Measuring Business Value of IT

1© 2003 Cisco Systems, Inc. All rights reserved.

Cisco Case Study

EMBA: Measuring Business Value of IT

University of Notre Dame

March 19, 2004

Ayelet Baron—[email protected] Sales Strategy & PlanningCisco Systems, Inc.


Cisco Overview



History of Cisco Systems

Started at Stanford

IPO; 192 Employees

End-to-End Solutions Provider

Cisco Routers Power the Internet; LAN/WAN Switching, Remote Access

#1 Communications Equipment Supplier

Shipped First Router

$18.9 Billion Revenue; 34,000 Employees; IP Telephony, Security, Wireless, Networked Home

19981984 1986 1990 1994 2002 2003


Cisco Worldwide

44Updated 01/04

• 33,000+ employees in 68 countries

• Average years of service 4.5• 1/3 Engineering/IT, 1/3 Sales,

1/3 all others• All connected to common

Internet tools• All are Cisco shareholders


Cisco Products

• Industry’s broadest product line• Leadership products in each category• R&D = 16.9% of revenue • Enables end-to-end network services


Networking and the Internet

WORK

LIVE

PLAY

LEARN


Key Cisco Frameworks



Cisco’s Financial Benefit from IT

FY ’95 FY ’03FY ’96 FY ’97 FY ’98 FY ’99 FY ’00 FY ’01 FY ’02

• Communications• Internal Directory• External Web Site• Support Self-Service

$1B

Departmental

$3B • Virtual Supply Chain• Online Collaborative

Support• E-Treasury

$1.9B

$2.1B

$1.7B

Inter-Enterprise

$2B

• E-Commerce• E-Procurement • E-Learning• E-HR• Virtual Close

$900M

Enterprise

Financial Impact


Core Context

MissionCritical

Non-MissionCritical

Core and Context

Contributes Directly

to Competitive Advantage

Required to run the

business and fulfill

commitments

Shortfall risks company's operations



Out-Tasking Versus Out-Sourcing

• A whole function (IT)• Manage contract

and SLAs• Separate IT Systems

with reporting• Process redesign requires

contract renegotiation

• Elements of a function• Real time visibility and active

management• Shared systems/web services;

common data, network standards• Allows process redesign and

continuous innovation



Investment and Partnering Strategy

Core Context

MissionCritical

Non-MissionCritical

Invest

Retain In-house

Drive Productivity

Strategic Partners (Few, Tightly Coupled)

Focused Investment

Specialist Partners

Control Costs

Vendor Management(SLAs Driven)



Relative Cisco Functional Out-Tasking

Manufacturing

Sales

IT

CustomerService HR

Finance

% Out-Tasked

• Inside sales Inside sales • AdvertisingAdvertising• Lead qualificationLead qualification

• Payroll processing• Travel• Investment Management

• Temp contracting• Benefits admin• Global mobility

• Desktop mgmt• Remote office WAN • E-commerce apps

• Board manufacturing • Final assembly & test • Logistics & delivery

• Level 1 help desk• Order admin• Field logistics & repair

12© 2004 Cisco Systems, Inc. All rights reserved.8712_09_2003


Cisco IT



Cisco IT Employees—1999

• 1900+ employees• 2500+ vendors• ~2.5% of total employee base• ~4.5% of expense• 65% in US, 25% in EMEA, 10% in

AsiaPac / Japan• ~$1B in spend


Cisco’s IT Evolution

IT as Cost Center

CFP& ERP

Internet Enabler

Outcome Defined

Trusted Business Partner

Value Creation

Proactive

Reactive

200019971993-951991

IT Supports Business Strategy IT Enables New Capabilities and Roles

BusinessValue

• IT worksindependentlyof business

• Seeing as nonvalue adding

• IT seen as “high” cost

• Focus on technical performance

• Supports businessstrategy

• IT seen as a support process

• Focus on Returnon Investment

• Supports andenhancesbusiness strategy

• IT seen as a critical process

• Focus on cycle time, cost reduction, service quality

• Enables business strategy and integral part of the business

• Effective use and leverage of technology and “virtual” resources

• Focus on Shareholder value


Time

Stra

tegi

c Im

pact

Lo

w

Hig

h

Key IT Success Factors• Organization Model• Exceptional Staff• Receptive Company

Cisco IT’s Historical “Shifts”

IT as cost center

CFP model

Use of Internet, CCO

Repl of all key apps(ERP)

1991

1993

1995

1997

1999 Consultative Proactive

Leadership

LEVEL 0

LEVEL 1

LEVEL 2

LEVEL 3

LEVEL 4

LEVEL 5

2003 Cross-functional

Productivity Experts


IT Mission

IT drives the Business in Internet Leadership Capabilities, integrated across Cisco Globally, resulting in: Meeting Productivity Goals Increasing shareholder value Increased Customer Success Cost Avoidance Improved Decision Making


Guiding Principles

Create close IT/business alignment The business determines value tradeoffs for

investments providing the “best-value” return Deliver near-term business results Drive constant improvements with serious and

accountable metrics Utilize an enterprise wide common and scalable

infrastructure Productivity!!!


