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Enterprise It at Cisco Company

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    F. WARREN MCFARLAN ALISON BERKLEY WAGONFELD Enterprise IT at Cisco (2004) Boston knew the call center project was potentially valuable, but so were many others considered by BPOC. Would its benefits be realized quickly enough? Would all involved groups be willing to incur the hardship of shifting systems and retraining the hundreds of people involved when the time came? The customer advocacy group had already successfully proved the concept in a European pilot, but Boston questioned whether all stakeholders at the company would commit to a full crossborder and cross-functional implementation.

    The project would require a significant number of dedicated resources throughout the company for over a year. Do ____________________________________________________________ ____________________________________________________ Professors Andrew McAfee and F. Warren McFarlan, along with Alison Berkley Wagonfeld, Executive Director of the HBS California Research Center, prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

    Copyright © 2004, 2006, 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www. hbsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

    Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. No tC As Boston thought about the projects that were going to be covered at the next BPOC meeting, he knew that one request had the potential to generate a great deal of discussion. Cisco’s customer advocacy group was proposing an overhaul of Cisco’s call center processes—the group wanted to build a state-of-the-art customer interaction network that would centralize all incoming calls into a globally managed set of contact centers.

    The proposed international network would use Cisco’s technology to route and escalate calls in an efficient manner, with the goals of improving the customer experience while reducing expenses associated with handling and resolving calls. Although the proposing team was from one functional area, it was believed that the benefits would accrue to many functions throughout the company. Because of the anticipated wide-scale impact and significant multimillion-dollar expenditure, the team was seeking BPOC’s support in order to encourage other functions to share the costs of the project. p On a Monday morning in March of 2004 Brad Boston, CIO of Cisco Systems, was preparing for a meeting with the six other members of Cisco’s Business Process Operating Committee (BPOC). This group of senior executives met twice each month to review and prioritize key initiatives that impacted the entire company. Since its first meeting in 2002, BPOC had focused its attention on several major enterprise-wide projects such as upgrading the company’s enterprise resource planning (ERP) system and developing a comprehensive customer database.

    As these projects started to wind down, the committee began considering new proposals that typically fell into one of three categories: “one-off” programs with specific short-term goals, “must-have” programs mandated for regulatory purposes (such as Sarbanes-Oxley compliance), and bigger enterprise initiatives that had to be prioritized relative to other projects with high resource requirements. Although BPOC did not fund the projects it approved, the committee’s recommendations deeply affected Cisco’s overall commitment to various IT initiatives. o rP ANDREW MCAFEE os t 9-605-015 REV: AUGUST 20, 2007 605-015 Enterprise IT at Cisco (2004) Cisco History and Overview Cisco was a global company—over 40% of its sales were to customers outside of the Americas, primarily in Europe, the Middle East, Africa, Asia Pacific, and Japan. Cisco had nearly 10,000 employees involved with sales accounts (e. g. , account managers, systems engineers, operational support) in nearly 60 countries. Cisco sold directly to larger customers and indirectly through distributors and value-added resellers (VARs).

    Distributors sold products “as is,” and VARs added something to the products before reselling them. Cisco also worked closely with strategic alliance partners such as IBM, AT&T, and Hewlett-Packard in order to reach more customers and provide broader solutions. Although Cisco designed and developed its products, it did not manufacture them. Instead, Cisco worked with a network of manufacturing partners that assembled the products based on specifications provided by Cisco. Most of the products were shipped directly from the manufacturing facilities to customers, distributors, and VARs.

    Cisco relied on its information technology (IT) network to transmit orders and stay on top of customer information, manufacturing timelines, and order status. Do 2 Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. No tC Cisco was also focused on its six “advanced technology” product offerings: optical, network security, Internet protocol (IP) communications, wireless LAN, storage networking, and the networked home. These represented less than 10% of sales in 2003, but Cisco believed that each one of these markets had the potential to create a $1 billion revenue opportunity for the company.

