Fanatical Focus on Integration 2By Mel Duvall | Posted 2003-05-01 Email Print
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Colgate-Palmolive figured out how to unify systems, across 50 countries.Ed Toben knows all too well the conflicts and roadblocks that have stood in the way of efforts to integrate systems at PepsiCo. As the chief information officer of consumer-products giant Colgate-Palmolive, Toben faced many of the same challenges when he attempted to migrate dozens of systems from multiple divisions and multiple countries onto a single technology platform in the late 1990s.
The difference, say executives who have watched both companies, is that Colgate-Palmolive has succeeded.
"They're a great example of a large organization that's not only done it, but done it well," says Tom Lesica, a former PepsiCo divisional CIO who left the company in 1999 to become the CIO of clothing retailer J.Crew.
For his part, Toben says there were many reasons Colgate was able to move the vast majority of its systems over to infrastructure based on products from SAP AG, the enterprise software leader, starting in 1993.
Key factors included:
- Picking the right time. Colgate in 1993 initiated a drive to improve its gross profit margins by 12%.
- Consistent top-level support. The project received steady backing from Reuben Mark, chief executive since 1984.
- Willingness to make tough choices. In some cases, executives had to be replaced. Individual CIOs in different countries were replaced with regional chiefs.
"At the end of the day, you have to have a clear goal, and then be able to drive fanatically toward achieving that goal," he says.
Toben says when the decision was made to standardize on SAP a decade ago, the company could have isolated the deployment to North America and left the international divisions alone. However, unless it extended SAP into all of its operations, the efficiencies and savings of planning manufacturing, human capital and other resources in the company would be missed. Most notably, the company likely would not be able to accurately forecast demand and therefore commit the right amount of resources to meet it.
In the past, each country was left to make its own technology choices. The company had "upwards of 1,000" different systems in more than 50 countries running operations. There was duplication of services and manual processes. Reaction to changing conditions was slow.
Putting SAP in place meant the company could figure out what materials and services it needed to purchase, worldwide, and rationalize spending. The single platform also allowed the company to shift production as needed to meet larger regional needs, rather than just those in one country. Finally, the adoption of SAP worldwide meant Colgate could more easily adapt to the adoption of the Euro as a new currency for financial transactions in a dozen or more European countries.
"It wasn't an easy decision," says Toben. "Our company has successfully built itself around the world because of that local influence, and there was a danger in messing it up. Having said that, over time you cannot support an I.T. model that has the whole world operating differently."
Toben says resistance from country-level CIOs was mitigated by laying out the process and explaining the benefits of a regional reorganization. Another major factor was getting project leads in North America and other parts of the world to communicate.
"Success breeds success. When we implemented SAP in the U.S., it wasn't easy, but it was successful," he says. "The business results started being there, so our business people in Europe were able to talk to their counterparts in the U.S. and see concrete benefits."
For instance, the company was able to reduce inventories by improving its forecasting. In 1993 the company maintained $678 million in inventories on sales of $7.1 billion, or an inventory-to-sales ratio of 9.5%. In 2002 it still had about $672 million inventories, but on sales of $9.3 billion, for a ratio of 7.2%.
Financially, the company says it has achieved annual savings of more than $225 million. Forrester Research, which studied the Colgate implementation, pegs the company's savings at closer to $450 million, $280 million of which it attributed to consolidating the data centers, and $150 million to reducing inventories.
But the figure Toben prefers to talk about is profit margin, because that was what started the technology team down the SAP path in the first place.
Prior to the launch of the SAP integration project, Colgate-Palmolive set a baseline goal of increasing its gross profit margin from roughly 48% in 1993 to 60% by 2008. In its last fiscal quarter, ended Dec. 31, 2002, that margin had reached 55%.
Along the way, Colgate was able cut its data centers from 75 in various corners of the globe to one data center in New Jersey and a backup. At last count, Toben's team had migrated 53 countries onto SAP out of a total of 80 countries where it has operations. All 53 countries have implemented the core ERP applications, sales and distribution, manufacturing/materials, financials and human resources, while the Internet transaction server (mySAP) is in 35 countries. Colgate previously had the equivalent of CIOs in each of the 80 countries it operated. It has since reduced the reporting structure to eight regional CIOs in such regions as Europe, Asia, and Latin America, all reporting directly to Toben. Some of the country-level directors became regional CIOs, others saw their roles reduced, while still others chose to leave the company, Toben says.
The changeover wasn't easy. The company had to change business processes at the same time as it was changing systems, so procurement, for instance, could be handled in the new SAP world. The sheer scope of the project also made it difficult to keep all businesses working, as systems were switched over.
The key, though, was "our business executives stayed with the commitment," says Toben. "That didn't mean we didn't have a lot of serious discussions along the way, but they stayed the course. I wouldn't even want to think about where we'd be if they hadn't."