PRESENTED BY:

AMEYA GODBOLE 08AMAR NIKAM 21GAURAV KHADSE 15PRATEEK GANORKAR 07ABHISHEK SINGH TOMAR 44PRASAD YADAV 35

NCRD’s Sterling Institute of Management StudiesSubject: Management Control System

Prof: Jyoti SinghalCase study on CISCO

• Designs, manufactures, and sells networking equipment's

• Collaborative Service provider[infrastructure services]

Introduction of MCS in Cisco

• Tailor network design to respond to changing business requirements

• Implement complex network upgrades, refreshes, expansions and consolidations

• Improve network availability and performance• Manage costs• Simplify project coordination and accelerate implementation

schedules• Reduce the risks associated with making changes to the

network• Improve service delivery and control the cost of network

monitoring and management

Introduction continued…..

Cisco offers a full suite of infrastructure services - consulting, design, build, management and maintenance to help organizations realize the following benefits:• Reduce costs and increase productivity • Enable growth • Align IT with business • Improve end-user productivity • Mitigate risks • Improved service management and control • Enhance flexibility

Introduction continued…..

Case backgroundCISCO (Management Control System)

Facts…• Web business specially dedicated for the corporate

customers• Large savings and 100% quality assurance• Outsourcing of manufacturing and Web-Based

replenishment system• Robust and efficient aftersales support on net• Sales increases by 6 times in 5 year (1990-94)• HRD and R&D also on the Web• Had a real time access on the financial and operational data• Saving of $500 mn by going on Net

Continued…

• Till March 2001, Cisco has been on the top position in E-business

• Amir Hartman express his worry that innovation are not long lasting in this era of technology development

• Issues regarding how to continue the business the way Cisco doing it for the past few years

• How much to invest and how to invest?• Organizational model?• What would be measure of these innovative efforts?

• Change is also reluctant

Innovation at Cisco• In spite of being a huge organization with more than 30,000

thousand employees, Cisco encourages their employee to work as an entrepreneur

• Give more emphasis on Risk taking, initiatives and responsibility values

• E-business initiatives were considered as overall organizational goal

• Decentralize business units

Continued…

Pros and Cons• “CFM-Client Funded Model”• Incentives systems that focuses on customer satisfaction• Customer intimacy• Still not the most recognize e-business company• Innovations are appreciated and created different small business units which

are accountable• Strategy to remain short term focused, worked well but how long Cisco would

continue to do that• Didn’t have the philosophy of “when to pull the plug” for small projects which

are not paying off• Managerial decision based on the compensation structure depends on three-

revenue growth, earning growth & customer satisfaction

Problems with Cisco’s current system• It is not perfect for Cisco having decentralize system and staying close to

customer simultaneously• Large size of company• Keeping all employee at same level of cognizance about the initiatives• Most of the time initiatives generated are from customer feedback

which are incremental and of short term variety• Initiatives generated tends to be in narrow scope

Three possible solutions:• Centralize think tank• Venture engineering team• Internal venture capital group

Q. 1 What do you think of the way Cisco funds new e-business initiatives?

The Cisco funds its new e-business initiative is very ideal.

• What Cisco did?– Initially, Funding came through the IT department.– Due to this the e-business initiatives were all evaluated on the basis

of cost reduction, often overlooking impacts on sales, customer satisfaction, or employee retention.

Hence Cisco bought new funding mechanism in action.

– Which was decentralizing the IT investments, along with which Client Funded Model (CFM) was formed.

– In CFM business-unit manager was given authority to make whatever expenditures were sensible to increase sales and customer satisfaction.

– In addition, the organizational structure was also changed.

• Why the new funding mechanism was correct?– In discretionary expense center the cost is controlled by

allowing the manager of the business unit in planning, discussing what task should be taken and what level of effort should be put into it.

– Due to which the cost incurring can be reduced.

Q2.Do you think Cisco should centralize any aspect of the innovation process?

Yes. Up to some extent it is advisable ..• A]. While the decentralized system, combined with an emphasis on staying

close to the customer, has been incredibly successful for Cisco so far, it is not perfect.

• First, as the company grows, controlling the management becomes more complex.

• Organization usually gets affected by the time new initiatives are introduced.

• Major challenges are ‘staying connected’ and ‘pursuance of similar initiatives by different business units’. It results into conflicts and duplications.

• Also New initiative generated within business units has very narrow scope.

B]. For proper implementation of organizational strategies-

Corporat

e level strategy

•Definition of businesses in which Cisco will participate•Deployment of resources among those businesses

Business unit

level strategy

•What should be the mission of each business unit•How should it compete to accomplish that mission

Business unit level strategy can be properly implemented- What type of initiative to be generated How much efforts to be taken to create breakthrough initiative Whether to go for acquiring small companies Or to pursue breakthrough opportunities in house

To widen the scope of initiative, white space opportunities must be overlooked.

For developing projects across business unit, Involvement of senior executives to establish connection and to guide the collaboration is required.

Therefore cisco requires some sort of centralized organization that focuses on innovation.

Which of the three possibilities below seems most appropriate? Why?

1. A centralized Technology Research and Training Team : “Think-tank” that studies emerging technologies and keeps business

managers informed of what will soon be possible2. A “Venture Engineering Team”: Centralized technology research and implementation team3. An Internal Venture Capital Group : Centralized technology business analysis and funding team.A centralized “Technology Research and Training Team” one of the possibilities that

CISCO is looking for is best one because … It will keep employees cognizant of the current initiative and ramification of those

initiative. Complexity will be reduced. Scope of new initiative will become wider. & to have definite philosophy on when to “pull the plug”. It will help in developing as well as discovering new Innovations which is ultimately

beneficial to CISCO.

Q. 3 Can Cisco measure innovative efforts?Tie compensation to these efforts? If so, how?

SolutionA] Yes. In terms of ‘organizational goal achievement’.Goal congruence is consolidation of all goals to achieve organizational goal.• Profitability- R.O.I.• By maximizing shareholders value- maximize or

optimize• Risk- high degree• Entrepreneurial culture and compensation system-

strong• Multiple stakeholder approach- shareholders, customers,

employees.Thus company can identify goals for these groups and develop scorecard to measure innovative efforts of new e-business initiative.

Can Cisco tie compensation to these efforts?

B] Yes. manager’s total

compensation package- Salary Benefits Incentives

Incentive compensation plans

Short term Long term

Based on Current year performance

Long term accomplishment

Bonus Paid in cash Option to buy company’s stock

rewards

efforts

Managers put great deal of efforts on initiatives that are rewarded, and less on initiatives that are not rewarded.

Impact of compensation system on employees-

– Cisco has incentive system focused on customer satisfaction-– Employee became passionate about staying on leading edge of

technology-– They coveted opportunities to work on innovative e-business

project.– Technologists have become motivated-– Business unit managers aggressive about seeking customer

feedback and use this feedback process to generate new e-business initiative.

– Compensation structure of cisco is based on 3 metrics- revenue growth, earnings growth and customer satisfaction.

This shapes managerial decisions on investing in innovative e-business functionality. therefore Cisco can tie compensation to

measure innovative efforts.

Conclusion Various tools of MCS discussed in this case, such as• Decentralization & centralization• Compensation and incentives mechanism• Revenue center• Organizational goals and strategies

Can definitely help companies to bring in a system that will efficiently and effectively control their management and sustain their respective business.