Words Into Action

By V. Sambamurthy  |  Posted 12-01-2001 Print Email

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Words Into Action

Among the companies included in our study are two large, multidivisional global manufacturers of chemicals, both with about $15 billion in 1999 revenues. Both leaders in their industry, they are direct rivals and have similar business strategies: The chemical industry is recessionary and cyclical, and both companies seek to grow through diversification. But when it comes to the design of their IT organizations, their application of modular logic has led them to very different results.

ChemCo1 has elected to outsource a majority of its IT activities—in other words, the integration architecture is that of a virtual IT organization—and distribute decision-making authority to its business units through decentralization. ChemCo2 also uses external partners to execute many significant value stream activities, but it maintains controlling "mirror-image" IT units in each business unit.

CHEMCO1: INNOVATION THROUGH PARTNERSHIP
0108 Module Operandi
Integration architecture
Outsourced: The "virtual" IT organization
Value innovation
Decentralized to business units
Solutions delivery
Outsourced
Services provisioning
Outsourced, managed in decentralized manner
Business drivers and culture
• Recessionary and cyclical industry
• Growth through diversification
• Strong autonomy in business units
Strategic imperatives for IT
• Cost reduction and productivity improvement
• Support for speedy investment and divestment
CIO's challenges
• Convincing business units about the strategic value of IT
• Governance in the context of outsourcing and shared services

At ChemCo1, the CIO heads a "core" IT policy group of about 12 people that oversees four major areas: strategic planning, architecture and standards, security and privacy policies, and human resource management—including succession planning for IT leaders. IT executives in the business units report directly to the vice president of the business unit and indirectly to the CIO. In 1997, the IT organization outsourced a majority of its activities to two partners—Computer Sciences Corp. and Arthur Andersen LLP—and created a new unit called Alliance Management to manage all the various vendor contracts. This organization is not part of ChemCo1's core IT department; nor does the Alliance manager report to the CIO.

Using modular logic, ChemCo1 has sought to achieve "value innovation" by locating the IT executives in the business units. Meanwhile, both "solutions delivery" and "services provisioning" is outsourced to the alliance partner. Each major business application is owned by a corporate employee and by a counterpart with the outsourcing firm, and some applications are shared by multiple business units. The Alliance Management office coordinates the overall process, handling demand management, financial issues, invoices, chargeback, and service and quality management. New technology research and development is performed by a group that moved to Computer Sciences, although IT still directs its work.

In a company that sees itself as lacking the formal processes to make significant improvements, the outsourcing partnerships are viewed as a win-win relationship. In addition to the cost savings and added flexibility, ChemCo1 can now avoid residual fixed costs when a line of business is eliminated or divested, and maintain more control and visibility: Business unit managers now receive real "bills" for their IT consumption.

In contrast, ChemCo2's centralized IT organization has three major entities: The first, enterprise operations (which includes enterprise resource applications and central systems), is handled through an alliance with an external vendor to do project work and applications support. The other two—new-technology development (which takes place in the expertise centers) and field services (which installs equipment, takes care of operations and manages the help desk)—are internal. About 25 IT leaders are located in business units and report both to the business unit head and to the CIO. Meanwhile, the CIO, to whom 30 managers report directly, also serves on the corporate leadership team with the top 20 executives in the company.

CHEMCO2: CENTRALIZED SERVICES CONTROL
0108 Module Operandi
Integration architecture
Centralized, with mirror image alignment in business units
Value innovation
Aligned by line of bus-iness, work process and geography
Solutions delivery
Alliance management and program management
Services provisioning
Outsourced, with centralized coordination
Business drivers and culture
• Recessionary and cyclical industry
• Growth through diversification
• Strong corporate emphasis on global leverageability
Strategic imperatives for IT
• Platform for leverageability
• Global reach and range
• Support for speedy investment and divestment; scalability
CIO's challenges
• Leveraging skills globally
• Support for the merger and acquisition process

ChemCo2's IT organization produces "value innovation" by aligning the IT leaders by work process, line of business and geography. Meanwhile, all the IT leaders serve on the Global Information Management Team, headed by the CIO, and use this forum as a way of sharing and developing ideas. "Solutions delivery" is executed using a program office concept with the alliance partner; each "project" is headed up by a ChemCo2 employee, and resources are brought in from the alliance partner as needed. Finally, "services provisioning" is outsourced and distributed to the business units in the field to ensure as much local feedback as possible.

ChemCo2 considers its IT organization as being "very scalable"—the company clearly understands its internal competencies and can bring resources to bear as needed. That also gives the company the ability to deploy IT resources globally. Meanwhile, consolidation and standardization of equipment has resulted in significant cost savings.



 

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