Cisco uses a decentralized funding model called the Client Funded Model (CFM) to fund new e-business initiatives. Under CFM, business unit managers have authority to fund expenditures that increase sales and customer satisfaction. While decentralized funding has been successful, centralizing some innovation efforts could help address issues like ensuring all employees are aware of initiatives and pursuing opportunities across business units. A centralized "Technology Research and Training Team" would help keep employees informed of new technologies and initiatives while broadening the scope of initiatives. Cisco can tie compensation to measuring innovative efforts through organizational goals and linking incentives to customer satisfaction, revenues, and earnings growth.

1. NCRD’s Sterling Institute of Management Studies
Subject: Management Control System
Prof: Jyoti Singhal
Case study on CISCO
PRESENTED BY:
AMEYA GODBOLE 08
AMAR NIKAM 21
GAURAV KHADSE 15
PRATEEK GANORKAR 07
ABHISHEK SINGH TOMAR 44
PRASAD YADAV 35

2. Introduction of MCS in Cisco
• Designs, manufactures, and
sells networking
equipment's
• Collaborative Service
provider[infrastructure
services]

3. Introduction continued…..
• 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

4. 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

5. Case background
CISCO (Management Control System)

6. 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

7. 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?

8. Continued…
• 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

9. 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

10. 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

11. 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.

12. – 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.

13. • 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.

14. 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.

15. B]. For proper implementation of organizational strategies-
strategy
Corporate level strategy
Business unit level
• Definition of • What should be
businesses in the mission of
which Cisco will each business unit
participate • How should it
• Deployment of compete to
resources among accomplish that
those businesses mission

16.  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.

17. 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 possible
2. A “Venture Engineering Team”:
Centralized technology research and implementation team
3. 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.

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

19. Can Cisco tie compensation to these
efforts?
B] Yes.
 manager’s total Short term Long term
compensation
package- Based on Current year Long term
 Salary performance accomplishment
 Benefits Bonus Paid in cash Option to buy
 Incentives company’s stock
Incentive
compensation
plans

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

21. 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.

22. 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.