When Guinness drank from the cup of global reorganisation, it liked what it tasted. But there was a lot of hard work to be done to ensure the drinks giant wasn't left with a sour taste in its mouth , writes Julia Vowler
In the Middle Ages, every village housewife would brew her own ale, fling open her front door and announce it was opening time. These days the brewing industry is a bit cannier, a bit more ambitious. As with all other sectors, globalisation is now the name of the game for brewers.
But for a company so strongly associated with Ireland that the beer it sells is reputed to be made from the waters of the Liffey, making Guinness a truly global company requires more than filming glossy adverts in the South Pacific. It requires an organisation that is structured in global, not regional terms, with a core set of operational processes that apply around the world.
To achieve that order of global organisation, in 1997 Guinness undertook a massive, three-year programme of business transformation that would impact its 10,000 employees working in five businesses - Ireland, the UK, Europe, the US and the Global Support division - and across all product lines and brand names including the largest, Guinness, and Harp lager, Kilkenny ale and Irish cider.
The Integrated Business Programme (IBP) was seen as the means not only of sorting out the millennium bug but, far more strategically, delivering on the company's plan to grow its business significantly in both volume and profit over the four years subsequent to Guinness' merger in 1997 with Grand Metropolitan to form Diageo. The programme would design and implement common business processes - and the IT systems that ran them - for adoption across all five Guinness divisions, with the primary aim of integrating the international supply chain and replacing inefficient activities with more effective and simplified ways of working throughout the company.
"We'd smooth the operation of getting beer to our customers," says Roy Jakes, information services director of Guinness Global Support and team leader for the implementation.
A single set of global processes would also enable the company to more easily meet such strategic goals as increasing growth in volume sales to the US and Europe and increasing exports from Dublin. To achieve that Guinness needed to improve its logistics process and systems so that it could give a new lease of life to products while reducing stock levels and costs. Common global business processes would reduce operating costs and make better use of its assets.
Common processes would also yield common information and at last enable the company to compare like with like on a unified, global basis.
"Consolidating the information base was a real driver," says Jakes.
"Both cultural and organisational changes were needed as we had very separate businesses operating globally," says Guinness finance director Ray Joy, the IBP sponsor. "Each Guinness site had been working effectively as a separate business unit but with the development of new global products we realised that this needed to change. We needed visibility of stock orders around the world to consolidate our suppliers and improve relationships with them. We ultimately wanted just one set of processes underpinning all of this."
Anyone who has experienced - and survived - a global business transformation programme will know that it's no picnic. Some figures put the failure rate of such programmes as high as 75%. Failure is not usually due to how the processes are globalised and what they are changed to, or even the underlying system implementation required to enable them. Rather, two of the biggest problems in such programmes seem to be lack of communication with staff about what is going on and why, and the failure to recognise the impact that a change project will have on the business as a whole.
Guinness' approach to such a major programme was to create a project team out of staff drawn from all parts of the global business. Although it was painful for the organisation at the time - no one wants to lose their best people to a project - it demonstrated that the company was committed to the IBP and it enabled important decisions on the programme to be taken quickly.
"Communication was key during this period and, indeed, it still is," says Jakes. "It was essential to get buy-in from everyone across the organisation for a project like this right from the start. Leadership from the top was excellent and really helped in building awareness of what was going on at a time of great cultural change and nervousness."
As far as the IT component of the programme was concerned, prior to the IBP the IT architecture at Guinness was, like the business processes which the programme would globalise, inherently regional in structure in terms of organisation and governance, with each of the five divisions having its own IT department. The advantage was that implementing new technology was easier because of minimal fragmentation.
"Even before the programme we had a reasonably consistent infrastructure, with Microsoft on the desktop and for e-mail and a lot of Unix across the company," says Jakes. "But the applications base was quite mixed."
Ireland, for example, had a lot of legacy applications, including an in-house sales order-processing system and packages for finance and human resources, and Europe had locally purchased packages.
Critically, however, Guinness in the UK had implemented SAP R/3 over the two years prior to the IBP, and this was now selected as the core enterprise resource planning (ERP) platform for the globalised company, to be at the heart of the IBP.
"It was excellent to have had the UK as a prototype for R/3," says Jakes, "because you do get hurt putting in ERP. So we'd already got the scars and learned the lessons."
But although having R/3 in the UK meant that Guinness wasn't an ERP novice, the downside was that other divisions might regard the extension of R/3 out of the UK to themselves with a degree of suspicion.
However, says Jakes, this effect was mitigated because it wasn't just a case of rolling out the UK ERP model. Because the IBP was a global business transformation programme, the UK would get changed as well, making other parts of Guinness feel less nettled.
