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.