Cisco Systems, Inc deals primarily with routers that are used in TCP/IP networks. This company was founded in 1984 by two computer scientists. Four years later John Morgridge was hired as the CEO of the company. The CEO was to usurp all managerial powers from the founders of the company who were forced to sell all their shares and leave the company.
He reinstated a strict professional management team that saw the company emerge as one of the global leaders in information technology industry. It was estimated that over 75% of internet traffic was handled by Cisco routers and its other networking products by the end of the year 1999. This success was closely followed by an acute system failure that saw the company risk losing a large proportion of its market share.
To restore success, the management teams decided that the way forward was to web-enable the entire company and implement an Enterprise Resource Planning (ERP) system. The whole project involving web enhancements and a big bang approach towards the implementation of an ERP system cost $115 million. The project succeeded in restoring the company to its previous position of a global leader in networking technology.
History and Practices of Cisco systems
Cisco systems were founded by Don Valentine and his colleague in 1984 while working at Stanford as computer scientists. The company grew at an astronomical rate and it was listed in the stock market six years down the line. Immediately after going public, it reached fortune 500 by the end of 1997. Cisco was to be declared as the most valuable company worldwide with a market capital of $532 billion that exceeded that of Microsoft with a wide margin (Laudon, 2007).
Don Valentine resolved to strengthen Cisco by reinvesting $2.5 million back into the company and by hiring John Morgridge in 1998 as the new company CEO whose core responsibility was to instill strict professional supervision. Don Valentine and his colleague were to soon quit the company by selling all their shares due to disharmony that was consistently building between them and the new managerial team that the new CEO had brought in. This move strengthened the company all the more.
The CEO resolved to consolidate the company by centralizing the management of all key company departments such as IT, manufacturing, sales, customer support and finance (Applegate, 2009). Other departments that were deemed to be of less concern like research and development were divided into three sub groups’ i.e. service providers, Enterprise and small to medium business entities in order to improve service delivery. This strategy enabled Cisco to counter competitors in a fast moving market thereby enabling it to grow fast.
To sustain growth, Morgridge saw it fit to hire another CEO for the company and in 1991, John chambers was hired to take the job. The two decided to give a facelift to the company practices by implementing four basic strategies namely:
- Convert Cisco systems into a one stop shop for all business network needs by creating a wide assortment of network products.
- Improve the efficiency of the business process by making acquisitions to be systematic.
- Establish a standard for all networking software in the industry.
- Endorse proper strategic partners.
On becoming CEO in 1995, chamber pushed for the implementation of the four strategies since he held the opinion that the company could end up becoming the lead architect of technologies if the strategies were successfully implemented. He foresaw the company’s success in enhancing internet based infrastructure by delivering data, video and voice through a single network system.
The notion by chambers that data and voice could be delivered through a single network was seen as absurd. However, Cisco had successfully managed to launch three independent networks namely, LANS and WANS, broadcast networks, and phone networks for data, video and voice respectively.
This opened up the possibility for the internet to combine the three networks into a single network that would allow for the transmission of video, voice and data over one channel. This naturally accelerated the company’s growth since its products became popular all over the world. Suddenly disaster struck, Cisco’s internal software system was overwhelmed by the company’s growth and could no longer function efficiently.
The management realized that there was need to give autonomy to the IT department which often consulted with finance department in case it encountered financial problems. The company hired new CIO, Peter Solvik in 1993 who recommended that IT department should forthwith report to senior Vice President of customer advocacy in order to try and solve software problems that had become a major setback for the company.
It followed that from that moment onwards, a huge portion of IT department budget was to be funded by the department or client that was in need of its services. The aim of these changes was to improve the efficiency of IT department. Unfortunately, the root cause of software problems had not been expeditiously addressed by Solvik and in January 1994, the entire software system tumbled down as a result of a corrupted central database system.
This led to the closure of the company for two consecutive days as the senior vice president of the company Carl Redfield took the initiative of solving the software problem once and for all by guiding the management team in implementing a new ERP system.
Implementation of ERP
The first step in implementing the plan was by selecting an appropriate ERP product. It took the team charged with the responsibility to decide that since only little adaptation was needed, the implementation would be a ‘big bang’ kind of implementation plan.
