Alcan's decentralized IT structure and enterprise system consolidation challenge

Alcan's continued revenue growth is the result of the combined success of increasing sales in four main business units, in addition to growth through acquisition. The cumulative effects of these two factors have served to create a profitable business and one where a highly decentralized organizational structure dominates (Chang, Wang, 2011). The catalyst of the organization becoming so decentralized is the continued revenue gains made across four businesses, each competing in market areas that face heavy pricing and commodity-like market conditions. Despite the heavily process-centric based approaches the industry takes to supply chain management, production and distribution, Alcan has been also able to profitably grow sales in the more mature markets they compete in. The senior management and IT departments credit the highly decentralized nature of the enterprise-wide systems that run the company.

During the time period of the case, Alcan generated $23.6B in sales in 2006, and has 68,000 employees throughout its global operations that span 61 countries. The four major groups include Primary Metal, Engineered Products, Packaging and Bauxite & Alumina. Each of these business groups have their own Enterprise Resource Planning (ERP) system and IT infrastructure. They each also have their own maintenance contracts with enterprise software vendors including SAP who the company pays approximately $100M a year in maintenance fees to. There are also the costs of operating over 400 different pricing systems, many of which duplicate functions across divisions as well. The new CIO of the company, Robert Ouellette, enters into a challenging situation and one that will require a completely different IT and organizational structure to succeed.

Organizational Environment

The Alcan organizational environment is highly decentralized to the point of there being four separate companies in the same corporation, each with its own entire value chain and supporting functions. As with the value chain concept, each of the four divisions has created its own main and supporting functions, and no two business units or divisions are the same. From the initial supply chain management and supplier quality management processes and systems to the supplier qualification, new product development, production and fulfillment including logistics, each business unit is significantly different than the other. When information systems and processes become unique to a given organizational business unit or division, the information and intelligence shared redefines the identity and over time, the core competencies of a business unit (Boh, Yellin, 2007). This is exactly what's happening in the four business units of Alcan during the time period of the case study.

The Primary Metal, Engineered Products, Packaging and Bauxite & Alumina have in effect become their own companies, each with its own ERP, Manufacturing Execution System (MES), Supply Chain Management (SCM) and myriad of pricing and distribution systems. The case states that there are over 400 different pricing systems in place across the four business units or divisions. CIO Robert Ouellette and other senior executives see the potential for consolidating all systems together and creating a centralized IT architecture. Creating a highly centralized IT architecture and framework would require the fundamental structure of the company to change significantly. It would also require an entirely new IT architecture, followed by redefinition of processes, systems and procedures throughout the company. As the information platforms or technologies of a business define not only the performance of divisions but the structure and performance of business models over time, Robert Ouellette and his staff must think strategically as to how they will modify the overall organizational structure.

Exacerbating this task of creating a highly decentralized organizational structure is the reliance the entire organization has on comparable suppliers, a highly comparable procurement process, and shared process production expertise across product lines. The markets the company sells into across its four business units are significantly different however, requiring different accounting, financial systems, ERP, SCM, Customer Relationship Management (CRM) and pricing systems. While the suppliers vary across each of the four business units, their production processes are comparable. Their market orientations are significantly different however as well. An entirely centralized IT system would not allow for the customization of the production processes necessary for each business unit, however it would significantly improve overall supply chain and procurement performance over time long-term (Mann, Dhallin, 2003). The strategic mission of the company would be accentuated from a cost management standpoint, yet would need to be more specifically tailored to the individualized market requirements of each business unit or division. Given this difference in market orientations it's critical that Alcan seek out a more open IT architecture, one that can take into account variations in customer and market requirements. The mission of Alcan is to synchronize the performance of their four divisions to attain a consistently high level of profitability while ensuring production efficiencies and continued sales growth.