    Cisco employed 35,000 people and supplemented its full-time employees with 18,000 contractors throughout the world. op Cisco was founded in 1984 by two Stanford computer scientists. The San Jose, California-based company enjoyed tremendous growth and profitability during its first 19 years—its 2003 revenues were $18. 9 billion, and its 2003 net income was $3. 6 billion. (See Exhibit 1 for Cisco financials. ) Under the direction of CEO John Chambers, Cisco was the world’s largest developer of networking and communication products for transporting data, voice, and video over long and short distances.

    Routers and switches made up 67% of Cisco’s revenues in 2003, and services made up another 18%. Routers and switches connected various computers and networks and intelligently translated and moved data. These products were an essential component of Internet and telecommunications networks. yo rP Since late 2001, Cisco had centralized IT planning and spending in order to invest in major IT infrastructure projects that seemed long overdue. This enterprise orientation was a change for employees, who had always been rewarded for their independent, creative, and entrepreneurial spirit.

    In the 1990s, business groups had grown accustomed to selecting and funding their IT projects independently. Boston had reduced each group’s authority over IT spending in favor of centralized planning and spending, and some employees were now expressing concern that Cisco was becoming too process oriented and risked missing out on breakthrough developments. Boston knew it was important to find the right balance—he wanted to ensure that IT helped Cisco be a leader in any business environment. As Boston thought about the proposed customer interaction network, he wondered how BPOC should think about prioritizing this initiative.

    And if the proposal was turned down, what should Boston communicate to the proposing team? os t Enterprise IT at Cisco (2004) 605-015 Organization Information Technology at Cisco (1993–2001) In 1994, Cisco’s rudimentary IT systems were on the brink of failure, and management concluded that the company needed to invest in a more robust infrastructure. Under Solvik’s leadership, Cisco decided to implement an ERP system and selected Oracle as the vendor. The primary goal of the ERP system was to help manage Cisco’s inventory and manufacturing processes.

    With the help of consultants from Oracle and KPMG, Cisco installed the ERP system and replaced nearly all of the existing technology at the company over the course of two years. Infrastructure investments provided a strong foundation for Cisco to build out its Internet capabilities as the company scaled up in the late 1990s. For its own employees, Cisco created an extensive intranet. For its customers, Cisco developed a comprehensive Web-based online resource at Cisco. com. By the end of 2000, Cisco’s website was accessed 3. 8 million times each month by registered users, making it the primary vehicle for delivering technical support.

    Cisco’s website was Do 1 Prior to 2000, IT was part of the customer advocacy function. 2 Selected data for this section has been adapted from Richard L. Nolan, “Cisco Systems Architecture: ERP and Web-enabled IT,” HBS No. 301-099 (Boston: Harvard Business School Publishing, 2001). No tC Boston’s predecessor, Peter Solvik, joined Cisco in 1993 as its CIO. At the time, Cisco was a $500 million company, and IT was an internally oriented cost center. Soon after he arrived, Solvik made several changes that fundamentally changed the role of IT at Cisco.

    First, he changed the reporting relationship of the department, moving the IT organization out of the finance group and into the customer advocacy group. Second, he reallocated the majority of the IT budget so that each function and department controlled the money, rather than having all of IT spending clustered together under general and administrative (G&A) expenses. Third, he disbanded a central IT steering committee and replaced it with a structure by which IT investment decisions on application projects were pushed out to the line organizations but still executed by the centralized IT organization.

    Collectively, these decisions helped change the perception of IT as “overhead. ” 2 op yo Information Technology was part of the operations business function, which was led by Randy Pond. This was a recent organizational change—from 2000 to 2003, IT had reported directly to Chambers. 1 Within the IT group, Boston had a staff of five direct reports and three other people who “matrixed” into him (meaning they were not direct reports but attended his staff meetings). (See Exhibit 3 for Cisco’s IT organizational chart. Approximately 1,800 employees and 1,000 contractors were part of the IT organization—some of whom reported directly to Boston, and others who reported through a dotted-line relationship. Approximately 75% of the IT team was based in the United States, with the others spread across Europe, Asia, and India. rP Cisco was organized into nine business functions, seven technology groups, and four marketplaces. (See Exhibit 2 for a functional organizational chart. ) These groups were integrated via a matrixed organizational structure in which managers were often part of more than one staff group.

