Legacy issues have always bedevilled IT managers, but few will
have faced a challenge to match the massive disaggregation required
after the break-up of the BMW motor group in 2000. Antony Adshead
reports
Maintaining an IT department in any organisation is a tough enough
job : dealing with day-to-day support issues; handling suppliers;
introducing new systems; and managing upgrade paths. But imagine
completing the harmonisation of a bewildering mixture of bespoke
and legacy systems from the components acquired in a complex
history of mergers where the business is then split into three
parts and sold off. How do you extricate your part of the business
and go forward to make IT savings while allowing the business to
become more efficient?
That was exactly the problem faced by the MG Rover Group as it
emerged from BMW's ownership in 2000.
MG Rover's holding company is called Phoenix - an appropriate name,
given that the company's IT department had to build anew an IT
infrastructure that had developed organically through nearly 30
years of car making in the UK.
The IT departments of Rover Cars and Land Rover had been brought
together under BMW's ownership. The resulting conglomerate
represented the accumulated product of a UK car industry that had
spanned the decades and several incarnations. Names associated with
the history of the motor trade in the UK all featured: Austin,
Morris, Rover, Land Rover, British Leyland, Austin Rover, Jaguar,
MG and subsidiaries such as Unipart, SU Carburettors and body panel
supplier Pressed Steel Fisher. These numerous incarnations and
sub-businesses were geographically dispersed across dozens of
plants in the West Midlands, Oxford and Swindon.
The IT systems used reflected the complex evolution of the
business. There was every kind of database and operating system
imaginable. Implementation by department and function was the norm
as the IT age took a grip on the car industry from the 1970s
onwards. As integration occurred it was completed with
manually-coded links.
The legacy environment included IBM mainframes, DEC Vax, HP3000,
HP9000 and Compaq/NT. Nine e-mail systems were in use, including
cc:Mail, Lotus Notes, All-in-one, raw Unix mail and multiple copies
of Microsoft Exchange.
Despite the contraction of the business, by 2000 the Longbridge
Rover plant, Solihull's Land Rover and and the soon-to-be-created
BMW Mini plant at Cowley were under BMW's ownership. With the
sell-off of Land Rover to Ford and the disposal of MG-Rover, the IT
teams at the firms faced the gargantuan task of pulling apart a
complex and deeply entangled environment.
Peter Vetch, information services and e-business director at MG
Rover, describes the situation: "By 2000 we had achieved
standardisation between Land Rover and Rover systems - then BMW
decided to break up the group. There was complete interdependence
between the companies' systems in hardware, software and support
contracts. On top of this there was effectively no IT strategy. We
had to disaggregate about 200 systems and give each company its own
version of the legacy environment."
To carry out the disaggregation and transition process the combined
IT departments were established as a company, BMW Services, with
the task of dismantling the infrastructure and applications while
keeping them running, then cloning them for each of the separate
businesses. This "clone and go" process was forecast by BMW to take
two years and cost £50m. Vetch and his team did it ahead of time
for just £35m.
But the MG Rover team was left with essentially its own version of
the legacy environment which, Vetch says, was not fit for purpose
and was too expensive to run. "We found ourselves with a highly
complex landscape of 200 applications. How do you begin to take
that apart? Something needed to change. It was scaled to a
car-making business of 750,000 cars per year but the new company
was looking to make 200,000.
"Re-engineering using bespoke or best-of-breed solutions was not
affordable and outsourcing was inappropriate because we could not
trust anyone else to know the business sufficiently well. So a
single core solution was deemed the best way," he says.
MG Rover had been using BMW's bespoke core systems and SAP
enterprise resource planning software. A decision about the
company's core systems had to be taken: go with a supplier or
develop its own bespoke? The concern with supplier software is the
lack of fit with your specific industry or business, Vetch says.
"You can see with the development of Cad software that big
engineering organisations have, for a long time, developed their
own. They only stopped when the required level of sophistication
was achieved by the suppliers.
