Cisco Systems, Inc. Implementing ERP Issue at Hand If you’re not careful, the dream of information integration can turn into a nightmare. – Thomas H. Davenport Imagine the core operating system of a $1 billion dollar company malfunctions, corrupting the central database and as a result, causes a company-wide shut down for two days. This nightmare scenario unfortunately became a reality for Cisco Systems, Inc. in January of 1994. The incredible meltdown was due in-part to the 80% annual growth rate the company was sustaining.
Moreover, the major failure was something executives, although perhaps not admittedly, had seen coming for some time. Cisco was without question, the largest customer of their software vendor’s operating system, which was ideally designed for $50 million to $250 million dollar companies. Outages and application of virtual “band-aids” to the current legacy information systems became commonplace in the year leading up to the total collapse. Although previously against the implementation of an Enterprise Resource Planning (ERP) solution, Chief Information Officer (CIO), Pete Solvik knew a change was necessary.
Cisco’s ERP implementation has widely been held as a success, especially considering they were one of the early adopters of these particular software applications. Webster’s defines success as: a. ) degree or measure of succeeding b. ) favorable or desired outcome; also: the attainment of wealth, favor, or eminence. The question becomes – what defines success, in terms of ERP implementation? Was Cisco smart in their approach, or had they simply been lucky? This assessment will offer differing viewpoints to these questions, as well as explore some known failures.
Ultimately, recommendations will be made as to what Cisco needed to do in order to ensure success, and what they should do differently, if the process were to be repeated. Analysis of Case Data Key Observations While studying the case of Cisco’s ERP implementation there were a few key observations that had a profound impact on the overall outcome of their project. These key observations include several luck factors, the incredible timing of the Cisco project with Oracle new release, and the tardiness of Cisco’s decision to act on their need for a new ERP system.
A change in any of these circumstances could have easily resulted in a much different fate for the staff involved with the ERP implementation project. At the conclusion of the case, one of the questions that Solvik thought to himself was, “Where had they been just plain lucky? ” “How did we get so lucky? ” may have been a better question to ask. Besides the simple fact that their time and budget constraints seemed to appear to them in a crystal ball, Cisco was exceptionally lucky in their selection of partners.
All of the partners, the consulting firm KPMG, hardware vendor, and the software partner Oracle, went above and beyond the call and played a huge role in the success of the Cisco project. KPMG was the consulting firm contracted to supply the additional manpower and expertise that Cisco would need to undertake such a large project. Certainly KPMG would have been eager to work with a name as prestigious as Cisco, who was already widely known in the technology industry. However KPMG’s service level went well beyond what as required to advertise Cisco as one if their client’s on their webpage.
It would have been all too easy for KPMG to send some of their entry level employees on the contract; which would have led to larger profits for them. Lucky for Cisco though, KPMG had a much longer relationship in mind, and they put some of their top people on the project. Cisco makes specific note of the quality of people that they worked with from KPMG and without them know knows what could have happened. The hardware vendor, who goes unnamed in the case, also did a stellar job. The big luck factor with the hardware vendor was the structure of the contract.
Cisco worked out an unusual hardware contract that promised capability, leaving the specifics of the hardware up to the vendor. When the system was implemented it began to operate extremely poorly requiring the hardware vendor to replace components and put a large number of staff on-site to keep the system operating at its promised levels. Put simply “They lost money on this big time. ” Cisco was quite lucky to find a hardware vendor to standby such an unusual contract to such a degree.
Another key observation was the timing of Cisco’s decision to move forward with this project at the same time that Oracle planned to release their new ERP was incredible. Oracle, like KMPG, would have been excited about the opportunity to land such a strategic client in the market, and additionally Oracle wanted Cisco to be their “big win” and marketing tool for a new version of Oracle’s ERP software. Oracle took this opportunity very seriously and was one of the key factors in Cisco’s success; Oracle was not going to let Cisco fail. Top executives from Oracle monitored the effort and authorized numerous changes to the product itself.
The final product delivered to Cisco was practically custom build solution, with full support from Oracle, and an “off the shelf” price. Cisco couldn’t have asked for anything more than that. One final observation was how late in the game Cisco decided to make a move to replace their old systems. They knew their existing system was designed for organizations that were a fraction of their size, but patch after patch was applied to the system. In the words of one Cisco employee, “It turned into an effort to constantly band-aid our existing systems. Finally the last tick of the time bomb expired resulting in a corrupted central database and a downtime of two days. This was a huge deal for a company that was striving to be a 5 billion dollar company. At that point a full blown system upgrade was inevitable. All of a sudden it had to be one of Cisco’s top priorities and led to some rash decisions on timing and implementation strategies. Project Management “Project management, the art and science of converting vision into reality. ” Project management does not have a universal definition that everyone can agree upon.
