Global business services net big returns
Every Monday morning, executives at Procter & Gamble's Cincinnati headquarters file into an elliptically shaped conference room known as the Business Sphere, where giant video screens wrap around curved walls that display detailed, interactive visual reports on the consumer products maker's operations.
Business unit executives in similar rooms worldwide, assisted by business intelligence specialists from P&G's Global Business Services group, participate by videoconference as the groups collectively review the numbers for some 300 beauty and household cleaning brands sold in 180 countries. There's no arguing over whose numbers are right -- every business unit follows the same business processes and uses the same applications and analytic models. Executives are expected to come to the meeting prepared to drill down into these numbers, explain trends, identify underlying factors and come up with an action plan.
"[It's] analytics to the extreme," says CIO and group president of Global Business Services Filippo Passerini
As the growth in global business activity continues to increase, P&G and other businesses are re-engineering IT operations around centralized IT infrastructures. By consolidating and standardizing business processes and applications, these businesses expect to achieve IT cost savings, economies of scale -- and a competitive advantage. Having a set of interlocking, consistent IT business services worldwide can add value and deliver consistency to the business.
But selling the idea can mean stepping through a few political minefields, and it won't work everywhere. The benefits of consistency must be balanced against the need for localized applications and business processes.
"No matter where you are in the cycle, you should be targeting global business services," says Bobby Cameron, an analyst at Forrester Research. "The agility, flexibility and knowledge of the customer can't be done with disparate data and systems around your core."
But getting to that point is an evolutionary process, IT executives say. Many organizations are still struggling to get through basic IT infrastructure consolidation and standardization efforts, and the political waters get deeper when such projects move beyond the core enterprise applications, such as financials and HR, and into front-office applications such as sales and marketing.
"There's always a tension between what should be done locally and what should be done globally," says Dave Kamath, vice president and CIO at IDEX, a manufacturer of pumps, dispensing equipment and other engineered industrial products, which has been consolidating both front- and back-office applications in 27 countries worldwide.
P&G's system, for example, is the culmination of a decade-long global shared IT services effort that started with the centralization and consolidation of core IT infrastructure and ERP systems, and the optimization and standardization of associated business processes worldwide.
Most businesses measure the initial payoff of IT globalization initiatives in IT cost savings and infrastructure-level operational efficiencies. By that metric, Passerini says, P&G cut its IT costs by one-third and saved $1 billion over the past nine years. But the global business services built on top of those common platforms and processes are becoming a vital competitive differentiator as well as a potential revenue-generator.
At P&G, the goal is to innovate faster in order to compete in a market where the speed to market for new products is accelerating. Those business services, ranging from strategic sourcing to product innovation, "have dramatically compressed our time to market," Passerini says.
Similar efforts are under way at The Vanguard Group, Bank of America and Equifax. Here's what IT executives at those companies have to say about building -- and selling -- a global IT services operation.
Centralize, optimize, innovate
IDEX, which is headquartered in Lake Forest, Ill., and does business in 80 countries, started by consolidating its global IT infrastructure and core ERP applications into a private cloud. But the real value came from building within that cloud common sets of shared application services called platforms, which business units that sell into the same markets can use collaboratively to provide more comprehensive offerings to their joint customers. For example, several lines of business sell components that go into subassemblies used by manufacturers of healthcare diagnostics equipment. "Now we're talking about a system rather than individual component sales," says Kamath.
"We gained cost efficiencies through a shared services function, but that pales in comparison to the opportunity we have to innovate and capture additional market share in new geographies and markets," Kamath says.
The shared services platform at IDEX evolved in several stages. Kamath says the company started by creating a consolidated global enterprise IT infrastructure based on a private cloud. Next it deployed a unified suite of core enterprise applications before layering on the platforms, which handle functions such as sales and marketing. For the latter, IDEX deployed a multitenant implementation of Microsoft Dynamics CRM.
The configuration offers the efficiencies of a shared infrastructure while providing each group of companies with its own collaborative work environment. "This gave them the ability to present the collective capabilities of our companies to our channels," Kamath says.
Meanwhile, the IT team worked with the business to standardize business practices. "We standardized everything from the business processes to how we look at the data," he says.
A shift to innovation
P&G took a different approach. It starting by consolidating its data centers, creating a robust global network and centralizing around a single global instance of its SAP ERP software. "You can't standardize without centralizing first," says Passerini.
The IT group then outsourced the hosting and management of that infrastructure and began focusing on optimizing and consolidating its business processes. "That changed the whole focus from 70% running the operations to 70% innovating on the operations," says Jim Fortner, vice president of IT development operations at P&G.
Employees of the P&G Global Business Services team are embedded within the business units, where they leverage that common infrastructure to create business services in the areas of data modeling, data visualization and the use of virtual reality for everything from product testing to designing production lines.
