Harvard Business Case. Cisco Systems,Inc.: Implementing ERP - Term Paper Example

? CISCO ERP Table of Contents I. Executive Summary 3 II. Case Synopsis 5 III. Analysis of Cisco's IS Strategy/Goal/Business Model 6 IV. Business Operations and Processes- Analysis of Encountered Problems 8 A. Firm-Based Value Chain Model 8 B. Model Application 9 C. Implementation Opportunity Analysis 11 V. Implementation Effectiveness 12 VI. Conclusions and Recommendations 13 A. Conclusions 13 B. Recommendations 14 C. Action Plan 15 References 16 I. Executive Summary This paper makes an overall assessment of the value and effectiveness of the ERP implementation project at Cisco, as discussed in the Harvard Business School case, centering the analysis on an evaluation of the entire ERP project from the perspective of Porter’s value chain model and situating the project elements within that model. The paper first presents a synopsis of that case, alongside a discussion of the business model and IS strategy for Cisco. That business model is based on a rapid growth strategy, in which context the supporting IS strategy of adopting a radical change to the company’s ERP system with the implementation of the Oracle system makes sense. The change in the ERP infrastructure at Cisco is warranted by the value creation capabilities of a reliable and scalable system that will be capable of supporting the company’s growth strategy (Porter, 1996; Liabotis, 2007; Zook and Allen, 2011; Austin, Nolan and Cotteleer, 1998; Rifkin, 1997; Mayer and Kenney, 2004; (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013). The paper takes off from the preceding analysis to make an assessment of the overall value and effectiveness of the ERP project at Cisco. Referencing the literature, the paper acknowledges the aspects of the project that were excellent, including that the project was able to secure the support of top management, and benefitted from the collective wisdom from top consultants such as KPMG, the Big 6, Gartner, and industry practitioners and project managers with experience in ERP projects. Seeing the screening process for the software system as a flaw that resulted in the scoping changes that ensued, the paper makes recommendations to further strengthen the selection process by requiring vendors to prototype and map Cisco value chain processes to the system, among others (Porter, 1996; Liabotis, 2007; Zook and Allen, 2011; Austin, Nolan and Cotteleer, 1998; Rifkin, 1997; Mayer and Kenney, 2004; (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013). II. Case Synopsis There was a need for Cisco to replace legacy systems or risk losing the capability to support a growing business that was poised to grow to more than a billion dollars from the US 500 million dollars that the company was able to generate yearly at the time of the case. The Unix system served the company well for a time, but moving forward, and with the breakdown of the system in early 1994, it was clear that that a new system was needed. For a time Solvik tried to manage the needed changes by allowing functional areas to upgrade their own systems or maintain current systems while adhering to common architectures and databases. This proved to be disastrous as functional areas proved risk-averse and chose to maintain aging and increasingly incapable legacy systems rather than step forward with proposals for large investments in new systems. The breakdown in early 1994 proved that what was needed was more decisive action. In 1994, therefore, the company chose to embark on a unified system change and chose KPMG to help it choose from a number of vendors, eventually choosing Oracle’s ERP suite. With KPMG as consultant and provider of systems integration manpower and expertise, the company embarked on a $15 million Oracle ERP project that touched on the entire supply and value chains of the company, and was slated for nine months, with the project to go live on the fourth quarter of that year. With top management support, and an Executive Committee made up of top leaders from Oracle, Cisco, and KPMG, the implementation team used a “rapid iterative prototyping” methodology centered on so-called “Conference Room Pilots” or CRPs to adapt the Oracle system for use in Cisco within the time frame set. Problems met along the way included the need to expand project scope to modify the stock Oracle system to accommodate Cisco’s business processes, the need to purchase a package for after sales support, modifying the initial plans to include coordinated data access via a central data warehouse, and tweaking the hardware to support the transaction volumes and capability requirements of Cisco. At the end of the entire project, Cisco had a working system that met deadline objectives and successfully accommodated Cisco’s entire end to end supply chain and value chain requirements (Austin, Nolan and Cotteleer, 1998). III. Analysis of Cisco's IS Strategy/Goal/Business Model The overriding business concern had little to do with the immediate costs of the ERP package, given that there is no way that Oracle could move