The definition that we will provide for the analysis of the Cisco’s ERP case will not be limited to the iron triangle’s definition. The iron triangle’s definition focuses on cost, schedule, and quality. From the iron triangle’s definition, quality is a very subjective metric that is not explicitly defined. It cannot be used to quantify the success of this project. This variation of the levels of success/quality from the stakeholders in this ERP project will differ tremendously depending upon which party was asked. The project management definition, we would like to use is the 1950 definition from Oisen. Project Management is the application of a collection of tools and techniques to direct the use of diverse resources toward the accomplishment of a unique, complex, one-time task within time, cost, and quality constraints. ” Oisen’s definition is adequate for Cisco’s ERP implementation case because it captures the two sins one can make in doing project management. The first of these two sins is doing or getting something wrong in the project and the second is that something is not done as well as it could have been. Oisen’s definition also captures “the square route” thinking.
From the square route thinking we are able to establish a metrics that we can use to evaluate the success of this project. The square route’s metric that will be used to evaluate Cisco’s ERP implementation is provided in the following table. Iron TriangleInformation systemBenefits (organization)Benefits (Stakeholders) CostMaintainabilityImproved efficiencySatisfied users QualityReliabilityImproved effectivenessSocial and environmental impacts TimeValidityIncreased ProfitsProfessional development Information qualityStrategic goalsProfessional learning
UsageOrganizational learningContractors profits Reduce WasteCapital supplier Project team Economic impact to surrounding communities Table 1. Metric that will be will be used to evaluate Cisco’s ERP case. As previously stated, Cisco’s initial condition before the ERP system implementation was one of a $1 billion dollar company using a Unix based software that only had the capacity to do the job for a $300 million dollar company. This system had crashed numerous times. Management was quite aware of this problem but was afraid to act, because of the enormous size of the project.
This project was enormous because Cisco wanted to accomplish installing a new ERP system in a single instance and centralize all of its company’s functionalities into this single ERP system. Cisco hired an integration partner KPMG and started their selection for the best ERP system. Within 2 weeks they were able to select 2 candidates for their ERP system. In the end they selected Oracle, because Oracle’s software had more features that aligned with Cisco’s manufacturing needs. Also Oracle made promises regarding their long term development of functionality in their software package.
Cisco developed a schedule to implement the ERP system base on their accounting cycle, which was 9 months, as opposed to actual the time estimated by the initial team of 15 months. They then made an initial budget of $15 million with out assessing the scope of work. Their break out of their cost of this project is given by illustration 1. Cisco assembled a team of 100 members. These were the smartest members of the organization. In addition to teams that represent the various segment of the organization, they formed a steering committee of top level executive to champion the ERP cause and not to interfere with management of the teams.
Their implementation approach was base on phases that uses rapid iterative prototyping. This mean that the teams would take their various sections and go off and prototype their designs and come back and meet as group. They would then work out technical difficulties. During the second phase the group made the discovery that they had to modify the core Oracle software package. In doing so, they violated one their first rule that they set as a goal at the start of the project, which was not to change the core of Oracle’s software. They made this rule because they wanted future update to he ERP software be seamless. With this discovery they had to increase the scope of the project and the budget. They also made the discovery that needed to add a data warehouse to access data through out the company and also to access past and future data. They did not intend to migrate the old data to the new system instead the warehouse will serves as the bridge for this process. They then added their IT department to tackle this task, thereby increasing the labor pool. In phase three they had the system all together and had the approval to go live with the new ERP system.
After Cisco went live with its ERP system, they had several problems. The number one problem was that they had was they had specify the hardware that was not capable to handle the huge volume of data. They were fortunate they had signed a contract with their vendor that provided capacity as opposed to hardware. The hardware vendor took a serve loss because they had to honor their contract to provide capacity as hardware. Limitations of the hardware caused the company to incur other software problems. Using the metrics established earlier one can view this project as a mixture of success and failure.
By the characteristics of the iron triangle they failed at managing this project because they went over their budget, they missed their deadline in getting the system 100% operational and the quality was not there in at the deployment of the ERP system. One metric tracked was their on time shipment fell from 95% accuracy to 75%. If we use the square route metric we can see Cisco project management team has done fairly well in certain areas and not so in others. From the information system metrics, they have met all of the criteria in terms of maintainability, reliability, validity, information quality and usage.
Cisco was lucky in terms of the maintainability metric because Oracle did not use an existing product, but rather, a new one that they were going to release after a successful launch at Cisco. Therefore, modifications that were made for Cisco became a standard in the new product launch. This enabled them to cover their original goal of not modifying the core of their ERP software. In the organizational benefit categories, they have also done very well. The have improved the system of quote to cash tremendously by tying various parts of the organization into a centralized system.
This complemented their fundamental believe of a centralized organization. This ERP system also aligned with their strategic goal of not being bounded, because it scaled with their needs. It also enable them to remove waste from the organization by link all of infrastructure of the company to a centralize repository. In the stockholder’s benefit category, they hit all of the targets set for this metric except one – contractor’s profits. The hardware vendor’s profits declined tremendously. The hardware vendor had to take a tremendous loss because of the contract it negotiated with Cisco.
Getting IT Right The article “Getting IT Right” by Feld and Stoddard, states that in the area of IT there are certain criteria that need to be present in order to be successful such as: leadership, motivated people, and attention from senior management. These are criteria that Cisco had and one reason why they had an advantage when they were implementing their ERP. Cisco had the very best people that they could find working on the implementation of their ERP and this gave them a great advantage. Cisco also had the support of their senior management and team structure.
