Enterprise IT at Cisco - Case Study Example

Enterprise IT at Cisco 05 April Introduction A good information system is crucial to the success of any organization. For business firms, it is even more important in order to gain an advantage over competitive rivals. There are usually three reasons why a firm will invest in new information systems which should be preferably computer technology-based: doing things faster, doing things better and doing the same things in a smarter manner (Valacich & Schneider 85). There are many benefits to using a technology-based information system and these benefits add up to gaining a sustainable kind of advantage over rival firms. For one, the way critical information is gathered, stored, sorted and accessed gives top management crucial insights that aid greatly in their decision-making processes. Much of the guesswork is eliminated and in its place information that is based on the solid data being gathered greatly improves the accuracy of decisions made. This type of gathering information for making important business decisions is called as data mining. When tons of data sometimes do not make any sense to a casual observer, the insights provided by a good information system makes all the difference between profits and probable losses due to wrong decisions taken. Businesses are racing to acquire information systems because these provide quality insights based on solid scientific data. Sometimes, the cost benefit analysis may not justify such huge initial outlays but business analytics provide a winning margin in the competitive marketplace. Business analysts and consultants call this as the new science of winning (Davenport & Harris 3) based on quantitative data analysis and no longer on a managers own gut feel and hunches. For firms like Cisco where much of its assets are intangible (intellectual capital or knowledge-based assets), the more urgent is the need to have a good information system. Information technology companies need to both be flexible and nimble enough to translate and transform information into a long-term advantage. Discussion This paper tackles the issues and problems that faced Cisco during its evaluation of its information technology systems currently in use. In particular, the challenge of making sense out of Ciscos several and often conflicting enterprise-wide initiatives fell on Brad Boston, the CIO or chief information officer. The problem is one of prioritization based on several crucial constraints such as managing the time element and allocating scarce financial resources. Two major initiatives that presently are under consideration by top management composed of the members of its Business Process Operating Committee (BPOC) are upgrading the companys own enterprise resource planning (ERP) system and developing a newer, more comprehensive customer database. Any decision taken on these two projects has a company-wide impact. Background of the Case – Cisco is undergoing major changes lately and primarily one of these important changes is the centralization of all IT planning and spending in late 2001. In the prior decade under a different CIO, Cisco was managed largely in an independent way with the different business groups selecting and funding their own IT projects. This is similar to other companies, for example General Motors Corporation, in which there is a tight-loose kind of management structure called by its former CEO Alfred P. Sloan as the concept of the “decentralized operations with coordinated control” but hard to find the right mix (Fine 19). The whole point of this type of management set-up is to allow for creativity among its employees but at the same time keep a tight control over what is going on. However, at Cisco, things just grew and grew so that it was becoming hard to keep up with everything going on. For instance, the company does not manufacture its own networking products of routers and switches but relied heavily on manufacturing partners worldwide (outsourced manufacturing) based on strict product specifications. Additionally, it has 18,000 independent contractors that complement its workforce of 35,000 full-time workers (McAfee, McFarlan & Wagonfeld 2). Peter Solviks IT Governance Style – Mr. Solvik was the immediate predecessor of Mr. Brad Boston at Ciscos IT department and managed the various entities under him in a kind of loose way. He did this by delegating and authorizing most of the big spending decisions on IT budgets to the different functions and departments. This had worked in the early years of the company when Cisco grew so fast and needed flexibility to respond quickly to various market changes that required quick decision making from managers to exploit business opportunities. This type of set-up and governance also allowed for innovative and creative ideas to flourish. He had managed to transfer the IT department from under Finance to the Consumer Advocacy Group in pursuance of bringing the company closer to its customers and at the same time also disbanded a central IT steering committee as overly bureaucratic that hampers operations. The end result is that IT was no longer viewed as an overhead cost center (ibid. 3). At the network level, the governance in place was one of a sense of entitlement as the managers of each function or department exercised a high degree of independence while on a lower level, at the data level, it was even much worse. As an example of the disorganized way of doing things, there were a total of about 50 different customer survey tools in existence as a way of getting valuable feedback information from various clients. Each was structured in a different way depending on the requesting department that authorized and paid for the project. The same situation also prevailed at the data level in which the same data was interpreted in a number of different ways that resulted in confusion, conflicts and duplication (redundancy). A case in point is that each department had developed its own customized software to interface with the enterprise software. At the application level, this lack of a centralized group to serve as gateway for all the on-going projects made the existing ERP system almost unrecognizable. By this, I mean each function and department had made several alterations or additions and so many extensions and interfaces these made the original ERP software no longer standardized. Problems at Cisco by 2001 – the lack of a central organizing