Cisco’s “Hybrid” IT Organization

Advantages• Business executives involved with IT project success more than CIO• Good alignment of business and IT objectives• Promotes the right business decisions• Higher degree of client satisfaction• Still strict centralized control over standards, architectures to ensure low-cost,

high-quality, and rapid cycle times

Centralized InfrastructureData Center, Hosting, Transport, Client Services, Theatre Service Delivery, Infrastructure Applications, VMO, Technical Architecture, Administration

Manufacturing SalesFinance Marketing

CIO

ITOrganization

ITOrganization

ITOrganization

ITOrganization


IT Business Model to Get It All Done

Effective Use of IT Resources

Effective IT Processes

Measurement and Accountability

• Core vs Context• Strategic Use of Outside Services

and Outsourcing• Vendor Management

Objective Efforts Status

• End to End Portfolio Mgmt (emPOWER)• World Ready Apps• Collaboration

• Management Metrics• Expectations of Leadership team

Early Results• CA TS and GCT Context 75% outsourced• emPOWER Proof of Concept completed• World Ready Road Show complete in India and EMEA


Cisco’s philosophy and financial approach to IT spend has allowed IT investment to grow as fast or faster than revenue (as “return” is accounted for on “business side)

Investment Approach And Impact On Cisco’s IT Investment

108%

57% 58%

31%37%

44%

69%

56%46%

18%15%

35%

55%

75%

95%

115%

FY1997 ACT FY1998 ACT FY1999 ACT FY2000 ACT FY2001 ACT

IT Investment Growth Revenue Growth


Project Guidance and Planning

“In 1998, there were no guidelines, no rules of the road as far as how to do CFP planning and execution. ”

• Project Tracking using a central repository • Project Reporting on a quarterly basis • Tracking of Budget vs. Actuals during the project • Compliance to Architecture & Standards • Execute Commitment for funding of project

execution and delivery • Readiness Reviews before Go Live

• Client Satisfaction measurements after delivery

Today…


Enterprise IT Portfolio Management Goals

• Make the correct tradeoff, prioritization decision

• Ensure business capabilities are created in the right sequence

• Identify and resolve key barriers• Hold key projects accountable for delivery

of business value within budget

Maximize the Value of Cisco’s IT Investments


IT Governance Model

FundingMechanisms

ITPerformance

Mgt

ProcessOversight

StandardsApproach

ClientCentric

Organization

PrinciplesBusiness MindsetMetrics

StrategicPartner

IT Business Alignment

CULTURE

Insuring the maximum value for Cisco’s IT investment


Approach: Cisco IT Governance“How We Ensure Value”

Strategic “Instinct”

Co-locationCFP Model

Operations Metrics Root Cause Analysis Global Vs Local Decisions

Operations Reviews Performance MetricsMbo’s and Plans

Adherence Selection Process Emerging Vs Sun-setting Standards

Budget Management Productivity Analysis Business Justification Mindset

SDLC Model Balance “Risk Vs Innovation” Project Mgr Education

ASP System Integrators

Web Portals

Management Accountability

Business Alignment

Standards ManagementFiscal

Controls

Development Methods

Continuous Improvement

End User

TechnologyProcurement


Change ManagementFramework



Change Management Framework

DESIREDSTATE

SPONSORCOMMITMENT

SKILLS

CULTURALALIGNMENT

RESISTANCE

PAIN

CO

MM

ITM

ENT

TIME

SYNERGISTICRELATIONSHIP

REMEDY

PLAN

TRANSITION RISK AREAS

Frame of Reference

PRESENTSTATE


Strategic Direction Framework

Future StateStrategic

Transition State∆

Current StateTactical

C AUnderstand the Current State

Implement Transitional

State

Define Future State

B


Communications FrameworkBehavior Change

Leadership—60% Systems—30% Vehicles—10%• Executive

Sponsorship—Global and Regional

• Behaviors—Say & Do• Messages• Briefings• Meetings

• Structure• Compensation• Policies• Resource allocation• Communication with

customer administrators

• Announcements/ Broadcasts

• Websites/portals• Meetings• VODs• Email• Voice mail


Behavior Change Framework

Awareness

Understanding

Translation

Commitment

Internalization


Proposed Approach

• Situation analysis/Change Readiness Assessment

• Gap analysis• Global team• Identify quick wins

• Leadership buy-in• Define sponsor

roles• Strategic

direction• Benefit analysis• Best practice

sharing—integrate

• Change management &communication plan

• Establish metrics• Get buy-in• Set up teams

• Deliver plan• Identify new

needs• Monitor results

• Assess business results

• Integrate and leverage

Sponsorship & Communication

Where are we now?

