace of Cisco’s project later in the process, after
the project scope expands, capabilities are misjudged, and the live system had some major
problems.  .

The timing of Cisco’s RFP’s worked perfectly with the concurrent need for both partnering
companies to strengthen their reputations. The Cisco project was the first trial of Oracle’s
new ERP software, and they recognized that their reputation was on the line.  Having so
much at stake forced Oracle to put a large amount of resources and some of their best
people on the project to guarantee its success.   The contract itself reflected Oracle’s
commitment by promising capabilities, not simply a software package.  Because Cisco’s
partners in the project had so much riding on a successful implementation, and because of
a contract that was very well structured for Cisco, the project luckily avoided a much longer
and more costly outcome.

The company was also lucky in the fact that it chose to roll-out the system without any
financial analysis.  Foregoing the completion of a thorough financial analysis, many
significant expenses could have gone unaccounted for.  The $15 million projected budget
was the largest expenditure in Cisco’s history, but this number had little research behind
it.  Excess labor and training costs, as well as accounting for possible problems could have
easily increased the original number drastically.  Luckily for Cisco, the financial guesswork
at the beginning of the implementation proved to be fairly accurate, and several potential
problems were avoided.

Although Cisco had many strong points in their implementation process, they were also
guilty of some weak decisions during the approach.  One such weak decision was that the
team jammed the configuration session into two days with 40 people.  Normally an
approach would be to analyze the system for approximately six months, but the Cisco team
met for only two days, working into the night, to come up with an 80-20 recommendation on
how to configure the ERP system.  Also, Cisco’s implementation team had to take training
classes on the application suite.  However, the training that was normally a five-day session
was significantly reduced to two, sixteen hour days.  One week after the configuration
session and after completion of CRP0, Cisco realized that they had another problem. The
system was going to require a much larger amount of customization than initially
believed.  After one month of design, they realized that there was going to be a need for
changes; after two months, they realized that the changes were going to be sizeable.

Performance Evaluation
When it came down to the overall performance, Cisco was very successful.  From the
beginning to the end, the performance was solid.  The performance was triumphant in the
fact that the job was finished in the scheduled amount of time.   The initial estimation aimed
for a time period that was in between the shortest and longest implementation times
possible and resulted in a date of nine months.  Cisco was successful in reaching that goal.

Cisco also reached its goal in system performance.  With only a few customizations, the
system was working well.  The only trouble that had plagued the implementation was the
capacity, but as discussed earlier, it was covered in the contract with the hardware
vendor.  The complete system performance was worked out when the project team did its
CRP design and testing.   By building on the previous version of CRP, the team was able to
optimize its functionality.  At the end of the implementation, the cutover was successful
because of strong coordination between each company involved.

Cost-Related Evaluation
The overall cost expectancy was met.  The goal of the project was to have the budget at or
below $15 million.  Cisco reached this goal and also decided to provide its hard working
implementation team with a bonus pool of over $200,000. 

Although Cisco was able to meet its ERP system budget, it had not accounted for the
excess labor costs.  The high level employees they pulled out to do this project needed
temporary replacements. Excess costs would be incurred either because of hiring cost or
overtime pay.   Cisco was able to meet its overall cost expectancy except for the excess
labor costs that were not taken into account.

Other measures considered? (Benefits)

Other measures to be considered from the implementation of Cisco’s ERP system would be
the benefits gained by the manufacturing business community.  The implementation
showed that the Oracle ERP system could run an entire manufacturing company with few
problems.  This implementation shaped the way that manufacturing businesses as well as
other types of businesses would have to think.
With the success of Cisco’s implementation, Oracle’s ERP package would become an
industry standard .  Because of the agreement between Oracle and Cisco, Cisco would help
Oracle market the newest release to other potential customers.  They would allow other
prospective customers to view the process and see the reasoning behind choosing Oracle’s
ERP system.

Could Cisco replicate it?

Cisco’s chance of replicating the implementation is slim to none because many different
variables fell into place during the first project.  The strong relationships formed for the
project were the result of good timing. A large part of the success of the project came from
the timing and this would be nearly impossible to replicate. Another part of the relationships
that could not be replicated was the cost of the overall implementation.  Some of Cisco’s
partners used many of their best resources in this project but did not charge Cisco for that
use.  This enabled for the systems price to stay on the smaller side.  Again, without the
relationships and timing, the cost of implementation and resources would be difficult to
replicate.

Could other firms replicate the approach?

Cisco’s approach would be difficult for other companies to reproduce.  The main reason for
this would be the fact that the management of the company was willing to spend almost any
necessary amount for the implementation.  Without strong backing from upper management
a large project could not make it off the ground.  Some parts of the approach that could
work for companies are discussed in the opening paragraphs of the analysis
section.  Overall, the possibility for the average company to replicate the approach of
Cisco’s implementation would be difficult. 

Summary
Cisco’s ERP project was a successful implementation in a short amount of time and within a
small budget for the large size of the project.  Success for Cisco was only made possible by
intelligent planning and thorough analysis of vendors and integration partners. Cisco’s ERP
implementation was found out to be this successful because of the perfect mix of –

Leadership- The formation of a team that was quick acting and concise was one of the
largest success drivers for the project.  The team got corporate backing and support from
the entire company to drive the point that this was going to be the new way of business. 

Planning-   Planning carried the project a long way.  The initial planning and analysis of
project scope, partners, and vendors was the single reason that the project was a
success.  Cisco found the best people for the job and what they received in return was the
unsurpassed service from each of their partners.
Contract negotiation- Contract negotiation is always an underlying factor in any project’s
success.  In the Cisco case a great contract born of great opportunity saved the company
thousands of dollars and perhaps months of system configuration during the late stages of
the implementation.

Be persistent- During the choosing of parameters and system configuration the company
decided to go 80-20 on parameter settings and cram months of research and choices into
two days.  The project had been going extremely well up to this point and if Cisco would not
have rushed this as much they would not have encountered the same amount of problems
with scope and capacity if they simply would have taken more time and been persistent with
their planning.