Cisco Systems Architecture: ERP and Web-enabled IT

Background

 Cisco System was founded in 1984 by two Stanford computer scientists, Sandy Lerner and Leonard Bosack^1,2. The company was built on the vision of a “New World Network¹.” Cisco was brought public in 1990 and the Cisco System, Inc. quickly dominated the “internetworking” market and became the largest manufacturer of networking equipment in the world^1,2. 7 years later, Cisco made it on the Fortune 500 and in the top five companies in term of Return of Revenues and Return on Assets, along with other giants in the industry, such as Microsoft or Intel ¹. On July 17, 1998, Cisco’s value passed the $100 billion mark. On March 27, 2000, Cisco became the most valuable company in the world with $531 billion in market capitalization, even surpassed Microsoft. In 1999, it was estimated that 75% of all internet traffic went through Cisco products¹.

 Over the years, Cisco grew larger and larger based on two innovations, the concept of utilizing local area network (LAN) to connect disparate computers all around the world to the Internet, and the multiprotocol router that made it happen^1,2. The Internet Protocol (IP) allowed Cisco to converge three independent proprietary networks (voice over the phone networks, data over the local-area and wide-area networks, and video over the broadcast networks) into a large global network of networks¹. By transporting everything over one network instead of three, the process was much cheaper and more efficient.     

 Working in an ever-changing environment such as information system, Cisco had to always continuously innovate itself. And a giant such as Cisco also faced some difficulties along the way. In 1994, a disastrous failure in the computer system almost brought Cisco to its knee. Learning from the lesson, Cisco embraced the Internet-based infrastructure and successfully implemented Internet business solution to all of its branches of business (marketing, employee, manufacturing, customer support, and commerce applications)¹.    

Major enterprise architecture issues

• Depended on legacy systems
• Ineffective IT department
• Supply chain management

Analysis of the Major Enterprise Architecture Issues 

Depended on legacy systems

 There is a saying that goes “if it’s not broken, don’t fix it.” But it is probably not a good advice when it comes to an infrastructure that the whole organization depended on. Cisco learned this lesson the hard way. In January 1994, Cisco was forced to shut down for two days because of the legacy environment at the company was corrupted and the whole system at Cisco could face total failure. The system at Cisco was getting old and could not perform properly. To get around the aging problem, the workers at the company came up with makeshift methods of accessing the core application database without authorization. This corrupted the central database at Cisco. The system at Cisco was also separated into three different division, the order entry, finance, and manufacturing. At this point, replacing the system would mean three divisions replacing three different systems on their own¹.

 The leadership at Cisco immediately saw the problem, and the system needed to be replaced. Not as three individual system, but as a single system that span through the whole organization worldwide¹. This would save Cisco a significant amount of time and capital. Experienced people were brought in to work on the implementation of an Enterprise Resource Planning (ERP) project. All of these people had good experience in organizing and implementing in a large-scale, such as CIO Peter Solvik, moved to Cisco from Apple, or senior vice president of manufacturing Carl Redfield, who worked on large-scale implementation previously in Digital. Later, Mark Lee from KPMG was brought in. Mark worked as director of IT for a company in Texas with vast experience in ERP implementation¹. The whole project was planned, scheduled, approved by the board, and put into action quickly. The management team decided to perform a “big bang” style implementation where there were no phases in the process, and the whole package was put in place in one go. The team also understood that customization in the package was one of the major reason for delay, even though customization would allow the software package to perform similarly to what Cisco was doing. There was no major customization for this implementation¹. The whole implementation process was to take nine months and cost 15 million dollars, the largest investment amount in the history of the company¹. But the management team saw the strategic value of ERP package could bring to the company and did not try to avoid the high cost of the project. In the end, the project was successfully completed on time and within budget. In the next two years, the ERP package also became the core of series of other IT initiatives that would cost 100 million dollars¹. After two years, instead of having an aging, corrupting and unsecured information system, Cisco had a highly effective platform. Every piece of hardware in the company were replaced, standardized, and all were current¹. All servers were using UNIX. All networks used Windows NT, and all computers were from Toshiba and HP and they were running on Windows. At the database level, Cisco was using Oracle. Everything else such as voicemail, email, operating system was all standardized as well. Every single business function of Cisco around the world was using the same software package¹.  Being standardized helped making the system at Cisco highly flexible. The flexibility allowed Cisco to dynamically change any process in the business extremely fast and extremely cheap¹.

Ineffective IT department

Originally, the IT department at Cisco performed similarly as other IT departments from other companies at the time, internally focused, reported to finance departments, and was viewed as a cost center rather than an independent organization. Moreover, the funding to the IT department was inappropriately allocated¹. This severely limited what IT could do for Cisco and constrained the department from growing to fulfill the need of the company¹. Cisco was founded on the basic of technologies and the Internet, but the IT department at Cisco was limited in functions.

When Peter Solvik join Cisco as the new CIO, he understood well the severity the IT department was facing at the time and set out to rebuild the department. The IT department remained centralized at Cisco, unlike other companies in the industry¹. The IT department was not acting more independently. Rather than reporting to the finance department, the IT reported directly to a senior vice president. Funding to the department was distributed more to the functions rather than the General and Administrative account. And the investment decisions for any IT projects were pushed out to the line organization¹.