    For example, a director of sales who focused on routers used by enterprise customers might report directly to a vice president of sales (who was part of the sales function), but he might also have a “dotted-line” relationship to both a vice president in the router technology group (part of engineering) and a “dotted line” to a vice president in marketing who focused on solutions for enterprise customers. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. os t 3 605-015 Enterprise IT at Cisco (2004) also a core part of its sales platform.

    As of 2001, over 90% of customer orders originated online, and customers used the Web to download software upgrades. Cisco also used the Internet to work with its manufacturing partners and to automate many aspects of its supply chain. IT after 2001 Boston’s Assessment of IT at Cisco When Boston arrived at Cisco he did an initial assessment of the IT environment at the company: Solvik had done a wonderful job in supporting Cisco through a period of rapid growth, but I found that Cisco’s business leaders were starting to get frustrated with the results of their latest technology investments.

    Cisco was throwing money and engineers at customized tools, but the tools were not providing the desired output. For example, I found that we had nine different order-status tools at the company. Each business group had said, “I need a way to check the status of orders when I am interfacing with a customer. ” So, each business leader paid to have someone in IT build a tool that looked up data about customer orders. As a result, each of the tools pulled data from different sources that used different definitions for key terms.

    For example, when an order was “shipped,” did that mean that the manufacturer sent it to the distributor, or did it mean that the distributor sent it to the customer? The multiple databases and fuzzy definitions resulted in conflicting order-status reports circulating around the company. The reality was, until we fixed our underlying data sources and our core architecture, we would have a difficult time getting the information we needed. Do Boston also discovered that IT decisions were made in functional silos, with no centralized group checking for conflicts and redundancies.

    As a result, Cisco ended up with several applications that 4 Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. No tC The end of 2001 represented a turning point at Cisco. Between the spring of 2000 and fall of 2001, Cisco’s sales growth slowed dramatically. Technology spending dropped off precipitously as the Internet bubble burst and the markets stumbled in the wake of the September 11 terrorist attacks. During this time frame, Solvik left Cisco, and Boston joined as the new CIO.

    Boston had over 25 years of experience in managing large IT staffs and projects in the airline and financial services industries. (See Exhibit 4 for Boston’s bio. ) op yo By 2000 Cisco had over 200 projects in process and had a difficult time finding enough engineers in the San Jose region to work on them. In late 2000, Cisco opened a facility in Research Triangle Park in North Carolina in order to hire more engineers. By early 2001, employees in the IT organization were working around the clock to help Cisco scale its operations.

    Cisco also acquired over 40 companies from 1999 to 2001, and its IT department helped integrate the new businesses in an efficient manner. Chambers supported the IT efforts based on his belief that Cisco should spend whatever was needed on IT if it was helping the business grow and become more productive. As Mike Bender, IT’s director of finance, explained, “John [Chambers] has said that IT can have an unlimited budget, as long as one of the functions or business teams is willing to allocate the money. ” rP

    Cisco primarily relied on its internal IT organization to deliver on all of its IT initiatives during this period of rapid growth. (Cisco revenues nearly doubled from $12. 2 billion in fiscal 1999 to $22. 3 billion in fiscal 2001. ) Resources were allocated according to a client-funded-project (CFP) system, which meant that each function controlled its own IT budget and had the flexibility to select and fund the projects it deemed most valuable. Budgets were further divided by region, so a sales team in Europe might choose to develop different tools than a sales team in the U.