P&G now focuses on leveraging that common platform as a "strategic enabler" for more advanced global business services, some of which cross departmental boundaries. For example, Global Business Services created an employee workplace service that automates everything required to get a new employee up and running. What used to require calls to corporate facilities and employee services groups is now managed as one seamless business process. "We provision their office and their IT and deliver that as a service," Fortner says.
Model of consistency
Vanguard, a Valley Forge, Pa.-based investment management firm, began centralizing its global operations after realizing that its lineup of investment products, which are available in 80 countries, was similar in every global market. Executives saw that the business could gain efficiencies by centralizing and standardizing its data centers and applications. "If the mission is the same, the products are the same and you want consistency in the business, you should go toward a centralized model," says Carol Dow, CTO and principal of global investment systems at Vanguard. But IT wasn't the one pushing the drive toward centralization. "It was the business," she says.
Today Vanguard is in the process of consolidating its data center in Australia into its U.S. operations. The project has presented challenges because of distance and time zone issues. But bandwidth costs have declined, and technologies such as a global MPLS network, content delivery networks, WAN optimization devices and virtual desktops have evolved to the point where the technical barriers have fallen, Dow says.
Centralization has brought benefits both in terms of consistency and economies of scale. "From a negotiation standpoint, we can optimize on infrastructure, people, vendors and products," Dow says.
Accelerating speed to market
Equifax, an Atlanta-based financial services firm with operations in 18 countries, struck a balance between meeting local needs and standardizing the business's core, in-house applications, says CIO David Webb. "We launched a program to create a bureau in a box with one code base we deploy all over the world, but with the core here and a wrapper for each country," he says.
Prior to that, the $1.96 billion company was using 25 different programming languages and 25 different databases. Now, all of the back-office elements are centralized and consistent. "It's the user experience and mobile [interfaces] that vary," Webb says.
Equifax executives realized this was possible because 80% of what the business units do is the same regardless of the country in which each operates. Now, Webb says, new product introductions take days or weeks instead of months. "We are in the data manufacturing business," he says. "It's about speed to revenue and speed to market."
But Webb says globalizing IT operations is also about total cost of ownership and economies of scale. "I don't want local countries negotiating with different [service providers]. We may be a small player in one locality, but when you roll that up we are a large player. It's all about pricing at the end of the day," he says.
Controlling the urge to customize development is essential, says P&G's Fortner. "Our partners would love to create custom code for everything," he says, so P&G sets expectations with partners up front. "We want frugal innovation at one-third of the cost, with a much faster time to implementation, and following application standards across the enterprise," he says. Custom code is allowed only when it creates a competitive advantage.
But not everything that should be consolidated can be consolidated; sometimes regulatory requirements, contractual issues or other hurdles get in the way. For example, many of Equifax's customers have contracts stating that their data must stay their home countries. That puts limits on what Equifax can do with the data. "We could have gone out and renegotiated, but the business didn't want to do that," Webb says. Instead Equifax will wait and make changes when it's time to renew contracts.
Webb also cautions about "lift and shift" consolidations of data centers as the first step toward globalization. Most of the efficiencies realized by doing that could be achieved through careful use of vendors and remote monitoring and management, he says. The consolidation should come only after application portfolios have been rationalized and business processes have been streamlined. "This is the one model that makes sense," he says.
Biting off big change
At Bank of America, global technology and operations executive Catherine Bessant succeeded by setting big goals. The $94.4 billion bank does business in more than 100 countries. Bessant says her organization, which works out of BofA's Charlotte, N.C., headquarters, is about 80% of the way through a multiyear IT globalization effort. The bank consolidated 10 of its 55 data centers in 2010 and expects to retire another nine, plus 50% of its applications, by 2014.
Bessant didn't get to that point by being timid. "Exceptions and incremental steps are barriers to this. If you go incremental, you don't get it done," she says. Bessant acknowledges that her team's goal of reducing applications by 50% "set people's hair on end," but she says specifically hitting that target isn't important; it's OK if the final figure is 40% or 60% -- as long as it doesn't end up at 5%. "People need to understand the order of magnitude of change you're after," she says.
P&G's Fortner offers this advice: It's OK to have big goals, but start with a small project. Begin by forming a shared services business unit that reports directly to the CIO. Conduct an inventory of business processes that cut across the enterprise and identify the ones that offer the most value to the company by standardizing. Then begin with a defined project in an application area such as HR or financial services. "Do a smaller core set first, prove it and go from there," says Fortner.
A good place to start is with accounting systems, says Forrester's Cameron. "Politically, that's easier to get done," he says.
