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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
Case Summary by: Jesse Lucas
Main Takeaways
-
Vision is core to perception of marketplace
Improvement in IT and organization structure benefits both the company’s overall
business and the customer’s overall satisfaction
IT initiatives must be consistent with company strategy—goal organization and
management provide stable benefits to a fast growing, fast moving company
Companies must retain functional organization structure to scale without sacrificing
control during high levels of growth
Install resource planning systems that smoothen company processes (don’t mirror old
inefficient practices)
“Global Networked Companies” experience higher productivity and profitability
Standardization of Internet business solutions across functional areas leads to increased
competitive advantage and shareholder value
More in-depth Summary
I.
Cisco Systems Architecture: ERP and Web-enabled IT
a. Company vision
i. Pioneer ”New World Network” where voice calls are free over the Internet
ii. Cisco = “Internet experts: the Global Internet Company”
b. Company background
i. Founded by two Stanford scientists in 1984 / went public in 1990
ii. Dominates “Internetworking” Market
iii. March 27, 2000, Cisco overtook Microsoft as most valuable business on
earth (market cap of $531 billion)
iv. Cisco core technologies
1. Began with routers (what make the computer work)
2. Now challenging world of three independent proprietary networks
1. Phone networks (voice)
2. Local and wide area networks (data)
3. Broadcast networks (video)
c. Industry Trends -> Digitization
i. Digitization enables convergence of three networks
1. Internet acts as “Global Network” of networks
1. Allows for transmission of voice, data, video over one
network
2. Internet’s open standard creates competitive battleground
for incumbent telecoms
ii. IP-based networks
1. Cost advantage over traditional phone networks
2. Better equipped to address performance & security issues due to
3. Benefit from Silicon Valley location (hotbed for innovation)
iii. The Future
1. Companies compete to develop hybrid product
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
II.
III.
IV.
V.
Case Summary by: Jesse Lucas
2. Strive to create a product with the speed and efficiency of a router
and the precision of a telephone switch
Top Management Team at Cisco
a. Two innovative founders sell stock at initial public offering (1990)
b. Early exit provided environment for disciplined management
1. Capitalized on market opportunities
2. Grew at phenomenal rate
3. Did not lose focus or control
c. Cisco structure:
i. Emphasis on maintaining structure through periods of growth
ii. Three “lines of business” (decentralized)
1. Product marketing
2. Research and Development
iii. Centralized organizations
1. Enterprise, Small/Medium Business, Service Provider
2. Manufacturing
3. Customer support
4. Finance
5. Human resources
6. Information technology
7. Sales organizations
Cisco’s Business Strategy
a. Business Plan (4 elements)
i. Assemble a broad product line (one-stop shopping for business networks)
ii. Systematize acquisitions as an efficient business process
iii. Set industry wide software standards for networking
iv. Pick the right strategic partners
b. Goals
i. Become lead architect and provider for new Internet-based infrastructure
ii. Change the way companies and industries operate
c. ultimate focus is on customer success - ‘dedication to customer success’
Building Cisco’s IT Infrastructure
a. Two key challenges to traditional financial, manufacturing, order entry systems
i. Traditional IT department did not operate optimally
ii. Inflexible current systems couldn’t support Cisco’s growth
b. Proposed solutions to challenges
i. IT reporting relationship changed from Accounting to Senior VP of
Customer Advocacy
ii. Conduct IT budgets at functional level (better funding for all IT projects)
1. Disbanded central IT steering committee
2. IT investment decisions on application projects pushed to line
organizations but executed by central IT
Defining Moment
a. Cisco’s legacy environment failed (January 1994)
i. Corrupted Cisco’s central DB (Two-day company shutdown)
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
VI.
VII.
