Friday, April 07, 2006

Tektronix Inc. ERP Implementation [MOT6107-IT Strategies]

Georgia Institute of Technology
Executive Master of Science of Management and Technology (MSMoT)
MOT6107-IT Strategies
EMSMOT 11
Tektronix Inc. Case Questions

(a) What are the typical reasons why IT projects (and ERP implementations in particular) fail? What are some of the best practices in managing IT projects to reduce such failures? Base on answer on your past experience, trade articles and research on the Internet

IT projects fail for many and varied reasons. At the outset, the project leader must be given an adequate scope of authority and an executive mandate in order to achieve the desired objectives. Furthermore, the leader must be able to create a project team who will use their delegated authority generate buy in across the project and maintain the momentum needed to sustain a long-term cost and time intensive project. Beginning from the executive and board level, Neun’s ERP project carried with it an overarching authority that could access the entire global organization.

Neun’s approach also involved the divisional leaders such as Roy Barker, president of CPID. This allowed each department to participate in the framing of the implementation around their unique business processes. By fostering project buy-in on the divisional level, and having the executive committee’s blessing helped to ensure that the mandates were created and that they would not create unnecessary structural upheaval in fundamental division level processes.

Improper planning and scoping will always lead to disaster and failure. Neun demonstrated a unique ability to conceive a simple yet broad reaching schema for the ERP implementation plan. His vision made it possible to stay within project goals and measure against these milestones. The plan offered clarity of the progress throughout the project. The progress was captured and celebrated as “waves”. This solved a common shortcoming of IT projects, loss of momentum. Each wave built confidence in the company ranks and reinforced the impetus of the project.

Neun also did a lot of to “sell” the project to the various compartments around the global entity. There existed a lot of pain and inefficiencies. “Five Calls Does It All”, leads to employee dissatisfaction, increased costs, reduced customer service levels, delayed order fulfillment cycles, and overall losses due to operational inefficiencies. This negative feedback loop also prevents Tektronix from growing through disposition, acquisition, and expansion of its various business units.

In past experience, an IT project is usually driven from an IT manager level and not from the business manager or executive level. The initiative takes form within the ranks of IT, gets approved somewhere up the ladder without adequate investigation into whether, where, or how the proposal will fit within the entire organization’s framework. Then, the approved plan proceeds without proper research, requirements gathering, obtaining user buy in, or setting relevant success milestones. As each subsequent project falls short of the mark, the feedback amplifies and generates more and more dysfunction in the environment. This dysfunction takes the form of siloed data resources that are non-interactive with other organizational resources. This leads to missed business opportunities related to the business tools not working in a responsive and rapid manner. The dysfunction cripples the organization in waves as each project unnecessarily removes efficiencies with each failing project.

(b) Did Tektronix effectively manage the risks associated with implementing an ERP system? Analyze the salient features of Tektronix’s approach to implementing the ERP system.
Did Tektronix effectively manage the risks associated with implementing an ERP system? Analyze the salient features of Tektronix’s approach to implementing the ERP system.

Tektronix managed implementation risks by setting a well-researched plan in place supported by full buy in from the top levels of the organization. The pains and current shortcomings were well documented. The inability to access real time and reliable date of the status of assets such as work in progress, finished goods, and the location of the inventories all spoke of a complex and potentially paralyzing business infrastructure. The thorough review of these shortcomings generated a strong basis from which to implement a planning model to simplify the environment and then integrate the new platform to each separate business model, in effect creating the “global business model”.

They reduced risks by identifying which processes were substantively similar and could be shared by all the various business units. Accounts Receivable, General Ledger, a common Chart of Accounts, a central customer services registry (CRM), and a single-item master table would tie all the divisions together. This provided near real-time visibility into worldwide operations.

Enrolling the Key Players in each functional and geographic area further reduced risks to the project. These ran interference and acted as negotiators when business change was needed. This resolved issues through a combination of technical and functional strengths. Getting project buy in from each of the divisional leaders, as well as the IT department management, Neun had the necessary basis from which to make the tough calls. The downsizing of the European employees would have been a difficult play considered the labor law environment. And there is more – Neun managed to impose English as the worldwide internal company language. Foreign languages were only used in customer facing interactions. Imagine what it must have been like to adopt this management directive in a country like France, who have a notorious disdain of other languages and a pride of their own. One would have to have inscrutable authority to make such deep changes to the cultures of the global offices.

