Alcan's growth as a global conglomerate in the aluminum and metal fabrication industry follows a similar trajectory of many companies whose business models forced rapid, highly distributed business models at the expense Information Technologies (IT) management systems consistency and performance. Alcan's IT management systems and underlying infrastructure have become balkanized as the company has grown into four separately functioning and highly autonomous business units. In evaluating the key success factors of successful Enterprise Resource Planning (ERP) implementations in multisite locations, the most critical factor overall is creating a unified, well synchronized system of record across all ERP instances (Hanafizadeh, Gholami, Dadbin, Standage, 2010). A second key success factor for multisite ERP implementations is the ability to negotiate a very low level of maintenance pricing with ERP vendors in the form of multisite or use-based pricing instead of the traditional per-seat model (Law, Chen, Wu, 2010). A third key success factor in the implementing multisite ERP systems is the ability to create a shared set of analytics, financial reporting metrics and measured of shared collaboration performance across all sites (Nour, Mouakket, 2011). Alcan has none of these best practices in effect during the time periods of the case study. They are conversely creating very high costs of maintenance for themselves, paying $500M in software costs and fees to SAP, tolerating up to 400 systems dedicated to just pricing alone, and attempting to manage well over 1,000 systems throughout the four divisions. As the company continues to grow and attempts to move into new markets where unifying all four divisions is necessary, they will find their IT systems are more of a liability than an asset in their current configuration. Coupled with the escalating costs of keeping each of the four divisions under maintenance with SAP, the ongoing high costs of integration, there is the threat of compliance violations to industry safety and quality requirements in addition to Sarbanes-Oxley Act (SOX) financial reporting requirements. All of these factors taken together point to the need for more effective IT management strategy that takes into account the critical success factors for ERP system integration in a highly decentralized organizational structure. The intent of this analysis is to evaluate the pros and cons of the current Alcan IT management system, in addition to evaluating the pros and cons of the new Alcan IT enterprise architecture as proposed by Robert Ouelette. The final section of the paper discusses if moving from the current Alcan IT management system to a new structure is advisable or not.
What are the pros and cons of the current Alcan IT management system?
Throughout the case analysis of Alcan, it is apparent that Robert Ouelette is vitally concerned about the performance of procurement and strategic sourcing across each of the four divisions. He is concerned there is massive duplication of effort and this is costing the company significantly both in dollars and lost opportunity cost. The consolidation of ERP instances to gain economies of scale in shared resource areas including supply chain management, sourcing and procurement has consistently shown to also increase quality and performance levels across manufacturing (Seddon, 2009). Quality and cost performance are the arguments for typically consolidating the purchasing, procurement and supply chain functions of a company with a distributed structure. Yet when the advantages or pros of having a highly distributed IT management structure are taken into account for Alcan, this differentiated approach to purchasing and procurement is actually a strength. Each of the Alcan divisions has significantly different sourcing and supply chain requirements, in addition to drastically different phases and speeds of product lifecycles. Given how diverse the product, service and new product development needs are across each of the four divisions, it is defensible to have a separate supply chain and sourcing system for each (Venugopal, Rao, 2011). This strategy of segregating sourcing and supply chain management is most likely the catalyst of the myriad of pricing systems, 400 at last count. It's an advantage to have the separate procurement and supply chain management systems, yet Alcan is paying a heavy price in terms of software maintenance costs and potential economies of scale.
A second key advantage or argument in favor of keeping the existing Alcan IT management system is the ability to more precisely align analytics, metrics and key performance indicators to the specific needs of each business unit. The continual investment in division-specific analytics, key performance indicators (KPIs) and metrics of performance on a divisional basis leads to greater overall tacit and implicit knowledge capture and use over time (Zarei, Naeli, 2010). Each business unit or division has constructed and continually improved its analytics, KPIs and metrics to align with their specific sourcing, procurement, production and services functional requirements. This has also created the advantage of greater speed of response and time-to-market as well. The combining of specific analytics and metrics and the ability to increase new product development efficiency on a divisional basis is often one of the most compelling factors in allowing an enterprise-wide IT management system to stay segmented or balkanized over time (Nour, Mouakket, 2011). For Alcan however the many cons or disadvantages associated with such a balkanized IT management system architecture outweigh the benefits, and a change will most definitely need to be made for the company to continually compete effectively.
The disadvantages or cons of keeping the IT management systems separated is the cost, the lack of accuracy and speed of reporting compliance, and the difficulty of integrating process and system integration points across four divisions as the company continues to expand, and lack of synchronization on corporate-wide strategies including new product introductions. The lack of accuracy and speed in reporting is hurting the company's ability to trim back 400 pricing systems that represent a massive duplication of effort. One of the most prevalent signs of an enterprise needing to integrate its many diverse systems is the creation and continual maintenance of systems across divisions that literally do the same task, and which could be slightly modified to support corporate-wide initiatives (Wenrich, Ahmad, 2009). A second disadvantage is how slow Alcan will increasingly become at attaining compliance to both internal quality management standards and Sarbanes-Oxley Act (SOX) compliance as well. This, if taken past the deadlines of the Securities and Exchange (SEC) commission, lead to a fine for the company. Finally the lack of support for interprocess and system integration is also evident in how the company is not solving the very high maintenance fees with any preemptive strategy of system use, in addition to lag times on pricing and performance management statistics at the organizational level (Seddon, 2009).
What are the pros and cons of the new Alcan IT enterprise architecture proposed by Robert Ouelette?
Robert Ouelette's plan has potential to better unify Alcan's operations and make them more cost-effective, efficient and eventually consolidated over time. The reliance on a centralized Web Services architecture will require Service-Oriented Architectures (SOA) be implemented, which will also require significant changes in core areas of purchasing, procurement, supply chain management, accounting and services. In conjunction with the IT plan that is strategic in scope Robert Ouelette has devised, he will also need to create a change management plan that guides education, training and ongoing system development as well (Hanafizadeh, Gholami, Dadbin, Standage, 2010). With these constraints in mind, here is an analysis of the strengths and weaknesses of his proposed strategy.
The pros or advantages of the Web Services strategy is the immediate reduction of a large proportion of the $500M being spent with SAP on maintenance fees and charges, the reduction in a large percentage of the 400 pricing systems that have overlapping functionality, and the better integration of systems and processes for accounting and compliance reporting. Another advantage is the ability to launch highly complex product and services strategies corporate-wide at a much greater pace than is possible today.
The cons or disadvantages include a much higher cost potentially if the professional services and customization of the Web Services and required SOA infrastructure become more complex than initially planned. It is common for large-scale SOA projects that include ERP implementations to cost up to ten times the pricing of the software alone (Nour, Mouakket, 2011). The costs are submerged at the present time of the case study; they are not initially understandable or viewable. Second, there is the disadvantage of completely re-architecting workflows of how each division works with the other, augmenting and accelerating them based on the SOA infrastructure and Web Services. This is often a months-long or even year-based project that also will fuel higher costs (Law, Chen, Wu, 2010). Third, there is the loss of tacit and implicit knowledge that the individualized systems today are capturing and acting on. The capturing of tacit and implicit knowledge is critically important for an organization to continually manage its ERP system to a strong set of metrics and performance guidelines (Seddon, 2009). Finally there is the high cost of change management, both in…