    S. os t Enterprise IT at Cisco (2004) 605-015 performed similar functions. As Lisa Hall, director of information systems, described, “At one point we looked around and counted over 50 different customer survey tools. It’s great that every team wanted a way to get feedback from customers, but 50 tools was completely unnecessary. ” Boston’s Actions Initially, some teams responded to Boston’s directive by using contractors to continue building functional tools, but this became problematic as a number of the small, “underground” IT projects were abandoned or started getting too big.

    IT was then called in to take over the project. To stop the proliferation of small projects, Boston invoked the support of senior leaders across the company who recognized the importance of central governance. In addition, an amnesty program was implemented to uncover all of the “shadow IT” projects. Boston’s second area of focus was deciding which broad IT platform projects were of highest priority to the company. To help address this question, each function reviewed its key strategic initiatives and came up with a list of “inhibitors” to achieving those initiatives.

    These inhibitors helped guide the selection of the first three enterprise projects: upgrading the Oracle ERP system, establishing an enterprise reporting and business intelligence solution, and developing a “single source of truth” customer database (“e-customer”). It was estimated that these three projects would take at least three years and could require up to $300 million and hundreds of employees throughout the company. In order to upgrade the ERP system, Cisco needed to clean up the current version by modifying or stripping out the customized code and interfaces that had been added over the previous six years.

    Because the original ERP system was primarily focused on collecting information from the disparate functions of the business and translating it to support the financial, manufacturing, and inventory-control needs, it did not meet all of the specialized needs of other functions such as sales, marketing, and human resources. As a result, these groups had developed customized solutions that interfaced with the ERP system. Some of the functional solutions were based on other large software packages such as PeopleSoft for 5 Do Copying or posting is an infringement of copyright.

    [email protected] harvard. edu or 617-783-7860. No tC op By early 2002, Boston had finished surveying the situation and was ready to act. One of his first directives was asking all teams to hold off on any new tools, applications, and customized projects. According to Boston, “This request was met with some resistance, as there was a sense of entitlement at the company. Managers believed that ‘This is my money to spend, and I should be able to spend it as I want. ’ It was clear that our IT funding model needed to evolve, but it was going to be a difficult process. Boston believed that new applications would be a waste of time and money if the underlying data and infrastructure were not fixed first. He found that the functions wanted to build more than they could absorb—he believed they often underestimated the training and change management requirements of new software. In addition, any new customized software would make a companywide ERP upgrade that much harder. yo In addition, Boston found that the lack of centralized planning had created an even bigger problem. It had become extremely difficult for the company to upgrade its most important enterprise-wide systems.

    As each function planned and funded its own projects, many groups had developed customized programs that interfaced with the enterprise software. During the rapid growth of the late 1990s, different parts of the organization had interfaced with the ERP system to obtain different types of data. Many groups also built specialized tools that used the raw data in different ways. In order for Cisco to upgrade to a newer version of the ERP system, most of these custom interfaces would have to be disabled—a situation that did not sit well with employees who had grown dependent on these tools.

    Boston learned that even though Cisco had a standard ERP system, a series of additions, extensions, and interfaces were anything but standard. rP os t 605-015 Enterprise IT at Cisco (2004) human resource management and Siebel for sales force, automation. Cisco’s ERP upgrade impacted these other systems as well. Since they were mission critical for the company, the ERP project needed to be phased in with great attention to detail. Boston estimated that the project would require three years and cost at least $200 million.

    The company had to focus on the cross-functional strategic initiatives to build an infrastructure that would position us for the future. To do this, we needed to reevaluate how money for IT projects was spent across the individual groups. The concept of IT trade-offs and corporate taxation just wasn’t in the DNA of the company, but it was clear that both the individual groups and the corporate IT group needed to have equal skin in the game and be held accountable for the results. IT could no longer function as a vendor that would build whatever the functions wanted.