Apathy is an often-overlooked risk in large projects that consume long time frames. Neun’s team created a rhythm of waves. Each milestone was celebrated. Each project phase was delivered in waves. Each wave built upon the previous successes. The successes built heightened levels of eager anticipation, project confidence, and general satisfaction during the change implementation.

Vendor issues were well addressed. In IT, as in so many other endeavors, it is best not give your vendors the ability to “punt”. They will, when given the opportunity, point the finger at some other vendor and cast the blame. That vendor will do the same in turn to the next vendor, and so on. The only way to end the dissonance is to somehow orchestrate a meeting between all these players and force them to confront the matter. There is usually no easy or expeditious way to facilitate such a useful meeting. Tektronics addressed the matter rather handily. After selecting Oracle as their platform, they made sure to hire in Oracle’s own consultants. These individuals would have access to all the inside people who had the answers and latest patch fix upgrades. They also would have no excuse whatsoever to be able to pass the buck to some outside vendor.

Roll-out risks were managed by carefully orchestrating the timing and order of rollouts. They began with US CPID the simplest organization moving to US VND, and then to US MBD. The MBD was the most complex business model. Having proven the functional solidity of these three implantations in the US divisions, they chose to roll out in global regions based upon which would be incrementally more complex in terms of culture and language technical challenges. Overall, this move went from basic Western ISO, Latin based character sets and languages to the complex 2 byte Asian character sets and there associated languages. This approach minimizes the chances that implementation errors will be magnified via global replication.

(c) Overall, what is your impression of the ERP implementation at Tektronix? Is there anything you would do differently?

Tektronix ERP Implementation Team employed relatively simple approach to such a complex and far-reaching challenge is quite impressive. The simplification of every single business process was achieved through this effort while preserving the integrity of each division’s unique business driven processes. The overall time line was surprisingly short. The breadth of accomplishment and the substantial gains in performance monitoring and service delivery are obvious, even if they are hard to quantify in terms of real dollars. In an industry that rapidly moved from expensive high margin products to a thin profit margin commoditized model, Tektronix ERP project, in all likelihood, is one of the main reasons the company remains viable to this present day. Therefore, we are satisfied with the manner in which this project was conducted, and would hope to bring the same level of insight to our own business challenges.

CISCO : ERP & Web Enabled IT [MOT6107-IT Strategies]

Georgia Institute of Technology
Executive Master of Science of Management and Technology (MSMoT)
MOT6107-IT Strategies
EMSMOT 11
CISCO : ERP & Web Enabled IT

(a) Was the decision to implement ERP justified for CISCO?

Given the current and project growth patterns, Cisco’s $15m investment in the software made sense, given that the implementation’s success and time frame could be reasonably assured. Given the two days of down time experience by the system being over utilized, this was a clear indicator a significant change was in order. That Cisco is positioned to sell products that secure and enhance the business use of the Internet justifies the need to break ground on completely web enabling their entire business. If Cisco has done it, then they can help their clients do it. The operational efficiencies are numerous. They reduced average inventories requirements; they reduced the variable availability of their source parts from their suppliers by giving partners more timely and accurate forecasting. It enables customers to better order and provision the various products. The effort also made it easier for Cisco to acquire new companies, enabling a standard and reliable assimilation path.
(b) What were some of the key factors that enabled them to implement the system in nine months? Based on the information given in the case, evaluate their project management approach.

The nine-month time frame was driven by a few factors. The leading issue was a perceived need for an immediate solution to the shortcomings of the existing operational IT Infrastructure. Next, the auditor would have fit if the reporting systems were down during the Q4 Audit season. This could have severe consequences in terms of reporting to the markets. A qualified audit statement can seriously diminish the perceived market value of a company. Furthermore, Cisco correctly anticipates a surge in demand for their products. The current operational infrastructure would simply not accommodate this flux of volume. That level of growth could literally choke the organization. Therefore, it was necessary to find a feature rich and scalable solution to bring in all the data silos, compartmentalized operations, and disparate sales methods and product lines.
(c) What are the benefits of the Web Enabled architecture at CISCO? What are the drawbacks of the architecture? As CIO, would you have done anything differently?
There are many advantages to what Cisco accomplished. First and foremost, they demonstrated by example that their business case for an pervasively Internet facing company can cut costs, improve customer service, and stabilize production and design work flows. The only serious drawback was the expense. During the time, few applications were web enabled. Cisco invested enormous amounts of capital into software vendors own products to web enable these for Cisco’s use. The return on investment was rather interesting as Cisco enjoyed a radically reduced operational cost structure. Another potential danger to the strategy lies in the pervasive interconnected model that Cisco has to create between Customers, Cisco, and the suppliers. This leaves many points where a security breach could occur, or a software malfunction could incorrectly execute a large order. These bugs could significantly reduce the effective cost savings delivered by the new web enabled IT infrastructure.