"Some of the changes in global processes inflicted pain back on to the UK," he affirms.
With R/3 as the structural backbone for the IBP, Guinness took on R/3 implementor Druid to help make the IBP a reality. Druid's methodology centred on five integral business processes - finance, sales and operations planning, procurement, customer order fulfilment and product supply.
But it wasn't just a case of slapping in SAP R/3 in every known variety of module and standing back. From an IT point of view the IBP covered workflow, data warehousing and advanced supply chain planning solutions around and on top of the core ERP implementation. It also had to integrate some legacy systems as well.
"For all that, we now have a simpler and cleaner back-office architecture based on R/3," says Jakes. "It is our central workhorse, and around 80% of the corporate back office goes on R/3 - all the finances, all order processing, all the production ordering, stores and logistics. We use Manugistics for production planning, which we were already using. It takes the data out of R/3, produces the work plan and feeds it back to R/3."
In general, says Jakes, the areas of integration between R/3 and other systems are working satisfactorily.
The organisational architecture has also changed. Guinness has opted for a shared-services model, whereby core functions, most notably finance, are carried out by a dedicated department that services all the separate business divisions. The processes within the shared-services centres, based in London and Dublin, include consolidation of financial accounting and reporting, online access to up-to-date information, as well as the centralised operation of accounts payable and accounts receivable.
Centralisation, says Jakes, is the obvious option when it comes to back-office processes.
"To be a global player and get the benefits of rationalisation, why would you have different back offices?" he asks.
The new customer order fulfilment process and implementation of SAP have eased the integration of order-processing activities across Guinness' businesses. On the logistics side of order fulfilment, Guinness now has a process that enables greater control over its assets - such as kegs of beer - to ensure better traceability of products and ultimately improve customer satisfaction and quality management.
Centralisation has also been applied to the organisation of the corporate IT function itself.
"We now have one single information systems department which, like the shared-services centres, operates out of both London and Dublin but is under a single manager and is a single team," says Jakes.
"Both the system infrastructure and software development are decentralised, and although, for customer service, there is a helpdesk in each [of our] markets, it is under single management. It would have been difficult to run a 24-hour helpdesk if IT was fragmented."
However, the principle of centralisation has not been applied in a blind doctrinal fashion. For a start, the IBP leaves out the company's Far East and African operations that are still fundamentally standalone. The IBP also recognises that sometimes localisation takes precedence where it makes better sense to do so. For example, says Jakes, in Ireland most pubs are still owner-managed rather than owned by big chains. This means that Guinness' Irish sales order-processing system has to be different from, say, the English one, where the brewer just takes in orders from the major wholesalers that distribute the beer to their pubs.
"So for the Irish system," says Jakes, "we don't use SAP R/3 exclusively, and we intend to build a Siebel front-end to R/3. We've accepted we have to have a different process." That, he points out, is characteristic of customer relationship management (CRM). "Unlike centralisation, CRM has to be focused on differences in markets," says Jakes.
So what is life like at Guinness in the aftermath of the IBP? How different is it from the old-style Guinness?
"There are significant differences in style and operation compared with pre-IBP when all the businesses, especially the UK and Ireland, were standalone," says Jakes. "There are quite a few areas where the change has been quite radical. Although the underlying processes have not changed a great deal in that, for example, we still have to take orders, make beer and distribute it, the way the organisation has changed has meant that job specifications have altered - plus the way people work."
One very notable difference the IBP has made, says Jakes, is that "the rigour of the internal processes is far greater. That's where most of the pain has come from - you can't fiddle creatively or write off stock, for example. There's nowhere to hide now."
Jakes is clear about the major sources of corporate benefit from the IBP.
"The benefits were hard benefits and many - though not all - have already been delivered," he says. "The major one was the ability to reorganise and change our operations so that we have lowered overheads and administrative costs quite dramatically. These have come forward faster than we had envisaged and are quite independent of the new IT systems."
Reduced costs, for example, have come from such things as being able to rationalise the supply chain and reduce the number of suppliers, and moving to guided sourcing, especially over the Internet, where things like electronic catalogues and global negotiation become feasible. Guided sourcing, which "everyone has to use", according to Jakes, saves money by cutting out expensive, off-contract maverick purchasing, and is one example of the kind of tighter rigour that now applies across the company.
Such is the way the IT system works that no supplier can deliver if they can't quote an order number. This number has to be entered into the system in an authorised fashion.
But as well as increased rigour, the IBP has also allowed the company to be more flexible.
"It's enabled a lot of things, such as reconfiguration of our supply chain, to happen seamlessly, which in the past would have been a major change project," says Jakes. "Having unified, smoothed-out global processes means that we can react very quickly now. We can adopt a search-and-spin strategy whereby we look for things that have happened and spin them out into new areas - that happens quite a lot now."