    Overall, Cisco continued to spend approximately 5% of revenue (about $1 billion) on IT, but the money was now split to include three groups: 50% for infrastructure (e. g. , data centers, corporate networks); 35% for application development for client groups (the remaining client-funded portion); and 15% for direct-charge items such as PCs, phones, and virtual private networks (VPNs) that would be funded by client groups but managed by IT. The infrastructure spending was allocated by corporate IT, while application development and direct-charge funds were controlled by client groups.

    Although the new funding model still contained “client-funded dollars,” a portion of the application spending was needed for companywide initiatives such as the Oracle upgrade and the customer database. Each group had to dedicate resources to staff and support these cross-functional projects. A senior-level steering committee in each functional group determined how much the function would contribute to cross-functional projects and the timing of those contributions. The Do 6 Copying or posting is an infringement of copyright. [email protected] arvard. edu or 617-783-7860. No tC Boston’s third focus area was coming up with a new process for funding IT projects at the company. It was clear that each of the functions would need to contribute resources to a pool, but this was a new concept. The functions had grown accustomed to controlling their own IT decisions for the previous 10 years. As Boston described: op The e-customer initiative was time consuming because a team needed to rationalize all existing sources of customer data. This effort highlighted a number of challenges.

    For example, because a large percentage of Cisco’s sales went through some form of reseller, Cisco relied on third-party information to get end-customer data. This information was often incomplete, so the sales team needed to work closely with the third parties to improve the process for getting the data. As David Aungle, vice president of sales (IT), explained, “We had to say to our partners, ‘In order to work together, we need information back from you. We need you to tell us when deals are done. ’ Until we got the data right, we couldn’t segment our customers by vertical or any other way. Even if the sales data was accurate, basic issues such as company names sometimes created conflicts. For example, IBM showed up in different permutations: IBM, I. B. M. , International Business Machines, IBM Business Solutions, and so on. In order to tackle this initiative, Boston assigned a director and a team of 20 for a period of two years. yo rP The enterprise reporting and business intelligence initiative represented an effort to standardize on one application that everyone in the company could use to get information about key metrics such as sales, bookings, shipments, and so on.

    During his assessment, Boston had found that there were at least 15 different business intelligence tools at the company that were not linked. For example, the European sales team used one business intelligence tool and tracked bookings as a key metric. The finance team used a different tool and tracked shipments. In order to rationalize on one platform, all the divisions had to agree on a single tool and retrain thousands of users. os t Enterprise IT at Cisco (2004) 605-015 groups were expected to work together to divide the costs and allocate people based on which functions were likely to receive the greatest benefits.

    Each group wanted to put its experienced employees on the big initiatives in order to capture the most value from the project. But, at the same time, this meant that these people were not available for other function-specific programs, so tradeoffs were required. According to Aungle, “BPOC was not meant to be an IT steering committee, but it did weigh in on projects that touched the entire company. It was more like a high-level advisory committee with senior representatives from each of the major functions. Cisco did not have a COO, so BPOC was like a virtual COO. The committee met twice each month and tackled the difficult prioritization issues that cut across all divisions. Organization and Implementation Boston assigned an owner to each of the three major initiatives and used every opportunity to reiterate the importance of the enterprise projects. He encouraged his team to take the time to carefully define the projects so that the solutions would be robust enough to provide a strong foundation for future growth. He also ensured that people tackled the tedious, manual job of data scrubbing.

    Boston explained, “Because we did not have a strong data-governance model at the company, we had tons of data that was out of date. It was hard to know which version was the newest. The only way to solve this problem was through a systematic data review that took months. ” Boston wanted his team to live by the mantra of “define, build, govern” to avoid the need for largescale cleanups in the future. Although Boston was eager to press ahead with a more centralized vision for IT, he was careful to retain selected elements of the previous IT strategy that had always been a core part of Cisco.