Case Summary by: Jesse Lucas
ii. Exposed need for alternative approach (autonomous approach to systems
replacement deemed insufficient)
iii. Autonomous approach to systems replacement was slow and insufficient
iv. Manufacturing perspective
1. Have order entry and financial groups perform a single integrated
replacement of all applications
v. Monolithic IT projects could take lives of their own
1. Cisco wanted to act quickly (no phased implementation/little
customization)
2. Create a doable schedule that was a company priority
3. Don’t mirror existing inefficient practices (instead, retrain people
to do things according to new system)
ERP Product (enterprise resource planning)
a. Critical to get best people involved
b. Cisco narrowed field to 5 packages in 2 days
c. Oracle won project
d. Selection process took Cisco team 75 days
e. Target date and project budget
i. recommendation was to replace systems with one ERP solution in 9
months for $15 million
ii. Project completed successfully on time
iii. Formed centerpiece of the 2-yr $100 million series of initiatives to replace
all IT applications and platforms worldwide
f. IT platform architecture
i. Standardized throughout Cisco
1. 100% UNIX at service level
2. 100% Windows NT at LAN level
3. 100% Windows Toshiba and HP PCs at the client level
4. 100% Oracle at DB level
5. 100% TCP/IP for worldwide network
g. Standardization promoted flexibility
i. R&D and marketing reorganized from multiple business units to 3 lines of
business
ii. Changes completed in less than 60 days for less than $1M
iii. Completion of IP-based open standards architecture initiative provided
centerpiece of Cisco IT architecture
iv. Foundation for next phase of strategy -> incorporating the Internet
Internet and Intranet Applications and Benefits
a. Cisco began web development in the early 1990s
b. Cisco would web-enable all of their applications
c. Benefits
i. Employee Self-Service – Internal Applications
ii. Communication and Distance Learning
iii. Customer Self-Service – Electronic Connection with Customers
iv. Net Commerce – Shipping product over the Internet
v. Cisco’s Supply Chain Management Initiative
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
Case Summary by: Jesse Lucas
vi. Automating supply chain involved 5 initiatives
1. Single enterprise
2. New product introduction (NPI)
3. Autotest
4. Direct Fulfillment
5. Dynamic Replenishment
d. EIS (executive information systems) and DSS (decision support systems)
i. Employees use web browser as front end access to all executive and
decision support information in the company
ii. Web-based EIS system used by all sales managers and executives
iii. Allows for sales tracking and reporting (done over the intranet)
VIII. Integrating acquisitions into IP-based IT Architecture
a. Acquisitions (important part of Cisco’s strategy) will continue into the future
i. 2/3 of Cisco technology = internally developed
ii. 1/3 of Cisco technology = from partnerships/acquisitions
iii. 70% of CEO’s from acquired companies remain at Cisco
b. Mastered art of acquisitions
i. no hostile takeovers
ii. target companies with ‘market congruent’ visions
iii. 1 of 10 acquisitions considered by Cisco is executed
iv. Example -> KPMG
1. Cisco purchased 19.9% of KPMG’s global consulting firm in
August 1999
2. Alliance with KPMG fills a gap to help customers install and
maintain systems
c. Cisco gained competitive advantage and increased shareholder value by
implementing Internet business solutions across all functional areas
i. Marketing
ii. Employee
iii. Manufacturing
iv. Customer support
v. Commerce
IX.
Beyond Cisco
a. Cisco is successful at what it does
b. Chambers and Solvik believe that principals of work using the Internet at Cisco is
applicable to general business
Case Discussion / Digest Questions
1) How was the decision made to implement ERP? And how was the system selected?
I.
Selecting an ERP Product
a. Critical to get best people involved / strong partner
b. Worked with business community (not an IT-only initiative)
i. KPMG = integration partner
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
c.
d.
e.
f.
g.
h.
i.