After the restructure, the IT department played a major role during the successful implementation of the ERP package. Along with a series of initiatives in two-year and 100 million dollars, the IT architecture at Cisco became driving force for the next step of Cisco’s strategy: incorporating the Internet to every part of the business¹. From an ineffective department, the IT transformed into a major part of the processes at Cisco. Everything at Cisco was web-enabled at worldwide level, from customer service to distant training¹. Web-enabled systems also allowed Cisco to start selling its products over the internet and streamline the internal processes such as product and prototype testing or external such as the supply chain management.

Supply chain management

Prior to the ERP implementation, Cisco decided to outsource the majority of the manufacturing process to suppliers. Cisco only performed the final assembly and testing of the products. This process was proven to be ineffective as it required a large information flow between Cisco and its contractors as well as it was a rather labor-intensive process¹. Another major function Cisco performed was creating new products through New Product Introduction (NPI). Cisco found that the major factors for cost and delay for the NPI process were the gathering of information for testing the prototypes and the issues caused by manufacturability¹.

After the implementation of the new web-enable system, Cisco decided to outsource the entire manufacturing process to suppliers, from producing individual parts to testing of the products. Cisco was only responsible for the design and fulfillment processes¹. With the new system, Cisco could do most of its testing automatically and when the testing was finished, it was outsourced directly to the manufacturer. This saved time and money for Cisco¹. Using the Internet, the suppliers effectively became a part of Cisco in the “one enterprise” strategy¹. The suppliers could ship product directly to the customers in one step process instead of a two-step process where the products were shipped to warehouse at Cisco and then shipped to the customers. This resulted in reducing the delivery time to half and cheaper for both Cisco and the customers. By allowing the products to be shipped directly from the manufacturers, Cisco was able to reduce its inventory by 60%¹. By introducing the supply chain managing initiatives, Cisco was reported to have the effective supply chain management in the industry¹.  

Current Status of the Organization

  Even though Cisco has felt out of the top 10 most valuable company in the world in term of market capitalization, the company is still the largest manufacturer of networking equipment with large cash flow^3,4. But the market share of Cisco in hardware is steadily shrinking since 2013⁴. It was reported that Cisco is thinking more about the future of computing and slowing switching from a hardware manufacturer to a service provider, such as cloud computing or the Internet-of-things⁵. The most interesting strategy from Cisco in 2018 is the Intent-based networking where the network operator gives the computer an “intent” of how the system must perform and the computer network will adapt, evolve, and manage itself to fulfill that intent, all automatic⁵.    

Conclusion

 Cisco was one of the first company in the world to unify the three independent networks for voice, data, and video into one network as today, the Internet. The technology that made it happened was the multiprotocol router. This product became the bread and butter of the whole company for many decades. Despite relentless competitions from other companies such as AT&T, Lucent and etcetera, Cisco was able to grow with their products. At one point, the company became the most valuable company in the world, surpassed even Microsoft.

 Things were not all easy for Cisco. In 1994, the company faced disaster with the whole infrastructure almost in the brink of complete shutdown¹. The reason for the failure ultimately was because the old system could not handle the amount of work given and malfunctioned. The leadership at Cisco responded well to the circumstances. They understood well that the legacy systems at Cisco needed to be replaced and replaced fast. A team was assembled and get to work right away to choose a vendor for a ERP software package. Everyone involved in this project had good background when it came to software implementation, such as Redfield and Solvik. In the end, the result was fantastic. The project was on time, on schedule, and within budget. The ERP implementation became centerpiece for a series of initiatives worldwide¹. After the implementation, the whole IT infrastructure at Cisco was highly standardized. For example, all of business functions at Cisco was using the same software packages worldwide¹. This implementation also gave Cisco much higher flexibility than before¹. Any change in the system at Cisco would take significantly less time and money compared to previous¹. The new system at the company also much more scalable.

 Implementing the ERP software package at Cisco was highly successful. This success came with clear direction, a team with experiences, and most importantly, the dedication of every members from every unit of Cisco.        

Recommendations

• Replace the UNIX servers with a different one for easy management

End notes

1. Richard L. Nolan, “Cisco Systems Architecture: ERP and Web-enabled IT.” Harvard Business School 9-301-099 (2005):1-23.
2. Wikipedia, “Cisco Systems” Wikipedia. https://en.wikipedia.org/wiki/Cisco_Systems.
3. Wikipedia, “List of public corporations by market capitalization” Wikipedia. https://en.wikipedia.org/wiki/List_of_public_corporations_by_market_capitalization.
4. James Brumley. “Cisco Systems, Inc. May Not Be ‘All That’ After All.” InvestorPlace. https://investorplace.com/2018/04/cisco-systems-inc-csco-stock-may-not-be-all-that/.
5. Brandon Butler. “What to expect from Cisco in 2018.” NetworkWorld. https://www.networkworld.com/article/3238547/lan-wan/what-to-expect-from-cisco-in-2018.html.

Bibliography

• Brumley, James. “Cisco Systems, Inc. May Not Be ‘All That’ After All.” InvestorPlace. https://investorplace.com/2018/04/cisco-systems-inc-csco-stock-may-not-be-all-that/.
• Butler, Brandon. “What to expect from Cisco in 2018.” NetworkWorld. https://www.networkworld.com/article/3238547/lan-wan/what-to-expect-from-cisco-in-2018.html.
• Nolan, Richard L., “Cisco Systems Architecture: ERP and Web-enabled IT.” Harvard Business School 9-301-099 (2005):1-23.
• Wikipedia, “Cisco Systems” Wikipedia. https://en.wikipedia.org/wiki/Cisco_Systems.
• Wikipedia, “List of public corporations by market capitalization” Wikipedia. https://en.wikipedia.org/wiki/List_of_public_corporations_by_market_capitalization.