forward while maintaining the status quo of continuing to stay with the current system. The company was growing fast and had long-range revenue growth goals, and was poised to grow into a firm ten times the size of its revenues at the time when the need for a coordinated systems change became clear. It was simply change or be bogged down by a system that had outgrown its use. Moreover, it was clear too that the change needed to be bold and immediate, given that the system was choking and could derail even Cisco’s immediate operational requirements for a robust and reliable system. Moving forward, it is the consideration of the long-range reliability and appropriateness of a new ERP system that was the key consideration. In other words, the business justification was that without a system change, there was no way that Cisco could even sustain its present operations, and it was equally doubtful that the current provider could accommodate the long-range plans of the firm, given that Cisco was rapidly growing. Cisco needed a big-time player able to match it in size and in long-term viability. The choice of the ERP system had these long-range business justifications that were necessary for Cisco to satisfy (Austin, Nolan and Cotteleer, 1998). From a business justification point of view, moreover, the growth strategy at Cisco implies a long-range investment strategy that looks at the investment in the ERP package not in the context of short-term returns but on the basis of whether the ERP package supports that long-term growth strategy. In this case cost versus returns is not a one-year consideration, but rather extended over a longer time period. It is clear in this case that the ERP being the backbone of the company’s value chain, that it needed to be robust and able to scale up to meet the revenue and long-range growth plans of the company. Given that the company expected the ERP package to support and scale up to Cisco’s planned explosive revenue growth in the medium term, the prime consideration was not so much cost as how reliable and robust the system is to support that long-range growth plan. Clearly in a growth strategy paradigm, there is a need to invest in the most vital things that support that growth strategy, and in this case without solid operational systems clearly Cisco would not be able to realize its long-term revenue goals (Porter, 1996; Liabotis, 2007; Zook and Allen, 2011; Austin, Nolan and Cotteleer, 1998; Rifkin, 1997; Mayer and Kenney, 2004). Moreover, in the context of the company’s strategic acquisitions as a driver of its growth strategy, it becomes all the more clear that the investment in a new ERP system to accommodate the large growth in transactions and revenues forthcoming is justified. Cisco in short was priming to radically increase the level of its transaction volumes and sales, necessitating the need to invest in a new ERP system. The IS Strategy of concentrating efforts to build that unified value chain system for the company makes sense as an alignment to the overall growth strategy of the firm (Porter, 1996; Liabotis, 2007; Zook and Allen, 2011; Austin, Nolan and Cotteleer, 1998; Rifkin, 1997; Mayer and Kenney, 2004). IV. Business Operations and Processes- Analysis of Encountered Problems A. Firm-Based Value Chain Model Porter proposed a value chain model that tracks the internal activities of a firm and maps how those activities create value for customers. The basic idea is that the value created by a firm forms the basis for its existence, and is quantified in the form of margins. There is a commonality, according to Porter, with regard to the activities chain that companies make use of en route to creating that value, and those activities are classified in his model into secondary and primary activities. The key or primary activities are service, marketing and sales, operations, inbound logistics, and outbound logistics. The secondary activities are infrastructure of the firm, technology development, procurement, and human resources. In the context of the case, the ERP project falls within technology development component of the value chain, which is a secondary activity. A map of Porter’s firm-based value chain is given in the figure below (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013; Austin, Nolan and Cotteleer, 1998). Figure source: Mind Tools Ltd., 2013. B. Model Application In the context of the ERP project at Cisco, the functional areas that are of primary importance, including sales and marketing as well as inbound and outbound logistics and service, are mapped into the primary activities in the Porter value chain model. The ERP project itself is mapped into the technology development component of the value chain model, and is a secondary activity. This pertains to the needed technology upgrade to prepare the company as it executes on its massive growth strategy. In Porter’s conception of the role of technology development in the value chain, it is clear that as a support or secondary activity, there are considerations relating to keeping the costs of such support activities