Case Summary by: Jesse Lucas
1. KPMG saw project as opportunity to build a business around
implementing these applications
2. Brought very experienced people into the project
ii. Internally, Cisco pulled best people out of their jobs into the project
Team strategy
i. build as much knowledge as possible (leverage experience of others)
ii. ask for help from large corporations and big 6 accounting firms
iii. tap research sources (ie. Gartner)
Cisco narrowed field to 5 packages in 2 days
i. Evaluated packages at a high-level
ii. Chose between Oracle and another major player
iii. Decision based on size (did not want a company smaller than Cisco)
RFPs (request for proposals)
i. Spent 10 days on RFP, vendors had 2 weeks to respond
ii. Cisco team researched on client past performance (reference clients)
iii. Vendors invited to 3-day software demonstration
iv. Candidates had to show how they could meet Cisco’s requirements
Oracle won the project
i. Decision based on 3 major points
1. project was manufacturing driven & Oracle had a better
manufacturing capability
2. Oracle promised long-term development of functionality
3. flexibility offered by oracle’s being close by
ii. Cisco believed that Oracle was motivated to make the project a success
1. Cisco project is 1st major implementation of a new release of the
Oracle ERP product
2. Oracle touting new version as having major improvements
3. Success would be favorable for both parties
Selection process took Cisco team 75 days
i. Final choice was team based
ii. Chose Oracle, negotiated contract with them, then put proposal together
for Board of Directors
Board of Directors
i. Two primary concerns
1. cost of project?
2. length of project?
ii. Target date and project budget
1. Live on Q3 to ensure stability in Q4
2. reliability, scalability, modifiability of current applications didn’t
support anticipated future growth
iii. Recommendation?
1. Replace systems with one ERP solution in 9 months for $15M
2. Cisco was compelled to implement ERP without formal economic
justification
iv. Board approved project
Project completed successfully on time
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
Case Summary by: Jesse Lucas
i. Formed centerpiece of the 2-yr $100 million series of initiatives to replace
all IT applications and platforms worldwide
2) Identify the main benefits of Cisco’s web enablement (internet and intranet)
strategy
I.
Internet and Intranet Applications and Benefits
a. Cisco began web development in the early 1990s
b. Cisco would web-enable all of their applications
ii. high percentage of Cisco customer, partner, supplier, interaction with the
company is network based and begins at Cisco’s home page
iii. Cisco built business process on its own global internet
c. Benefits
i. Employee Self-Service – Internal Applications
1. Majority of internal applications web-enabled
2. Corporate Intranet (Cisco Employee Connection, CEC)
a. addressed unique needs of 40,000+ employees
b. provided centralized access to information
c. provided tools and resources needed to streamline
processes
d. facilitated knowledge exchange
e. maximized employee productivity
3. leveraged web to revolutionize existing processes and create new
end-to-end capabilities
4. by 2001, every virtually every application in the company used a
web browser as the only user interface
ii. Communication and Distance Learning
1. Network enhanced ability to communicate with employees and
added important dimension to training
2. Distance learning was made available to Cisco employees
a. Activated with relative ease (at employee’s desktop)
b. Easily tracked to determine extent of usage
3. Tracking capability effective as a measure of as organization’s
changing needs
iii. Customer Self-Service – Electronic Connection with Customers
1. Customer as the focal point
a. Cisco.com
i. Answers customer questions
ii. Diagnoses network problems
iii. Provides solutions
iv. Provides expert assistance worldwide
2. 80% of technical support for customers and resellers delivered
electronically
a. Savings of nearly $506 million annually
3. improved customer satisfaction
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
Case Summary by: Jesse Lucas
a. portions of website have been modified into multiple
languages for international customers
b. customers who use Cisco’s systems show higher levels of
satisfaction and a lower cost of doing business than those
who do not use it
iv. Net Commerce – Shipping product over the Internet
1. Cisco = Pioneer at using internet for full electronic commerce
2. Allow customers to place orders from anywhere in the world
3. Order status can also be obtained online
4. Productivity gains for all online commerce players
a. 60% for Cisco
b. 20% for customers and resellers
v. Cisco’s Supply Chain Management Initiative
1. (1992) Outsourced much of its manufacturing to contract
manufacturers while performing final assembly and test
2. Recently, focused on core competencies in design and fulfillment
processes rather than physical transformation of product
3. Formed partnerships with suppliers that performed physical
transformation as their core competency
4. Automated supply chain involved 5 initiatives
a. “Single Enterprise”
i. use network applications to integrate suppliers into
production systems
ii. enabled suppliers to manage and operate major
portions of supply chain
b. New Product Introduction (NPI)
i. automated process for gathering product data
information
ii. reduced amount of time required product data
information from one day—to less than 15 minutes
iii. caught 98% of manufacturing issues upfront
iv. reduced total cost of NPI by $49 million in 1999
c. Autotest
i. Testing processes made routine / Embodied in
software test programs that ran test cells
ii. Outsourced testing once automated and
standardized (intelligence behind testing was still
from Cisco)
d. Direct Fulfillment
e. Dynamic Replenishment
i. Allowed market demand signal to flow directly to
contract manufacturers
ii. Allowed manufacturers to track inventory levels in
real-time
iii. Cisco has one of the most efficient supply chain
models
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
Case Summary by: Jesse Lucas
1. Improved responsiveness improved
profitability by $275M
2. Called “Global Networked Business Model”
vi. EIS (executive information systems) and DSS (decision support systems)
1. Employees use web browser as front end access to all executive
and decision support information in the company
2. Web-based EIS system used by all sales managers and executives
a. Over 2000 users including CEO
b. sales tracking and reporting done over the intranet
3) To what extent and how does IT contribute to the Cisco strategy?