(d) How would you justify the expenditure that CISCO incurred in implementing the web enabled architecture? You do not have enough information to actually do a cost-benefit analysis. However, you can discuss what approach you would use to justify the expenditure.

There are many facets of the implementation that would have to be analyzed. First of all, the internal operational efficiencies enabled the organization to scale to meet demand and to easily assimilate new technologies into the product lines by their acquisition activities. Employees can be trained and managed more effectively through the use of self-service applications. The CEC addressed the various unique needs for 40,000+ employees during a time when many other companies still used three ring binders and paper forms to handle HR related functions. Dissemination of executive directives, new employee training, and product training all saw vast time and operational efficiencies. Distance learning, workflow collaboration, and web enabling legacy systems for ubiquitous access and use, all improve the bottom line.

The supply chain is where a huge improvement was experienced. Dynamic Replenishment reduced delays and errors, and saved tem $275 million through increased profitability. The effort streamlined New Product Introduction. The orders could be fulfilled directly from the customer pulling all the way back to the part, components, and product OEM suppliers on demand and on time. The example is one of the relatively few instances where JIT actually works.

The executive management tier leveraged the entire system by the ability to dashboard the entire organization globally in real time. This allows more effective decision-making. It allows the organization to react to changes in the market before competitors.

All this is fine and well, however in 2001, when I work for the Cisco-KPMG team, the $1 billion investment did not pay off. The demand for product nosedived. KPMG did not actually receive any significant volume of integration engagements. The 4000 people hired for headcount to service the anticipated accounts remained benched for months. For my part, I free-agent walked onto team doing BellSouth’s Electronic Applications Interface project to create an intranet and extranet eStore for the entire BellSouth organization. Instead of using Cisco router skills, our team found ourselves learning UML, CORBA, SOAP, DCOM, XML, and UDDI. We found ourselves gathering requirements and setting scope to web enable the entire IT assets of BellSouth. We found ways to jettison the legacy systems. Nonetheless, the hammer came down only 4 months after they hired everyone. 3000 people received the axe. While Cisco, operationally is a sound company, it has not really recovered from the leveling of the dot com market. See the five-year chart. They have gone sideways since 2001 with one major dip and one major “peak” of 29 since then. This peak should be placed in the perspective that the stock was trading above 30 from 1999-2001 and peaked at 70 accounting for splits.

Cathay Pacific Case [MOT6107-IT Strategies]

Georgia Institute of Technology
Executive Master of Science of Management and Technology (MSMoT)
MOT6107-IT Strategies
Case # 3
Cathay Pacific
EMSMOT 11


(a) What factors contributed to Cathay Pacific’s decision to outsource parts of their IT function?

The implementation of IT outsourcing at Cathay was a slow process, but with rapid growth, competitive pressures, and turbulent economic conditions, it became crucial for the survival of the company. Initially, Cathay was handling virtually all of its IT needs internally.

Cathay’s Data Center was separated into three locations, and IM Operations Manager cautioned that their rapid growth would require a fourth or even a fifth data center facility to meet the company’s IT needs. This rapid growth was a definite factor leading up to their outsourcing endeavors. They had two separate centers in Hong Kong, which was second only to Tokyo as the most expensive international location for office real estate. As cutting costs became a higher priority, it became evident that the extremely high cost of maintaining data centers in such areas would impair their ability to remain competitive.

