Cisco Architecture: ERP and Web-enabled IT

In early May 1994, Randy Pond and Peter Slovik, the CIO and the Director of Manufacturing, at Cisco respectively, made a proposal to the Board of Directors to replace their Enterprise Resource Planning (ERP) system.  This analysis of the case study will focus on two questions; ‘How was the ERP project justified to the Board for approval?’ and ‘Do I agree or disagree with the approach and decision?’.

At the time of this case study, the CIO had been with Cisco for just over a year and had initiated many changes in the mission, organization and reporting structure of the IT organization.  It was clear to Pond that the current systems needed to be replaced.   They were neither flexible nor robust enough to support Cisco’s expected growth.  Pond’s view was confirmed when Cisco’s database access function failed, causing a virtual company shut down for two days.  This shutdown created a level of urgency within the IT organization, and with the direct involvement by the manufacturing organization, they initiated a plan to select and install a new ERP system.

The team began preparing a request for proposal and made several key decisions from the start.  First, it was decided that the ERP would not be installed as a phased implementation.  All modules of the system would be brought on line at the same time.  Secondly, there would be minimal customization of the system.  Users would adapt to the system, rather than trying to have the system reflect Cisco’s current business processes.  Lastly, they intended to make the project a priority within Cisco rather than simply an IT project.  These decisions were taken in order to ensure that the schedule for the project was doable.  This approach allowed the team to back in to a schedule.  They chose a ‘go live’ date in Cisco’s third fiscal quarter and built the schedule backwards from that date.   The third quarter was chosen so that the system would be stable by yearend and closing operations would not be disrupted.

When Slovik and Pond made their presentation to the Board, they did not justify the project based on an economic analysis.  Instead they focused on how a new ERP was in line with the company’s mission and business strategies.  Cisco’s corporate vision was to be, “Internet Experts: the Global Internet Company”.  Implementing an IP based ERP was in line with this vision.  In addition it also aligned with their third business strategy,” Set industry-wide software standards for networking”. 

A second part of their justification was also based on one of Cisco’s business strategies, “Pick the right strategic partners”.  By working with SAP on this project, they not only were helping drive the development of an IT based ERP system; they were also developing a strategic partnership with an industry leader.  The third point in their justification was to highlight the urgency required.  Not only had the current system failed as described earlier, but it failed again on the day of the Board meeting, which drove home the need for immediate action.

The situation at Cisco as described in this case study was unique.  In most situations when a company is considering such a major IT project, I would recommend that a comprehensive economic study be completed.  In addition, I would recommend that a company fully analyze their internal business practices and strive to implement an ERP that matches these practices as much as possible.  In this case, due to Cisco’s specific business strategies and level of urgency, combined with the CIO’s vision, it was a good approach.  However, in most other instances, I would recommend more economic and business process planning before making a presentation to the Board of Directors.

3 Responses to Cisco Architecture: ERP and Web-enabled IT

  • Regarding providing more economic justification to the board – if we assume they had more time – how would they have provided the justification?

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    James D. Black says:

    Developing a comprehensive economic justification for an IT project can be difficult. The financial benefits can be difficult to quantify. In some cases it is helpful to consider the cost of not initiating a project.

    In this case, Cisco should be able to establish the cost of the two recent failures. What did the two day shut down cost them in lost revenue and productivity? They should also be able to develop reasonable estimates for the on-going cost to maintain and organically grow the current system and be able to compare this to the cost of the new system over a period of years.

    Estimates of improved productivity, (ex. reduced head count) once the new system is up and running could also be generated. This may not provide a complete economic justification, but should give them the ability to evaluate alternatives.