REV: MAY 6, 2002
ROBERT D. AUSTIN RICHARD L. NOLAN MARK J. COTTELEER
Cisco Systems, Inc.: Implementing ERP
Pete Solvik, Cisco Systems chief information officer (CIO), considered the last remaining line item of his ERP (Enterprise Resource Planning) implementation budget. Cisco had a history of rewarding performance with cash bonuses, but the amount allocated for rewarding the ERP team, over $200,000, was unprecedented. To be sure, they had delivered a lot in a time frame that no one had believed possible. It had not been easy either. The team members, Solvik included, had taken a risk in joining the project. Rewards should, and would, be generous. The size of the bonus pool, though, made Solvik think: they had done well, but how well? What had gone right? What had gone wrong? Given another project of this magnitude and risk, would they be able to do it again?
History of Cisco
Cisco Systems, Inc. was founded by two Stanford computer scientists in 1984 and became publicly traded in 1990. The company’s primary product is the “router,” the combination of hardware and software that acts as a traffic cop on the complex TCP/IP1 networks that make up the Internet (as well as corporate “Intranets”). With the rise of Internet technologies, demand for Cisco’s products boomed and the company soon began to dominate its markets. By 1997, its first year on the Fortune 500, Cisco ranked among the top five companies in return on revenues and return on assets. (See Exhibit 1 for Cisco’s financial performance.) Only two other companies, Intel and Microsoft, have ever matched this feat. Perhaps even more impressive, on July 17, 1998, just 14 years after being founded, Cisco’s market capitalization passed the $100 billion mark (15-times 1997 sales). Some industry pundits predicted that Cisco would be the third dominant company—joining Microsoft and Intel—to shape the digital revolution. Don Valentine, partner of Sequoia Capital and vice chairman of the board of Cisco,2 was the first to invest in Cisco; he took a chance on the young company when other venture capitalists were more cautious. One way Valentine protected his $2.5 million initial investment was by reserving the right to bring in professional management when he deemed it appropriate. 1 Transmission Control Protocol and Internet Protocol, together known as TCP/IP, provided a robust standard for routing
messages between LANs and created the potential to connect all computers on an ever-larger Wide Area Network (WAN). 2 Don Valentine was previously the outside executive chairman of the board of Cisco. Cisco has maintained its chairman of the
board as an outside director. Currently, John Morgridge serves as an outside director and chairman of the board. ________________________________________________________________________________________________________________ Postdoctoral Research Fellow Mark J. Cotteleer prepared this case under the supervision of Professors Robert D. Austin and Richard L. Nolan. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1998 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Cisco Systems, Inc.: Implementing ERP
In 1988, Valentine hired John Morgridge as CEO. Morgridge, an experienced executive in the computer industry, immediately began to build a professional management team. This team soon clashed with the founders and, after...