Alcan's decentralized IT architecture and strategic integration challenges

¶ … Alcan Case Study

Alcan IT Infrastructure Case Analysis

The strategic challenges that Alcan is having to overcome in order to continually grow profitably is common across enterprises that have grown through mergers, acquisitions and lack of unified Information Technology (IT) strategic planning. The result is often a balkanized, diverse IT architecture that lacks integration at the system and process level, weakening enterprises from getting to their goals and objectives. Alcan has all of these characteristics as they have a diversified business model, highly balkanized IT architecture, and a divisional organizational structure that has further made the coordination of IT strategies even more difficult. Based on the analysis of the collection of case studies concerning Alcan, it is clear the highly decentralized nature of their IT strategies is limiting their ability to fulfill strategic objectives. The lack of integration across legacy systems and business units is also significantly reducing the ability of the company to share analytics, tacit and implicit knowledge, and accomplish complex tasks as a result. The goal of this analysis is to analyze the pros and cons (or advantages and disadvantages) that the existing Alcan IT platform architecture has today, followed by an analysis of the pros and cons of Robert Ouelette's proposal for the new Alcan technology infrastructure. The last section of this analysis will include recommendations of additional improvements to the Alcan IT infrastructure. Alcan's future will be predicated on how effectively they use their information assets, which will either accentuated and strengthened by the adoption of a more efficient IT architecture.

Assessing the Pros and Cons of the Current Alcan IT Architecture

The lack of shared ownership of complex, integrated business initiatives and strategies within Alcan can be traced back to the non-integrated, siloed and highly inefficient IT architecture the company has in place. While the decentralized nature of the company's organizational structure made sense from a business strategy execution standpoint, it drastically reduced the ability of the entire enterprise to effectively share information, intelligence and knowledge across the divisions of the company. The lack of unified IT architecture was crippling the ability of the company to complete more effectively as a unified enterprise. The greatest benefit of decentralizing IT is the accuracy, speed and relevance of the data to the operations of the specific business unit the systems are designed for. At Alcan the opposite is starting to occur, as corporate-wide strategies are not getting accomplished due to the lack of IT system coordination. At a strategic level, Alcan is facing the daunting task of winning business against competitors who have a more agile, have better system and process integration, and can quickly transform their accumulated experience and intelligence into competitive advantage and won business. For Alcan, the challenge of creating a unified system of record that encompasses all business units, giving the company greater competitive agility and speed to market are critical to their long-term growth.

The advantages (or pros) of a decentralized IT architecture is the ability to gain greater insight and intelligence into the performance of a given business unit or division with analytics, metrics and Key Performance Indicators (KPIs) that are tailored to the specific processes, procedures, strategies and system of a given business unit. Arguably this gives a business unit or division much greater insight and ability to respond quickly to market opportunities and threats. For Alcan, this has translated into significantly more control over purchasing, procurement and supply chain strategies, making production more efficient and focused than would have been possible with centralized IT. Second, using two-tier or decentralized Enterprise Resource Planning (ERP) systems continues to show significant potential for transforming business units from being inward-centric and myopic to being more customer-centric and focused on the market, not themselves (Bock, Flores, Latumahina, Cheng, Lam, Chan, Soeharto, Kang, 2009). Another advantage of having a highly decentralized IT architecture where ERP systems are specific to each business unit is the ability to fine-tune each process area more precisely than if a centralized ERP system was being used. In the case of Alcan, each business unit has a very specific set of requirements for procurement and sourcing, and having an ERP system dedicated to each business unit allows for greater customization to each specific process area. Customizing an ERP system to the unique process and product requirements of a given business unit can also significantly increase system adoption as well, meaning more people use the system and get value from the data and analysis it provides (Esfahani, Murad, Sulaiman, Udzir, 2011). For Alcan, the relatively high rate of adoption of IT systems within each specific business unit can be attributed to the fact that each division's ERP systems are tailored to the specific and unique requirements of each business unit.

The disadvantages (or cons) of having a highly decentralized ERP and IT infrastructure is the manually-based approaches many companies must resort to in order to synchronize analytics, data, historical sales, profit and operations, in addition to the loss of knowledge transfer that occurs due to lack of any process or system integration (Holland, Light, 1999). Another costly and time-consuming disadvantage is the lack of financial leverage and bargaining power with enterprise software vendors. A decentralized IT architecture using enterprise-wide applications including ERP will be very expensive to maintain from an annual services fee standpoint, as every enterprise software vendor will require annual licensing fees fro both the core components and modules (Bock, Flores, Latumahina, Cheng, Lam, Chan, Soeharto, Kang, 2009). A third disadvantage (or con) is the lack of agility that Alcan has at a strategic level, including a slowed response time to new market opportunities and threats. This lack of agility could cost Alcan new market opportunities that require a concerted response from all divisions working in conjunction with each other (Esfahani, Murad, Sulaiman, Udzir, 2011). The inability of enterprises to pursue and attain strategic objectives that require the best performance from each division is often not possible when there is a highly decentralized IT architecture in place (Esfahani, Murad, Sulaiman, Udzir, 2011). As a result, when market forces push the urgency of responding to emerging, nascent market (Waggener, 2007). Due to all of these factors and concerns, Alcan needs to re-evaluate their decentralized IT architecture. Foremost will be the decision of whether to pursue procurement, purchasing and supply chain strategies by business unit or enterprise-wide.

Additional Improvements to the Proposal

Starting with the centralized, enterprise-wide Web Services framework, Alcan needs to consider how to take the most transaction-intensive aspects of their business and automate it first. This is not clear from the proposal, yet it must be a priority for the enterprise-wide strategy to work. Studies indicate that by reducing the level of complexity in transactions within procurement, supply chains and sourcing, enterprises can drastically increase the Return on Investment (ROI) and accuracy of their enterprise Web Services initiatives (Olson, 2007). Starting with distributed order management and progressing into supplier enablement, Alcan could save common transaction costs of supply chain management by centralizing these areas first in the enterprise-wide Web Services architecture. A prioritization is needed of the key areas the company will automate first if it chooses this direction.

A second area is answering the difficult question of whether or not the enterprise-wide Web Service will give Alcan greater time-to-market advantages in its core segments relative to having a distributed IT platform. If time-to-market will be more effective and at a reduced cost, the enterprise Web Service proposal will be that much more valuable. On the other hand, there needs to be greater quantification and ROI assessments of product lines Alcan has that are highly specific for a given market, tailoring analytics to track performance and the advantages of a decentralizing IT. In short, the existing vs. proposed IT architecture must be evaluated from the standpoint of its contributions (both present and potential) to business objectives over the long-term. Once that analysis is complete, the true ROI of the enterprise-wide Web Service will be known.

Third, the proposal does not include an assessment of how costs will be reduced from greater information and knowledge sharing due to using the enterprise Web Services Management Platform. Licensing of duplicate ERP systems and associated modules will certainly decrease, which will be a major component on calculating the ROI fo the Web Services strategy (Bock, Flores, Latumahina, Cheng, Lam, Chan, Soeharto, Kang, 2009). The additional cost component of more efficient information and knowedlge sharing, while difficult to quantify, will provide greater insight into the actual performance of the proposed Web Services Management Platform however (Olson, 2007).