cisco erp v12

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1 MGB 207 – Team 3 Cisco ERP implementation case Joann Suen Seema Sangari James Sun Sekhar Varanasi

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MGB 207 – Team 3

Cisco ERP implementation case

Joann SuenSeema Sangari

James SunSekhar Varanasi

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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

Company Background

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Infrastructure

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

Governance

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

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IT Problems

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

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

Background - Cisco IT

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Vendor/partner 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, etc.) 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.)

What is the criteria in ERP vendor evaluation …….

How did Cisco do……?

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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 partner

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”

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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

Company sales (US$ Billions) *source AMR research

Expe

nditu

res

(US$

Milli

ons)

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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

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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

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ERP customization

Lets go “Vanilla” with some parameter changes to system -> Well, I need some customization -> 2 months later -> I need sizable customization…..so 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 projects

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

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Other issues and decisions

Immediate upgrade?

It wasn’t an IT-only initiative

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Structure of Project Team: Sought the best people; 5 Track teams -> PMO-> Executive Steering Committee

Implementation partner – KPMGKPMG 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.

Management Choices

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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 after-sales.

CRP 2 & 3: Centralized data warehouse developed.

Final Testing with full load of users.

Implementation Methodology

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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, etc.

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

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Wrap upTotal system replacement: $15 million, 9 months Initial Problems with Cisco ERP System:

Decrease in Business Performance due to an unstable system 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

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Wrap up continued…..

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

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

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Q & A

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Wrap up

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Backup slides

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Major Players

1. Pete Solvik, CIO of Cisco

2. KPMG –Implementation Partner

3. Oracle-ERP vendor

4. Hardware vendor

Implementation Management