Going beyond the core
Moving standardization efforts beyond core applications is where things can get sticky. IT must strike a balance between what should be consistent across the company and what needs to be differentiated -- a process Bessant calls "paint-by-numbers vs. Picasso."
"We try not to create a Picasso every time we undertake development, but not every project fits the paint-by-numbers approach," she says. In the end, differentiated applications are allowed only where absolutely necessary to the business. And all applications must follow standards -- for example, they all must have the ability to support multiple currencies from day one, instead of building for the U.S. dollar first and adding support for other currencies later.
At P&G, the battle was just beginning after core applications had been centralized and consolidated, says Passerini. With 99% of core applications on the global SAP system, the CIO turned his attention to all of the other applications used in the business and was surprised to find that only 27% were standardized. In just one area, managing promotional funds for retail customers, P&G had 55 different systems in place. Over the past four years, P&G has gradually increased overall standardization rate to 80%, and Passerini says he expects that figure to eventually hit 100%.
Other businesses may find that some applications must remain local, says Cameron. Sourcing, manufacturing and distribution planning often go global, while the sales, marketing and final distribution functions frequently remain local. "That local-global balance is the magic," he says, but it's often more of a political problem that needs to be solved, rather than a technical one.
The final step at IDEX, Kamath says, has been to build a global virtual organization -- a multicultural team that's distributed geographically in order to stay close to the customer, but that reports back to the central shared services organization. The virtual team has staff in locations ranging from Europe to China, India and Canada. "They need to be dispersed geographically, to be able to work independently and to be able to work with individuals from different cultures," Kamath says.
At Equifax, Webb's team carefully considered which roles would move to headquarters and which needed to stay local. "The relationship management piece, project management, business analysts and requirements analysis need to stay in-country," he says. "All of the rest can be questioned and analyzed for globalization."
IT's sales job
The process of globalizing is as much about management as it is about technology, IT executives say. And no IT globalization effort will succeed unless IT can show an immediate benefit to the business. "You cannot force standardization now with the promise that five years from now the world will be better," Passerini says. "The business must understand the immediate return as well as the good that comes later. Always start with business-relevant, concrete benefits that your business partners can see, feel and touch."
P&G built up its shared services business by clearly articulating the business benefits that line up with the company's strategic business goals, he says.
Kamath agrees that globalization initiatives can't just be dictated to business unit leaders. At IDEX, every operation moved into the private cloud infrastructure -- a step that was transparent to the business -- but Kamath took a more measured approach to transitioning each business unit onto the new application platforms. The platforms delivered clearly understandable business benefits, but each unit came aboard he says, "when they were ready."
Evangelizing is critical, says Webb. "You need to spend a lot of time socializing why the change is a good thing," he says. "And even when people understand it, they will be resistant if it affects their business." Change is disruptive, and having multiple initiatives happening in parallel compounded the problem at Equifax.
Any successful globalization initiative must have the CEO's unwavering support, but it is important to understand that the CEO also has made a commitment to help each business unit meet its goals. "They're focused on top-line growth, and many of these solutions have the potential to get in the way of meeting their goals. You get a lot of pushback," Webb says.
He advises CIOs to be patient and realize that they must strike a balance between accomplishing their goals with globalization and being sensitive to the fact that business unit leaders need to meet those P&L targets. "You have to have the flexibility to slow down and work with the business when things happen. We've gone through multiple iterations of thinking we know where we want to go and then something comes along and derails it."
To maintain support once shared services have been established, and to avoid having business units go rogue, a global IT shared services organization must be highly responsive, says Fortner. "How do you govern standardization to prevent a creep back to everyone wanting their own things? You need to run like a business and be so good that they won't want to go elsewhere." AT P&G, the business units rate the Global Business Services group's performance every year. When the rating system was first adopted 10 years ago, Global Business Services got a score of 6 on a scale of 1 to 10. "We're over a 9.0 now," Fortner says. "Running as a business has forced us to be competitive."
Getting started means overcoming corporate inertia. "The thing that holds people back is the lack of a bold, compelling need to change," Fortner says. "You get stuck in the old business model, and country managers will want to do it their own way. They have to trust that your organization can come in and do it better, faster and cheaper."
Five steps to IT globalization
1. Consolidate infrastructure.
2. Centralize services.
3. Standardize applications.
4. Optimize business processes.
5. Move toward strategic sourcing.
1. Consolidate onto a private cloud infrastructure.
2. Globalize core enterprise network services and applications.
3. Standardize business processes.
4. Establish common front-office systems and other software platforms to enable integration of business units that sell into same markets and to create collective synergies that will help increase revenue.
5. Transition in stages from a federated structure to a multicultural, virtual IT organization that's centrally managed but dispersed globally so as to be close to each business unit.