Best practices in IT restructuring and management: Page 2

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ADI’s battle plan

As senior executives mapped out their strategy to remake the company, they decided that a better managed IT approach was necessary. ADI’s executives elevated the status of the IS department to reflect the new importance placed on systems as the enabler of the new Analog Devices, and went in search of a seasoned professional to head that division.

"Information systems’ mission is to help create the new Analog," explains Larry Loh, who was hired as chief information officer in 1993. Loh replaced the old, decentralized IT structure with a more centralized approach, enabled by having all the operating units’ systems in one place on one system.

The transition to the new R/3 system was handled in two major pieces: order management and financials. Responsibility for implementing the order-management project fell to ADI’s Dundon, then a program manager. The project team took the name GOLD, for global order management, logistics, and distribution. At its peak, the GOLD implementation group consisted of 42 employees and consultants, half of whom were full-time. Seamus Brennan, currently ADI’s director of finance, led the financials project.

Gold Project Timeline
Requirements and vendor analysisMay92-Dec.92
Vendor selectionJan-April 1993
SAP selectedMarch 1993
analysisOctober 1993
DesignJanuary -March 1994
Switch to R/3 2.1March 1994-October 1994
ConfigureMay 1994 - December 1994
TestingSeptember 1993 - January 1995
Roll-out in USFebruary 1995
Roll-out in EuropeMay 1995-February 1996
Roll-out in AsiaEarly 1997

Supporting each program manager was an IT manager. This person was selected from among the senior staff of the IT department. The responsibilities of the IT manager included the day-to-day management of the functional development teams assigned to each program. In addition, a program support council was established, comprised of the head of each functional team and the IT managers; a senior manager was added from the key software, hardware, and consulting service vendors after they were selected.

After an extensive review of available applications, in early 1993 the GOLD team chose R/3 from SAP as the platform for its new global order-management system. The product was still in its infancy, a version 1.x release, but ADI officials chose it because it came closest to meeting the company’s needs. Later that year, ADI’s finance reengineering team selected R/3 to support its efforts, mostly due to the obvious benefits of having a fully integrated logistics and financial system from one vendor. After evaluating several implementation partners, ADI hired Price Waterhouse, now a part of PricewaterhouseCoopers with U.S. headquarters in New York City, as a subcontractor, due to its knowledge of SAP software and UNIX.

Finance Project Timeline
Project phase Timeframe
Vendor analysis March 1993 - September 1993
Sap selected October - 1993
Requirements analysis November 1993 - March 1994
Prototype configuration Apil -May 1994
Est, document, train May -September 1994
Pilot system operational, debugged October - December 1994
Roll-out in Wilmington, MA plant Jan-March, 1995
Roll-out eastern US offices and factories April-September 1995
Rollout in Europe (nine countries) Oct-Dec.1995
Roll-out in US west coast Jan-March, 1996
Roll-out in Asia (Japan, Taiwan, Philippines) April-September, 1996
Worldwide consolidation October-December 1996

Among the company’s early technology decisions, several were crucial. First, finance and GOLD wouldn’t change R/3 source code, to avoid compatibility and upgrade problems down the road. However, some basic logistics needs were not supported by early R/3 releases. So the GOLD team wrote a series of subroutines that linked to existing R/3 modules to incorporate vital functions. Second, the GOLD team established an aggressive 18-month schedule to design, configure, test, and rollout version 1.x of R/3 in the United States and to ADI’s factories around the world. That was to be the first phase of a three-phased rollout plan, with the European offices as phase two, and Asian offices in phase three.

Unfortunately, the plans were foiled within months, and GOLD began to tarnish almost as soon as it began implementation. The team struggled through a series of interim software releases that were not ready for production use. So when SAP released version 2.1D in 1994, ADI officials felt that it was enough of an improvement for the team to switch their development efforts from the prior release.

"This would never happen today. SAP releases are solid," notes Joshua Greenbaum, principal with Enterprise Applications Consulting, in Berkeley, Calif.

The GOLD rollout of version 2.1D for the U.S. factories and the overseas warehouses occurred in February 1995, followed by Europe in February 1996. The rollout in Japan followed in 1997 after the system was upgraded to version 3.0.

In contrast, the finance project team delivered its implementation of R/3 version 2.1D within its 12-month schedule, beginning with a pilot rollout in the Ireland factory in December 1994. Rollout of the finance project in the United States and Europe began shortly after that pilot began operation and was completed by late 1995. Financial modules were running at several ADI sites in Asia, including Taiwan and the Philippines, in 1996. The remainder of ADI’s Far East locations followed the next year.

Not an inexpensive undertaking

Implementing a suite of enterprisewide applications around the world is not an inexpensive undertaking. ADI's estimated cost of $21 million to implement R/3 was 15% higher than the initial cost target, according to company officials, due to delays in development related to the shift to a newer version of R/3. Software and consulting fees, including Price Waterhouse as the primary implementation subcontractor, totaling $9.5 million amounted to almost half the budget, notes ADI. The R/3 software license also included the cost of the database software from Oracle Corp., of Redwood Shores, Calif., used by the applications.

While no analyst today questions ADI’s expenditures or considers it extravagant, "we do not usually see price tags like this anymore," says Steve Bonadio, senior analyst at Hurwitz Group Inc., of Framingham, Mass. Streamlined implementation methodologies generally keep the costs down, except in the case of runaway disasters.

Part of ADI’s cost was due to the expense of shifting legacy data to the new system. While AMR’s Shepherd isn't shocked at the $21 million price tag in this situation, "it is not representative of what companies would spend today," he notes. A new crop of enterprise-application-integration tools, for example, can reduce the cost and time to interface or port legacy data and systems.(For more information on the current integration tool offerings fine-tuned for ERP, click here.)

Analysts from the now defunct firm Scalea and Co., of Boston, at the time estimated indirect costs at $8 million. This figure includes the value of the time spent by the ADI executives and operation staff to implement R/3, as well as contractor costs. The estimate also includes the time top managers spent on the project. "We did not hire specifically for the SAP project but used existing staff," adds CFO McDonough.

ADI handled the training very inexpensively. Only members of the implementation team were trained by SAP or its contractors. These members then trained ADI staff who were considered the local experts. They, in turn, trained other users. ADI also developed its own user and training manuals.

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