authority to make sense and control all the various activities at Cisco had made its ERP system virtually useless and in many ways resulted in duplications and conflicts. The recession brought about by the bursting of the speculative Internet Bubble and the terrorist attacks of September 11 resulted in a down turn in IT spending by most companies. In a way, this was a good opportunity to review how things are being done at Cisco and provides a good justification for implementing changes. Its internal IT environment was confusing at best, with about 200 different on-going projects at any one time. Cisco begun having problems at around this time with finding the competent or qualified engineers to augment its IT department to help in integration of various companies that it had acquired in a buying spree (some 40 different companies from 1991 to 2001 alone). It was good that Brad Boston had halted most new projects at the moment since the existing ones were already proving to be unmanageable and causing a headache. This means 2 things are to be fixed first before undertaking new projects: underlying data sources and technology infrastructure (ibid. 5). This was the reason he implemented an amnesty program so that these departments will voluntarily reveal any existing projects. The idea is to rationalize everything to make the next step, an upgrade of the ERP system, more manageable and easier to do. Why the ERP System Didnt Help More – the existing ERP system at Cisco was now an antiquated piece of software. It was originally bought and installed primarily to manage all of Ciscos inventory functions and manufacturing processes. In this sense, it was limited only to these two areas when in fact, a good ERP system must be comprehensive to encompass all a companys various functions such as sales, marketing, distribution, customer service, etc. In Ciscos case, its operating business environment had already changed so its ERP requirements can no longer be served adequately by the present ERP system. For instance, 90% of all new customer orders now are originated on-line and so used its Web site as a core sales platform. The Role of the BPOC – this high-level committee is merely a recommendatory body. As such, it can influence certain projects in a big way but it does not make the final decisions. However, its opinion and endorsement is still much sought after because approval for funding depends on a large part in how the BPOC will prioritize certain conflicting projects in view of the constraints mentioned earlier – time limitations and financial resource allocations. BPOC also served as a virtual chief operating officer (COO) by doing the centralized planning that was needed in a big company like Cisco. Because it was made up of members from several departments, it was cross-functional in its composition and designed that way to eliminate all remaining divisive attitudes among different managers. The BPOC served as the unity factor that cuts across all divisions, functions and departments. It served a necessary function which was to take a more comprehensive strategic viewpoint of everything the company is doing. At present, the BPOC exercises no real authority in terms of funding but its opinions on what are important projects in terms of priority gives it some weight. As a committee, it can review project proposals submitted to it for opinion and prioritization among contending projects. The cross-functional membership is to drive up enterprise-wide productivity levels by aligning various and conflicting departmental interests with overall strategic aims of Cisco. Its main purpose is to prevent the company from taking a myopic view that focused only on individual departments objectives. The BPOC carries moral weight and suasion by its act of enforcing decisions made earlier through attention to monitoring the execution, status and the accountability of all on-going project decisions. In this regard, it serves as the unifying glue that keeps everything in Cisco work for the greater good of the company instead of making a parochial piece-meal approach to certain functional problems. Although it is not listed on the companys organizational structure as a formal entity, its twice-monthly meetings carry a big influence in how projects at Cisco are started, monitored, funded and evaluated at the end. Three Big Projects – Mr. Boston had selected, upon his assumption as CIO at Cisco, 3 big projects, namely: a better enterprise reporting through an improved business intelligence system, e-customer initiatives and a new procedure for funding IT projects (ibid. 6). All three projects, when combined together, are intended to re-position Cisco in the near and immediate future for new growth when the economy recovers eventually. He knows everyone must take a much broader view of things than that being done on the lower departmental levels. For the company to achieve lasting competitive advantage, all departments must contribute in some ways towards attainment of those strategic objectives by aligning their objectives with overall company-wide objectives. This requires teamwork in which everybody goes in one direction. The first two big projects, namely enterprise reporting and the e-customer initiative, will help to improve customer service. By doing these, it can be a source of competitive advantage by giving clients better value for money by being more responsive (Valacich & Schneider 88). In the third initiative (funding IT projects), Brad Boston hopes to save some money by avoiding redundancy and at the same time rationalize the way IT projects are prioritized and funded in view of limited financial resources brought about the temporary downturn in the economy. Value of Each Individual Project – for the first proposed system which is an improved enterprise reporting, the value will be doing things faster. The current system at Cisco is a bit confusing and prone to errors as different departments are using different software programs. The proposal will allow Cisco to access crucial data much faster as there will be standardized sets of data that will soon become accessible to everyone within and beyond the company like those working outside in foreign countries. This aspect is called as automating that will give it greater accuracy and consistency with regards to corporate data sets (ibid. 85). In particular, it will help solve the problem of the tedious and manual job of data scrubbing, which