    He continued to encourage his IT organization to use Cisco’s own products and services whenever they were available. As Perry explained, “Cisco’s own IT department should be Cisco’s first and best customer. We have high internal targets for system availability, so we help push our engineers to make our products as reliable as possible. ” By using its own products, Cisco’s IT department could then serve as a showcase for all customer implementations. Members of Cisco’s IT department spent a great deal of time meeting with customers to answer questions and discussing best practices. Cisco Do No tC

    In order to implement the actions that he wanted to take, Boston initially kept his team aligned with the major business functions. For example, Bender oversaw the IT needs for the finance department, Aungle was responsible for sales, and Jacoby managed manufacturing. Other members of Boston’s team were responsible for providing infrastructure, equipment, and support that cut across functions. Lance Perry, vice president of infrastructure, oversaw a group of 1,000 that oversaw the data center and security as well as provided global services and support, including desktop and network connections. p yo In late 2002, Cisco set up BPOC, which reinforced the importance of a higher degree of centralized IT planning. BPOC was a cross-functional decision-making group created to set and drive corporate priorities for the company. The group was led by Randy Pond, and members included Boston, Rebeca Jacoby (vice president of customer service and operations), and other senior leaders of functional groups. BPOC’s leadership team focused on driving enterprise-wide productivity by making key operational policy decisions, aligning similar initiatives across the company, developing Cisco? corporate business process framework, and enforcing decisions with attention to execution and accountability. BPOC was not created to be a funding group, but it did make recommendations that affected how Cisco allocated its IT spending. rP Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. os t 7 605-015 Enterprise IT at Cisco (2004) even created a CD-ROM called “Cisco IT @ Work” about its own challenges and solutions, which it shared with customers.

    By mid-2003, Cisco had made great strides toward completing the three large enterprise projects that Boston and BPOC had prioritized. The IT organization could start looking ahead to new initiatives that would take advantage of the updated systems architecture at the company. In order to work toward greater corporate productivity, Boston reorganized his team into business process groups that reflected the major activities of the company: Market to Sell, Lead to Order, Quote to Cash, Issue to Resolution, Forecast to Build, Idea to Product, and Hire to Retire. (See Exhibit 3. According to Hall, “The new organization allowed Brad [Boston] to link multiple functions together and forced everyone to think about our business in an interdisciplinary way. ” Boston wanted IT to be thought of as a business partner that could look broadly at how Cisco served its customers. In fact, in the quote-to-cash process, which represented everything from order entry to manufacturing to delivery, Jacoby was both the business leader and the IT leader. She described her new role: We have a legacy of being a highly decentralized company that tended to throw tools at problems.

    We are fixing that by engaging in more worldwide enterprise planning. But, we have a problem in that many of our enterprise engineers are based in San Jose, and we just don’t have visibility into the business problems in the rest of the world. We are trying to solve this by hiring more engineers that will be based in Europe and Asia and giving them real responsibility. We used to think acting globally meant informing the rest of the world as to what we are doing in San Jose. We are now realizing that it means actually distributing work to employees located in places other than California.

    And we need to be careful that these engineers don’t get pulled into localized projects—we are setting them up to do the same kind of enterprise work that we are doing here. Do Challenges By early 2004, Boston’s reorganization had taken hold, and the IT team was focused on working with various functions on broad process improvements. However, the rest of the company remained 8 Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. No tC Boston’s reorganization also impacted the regional orientation of the company.

    In the past, each part of the IT group was further subdivided by region, and the funding was fragmented as well. Boston removed the regional subdivisions, forcing his team to think in a more global context. He wanted the business processes in the United States to be consistent with those in the rest of the world and organized his team accordingly. This created some challenges because business was often conducted differently based on geography, and approximately 65% of Cisco’s IT professionals were based in Silicon Valley. Aungle explained challenges faced by the IT team that worked n sales and marketing projects: op We had redundancies in the order flow that we needed to remove, and that was hard to do with separate functions managing different aspects of the customer experience. Now that I am responsible for the entire process, my team can automate aspects, reducing the “touches” and the errors associated with rekeying data. I anticipate that we can dedicate our IT resources to reducing cycle time and the costs associated with each customer transaction. yo rP IT in 2003–2004 os t Enterprise IT at Cisco (2004) 605-015 in their functional organization.