The team realized that it would be more profitable to consult with the business community since the company’s needs needed to be addressed hand in hand with IT needs. The team needed resilient partners that could not give up easily. The partner that fitted this criterion then was a well known accounting firm KPMG.
KPMG undertook the task of searching for a supplier with the best software package. In a period of two days, KPMG compiled a list of five reliable suppliers. After a period of two weeks, KPMG struck out three suppliers and remained with Oracle and an anonymous supplier. KPMG advised Cisco to go with oracle for a certain number of reasons:
- The manufacturing ability of Oracle surpassed that of the unnamed supplier.
- Oracle gave a guarantee on functionality of the package and long-term development.
- Proximity of Oracle to Cisco gave it an obvious advantage.
- Cisco had struck a superb deal with Oracle which was desperate to win the contract.
- Oracle had released a new ERP product that it was more than willing to present to the corporate world.
Approximately two months after the initiation of the project by Carl, thorough research concerning ERP had been conducted prior to selection of ERP system suitable for the Cisco.
The team needed to settle the issue of the budget and timeframe that was needed to accomplish the project with the company directors. The budget arrived at amounted to $15 million after things like system integration, hardware, software and headcount had been factored in. Finally, the proposed budget was presented to Morgridge who hesitated to endorse it but later changed his mind and decided to present it to the company board of directors by himself.
The project was finally approved by the directors. Implementation of ERP system was successful partly due to luck and decisiveness of team members. Luck because Oracle and KPMG were keen on working with Cisco thereby providing them with lots of incentives as discussed earlier. The team organized by Morgridge was very instrumental in the implementation of the plan. Their efforts were complemented by KPMG’s competitive staff and offers given by oracle and a willing board of Directors.
The success also came about as a result of decisiveness of the company CEO’s Morgridge, Chambers and the Company Senior Vice President Carl Redfield. The Oracle ERP system was successful as it was completed within the agreed timeframe and budget. The Success of this project encouraged Cisco to initiate a global project worth $100 million. The project was to be implemented in phases and it involved a global replacement of all outdated Cisco IT platforms and applications.
Cisco Systems Web-enabled IT
The centralized IT platform had no legacy technology, minicomputers or even mainframes due to standardization that was in force during the time. The global network was maintained through TCP/IP while things at LAN level were controlled through Windows NT (Fiona, 2002).
The Server level was maintained through UNIX. To mitigate efficiency problems occurring as a result of the foregoing, Cisco implemented some web-enabled technologies two years after the inception of the Oracle ERP system. This changed how the entire company system operated by improving efficiency. Through this system, Cisco found it easier to communicate with its clients and suppliers.
Centralized access to information was made possible by using Web enabled systems such as Cisco Employee Connection (CEC). This system is known to have benefited the company a lot by improving employee productivity. Other systems that diagnosed network problems were implemented.
The company’s website was translated into numerous other foreign languages for improving accessibility of its information to prospective customers. Customer support systems were given a priority. Cisco was able to garner lots of revenue immediately after enacting an e-commerce system through the company’s website. In fact, 92% of revenues made by Cisco are attributed to e-commerce and this translates into annual total revenue of $25 billion (Pearlson, 2004). Cisco took the issue of acquisition seriously given that a third of their technology was acquired from acquisitions and partnerships.
The new systems allowed for fast and efficient integration of acquired companies. Implementation of ERP system gave the company impetus to initiate more projects due to the huge profits that were realized as a result of these changes. A total of $1.3 billion was injected into Cisco’s R&D department thereby strengthening it as a global leader in networking technology.
Applegate, L. (2009). Corporate Information Strategy and Management: Text and Cases (8th ed.) New York, NY: McGraw Hill.
Fiona, F. (2002). Enterprise Resource Planning Solutions and Management. New York, NY: IRM Press.
Laudon, K. (2007). Management Information System: Managing the Digital Firm. Upper Saddle River, NJ: Pearson Prentice Hall.
Pearlson, K. (2004). Managing and Using Information System: A Strategic Approach. Ardsley NY: Transnational Publishers.