“Operation Better Shape” was the name of the strategic initiative that formally prescribed a company wide effort to reduce costs within Cathay in 1992. According to one Hong Kong-based analyst: “The company is highly, perhaps too highly, vertically integrated. It does too many things in-house which it should have outsourced.” This initiative identified outsourcing as a critical approach to cutting costs. Outsourcing would allow Cathay to focus on its core aviation competencies. IT outsourcing was identified as a target for outsourcing along with other business processes.

Anthony Yeung, GM of Information Management (IM), realizing that Cathay could not develop all their solutions internally, had already begun to purchase software packages that were available on market in the late 80’s. He even changed his unit’s name from “Systems Development and Support” to “Systems Delivery” to reflect the fact that his team’s role would be shifting from writing coded and developing applications to delivering IT systems to Cathay business units.

In the mid-1980’s, Cathay outsourced its networks to SITA. This was an important step in Cathay’s transition from a regional carrier to an international carrier. SITA offered application, desktop, network, and infrastructure services, systems integration, outsourcing, and consulting.

Early on, outsourcing was identified as a means to bridge the gap between the IM department and the business side, and overcome vast learning curves associated with rapid growth and moving into new arenas. It had become impossible for IM to fulfill the ever-growing needs of all of Cathay’s business units. Further, the cost of maintaining internal legacy systems was continually increasing and also not necessary to develop custom systems.

Along with a new GM of Information Management came a new IT ideology at Cathay in mid-1994. It had become clear that whether or not outsourcing was necessary was no longer questioned; it was necessary in order for Cathay to remain competitive.

Cathay’s new IT ideology would be industry driven and quick to respond to industry practices in adopting new technology. Whereas before Cathay’s programmers spent years writing code for Cathay applications, acquisition and outsourcing various IT needs was necessary in order for Cathay to remain competitive.

In 1997-1998 economic difficulties onset by the handover of Hong Kong from British rule to Chinese rule. The economic crisis that ensued made it even more imperative for Cathay to find additional ways of cutting costs. One significant blow to Cathay’s business was that tourism for the entire area from their major market dropped approximately 70%. They had also made a commitment during more prosperous times to purchase 13 new aircraft that they were obligated to take. This further contributed to Cathay’s financial woes and contributed to their decision to outsource.

Along with various other cost-cutting measures, outsourcing nonstrategic business functions may have been Cathay’s saving grace. Cathay posted a $281 million profit in 1999 despite continued decline in the airline market. Early on, outsourcing at Cathay was a matter of convenience. With rapid growth, competitive pressures, and economic turbulence, outsourcing became a matter of survival. Cathay utilized outsourcing very effectively as those factors (e.g. rapid growth, competitive pressures, and economic turbulence) demanded well-executed responses.

(b) Evaluate Cathay’s overall approach to outsourcing.

The overall approach was cautious, well researched, and implemented well. They began with the areas that were not directly associated with the core business, but were necessary in the support roles. These were the “low hanging fruit” and easy to implement.

They were smart in the approach that they did not get locked into a sole source for supplying the needed solutions for the IT needs. This enabled them to compare the product offerings in the market and get the best mix to address their specific needs. They also negotiated for the needs of the employees whose jobs were being out sourced, as in the case of the data centers. This helped to make additional future outsourcing initiatives go smoothly.

The concept of Benchmarking is another good trait for outsourced contracts to ensure that the charges remain competitive on an ongoing basis.

The method of employing outsourcing at CP was very good when compared to some US companies. They did not seem to announce a close to an office or data center and have the employees shocked, but worked to take care of them as well as set well researched contracts. They also did not move jobs outside of the region, but maintained them where they were already located. In the case of the Data center, CP had already relocated the center when they decided to do the outsourcing.

What are the strengths of their approach?

Cathay’s approach to outsourcing is strong on the following aspects:

Identifying business process areas that are non-core to Cathay’s aviation competencies. The company realized that it could cut costs by eliminating the non-essential functions that were adding unnecessary fixed costs.

Dividing the Information Technology function between the two competency areas of infrastructure and applications and finding the best suppliers to meet needs in each of these areas. Many organizations may have looked at this and seen that there was no single solution provided by one supply. This may have deterred many organizations from outsourcing both of these functions. However, Cathay realized that the extra effort put into tripartite relationship could provide long-term benefits if established and carried-through successfully.

Identifying key strategic partners that could deliver solutions that in turn could cut Cathay costs. With the Smartsourcing strategy Cathay did not cut corners when it came to what organizations would be supplying them their IT solutions. They went with proven organizations that had established a history of delivering quality products and services.