    Hall believed that the organization was confusing to some employees: Boston’s staff understood the strategic imperative for this new organization, but we still had some work to do with communicating to our middle managers. It wasn’t always easy for them to see the big picture, and our business process focus was complex. Our organizational structure was more matrixed than ever, and employees at nearly all levels had to get comfortable with being accountable to multiple teams. In some ways, IT was being set up as a change agent for the rest of the company.

    We knew that it would be difficult to make changes on a global scale if IT didn’t start by laying down a solid foundation. Anytime someone proposes a new project, we ask, “What is the return? What is the risk? ” This helps us prioritize projects, but we need to be careful that we don’t systematically steer away from breakthrough ideas. It is obviously difficult to put a specific dollar value on an innovation that is not in the market. But if we don’t carve out money for game-changing ideas, we could lose our competitive edge.

    In the past, if a group had a great idea, a few engineers could go off in the corner and experiment. Our new framework doesn’t have much room for this. It’s important that innovative ideas still get to see the light of day. Over the past several years, Cisco teams had come to rely on contractors as a means of jumpstarting initiatives that did not meet the ROI and risk hurdles. Cisco had instituted a hiring freeze in late 2001, and one of the unintentional effects was the increased reliance on contractors who did not have to go through the same hiring-approval process.

    This issue pervaded the entire company, and by late 2003 Cisco had nearly twice as many IT contractors as IT employees. These contractors were referred to as a shadow IT department because they were not managed as closely as the full-time employees. Because the contractors were not privy to Cisco’s global strategic initiatives, their work might not help accomplish the broader directives that Boston and BPOC had set for the company. Furthermore, the contractors were often boutique shops with four to five employees, and they were not managed in a central fashion.

    Boston was looking into ways of reconfiguring the use of contractors and potentially using more engineers from offshore organizations in India. In fact, Boston was even considering moving all IT contractors into his organization so that all IT headcount was centralized and optimized. Do No tC Some Cisco employees expressed concern that the relentless focus on process and productivity might dampen Cisco’s entrepreneurial nature. For years Cisco had prided itself on its ability to make quick decisions and seize new market opportunities.

    Boston believed that the IT department was establishing a strong architecture that would allow Cisco to be even better at this. The challenge was encouraging employees to continue making suggestions and pushing ahead on innovative ideas, even if many did not get funded right away. Mark Tonneson, vice president of customer advocacy (IT), perceived the new IT spending model as a balance between return on investment (ROI) and risk management. He explained: op yo The process for funding IT projects continued to raise questions as well.

    As various groups across the world agreed to move their portion of the budget into a funding pool, managers wondered how their specific needs would be taken into account in the global prioritization process. Boston knew this was a difficult question to answer directly, as it could be hard to show each group how it benefited from enterprise projects. When projects were deemed a “lower priority,” employees sometimes got frustrated. Mitch Taylor, Boston’s communication manager, expanded, “We are better with communicating the ‘yeses’ than the ‘noes’—we need to help everyone understand both.

    Whenever a project gets turned down, we hear the question, ‘So what is our IT money being used for? ’ Communication is something we have been working on. ” rP Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. os t 9 605-015 Enterprise IT at Cisco (2004) Conclusion Do 10 Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. No tC op yo Boston was aware that the issues surrounding the proposed customer interaction network might stir up some debate.