I.
IT business solution across all functional areas led to increased competitive advantage
and shareholder value
II.
IT solutions consistent with company goals
a. allowed Cisco to grow while taking on large internal project
b. addressed Cisco’s goal of customer-centric operations
c. Examples of IT contributions
i. Employee Self-Service – Internal Applications
1. Majority of internal applications web-enabled (Cisco Employee
Connection, CEC)
1. addressed unique needs of 40,000+ employees
2. provided centralized access to information
3. tools and resources needed to streamline processes
4. facilitated knowledge exchange
5. maximized employee productivity
2. leveraged web to revolutionize existing processes and create new
end-to-end capabilities
3. by 2001, virtually every application in the company used a web
browser as the only user interface
iv. Communication and Distance Learning
1. Network enhanced employee communication and added important
dimension to training (distance learning)
1. activated at the employee’s desktop
2. easily tracked to determine extent of usage
2. Tracking capability allowed company to determine needs of the
organization through time
v. Customer Self-Service – Electronic Connection with Customers
1. Cisco.com (customer friendly)
1. answers questions
2. diagnoses network problems
3. provides solutions
4. provides expert assistance worldwide
2. 80% of technical support for customers and resellers delivered
electronically
3. Resulted in $506M in annual savings
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07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
Case Summary by: Jesse Lucas
4. Portions of website modified into multiple languages for
international customers
5. Improved customer satisfaction
6. customers using Cisco’s systems show higher levels of satisfaction
and a lower cost of doing business than those who do not use it
vi. Net Commerce – Shipping product over the Internet
1. Pioneer in using internet for full electronic commerce
2. Orders can be placed from anywhere in the world
3. Introduced online order status functionality
4. Productivity gains of 60% for Cisco, 20% for customers and
resellers through online commerce
vii. Cisco’s Supply Chain Management Initiative
1. In 1992, Cisco outsourced much of its manufacturing to contract
manufacturers while performing final assembly and test
2. Cisco then decided that core competencies were in design and
fulfillment processes rather than physical transformation of
product
3. Formed partnerships with suppliers that performed physical
transformation as their core competency
4. Automating supply chain involved 5 initiatives
1. single enterprise
i. use network applications to integrate suppliers into
production systems
ii. enabled suppliers to manage and operate major
portions of supply chain
2. new product introduction (NPI)
i. automated process for gathering product data
information
ii. reduced amount of time required product data
information from one day—to less than 15 minutes
iii. caught 98% of manufacturing issues upfront
iv. reduced total cost of NPI by $49 million in 1999
3. Autotest
i. Testing processes made routine
ii. Embodied in software test programs that ran test
cells
iii. Outsourced once automated and standardized
iv. But intelligence behind testing was still from Cisco
4. Direct Fulfillment
5. Dynamic Replenishment
i. Allows market demand signal to flow through
directly to contract manufacturers
ii. Allows manufacturers to track inventory levels in
real-time
iii. Cisco has one of the most efficient supply chain
models
–9–
07
Cisco Systems Architecture
Class 3: IT and Internal Organization
Richard L. Nolan
Case Summary by: Jesse Lucas
iv. Improved responsiveness improved profitability by
$275M
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