Where do we want to be?

How will we get there?

Who must do what?

How are we doing?


SponsorshipGuiding Principles

Executives are held accountable for the success or failure of the process and results

Sponsorship cannot be delegated

Keep communicating throughout the whole process

Be honest and address people’s real concerns directly

Don’t engage in more change than you can adequately support

Weak sponsors must be educated or replaced; if not, failure is inevitable—the ultimate success or failure falls on the sponsor

Encourage in-depth dialogue, even when leaders are initially uncomfortable

Success depends on a systemic approach, not the “patchwork quilt” of initiatives, programs, etc


Power: the sanctioning power to legitimize the change Pain: a level of discomfort with the status quo that makes change attractiveResources: a thorough understanding of resources necessary for successful implementation and the ability/willingness/ influence to get the right peopleThe Long View: an in-depth understanding of the impact the change will have on the organizationSensitivity: the capacity to fully appreciate and empathize with the personal issues major change raisesScope: the capacity to understand thoroughly the size of the group to be affected by the change

Vision: a clear definition of what change must occurPublic Role: demonstrates public support & commitment to changeA Private Role: meets privately with individuals or groups to convey strong personal support for the changeConsequence Management Techniques: prepared to reward supporters of change & express displeasure with those who inhibit itA Willingness to Sacrifice: the commitment to pursue the transition, knowing that there is a pricePersistence: the capability to demonstrate consistent support for the change and reject any short-term action that is inconsistent with long-term change goals

Sponsorship Role


Sponsor EvaluationTo Be Used by CPR Leader to Assess Sponsorship

Strongly Disagree

Somewhat Disagree

Neutral Somewhat Agree

Strongly Agree

The sponsor sees this as a critical business issue that he/she is committed to address 1 2 3 4 5

The sponsor has a good understanding of the impact of dealing with this issue will have on the organization

1 2 3 4 5

The sponsor understands what resources—in terms of time, budget, dedicated people, training, access to people—are needed for this initiative to be successful

1 2 3 4 5

The sponsor is willing to commit the resources in terms of time, budget, dedicated people, training, access to people— needed for the initiative to succeed

1 2 3 4 5

The sponsor is willing to meet privately with individuals or groups to convey strong personal support for the initiative

1 2 3 4 5

The sponsor is committed to dealing with roadblocks when they arise 1 2 3 4 5

The sponsor demonstrates consistent, sustained support for the initiative 1 2 3 4 5

The sponsor leads by example 1 2 3 4 5

The sponsor has a good understanding of how this relates to Cisco’s strategy 1 2 3 4 5

The sponsor views this as a cross-functional issue 1 2 3 4 5

This is one of the sponsor’s top 5 initiatives 1 2 3 4 5


Change ManagementAcross IT



Business Challenge

From: A service delivery organization…

To: A Consultative Business Partner offering: • Strategic Solutions• A Catalyst for Change• Technology Leadership• Breakthrough Productivity


Strategic Plan

• Taking Partnerships to New Heights

• The Way We Work

• Leading Internet Capabilities

• Ongoing Assessments• Cascading Workshops• Ongoing Engagement

• Internal Communication Capability• Cross-functional Team: IT & Business• Online solutions: IT & Cisco• Ongoing Communication

• IT Senior Staff• Internal Clients• IT: 75 Interviews Worldwide• Strategic Off-site

Stages

Transform

Implement

Plan & Engage

Assess

1999

2002

Focu

s &

Inve

stm

ent

2000


Client Feedback IT Performance vs. Business Need

4.5

4.2

4.3

4.5

4.5

4.3

3.5

3.4

3.2

3.8

3.6

3.5

0 1 2 3 4 5

Knowledge and understanding of yourbusiness & related goals

Understand leading cross-industry bestpractices

Represent business issues and solutionsacross all functions

Sustainable competitive advantage

Create Shareholder Value

Work as a virtual organization with no time,distance and functional boundaries

IT EffectivenessBusiness Criticality

0.8

0.9

0.7

1.1

0.8

1.0

Example


Change Readiness AssessmentKey Risk Areas

• Strong belief that IT senior staff supports the changes we need to make

• Some concern about IT senior staff sharing common goal around Business Partnership

• Caution around leadership by example - walking the talk • Management has a history of losing focus on important projects

when other problems or issues compete for its attention • Failure to involve middle managers in planning change has

resulted in their indifference and opposition to initiatives • Managers in past changes said they supported a change but

their behavior often suggested the opposite

• Employees understanding of how Cisco’s business goals translate into specific things they can do in their jobs

