IT rises to the challenge of standardisation of ERP as Mittal goes on a buying spree

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IT rises to the challenge of standardisation of ERP as Mittal goes on a buying spree

Author Spencer Johnson may have encouraged business managers to ask, "Who moved my cheese?" but for Leon Schumacher, chief information officer at the world's largest steel maker, the question is more like, "Who continually moves my massive and complex ERP project?"

The answer is Lakshmi Mittal, who as chief executive of Mittal Steel has embarked on a rampant acquisition spree to create the dominant force in the global steel market. In the past two years, Mittal has bought 10 major steel-making groups and acquired 100,000 new employees around the world.

Schumacher, the sanguine German charged with moving the whole group onto a standard SAP ERP system, knows he may wake up tomorrow to find Mittal has bought another company. "I do not think he is ready to stop any time soon," he said.

The complexity of the IT standardisation programme is daunting. In Poland alone, Schumacher inherited 50 different ERP systems when Mittall bought the state steel producer and its subsidiaries in spring 2004. And of all the IT standardisation projects ERP is the most complex, because it is so tightly knitted with business processes, which differ depending on local culture.

By standardising on MySAP, Mittal can cut IT support overheads and achieve economies of scale in IT purchasing. "You get better skills and focus more people on the one tool," Schumacher said. The project also allowed IT skills to be diverted to areas such as Bosnia or Algeria, where they are lacking, he said.

As well as simplifying and reducing IT support, the project can also deliver business benefits by allowing the group to manage resources across ever-larger geographic areas, and make better use of raw materials and customer demand, Schumacher said.

However, the standardisation mission does not become dogma in Mittal. Although the company will eventually standardise on MySAP, if existing ERP systems are functioning adequately they are left in place, allowing the IT team to focus on systems that urgently need replacing.

Derek Prior, research director at AMR Research, said these are very tough decisions to make. "At the end of the day this is about business. You have to ask: how different are the processes and how different do they need to be?"

Although standardising on a single ERP system offered global businesses massive benefits, he said sometimes these were outweighed by local needs. "Sometimes you have to respect local cultures and the local way of doing things."

In parallel with ERP standardisation, Mittal is striving to create consistent business processes throughout its global empire. "Within 12 months the core processes in SAP will be ready to roll," Schumacher said.

Although Schumacher would have liked to roll out SAP with standard business processes, this was impossible, he said. "We could not do that because there were so many urgent needs; we could not wait to complete a template [of business processes]."

Despite these compromises, the standardisation project is progressing. During 2006, Mittal aims to go live with MySAP across businesses in Romania, Poland and the Czech Republic, together with shared back-office services in this region.

Getting business leaders to  buy in to new processes is essential, Schumacher said. "For applications, we do not have IT projects. You need to have the CFO or CEO involved because it involves so many changes to how things are done. That needs to come at the start: in some cases it is easy, in others it is more difficult and people need to be brought in with a little more explanation. But without this there is no point."

Schumacher is also firm on what he expects from local IT managers. "In some countries, in the early days of an acquisition, trying to address English is an issue. In Poland, at the first meeting the IT managers came with a translator - they spoke little and bad English." Soon after he insisted they came without a translator. "You have to force them to let go," he said.

With a large ERP project, licensing is a challenge. Research by AMR in September found that 46% of ERP licences are unused, leaving many users with unnecessary support and maintenance bills. AMR said companies buying licences upfront were often attracted by volume discount deals, but sometimes overestimated their requirements and the impact of economic slowdown.

Although Mittal is growing rapidly through acquisition and has rationalised its headcount, Schumacher said licensing was under control. "I do not have that problem, but I can understand that some people have issues around licensing. If you are decreasing staff, the way those licences are structured you face a decision to keep the licence and pay for that, or say you will give up the licence."

Schumacher would not go in to detail on his deal with SAP, which allows him to move licences around the world, but said, "We know exactly what we have and audit that on a regular basis. To me it is good housekeeping. I have to buy new licences every year and we have made sure that we will not sit on unused licences."

As if creating an SAP system were not complex enough, Schumacher is also striving to standardise the supporting architec- ture. "We have made an analysis, but have not announced a final decision. But I do not want to run all the IBM, Oracle and MySQL databases. I have mainframes. Ideally I would not have any, but they are difficult to get rid of overnight."

Last month, Mittal bought a new business in the Ukraine, underlining the fact that there may be no end to Schumacher's mission. "We have started climbing the mountain, but it keeps getting bigger the higher we climb. I do not get the feeling we are getting towards the top. There is a lot of work in front of us."

 

What makes a successful SAP project?

Derek Prior, research director at AMR Research, identifies three things the most successful SAP users do to deliver business benefits. Each of them focuses on the period after the software goes live:

  • Form a global competence centre. You need a team, including IT professionals and business analysts, who understand the intricacies of how the software is set up in your company and the business processes it enables.
  • Identify super-users for each location. These need to be business managers keen to use the software to its full capacity who also have the respect of their local business peers so they can spread the message on what the software offers.
  • You need ongoing involvement of managers in business processes so they feel they own these processes.

 

 

 


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This was first published in November 2005

 

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