Economic Challenges

As Alcan operates in 61 countries and employs 68,000 employees, their economic challenges are significant and complex. As the case analysis illustrates and as is shown in the figure to the right, Alcan has an array of operations across Asia, Africa and Europe. Without a strong governance framework in place, the proliferation of IT systems and technologies have progressed, unabated and unmanaged. The continual growth of the four divisions has accelerated the reliance on mergers, acquisitions and joint ventures to continually grow their business over time As the map to the right suggest, Alcan has allowed each of the four divisions or business units to continually pursue their own strategies with regard to supply chain operations as well. This can be seen in the growth of Alcan offices throughout South America and Africa, two regions that have abundant bauxite and alumina-based raw materials needed to support production.

Based on the highly distributed nature of their business model and the increasing fragmentation of their supply chains, IT systems and operating costs, global economic conditions post a very significant threat to Alcan. Without a single, unified IT strategic plan in place to guide the company back to a more unified structure, the company has significant financial risk from currency fluctuation and continued costs of operating across 61 different nations. A more unified IT architecture greater agility and speed in dealing with economic conditions. At present with the highly fragmented nature of their operations Alcan must take steps to avert high levels of risk to their operations from currency fluctuations and toe costs of compliance in 61 different nations. These costs will exacerbate the lack of a single financial system or record. With no single, unified IT architecture in place, being able to respond at a strategic level will be exceptionally difficult for the company. This is a long-term risk for Alcan.

Social Challenges

There are social challenges the company must respond to using an effective Corporate Social Responsibility (CSR) strategy that are not being addressed today as a result of the highly fragmented nature of their IT systems (Fearon, 1988). Alcan's role as a leading producer of metal-based, highly engineered products that include alumina and bauxite require them to regularly file statements with governing organizations throughout the world. It is inferred in the case analysis that the level of reporting has continually been late or is not occurring at all as more countries become attuned to the need for sustainability and the impact of industries on their natural environments, Alcan will be forced to be more sensitive to these requirements of doing business. During the timeframe of the case analysis, the company is performing to a level that satisfied the nations they are operating in. In the future this will have to increase in terms of CSR initiatives and effort.

Technical Challenges

There are a myriad of technical challenges that Alcan is dealing with due to their lack of clear and consistent governance in the areas of IT management and governance. Foremost among them is the lack of consistency of financial reporting and analytics across all four divisions, which includes a lack of visibility into costs and the sunk costs of not having a single unified system of record. From these strategic shortcomings flow a multitude of strategic problems including duplication of effort, lack of consistency on reporting with regard to pricing, lack of pricing consistency and massive duplication of pricing strategies. There is confusion over the supply chain and procurement areas of the four businesses as well, as each has their own systems and processes in place for this process. What exacerbates these strategic IT problems is the unbalanced nature of IT resources being located in the Paris and Voreppe, France regions. This puts all of Alcan at a disadvantage strategically when it comes to IT spending and the ability to negotiate better maintenance fees, as all transactions will have to take into account the inflated currency exchange rate of the Euro, which is the currency that the French IT industry relies on for transactions (Mann, Dhallin, 2003).

Organization's (Alcan) Resource Allocation and Project Priorities

The current resource allocation strategies and project priorities reflect the highly fragmented nature of the governance and IT structure of the company. Current priorities include updating the ERP systems in each of the four divisions, continual customization of the 400 different pricing systems, and the continual investment in supply chain and procurement applications. The IT department is massively understaffed for the workload they have in terms of managing the needs of the four different divisions. They are also short-staffed for creating a single, unified system of record for their financial analysis and accounting systems. This is the most significant strategic risk the company faces over the long-term.

Conclusions

The organizational environment and structure of Alcan have over time begun to reflect the flow of information and intelligence. This is a common attribute of how IT systems can drastically change the overall structure and operations of a business. Given the diverse economic challenges the company faces the potential to consolidate all IT systems together and create a unified system of record is very high. The social challenges facing Alcan are diverse, like tis IT architecture. In the future, Alcan will need to have a strategic approach to CSR reporting and programs. The technical challenges are myriad and reflect the chaotic nature of their distributed IT environment that lacks cohesiveness and process integration. The resource allocations throughout the company reflect this fact.