is to keep data updated. Cisco had tons of data but mostly outdated and needed major cleanups. The second proposed system will help Cisco improve its customer service relationship by giving it accurate data regarding its client base that will allow it to segment clients. As an example, the expected value of this business information system will help in marketing efforts by giving accurate picture of what each particular clients specific requirements in the future. The expected added value of using the proposed system will be doing things much better by making Cisco a learning organization as well (ibid. 86). Being a technology company makes it imperative for Cisco to do things right and learn along the way by being dynamic regarding changing business conditions. Cisco must be aware that it needs to modify its behavior using new insights and knowledge gained from implementing the proposed second system. This is a very important initiative considering that most orders from customers are received on-line and its Web site is also being used as a platform for technical support and software upgrades. The third proposed system is probably the most difficult to implement as it requires an utmost cooperation from all the various departments. The task will only succeed if all function or departments are convinced of the benefits the project will give them as they are asked also to contribute to the costs of the project. The benefits may not be immediate but departments now have to assume an inter-disciplinary approach or viewpoint with regards to all enterprise- wide projects. A strategic cross-functional initiative will help Cisco to position itself for the future by providing a strong foundation for future growth. The new funding procedures need to be taken because Cisco had grown so big and disparate parts often work at cross purposes that tend to waste away precious financial resources. The situation needs to be changed. The company-wide initiatives like updating the customer database and upgrading the Oracle ERP benefits everyone but no one likes to contribute voluntarily because they are short-sighted in how the benefits will redound to them in the long run. Cisco is using a matrixed organization set-up so that people (especially middle managers) will be able to see the bigger picture. The Best Fit – It might be a better approach to make a separate business case for each of the three proposed systems. For the first system, the best case will be based on the faith that most IT-related companies within the industry are using business analytics to attain a degree of competitive advantage. The computer-technology industry is very fast paced and changes occur within a short span of time. It requires management to stay on top of the situation and better business intelligence helps in this regard. In the second proposed system, the best case will be using facts to argue for the use of the new system. This is because cost-benefit analysis can be easily done with use of hard data such as new customers generated or the increases in sales recorded each month. It is easier to collect data based on sales as these are recorded in its financial statements. In the third system which is changing the allocation procedures within Cisco, the best case will be a combination of fact, faith and fear (Valacich & Schneider 98). Cisco is in a dynamic industry and rapid changes can argue strongly for the adoption of new funding allocation procedures designed to save on costs. Facts on sales revenue can be used to augment the business case, faith is used because it is common knowledge many similar firms are using business analytics and fear will be the final factor to convince doubters that without a new allocation system, the company will not be able to implement a grand growth strategy. Various Issues Related to the Shadow IT – the issues involved in so many contractors is the lack of supervision, uncontrolled growth in hiring and approval, and lastly, the danger of some company trade secrets spilling out to competitors. This can be solved by formalizing their status within Cisco as a new unit in its proposed business process outsourcing (BPO). By doing this formalization within its organizational structure, the company will have gained the control necessary for keeping contractors in line with its objectives as well as subject them to internal company policies. This will bring them in line with those broader company directives Mr. Boston spelled out through his three big projects (McAfee, McFarlan & Wagonfeld 9). Conclusion There is a great need to find the right balance between maintaining an entrepreneurial, innovative culture and retain a degree of control by setting ROI and risk hurdles for projects. Cisco is doing this by centralizing fund allocations but still allowing for breakthrough ideas. It is always a challenge for fast-growing companies to retain an entrepreneurial environment. In the first few years of a company, rapid growth is fostered by an entrepreneurial culture but as it grows over the years, there is a need to maintain a degree of control before things get out of hand and become unmanageable. Cisco experienced this cycle when Mr. Solvik was in charge but things have changed since then and there is clearly a need to put things in order. Todays global age is marked by rapid innovations in computer-based electronic or digital technology and this is the industry Cisco is in. The Internet has made possible the instant communications of one-to-many and many-to-many (de Bruin 76) and Cisco must take advantage of this. The company should look at enterprise IT as an enabler of its business strategy than anything else. Works Cited Davenport, Thomas H. and Jeanne G. Harris. Competing on Analytics: The New Science of Winning. Boston, MA, USA: Harvard Business Press, 2007. Print. De Bruin, Anne and Ann Dupuis. Entrepreneurship: New Perspectives in a Global Age. Surrey, UK: Ashgate Publishing, Ltd. Fine, Sidney. Sit-down: The General Motors Strike of 1936-1937. Ann Arbor, MI, USA: University of Michigan Press, 1969. Print. McAfee, Andrew, F. Warren McFarlan and Alison Berkley Wagonfeld. Enterprise IT at Cisco (2004). Harvard Business Case No. 9-605-015 (Revised: 20 Aug. 2007). Boston, MA, USA: Harvard Business School. 1-13. Print. Valacich, Joseph and Christoph Schneider. Information Systems Today: Managing the Digital World, 4th ed. Upper Saddle River, NJ, USA: Prentice-Hall, 2009. Print. Read More