Cisco Erp Implementation

Cisco Systems, Inc.: Implementing ERP

Introduction

Cisco Systems Inc. is the world’s largest maker of computer networking equipment. Cisco provides a broad line of products for transporting data, voice and video around the world, which transforms how people connect, communicate and collaborate. Since the networking industry is rapidly evolving, Cisco is focused on delivering intelligent networks and technology and business architectures built on integrated products, services, and software platforms to its customers. This case studies the ERP rollout that took place on the edge of legacy system failures in Cisco during the years 1994-1995; the method and effect, and strategic recommendations.

Overview of the Business

Company Background

CISCO was founded by two Stanford computer scientists in California in 1984 to make the most of the increasing “internetworking” market and was brought public in 1990. In 1997, Cisco was included in the list of Fortune 500 companies and rated in the top five companies in Return on Revenues and Return on Assets. In 1998, Cisco’s market capitalization surpassed the noteworthy $100 billion mark. In 1999, Cisco had over 75% internet traffic share. Some industry experts projected that Cisco would join Microsoft and Intel in shaping the digital revolution as the third major force.

At the time of the case, Cisco’s primary products were routers and switches. Digitization allowed merging three independent exclusive networks (phone networks for voice, LAN and WAN networks for data, and the airing networks for video) into one, the “Internet”. Resulting from this development, Cisco was rushing to grow in the new IP-based networks market sector that did not exist earlier. Cisco’s product portfolio is categorized into following categories – Switching, Routing, Service Provider Video (set-top boxes & cable modems), Collaboration (IP phones, call center & messaging products, WebEx), Security, Wireless, Data Center, Other Products (mainly Linksys home networking products) and Services (Technical Support).

Business Strategy and Model

Cisco operates in both the Business-to-Business (B2B) and Business-to-Consumer (B2C) markets in the computer-networking segment. In the B2C market, Cisco concentrates on the “low cost” approach selling products such as wireless routers, switches and surveillance cameras. In the B2B market, Cisco concentrates on the “differentiation” strategy with groundbreaking products and business solutions for teamwork such as Webex, Telepresence and SocialMiner. According to Porter’s possible business approach types for achieving competitive advantage, Cisco lies between differentiation and low cost leadership quadrants at the bottom because it works in a niche part of networking. This business approach severely hinges on research and development to safeguard product's individuality, dependability, quality and customer satisfaction.

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(Source: http://project-management-sj.blogspot.com/2013/05/harvard-business-review-case-analysis_15.html)

Porter’s Model of Five Competitive Forces:

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(Source: http://www.valuebasedmanagement.net/methods_porter_five_forces.html)

1.      Industry Competitors

As listed in the case, the internet and its open standards was creating an emerging market for the rooted telecommunications players such as AT&T, Verizon, British Telecom and Deutsche Telecom. Lucent Technologies was likewise another competitor that was transitioning towards digitization. Juniper Networks also directly contested with Cisco by selling next-generation Internet backbone routers specifically designed for service providers. There was collective competition among existing firms to gain market share for different products such as routers, switches as well as network services, however none had all the products that would give them a big win. Moreover, Cisco was facing competition from over 5000 Internet Service Providers (ISPs) as well as UUNet, PSINet and GTE/BBN to provide fax, messaging and EDI services at a much lesser price compared to CISCO.

2.      Threat of Substitute Products

Cisco has a brand value and it is known for its reliable and high-quality products. Cisco’s investment in R&D provides the company a competitive edge over its competitors with innovative products. Likewise, Cisco is the only company that offers a suite that consolidates networking products and services. Customers would have to go to multiple vendors for different products, so there is a low threat of substitute products.

3.      Bargaining Power of Buyers

As, Cisco has various set of products and services, it has a large consumer base and is not reliant on few bulk buyers for its business. Therefore, Cisco’s buyers bargaining power of is low. As mentioned in the case, Cisco has more than 600,000 registered customers.

4.      Bargaining Power of Suppliers

Cisco does not depend on single source of providers, but sources its products from various contract companies and only carries out design, final assembly and test. Hence, the bargaining power of suppliers is low.

5.      Threat of new entrants

The high growth rate of the three independent exclusive networks (phone networks for voice, LAN and WAN networks for data, and the airing networks for video) may seem to attract new entrants. However, in order to successfully operate in the networking industry, a company requires a huge capital investment for research and development and expertize in domain knowledge to design innovative networking products, or a company would need to acquire another company that is developing innovative networking products. In addition, the new entrant company would also need to differentiate itself and provide complete business solutions. Every one of these pre-requisites serve as significant barriers to entry for new entrants. However, for big telecom companies such as AT&T and Verizon that have an established brand can easily diversify their product base through acquisitions and enter into the networking market. Hence, there is a moderate threat of new entrants.

Problem Statement

Cisco’s legacy systems were outdated financial, manufacturing and order-entry systems, which could not keep up to support Cisco’s progression, nor were they flexible or robust enough to meet management requirements. Cisco had customized their legacy system for years that had led to a complex platform, which their users were aware and contented with, but was obsolete and in danger of impending failure. In January 1994, Cisco’s legacy environment failed. An unsanctioned way for accessing core application database was used as a workaround, which failed and corrupted Cisco’s central database. As a result, the company was virtually shut down for two days. Cisco was the biggest customer of their legacy software vendor and the vendor was being bought over by another company. It was unclear who was going to support the legacy systems. This created a sense of urgency and managers of different functions within the company concluded that the legacy system needed to be replaced. If each department at Cisco such as manufacturing, marketing and finance were to implement its own software, it would take longer time to do the separate projects and could be very expensive. Hence, implementing a single integrated replacement of the legacy system such as an ERP application was crucial and time-sensitive.