Cisco did not only have IT people working on implementing an ERP, but instead they had the very best business people as well. The “Getting IT Right” article also emphasized that having leadership is an important characteristic to executing IT effectively. Cisco had just that. It also stated that teams need to work together to help reduce costs. The Cisco team all worked together, which is important to be successful in anything. Also, the Cisco team members were placed into one of five tracks. This helped to diversify their groups.
They had a Cisco IT leader, a Cisco business leader, business and IT consultants from KPMG and Oracle, and additional members. A problem that many companies have is that they treat the IT department as a completely separate entity. In order for a company to be successful and wise in their cost decisions they need to not isolate them. Cisco also made implementing an ERP their top priority, which gave them an advantage because everyone had the same goal in mind. Additionally, the “Getting IT Right” article discusses that a shared mission and a high expectation is important to have.
Cisco had that as well, because they always knew that they would make it and it was a very important project for them that everyone was involved with. Case Study – Not as Fortunate Enterprise Resource Planning systems are implemented to improve the efficiency of an enterprise. They can either help to make the company more successful or in some cases bring the enterprise down – where they would be considered a failure. One such famous failure regarding the implementation of an ERP is FoxMeyer Corporation. The ERP project ultimately led to its bankruptcy.
ERP can be a great advantage for many companies, such that it will allow a faster response time to customer queries, but if it is not properly planned it can cause a company to go out of business. There were many factors involved that caused the FoxMeyer Corporation Delta III to be considered a failure. Their management had little control if they even had any at all. The article “Getting IT Right” talks about how important it is for senior management to be supportive in order to be successful and The FoxMeyer Corporation ultimately did not have this.
Instead, they completely depended on their venders and consultants which caused their projects costs to increase. Another problem from the beginning with FoxMeyer was that they did not have skilled or knowledgeable personnel. Cisco Systems, Inc. on the other hand, had only the very best business people working on the project, right from the start. One of the main criteria identified in “Getting It Right” is that there has to be leadership in the area of IT as well as motivated people in order to be successful. FoxMeyer Corporation clearly lacked both of these qualities as their employees were not very skillful and turnover was great.
FoxMeyer was just not able to keep up. They took on a fast paced project without the right, skillful people for the job. The issues discussed highlight a few of the key reasons why FoxMeyer Corporation was not successful in their implementation of an ERP. There are criteria that a successful business must have in order to be considered a success, which FoxMeyer just did not have. Case Study – It’s a Success Similar to Cisco’s need in seeking an ERP solution due to a failing system, Elf Autochem also found itself needing to implement an Enterprise System, due to system failure of a different variety.
A $2 billion dollar subsidiary of the French company Elf Aquitaine, Elf Autochem North America is a regional petrochemicals company. The French parent heavily expanded operations in the early 1990’s. The aftermath of several mergers left Elf Autochem with extremely fragmented systems, and more importantly – a fragmented organization. In total, the company consisted of 12 business units. Each of these units was managed autonomously, with the unit’s systems functioning independently of the others. The lack of integration between the business units prevented data from flowing efficiently through the organization.
For example, it took four days and the interaction of several departments, to process one order. Inventory consolidation was impossible, resulting in over $6 million dollars in losses each year. Plants were frequently shut down for production-line changes in attempts to coordinate manufacturing. In the process, customers were lost. The approach taken by company executives in implementing the ERP system was where much of the success can be attributed. First, they were very calculated in their decision not to treat the implementation as simply an advance in technology.
Instead, they used the project as an opportunity to revisit the company’s strategy and organization as a whole. Senior management knew changes to the organizational structure of the company would be necessary, and therefore realigned their processes to take advantage of the SAP R/3 system’s capabilities. They understood that the new computer system alone was not going to bring about the desired change to the organizational behavior. Again, this point strengthens the idea that upper-level involvement is a key attribute in determining success for an implementation project of this magnitude.
There were four main processes that were restructured: materials management, production planning, order management, and financial reporting. The goal of company executives was to transform the company from “an industry laggard into an industry leader” in customer service. A few examples of the results they achieved were that customer orders were consolidated to a single account and invoice, each customer was provided with a single point of contact, and most importantly, information was now received in real-time.
This created effective and immediate communication between sales and production departments, allowing them to cater directly to customer needs. Another strategic initiative of the executive committee was to only install the pieces of the R/3 package that coincided with the newly restructured processes. This move not only saved money, but also maintained a more simplified system. In addition, management chose to install the systems to each of the 12 business units, one at a time as opposed to the “big bang” approach Cisco used.
This kept the project from becoming unmanageable and helped to improve the process as it moved from unit to unit. In the end, Elf Autochem finished the project under budget, completed it on-time, improved processes, restructured operations, raised customer satisfaction levels, and expected operating costs to be reduced by tens of millions of dollars. These achievements were all the result of careful planning and strategic implementation by the company’s top executives. They also demonstrated an understanding of how the enterprise system would work and then made it work for them.