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. 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.
- Flexibility since Oracle was close to them.
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.
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.
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.
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.
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.