Employing an appropriate mix of outsourcing and insourcing. Cathay realized that they had a great deal of internal knowledge about their IT systems and supplier management. In the early stages of outsourcing this was a key to their smooth transition to outsourced services. This knowledge served as a key liaison between in-house and outsourced suppliers. In addition, Cathay still maintained many legacy systems, and servicing theses systems requires internal expertise. Eventually these systems could be phased out, but for the time being it was essential that they were not simply replaced. In essence, Cathay did not abruptly change their business model, which could send operations into shock, but rather they gradually and strategically chose areas to outsource, providing a transition for the IT functions.

Cathay continually managed and maintained contract relationships. They made sure that they employed periodic benchmarking and continually monitored the progress and success of contracts. This helped smooth relationships with suppliers. Even though there were issues when it came down to knowledge about the relative benefits of the contract for all parties, it was important that Cathay make sure that suppliers were aware and living up to expectations. This avoided any potential disasters.

What are the risks and disadvantages?

The risks and disadvantages of Cathay Pacific’s approach to IT outsourcing and “smartsourcing” are as follows:

In contract negotiations for outsourcing the Data Center, Cathay Pacific did not issue RFP’s, nor did they elicit bids from other vendors. In addition, they did not share financial data with IBM during the decision making process; therefore, neither side was able to determine if the other was getting a good deal. Instead, it was hoped that benchmarking, now into its’ third study, along with pricing parameters established from material collected at IT conferences would serve as a surrogate in establishing competitive pricing pressure. However, several managers believed that smartsourcing eliminated commercial tension and competition from the purchasing process, thereby exposing Cathay Pacific to unnecessarily excessive expenditures.

By outsourcing the Data Center to IBM along with the vast expanse of Cathay Pacific human IT capital that transferred to IBM as part of the deal, Cathay Pacific has essentially foregone the opportunity of providing data services to other industries. As Anthony Yeung is now realizing in his review of the transaction, IBM was able to transform the Data Center, with assistance of highly trained former Cathay Pacific employees, into a very successful operation serving over 50 customers in both Australia and in Asia. Now, with Cathay Pacific’s desires to establish air routes into mainland China and possibly to offer Chinese and other airlines IT services, their ability to do so is minimized by the opportunity cost of outsourcing the data center and its’ highly valuable employees in the name of cost reduction, when they more than likely could have benefited more by utilizing internal strengths to diversify the operation.

What should Cathay have done differently?

First, Cathay should have trained the procurement staff on how to bid and manage an outsourcing contract or have hired new procurement staff that had extensive experience with outsourcing. The article mentioned that the procurement staff and legal staff were not trained well enough to write a good outsourcing contract. Since an outsourcing contract can make or break the deal, Cathay should have put more emphasis on aligning the appropriate skill-sets and resources to develop and implement a strong contract.

Second, Cathay should have setup a core outsourcing team responsible for the following:
• Managing the smart sourcing vendors - IBM, Sabre, and SITA;
• Develop amendments to the contract and Service Level Agreement (SLA) as needed;
• Develop vendor scorecards to track the financial success of each smart sourcing contract. For example, Cathay was promised a 10-15% cost reduction with the same level of quality and service. This core outsourcing team would be responsible for ensuring the vendors were meeting these goals monthly.

Cathay should also manage and develop a competitive pricing process to price the same services with other vendors to ensure Cathay was getting market rates or better. In this process they could also develop cost reduction strategies with the current smart sourcing vendors to ensure that contractual arrangements remain mutually beneficial. Based on the case Cathay had never pressured their vendors about pricing and could potentially benefit significantly by engaging their vendors in discussions regarding reducing rates. As previously mentioned, Cathay did not issue RFP’s, nor did they elicit bids from other vendors. By engaging in this sort of process they would be able to ensure that what they are paying for these services is competitive with the prices available from other vendors.

Finally, by 2007, legacy custom Cathay-built systems should be phased out. Thus, Cathay should get rid of the Infrastructure delivery manager and group. In addition, they should reduce head count in the system delivery group by outsourcing some of the responsibility of this group. For example, the support and maintenance of their business systems should be easy to outsource, especially when Cathay has phased out all of their custom legacy systems.