• In deciding to support a change, people do what they think will please their boss rather than what is best for Cisco

• There will be some difficulty in explaining BP to employees • Communication in IT is open and candid • IT’s usage of rewards, measurement and other processes to

communicate its seriousness and signal a change • A compelling reason to change has not been clearly

communicated • Employees will not easily understand the costs associated

with not implementing BP

• Employees expect change to happen at Cisco• Employees will not be motivated to achieve Business

Partnership • Employees will need to be invested in the new way of

operating • Employees will not feel a sense of control in implementing

Business Partnership• BP will be regarded as requiring employees to make

substantial changes to their own day-to-day activities • Employees do not have the assimilation capacity for

Business Partnership

• IT Senior Staff has the skills and abilities to execute and deliver Business Partnership

• Managers already possess Business Partnership skills

• Employees already possess Business Partnership skills

• Employees have the skills and abilities they need to accomplish this change

SPONSORSHIP

RESISITANCE

COMMUNICATION

SKILLS

Example


Internal AssessmentRisk Area: Sponsorship

0% 20% 40% 60% 80% 100%

Has a history oflosing focus

Shares commongoal

Walks the talk

Supports thechange

LowMediumHigh

IT Senior Staff ...

Example

0% 20% 40% 60% 80% 100%

Total

Employees

PMs

Managers

Direct Reports

Sr. Staff

LowMediumHigh

IT Senior Staff Supports This Change...


Leadership Say/Do Gap Analysis

34%

33%

34%

70%

64%

77%

0% 20% 40% 60% 80% 100%

Prepare f or Merger-of -Equals

Operate Cost-eff ectively

Best I T Organization

SayDo

43%GAP

31%GAP

36%GAP

Example


IT Connection IT e-Communities IT Client Portal Best Practice Website Meetings & Off-sites Chats with CIO Manager Weekly e-alert Meeting-in-a-Box

Client Feedback MBO Alignment Quarterly IT Business

Partnership Award IT Champion Award

Performance Reviews CAP Awards Training Program IT Communication

Function Centralized company-wide

Training for Sr. Staff Delivery of BP Workshops Quarterly IT All-Hands/IPTV Sr. Staff Meetings Management Staff Meetings Chats with CIO CIO Corner IT Connection Sr. Staff Forums BP Team

Change Communication Plan

SYSTEMS/PROCESSES MEDIALEADERSHIP


Windows 2000 Customer Feedback It is very important to me that my individual settings are transferred to my Windows 2000 environment

3%

11%

19%

67%

0% 10% 20% 30% 40% 50% 60% 70%

Already in W2K pilot Disagree Neutral Agree

Mean Mean 4.04.0 3%

34%

38%

25%

0% 10% 20% 30% 40%

Already in W2K pilot Disagree Neutral Agree

Mean Mean 2.82.8

Business events may interfere with my conversion to Windows

2000


To convert my computer to Windows 2000, I would prefer to …

5%3%4%

8%11%

12%23%

33%

0% 10% 20% 30% 40%

Receive email/links andconvert myselfDrop after hrs and convertfor meAttend web class andconvert ownAttend instructor led andconvert ownDrop during work and pickup in 4 hrsRefresh in next mths andcan waitAlready in W2K pilot

None of the above


To learn What's New in Windows 2000, I would prefer to …

2%3%5%

13%11%12%

20%23%

35%

0% 10% 20% 30% 40%

Go to web link and read"what's new"Attend web based class

Drop after hrs and convertfor meAttend web class andconvert ownAttend instructir led class

Learn on my own by usingitAlready familiar and don'tneed more infoAlready in W2K pilot

Other


Implementing Process to Deliver Value

Clear Understanding of Valueto Be Delivered

Standard, Consistent, End-to-End

Definitive, Global, Mandate

Value and Process Metrics

Adoption, No-Opt Out

Scalable, Integrated, Flexible

*Systems implementation not always required

Customer / Shareholder Value

Process

Policy

Measurement

Enforcement

SystemsImplementation*


Client Satisfaction

69%

19%

9% 2%

78%

12% 4% 2%0%

20%

40%

60%

80%

2000 2001

Satisfied Neutral Dissatisfied DK/Don't use

Mean 4.2Mean 4.2Mean 3.8Mean 3.8


Process Metrics

Portfolio Managementand End-to-End Delivery

Architecture& Standards

Governance

BusinessPartnership

Value

Low Total Cost of

Ownership

Customerand Client

Satisfaction

Speed and Agility

Exploiting NewTechnology

Evolve to an Integrated IT Business Model

ITBusiness

Model


Q and A


505050© 2003 Cisco Systems, Inc. All rights reserved. 505050© 2003 Cisco Systems, Inc. All rights reserved.Presentation_ID