"ERP will eventually reach this level. It does not fit very well
into car companies. You tend to find it in individual departments,
say, engineering, body or paint, but using it more widely can
stretch it. So it was important to work with a supplier who would
listen to our ideas of how we wanted to use it. SAP has BMW,
Mercedes, Bosch and Volkswagen on its auto advisory group - we
would not have had a shout in there."
Eventually Vetch decided to go with core software from ERP supplier
IFS. "We wanted to chunk things in modules and not have a big-bang
approach - SAP likes big-bang implementations. We could take IFS
modules as we felt necessary and plug them in," he says.
Some companies have had difficulties when implementing pre-written
business processes into a business that has rejected them. ICI's
Quest division recently suffered plummeting sales and heads rolled
at all levels after the business processes implemented during a
supply chain revamp proved unusable for staff. Vetch aims to use
pre-written processes where possible - but not at the expense of
the business.
"We wanted to get out of the big company mindset which says you
must have the best of breed for every business function. Unless
there is a good reason - that is, it will not allow the business to
do the job - we will implement standard IFS processes. We will not
do a survey of the business every time we plan to implement a
module but if any changes are needed we will call IFS to see if it
will develop the product. If we can get 85% of the benefits from
10% of the development costs we will go with that."
The first module to be fully implemented was purchasing: MG Rover
says this has reduced support costs from about £220,000 per annum
to about £30,000. The company plans to roll out modules for
finance, warranty, payroll, bills of materials, human resources and
administration, where similar savings are expected. In all, MG
Rover's IT department believes it will cut £14m from its annual
budget by 2007 without reducing service.
Vetch says the move from a vast number of legacy systems to a
single ERP environ-ment will reduce support costs for bespoke
application interfaces and rationalise hardware and software
support. He estimates the IT department's annual budget will be
about £16m in 2007, down from about £30m in 2000. About 60% of IT
spend had been dedicated to fixing faulty interfaces on its legacy
ERP system.
This history of privatisation and changing ownership is common to
companies in the UK industrial and utilities sectors. MG Rover's
approach shows that the knowledge gained from a potentially painful
process can help the business to move forward smoothly - allowing
the phoenix to rise from the ashes.
The thinking behind MG Rover's IT
decisions
Which functions should be retained in-house and which outsourced
was a decision Peter Vetch and his team faced early on. It has been
the fashion in recent years for IT departments to hive off areas of
their former tasks to suppliers and simply manage the results.
Vetch is convinced, however, that the lessons learnt by keeping
things in-house can be put to good use in serving the business.
Vetch, information services and e-business director at MGRover,
makes a distinction between outsourcing and out-tasking, which is
the farming out of clearly definable tasks such as hardware
maintenance rather than entrusting wholesale business processes to
third parties.
"Because of the complexity we were facing we were deeply
sceptical about the ability of any external organisation to take on
and manage our systems. We had learnt a lot during the
disaggregation and transition process.
"Did we trust anyone else to work through this? No, we had
worked out what was significant for MG Rover and didn't believe
anyone else was in a better position to work out what the business
needed as it is changing rapidly. In a stable business when you are
happy with what IT is providing you can consider passing work to
one of the slash-and-burn IT outsourcing providers."
Vetch's attitude to outsourcing is based on a careful assessment
of the risks and potential benefits of letting others do the work
or keeping it in-house. While software maintenance, such as code
cutting for links between legacy systems, is clearly an
out-of-house job, being handled by CSC, other tasks are not so
rigidly definable.
Development work on IFS enterprise resource planning software,
for example, is not solely done in- or out-of-house, but it is in
transition between the supplier and MG Rover's IT staff. "As we
move to more use of IFS, support will move from outside to inside,"
says Vetch.
Development and support, in the past largely carried out by IFS,
is changing so that development only is carried out by the
supplier, while MG Rover staff configure software in-house.
How IT aids car production
The key goals of the changes being made to MG Rover's IT are to
smooth the flow of information between the company and its supply
chain partners and to integrate information in the production
process for the 200,000 cars it makes every year.
