AC ase Study of ERP Implementation Issues by HC120328094539


									      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

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


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

              Background - Cisco IT
IT Problems

   “It had become too much spaghetti, too customized”-Pete

   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
         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,
 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……?
              Cisco’s 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
 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”
                                           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   7
              Cisco cost estimates

 Cisco’s 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 ya…Cost of ERP is like weather

         Implementation Timelines
 Cisco’s 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   9
             ERP customization
 Lets go “Vanilla” with some parameter changes to
system -> Well, I need some customization -> 2 months
later -> I need sizable customization… 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
     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
              Other issues and

 Immediate upgrade?
 It wasn’t an IT-only initiative

             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.

   Prototyping: Rapid, iterative implementation was
    broken down into a series of phases called CRP’s.

       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

       CRP 2 & 3: Centralized data warehouse developed.
        Final Testing with full load of users.
                    Crunch time
 Testing and “Go Live”
    Official Testing begins at the end of CRP2
    Full system testing and assessment of company’s 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,

 “Go Live” Method
    Big Bang roll out
    “Go live” determined by each functional lead, rather than one
   large entity

                        Wrap up
Total system replacement: $15 million, 9 months
 Initial Problems with Cisco ERP System:
     Decrease in Business Performance due to an unstable
     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
           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 vendor’s
  determination for success
   Very timely

Cisco then and now
                  Cisco in 1998    Cisco in 2007
   Employees:     14,500+          61,500+
   Market Cap.:   $100 Billion+    $194.56 Billion
   Sales          $8.45 Billion+   $34.9 Billion     16

Wrap up

Backup slides

    Major Players

1.   Pete Solvik, CIO of Cisco

2.   KPMG –Implementation Partner

3.   Oracle-ERP vendor

4.   Hardware vendor


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