in check. This is differentiated from needed research and development costs as they pertain to developing the products that the company sells, being a technology company. Here the ERP project is a support activity that enables the firm to deliver the products and services to its customers. On the other hand, where properly executed, the investment in the ERP system as a technology development component of Cisco’s value chain is expected to radically enable the company to create new value for its customers. Cisco’s ERP project in the case is situated properly in the value chain model of Porter below (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013; Austin, Nolan and Cotteleer, 1998): Diagram Sources: Mind Tools Ltd., 2013; Austin, Nolan and Cotteleer, 1998 In the case, the value chain is being compromised by the weakness in the technology development part of Cisco’s chain, and is seen as being the weakest link and a hindrance to Cisco being able to execute on its long-range growth strategy. It makes sense, therefore, for the firm to undertake a substantial investment in a new ERP system that spans all of its support and primary activities in the value chain. It is noteworthy too that in the context of the project at Cisco, all of the functional areas were covered, and the team was assembled from some of the best talents in each of the functional silos in the value chain above. That the Oracle system was unable to provide components for sales support meant too that the additional investment in a separate support system is warranted, given that it is a core primary activity in the value chain model above (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013; Austin, Nolan and Cotteleer, 1998; Saha, 2011). C. Implementation Opportunity Analysis The case makes clear the point that the ERP is to impact every aspect of Cisco’s supply chain, from order to order fulfillment, and that in effect this ERP project is to affect and alter every transactional and support system that is linked to main value chain. The high level support for the project and the recruitment effort, and the very composition of the team, attests to the fact that all of the major functional units representing the primary and secondary value chain activities in Porter’s model were affected, and were involved in the massive ERP undertaking. In the case too, it was clear that the best employees in each of the functional units were engaged for the ERP project, and this obviously has implications on business continuity. In sales and marketing, for instance, this could have implications on the ability of the function to meet targets for the year. In support activities such as accounting and in technology, this translates to having the best people on hand to make sure that the ERP functions in accordance with the necessary business processes for the respective functions. The top level support for the project had implications too for all of the decision levels in the firm and the way management at all levels were basically conscripted to support the project (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013; Austin, Nolan and Cotteleer, 1998; Saha, 2011). V. Implementation Effectiveness It is noteworthy that the rapid iterative prototyping methodology, the intense implementation of the CRP’s, and the use of performance metrics rather than hardware component metrics in the evaluation of the adherence of the hardware vendors to the contract terms are innovative and were in full effective display in the case. These aspects of the projects lent themselves to being used to aggressively pursue the timelines and be able to go live as planned, within the nine-month target specified and agreed with top management. The CRP’s, in particular, were instrumental in ferreting out issues and problems at every stage in the process. The initial CRP was instrumental in making sure that the Oracle ERP system, for instance, were able to accommodate up to 80 percent of the requirements of the Cisco value chain, leaving the implementation team with enough resources, time, and stamina to take on the challenges associated with accommodating the other 20 percent of the requirements of the value chain. Subsequent CRP’s, in turn, ferreted out problems with implementing the ERP for specific aspects of the Cisco value chain, so that additional investments in a support system, and additional investments in time and personnel for customization efforts were clearly seen and justified. Going live presented its own sets of problems, and surfaced problems with accommodating the large transaction volumes of Cisco from the point of view of hardware capabilities as well as database design capabilities. Taking a step back, previous CRP’s also identified the need to modify initial database infrastructural plans and ERP transactional designs in favor of a unified data warehouse that can be universally accessed by all of the components of the ERP, in sync with the value chain processes (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013; Austin, Nolan and Cotteleer, 1998; Saha, 2011). From