The central challenge is to sequence thousands of parts - from
entire body panels down to individual trim parts - to arrive at the
right place at the right time on the company's production lines at
its Longbridge plant in Birmingham.
This has been made much easier by the ongoing integration of MG
Rover's legacy IT into a unified environment. This will enable the
car maker to plan its supply chain more effectively and streamline
web and Electronic Data Interchange links to 650 suppliers.
Peter Vetch, MG Rover's information services and e-business
director, says, "When we know what we have to make, we run a
planning schedule from which we derive forecast requirements and
day-by-day call-offs for suppliers."
At the same time, information guiding the production of
individual vehicles is fed to the production line and the data
needed to trace parts is fed back into the IFS enterprise resource
planning system.
This benefits the business through greater efficiency and
quality management, says business systems manager Steve Walton.
"The way we schedule parts from production suppliers to track-side
reduces the space we need for warehousing and internal logistics
become more manageable," he says.
Computer terminals along the production line optimise the
manufacturing process and give production staff details of the work
they are required to do on a car at any given stage in its
manufacture.
Paint colour, engine variations and trim options can vary from
one vehicle to another and the car must be matched up to its
records in ERP modules as it makes its way through the production
process. A wireless transceiver temporarily attached to the car
allows the ERP system to track its progress and relay customisation
options to the control units.
"The control units we use at track-side improve efficiency no
end and enable us to build a much more varied number of derivatives
and models on our production lines at any one time," says
Walton.
Staff can alert the system via the terminals if there are any
problems with quality. This information is fed back into the ERP
system, which prevents the car being sold until the issue has been
resolved.
An analyst's view of MG Rover's decisions
Simon Bragg, analyst at ARC Consulting, says, "Compared to the
other major vehicle makers, Rover should be congratulated for
creating a low-cost, easily-maintainable, integrated system. It
started in 1995, held to a vision, implemented in steps, but
ensured each step has yielded benefits. Impressive, if you consider
the circumstances.
"Increasingly, during acquisitions, the issue of the
compatibility of IT systems is a factor in determining the value of
the acquirees' company. Similarly, during a divestment, if the
divested company has to quickly implement a new IT system its value
is much diminished.
"This is another challenge for IT managers: to create systems
that can function independently, yet be integrated easily into
different corporate systems. For a start it means systems with
well-defined interfaces.
"The value proposition of ERP systems is often questioned. What
people do not consider is the costs of the 'do nothing' scenario,
especially the costs of managing legacy IT systems, developed long
ago by people who have left the company. These extra IT costs can
knock as much as 0.5% off a company's profit margin.
"Outsourcing makes sense when you are outsourcing standard
applications in their vanilla state. The enterprise resource
planning suppliers are beginning to offer more outsourced
maintenance - database and systems administration services - and
this can be cost-effective. Outsourcing systems that no one
understands to a third party is dangerous."
MG Rover's IT set-up at a glance
Peter Vetch, information services and
e-business director at MG Rover, estimates that IT costs will fall
from about £30m per annum in 2000 to £16m in 2007
MG Rover, Land Rover and BMW Mini had to
extract their separate systems from the common BMW environment in a
two-year, £35m project between 2000 and 2002
MG Rover has embarked on a project to
rationalise on a Compaq, Windows 2000, Oracle, IFS environment.
Legacy systems included: vehicle financing and manufacturing
financing on IBM mainframe; purchasing accounts on DEC Vax; sales
ledger on HP3000; vehicle invoicing and finance on HP9000; capital
and asset management on Compaq NT and Foxpro database
E-mail systems included: cc:Mail, Lotus Notes,
All-in-one, raw Unix mail and two licences for MS Exchange. Now
e-mail has been migrated to a single instance of MS Exchange l MG
Rover IT facts: 2,300 PC desktops; 330 Unix workstations; 450 X
terminals; 820 shop floor devices; 200 servers; 650 suppliers on
Electronic Data Interchange/web links.