MGB 207 Team 3 Cisco ERP implementation case Joann Suen Seema Sangari James Sun Sekhar Varanasi

Company Background

Founded in 1984, IPO in 1990 Primary product at that time-router High growth company-return on revenues and on assets First acquisition Crescendo communication in Sept 1993 By 1997, its first year on the Fortune 500 On July 17,1998, market cap passed the 100 billion mark

Background - Cisco IT
Infrastructure
1. 2.

Running a UNIX-based software package to support core transaction processing Function areas supported by the separate packages financial, manufacturing, order entry systems

Governance
1. 2.

Only core IT infrastructure spending was centralized and budgeted out of general overhead accounts Most IT expenditures delegated to individual business unit-Client Funded Model
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Background - Cisco IT
IT Problems

It had become too much spaghetti, too customized-Pete Solvik The original upgrade/patch approach made little progress, system outage became routine, hard to recover from outage It would take too long to get applications in place by making decision and implementation separately within group

It would take a lot longer to implement a too customized system to end up as a mega-project
Systems were on the brink of total failure
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Vendor/partner evaluation
What is the criteria in ERP vendor evaluation .

Not all vendors can serve a billion-dollar company ERP is a commodity ERP usually has 10 to 12 year life span Horizontal, functional and external integration aspects Think about product scalability (rich features, security, etc.) Service scalability (partner, 3rd party vendor support, etc) How quickly can the vendor support the market changes (e.g. SOX, M&A, etc.) Contract friendliness Am I getting a good deal? What is the TCO (Licensing, implementation cost, support, infrastructure needs, etc.)

How did Cisco do?

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Ciscos evaluation
Implementation partner should have Technical skills, business knowledge, prior ERP implementation experience and eagerness to work with Cisco Mantra Strong Cisco team needs strong partner Major decision points for vendor selection Vendor size, Strong manufacturing capabilities, Long-term R&D investment and How close is the vendor Vendor evaluation process Reference calls (to Big six, research groups to identify top ERP vendors ) Hone down from 5 packages to two in 2 days after evaluating features Sent for request for proposal (RFP), attend vendor demos Oracle you won , [other vendor] you lost
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ERP implementation Cost

Software (Licensing)
Hardware System integration Consulting resources (this is largest portion of the entire costs) Internal resources (pulled out to work on ERP implementation) Training costs (Gartner recommends 17% of the total cost) It is not uncommon to use industry benchmarks

Expenditures (US$ Millions) Company sales (US$ Billions)

*source AMR research

Cisco cost estimates

Ciscos justification
No cost-benefit analysis We are going to do business this way management commitment to change

Customers and Competitors

Cost avoidance will be costly consequence Estimated at $15M based on then revenues

Boy! How do I tell yaCost of ERP is like weather

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Implementation Timelines
Ciscos financial year : Aug 1 July 31 Constraint was it cannot implement in Q4 Another option was to implement in July/August 1995 but was rejected because it is too late So they worked backwards Q3 should go live System should be completely stable by Q4 So the target date was set to February 1995 Project time line : 9 Months, target date : Feb 1995

% of respondents from 479 US manufacturing companies surveyed by AMR research 1994

ERP customization
Lets go Vanilla with some parameter changes to system -> Well, I need some customization -> 2 months later -> I need sizable customization..so what is the big deal?
ERP customization vs BPR Strategic decision to reduce customization as much possible in order to simplify future migration and upgrade projects Customizations cost time and money initially and for life of the software

They are deviations from the best business practices already developed by the vendor
By the way Cisco kept it to minimum
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Other issues and decisions

Immediate upgrade? It wasnt an IT-only initiative

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Management Choices

Structure of Project Team: Sought the best people; 5 Track teams -> PMO-> Executive Steering Committee Implementation partner KPMG KPMG had both the technical skills and business knowledge; helped in selection and implementation of ERP solution

Incentives: Reward for the ERP Team - Over $200,000 cash bonus. Success had a huge upside while failure meant threat of job losses.

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Implementation Methodology

Prototyping: Rapid, iterative implementation was broken down into a series of phases called CRPs.

CRP 0: Training and Configuration of Oracle package. Approach - 2-days offsite and 80-20 CRP 1: Detail documentation and analysis of each functional area. Needed another package to support after-sales. CRP 2 & 3: Centralized data warehouse developed. Final Testing with full load of users.
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Crunch time
Testing and Go Live Official Testing begins at the end of CRP2 Full system testing and assessment of companys readiness to Go Live during CRP3 Go Live Readiness was determined by each track team, specifically each functional lead Go Live Date: January 30th 1995 Testing Method Testing did not occur at CRP0 Testing was not broken down into phase, e.g. Alpha, Beta, etc.

Go Live Method Big Bang roll out Go live determined by each functional lead, rather than one large entity
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Wrap up
Total system replacement: $15 million, 9 months Initial Problems with Cisco ERP System: Decrease in Business Performance due to an unstable system Database lacked capacity to process the required transaction load/volume within the Cisco environment Resolution Swat Team-like Mode (3 months): ERP project status and complete implementation became top priority for the company Commitment from Oracle, hardware vendor, and KPMG eventually stabilized the software and improved performance Long Term Effects: Added capacity to the system ERP system would fulfill the promise of supporting the rapid growth that the company expected and desired
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Wrap up continued..
Why Successful?
Implementing an ERP system was top priority Buy-in from executives High visibility project Best people were on the project Strong vendor relations and vendors determination for success Very timely Cisco then and now
Cisco in 1998 Employees: 14,500+ Cisco in 2007 61,500+

Market Cap.: Sales

$100 Billion+ $8.45 Billion+

$194.56 Billion $34.9 Billion

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Q&A

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Wrap up

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Backup slides

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Implementation Management
1. 2. 3. 4.

Major Players Pete Solvik, CIO of Cisco KPMG Implementation Partner Oracle-ERP vendor Hardware vendor

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