    In the late 1990s the customer advocacy group would have already started working on the project, pulling the money from its budget for client-funded application development. Today, the team felt the need to make a formal request to BPOC because the project involved other functions. There was a possibility that the request for support would be denied in favor of other proposed initiatives, which could frustrate members of the team. Boston wondered how he could encourage Cisco employees to think about the greater good of the enterprise without losing the entrepreneurial drive that had helped Cisco reach its current leadership position. P As Boston reviewed Cisco’s IT landscape in 2004, he was pleased that the company had come such a long way in the last several years. But at the same time, Boston was aware that they still had some major challenges ahead. He was confident that the new process organization was best for the company, but he was sensitive to the concerns that had been raised by employees. He wanted each function to feel invested in the company’s IT strategy, and he wanted to preserve elements of the client-funded model. He believed that the endulum had swung far in one direction during the late 1990s, but he wanted to make sure it was not swinging too far in the other direction under his leadership. os t Enterprise IT at Cisco (2004) 605-015 Exhibit 1 Cisco Financials Income Statement ($ millions) Net Sales Product Service Total Net Sales Cost of Sales Product Service Total cost of sales Gross Margin Operating Expenses Research and Development Sales and Marketing General and Administrative Restructuring costs and other special charges Amortization of goodwill Amortization of other purchased intangible assets In process research and development 6-Jul-03 27-Jul-02 $15,565 3,313 $18,878 4,594 1,051 $ 5,645 13,233 yo 3,135 4,116 702 394 4 $ 8,351 4,882 660 (529) $ 131 5,013 1,435 $ 3,578 10,544 5,202 1,860 1,272 $18,878 rP $15,669 3,246 $18,915 5,914 988 $ 6,902 12,013 3,448 4,264 618 699 65 $ 9,094 2,919 895 (1,104) $ (209) 2,710 817 $ 1,893 10,654 5,126 1,765 1,370 $18,915 op Operating Income (Loss) Interest Income Other Income (loss), net No tC Cisco 2003 Annual Report. Interest and other income (loss), net Income (loss) before taxes Provision for income taxes Net Income (Loss)

    Net Sales By Region ($ millions) Americas Europe, Middle East, Africa (EMEA) Asia Pacific Japan Net Sales Do Source: Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. os t 28-Jul-01 $19,559 2,734 $22,293 10,198 1,023 $11,221 11,072 3,922 5,296 778 1,170 690 365 855 $13,076 (2,004) 967 163 $ 1,130 (874) 140 $(1,014) 12,051 6,377 2,331 1,534 $22,293 11 605-015 -12- Exhibit 2 Cisco Organizational Chart Do

    John Chambers CEO Chief Development Organization Customer Advocacy Randy Pond Operations Corporate Positioning Sales Marketing Corporate Development and Alliances Engineering New Ventures Brad Boston IT Legal Security Manufacturing IT Team Finance Human Resources No tC op Business Operations Brad Boston Chief Information Officer Source: Based on company interviews. Exhibit 3 IT Organizational Chart yo Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. Global Services “Support the Business” Human Resources “Hire to Retire” M.

    Tonnesson Customer Advocacy “Issue to Resolution” L. Perry Infrastructure D. Aungle Sales “Market to Sell” rP R. Jacoby, Mfg. & Ops. “Quote to Cash” “Ideas to Product” “Forecast to Build” M. Bender Finance Source: Based on company interviews. os t Enterprise IT at Cisco (2004) 605-015 Exhibit 4 Brad Boston’s Bio He has also held executive positions at American Express, Visa, United Airlines/Covia and at American National Bank and Trust Company of Chicago, where he began his career. Boston received a B. S. n Computer Science from University of Illinois, College of Engineering, Champaign-Urbana, Illinois. Source: Company documents. Do No tC op 13 Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617-783-7860. yo Prior to Corio, Boston was Executive Vice President of product development and delivery at the Sabre Group in Dallas, Texas. While at Sabre Boston strengthened the executive team in preparation for their spin-out from American Airlines. In addition, he managed the early development, operations and support of Travelocity. om, led the largest system conversion in the airline industry when USAirways converted to Sabre, and architected the development and implementation of the first phases of a technology plan to modernize the Sabre system infrastructure and applications. rP As Senior Vice President and CIO, Boston was responsible for Cisco’s worldwide use of information technology. Before joining Cisco in August of 2001, Boston was the Executive Vice President of Operations at Corio, an enterprise-focused Internet ASP. At Corio he was instrumental in redefining their product offering and business model. os t

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