a costs versus benefits perspective, meanwhile, it is clear that the effectiveness of the implementation necessitated additional costs on top of the planned budget for the entire ERP project, but as already discussed earlier, this project is a necessary investment that is more than justified cost wise by the large benefits that accrue to Cisco from being able to accommodate the large volumes of transactions that are tied to its aggressive growth strategy moving forward (Mind Tools Ltd., 2013; Institute for Manufacturing, 2013; Austin, Nolan and Cotteleer, 1998; Saha, 2011; Zook and Allen, 2011; Austin, Nolan and Cotteleer, 1998; Rifkin, 1997; Mayer and Kenney, 2004). VI. Conclusions and Recommendations A. Conclusions It is clear from the case that the decision to go with a major overhaul of the ERP systems needed a coherent strategy as well as top management support, things that were in display in the quick but concerted effort to make the most intelligent decision to go with an ERP vendor of the caliber of Oracle, and with the help of top consulting talent from KPMG. Resorting to best practices and a survey of implementations of ERP solutions from the Big 6, and relying on the combined wisdom from such entities as Gartner, meant that Cisco was moving forward armed with the best knowledge on what can work for the firm. The methodology is sound and is justified by the success of the project, within schedule, even as the use of the CRP’s were able to methodically unearth implementation problems and justify additional investments in technological resources, changes to the database designs to accommodate a data warehouse, customizations to the Oracle package, and additional investments in a support system to plug holes in the Oracle package. The literature tells us moreover that apart from having a sound methodology, the support of top management is critical, and in the case Cisco had an abundance of support. That support proved crucial in key stages of the project, especially in the stages that necessitated decisions to expand the scope of the customization and to invest in additional ERP support modules (Holland and Light, 1999; Umble et al., 2003; Nah and Lau, 2001; Nah, Zuckweiler and Lau, 2003; Austin, Nolan and Cotteleer, 1998; Saha, 2011; Zook and Allen, 2011). B. Recommendations In the case, the decision to go with Oracle was done without first undertaking a mapping of Oracle functionality to the actual needs of Cisco. This was evident in the way succeeding iterations of the methodology, through the CRPs, unearthed problems in fit that necessitated not just major customizations, but the need for purchasing a separate support system to fill the gaps between what Cisco needed in certain areas and what the Oracle ERP system provided. A more nuanced evaluation process would have unearthed these problems and maybe justified getting a different solution from a different vendor altogether, with the same size and capabilities as Oracle. A screening process that included vendors prototyping of the most vital value chain aspects would have alerted Cisco of the problems that it encountered during implementation prior to purchase. The literature provides ample documentation of the need to be rigorous in the software systems selection process to identify potential problems and come up with the best fit solution for an enterprise such as Cisco. In this case, it is fortunate that Cisco had the resources and the support to be able to undertake changes and additions to the core system on the fly. A differently resourced firm would have encountered more problems with going through a less rigorous screening and selection process for the ERP system to be purchased (Holland and Light, 1999; Umble et al., 2003; Nah and Lau, 2001; Nah, Zuckweiler and Lau, 2003; Austin, Nolan and Cotteleer, 1998; Saha, 2011; Zook and Allen, 2011) C. Action Plan The rapid prototyping methodology and the CRP’s, the top management support, and the method of recruitment for the implementation team are elements that can be preserved in an ideal Cisco ERP implementation. The choice of a top caliber systems integration expert in KPMG, capabilities-based hardware vendor selection, and the institution of a steering committee made up of leaders from all of the stakeholders of the project are also excellent practices and need to be preserved. On the other hand, the selection process for the ERP system can be made more rigorous by a more stringent process where vendors are made to map existing Cisco value chain processes into their offerings, to improve the selection process and avoid the problems that Cisco encountered later in the implementation process. Those problems that could be avoided by a change to make the selection process more rigorous via prototyping include customization and investing in additional ERP modules, as what happened to Cisco in the case (Holland and Light, 1999; Umble et al., 2003; Nah and Lau, 2001; Nah, Zuckweiler and Lau, 2003; Austin, Nolan and Cotteleer, 1998; Saha, 2011; Zook and Allen, 2011). 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