Forward planning now has more options available as well, thanks to the existence of common global processes.
"When it comes to production and logistics we can look globally to identify the most efficient process to produce products that can both reduce costs and increase customer services," says Jakes.
"Everything is now much more visible because we have common processes, common systems and common information. For example, we can see all orders in one go, and that makes it much easier to plan production globally and decide what plant we're going to need in the future."
There is still some way to go, Jakes allows, when it comes to a management information system (MIS).
"Our MIS is still being built," he says. "For example, SAP R/3 is feeding our SQL Server data warehouse, which has both Brio and Essbase front-ends to give us a consistent picture of production, finance and sales reporting. So we now have a database of secure information for us to apply leverage and make more use of. It's quite critical for business strategy."
The MIS itself, he points out, has to be flexible, able to change the way it reports the corporate state of health in whatever terms the company wants.
"It has to be fair and consistent but able to deal with new reporting processes and new key-performance indicators," he says.
For the moment at least, however, head office in Diageo maintains relatively loose governance of Guinness and its other subsidiaries.
"It's not a great command and control relationship," says Jakes. "Diageo simply consolidates [all the figures from subsidiaries] at the top using Hyperion."
Nevertheless, if there is one certainty in the global marketplace in which Guinness operates, it is that the marketplace will not remain static, nor will the list of the suppliers. Already Diageo is expected to make further acquisitions in the drinks industry - possibly Seagram - which may need integration with Guinness.
In such an unstable environment, the radical business transformation that Guinness has undergone should stand it in good stead to both absorb and impose change in the future.
At a glance
Guinness is the brewing division of Diageo, which was formed in 1997 through the merger of Guinness plc and Grand Metropolitan plc. Guinness operates in 150 markets worldwide. It employs more than 10,000 people, and had a turnover of £2,234m in the year ended 30 June 1999.
Guinness planned to increase its growth in volume sales to the US and Europe and also exports from Dublin. But to achieve this it needed to enhance its existing logistics processes and systems so that it could improve product freshness and reduce stock levels and costs.
By transforming business processes and IT systems throughout its five trading arms across the world, Guinness has been able to reduce its operating costs and increase its asset utilisation.
For good measure: Roy Jakes on challenges overcome
- "The toughest challenge was breaking down local cultures," says Roy Jakes, information services director of Guinness Global Support. Wading through politics and inter-regional suspicion required positive leadership from the managing director. "It wasn't painless"
- Almost as tough was "the sheer amount of work and the number of people we had to change and train in a short time. There was a year of very intense implementation - the year went quickly for the company"
- "We had to sufficiently educate and communicate what was coming. People don't believe change is happening until it arrives. Internal public relations has been very important throughout the project, and we used lots of different ways to communicate what we were doing. We generally tried to make it fun - you've got to use all the levers you can to make a project like this work"
- "From a systems point of view a major part of the challenge was ensuring we had secure and stable networks, which we had to upgrade, especially in Ireland. We also created a single global IT department, several hundred people strong"
- Constructing the IBP team in the first place was not painless. The company wanted the best people on the team. Individual businesses were, not unnaturally, reluctant to relinquish them. "It was also painful reintegrating them back into the business after the IBP"
- Wholesale migration to SAP R/3. "Some 2,500 people [out of 10,000] now use the system" - not everyone has found the system user-friendly. "For occasional users it's not the most friendly," agrees Jakes. For them, using workflow or, increasingly, new Internet front-ends, is more palatable.
Powers to the company elbow
- Common processes, systems and information means that Guinness can see what is going on across the world far more easily, which allows both tighter control over operations and easier forward-planning
- Overheads and administrative costs are reduced by such changes as the introduction of shared services and guided sourcing to cut maverick purchasing and boost global negotiation with fewer suppliers
- The company is now far more flexible and can successfully exploit a "search-and-spin" policy to move faster in the marketplace
- Having changed the operational processes, the improvements in management information are following on.
A pint-sized project history
- Guinness merges with Grand Metropolitan to form Diageo
- February: IBP launched
- January: First go-live of base line SAP R/3 across Guinness in the UK
- May: Roll-out of IBP within the UK
- July: IBP extended to sites in Ireland
- November: Customer Order Fulfilment (Cof) went live in both the UK and Ireland. IBP rolled out in Northern Ireland
- Further roll-out of Cof in the US and Guinness Ireland Group.
A Druid top-up
Druid is a leading IT management consultancy delivering results through business change supported by integrated technology solutions. Its methodology helps clients attain their business vision through strategy interpretation, business design, change management and implementation.
The Computer Weekly/Buy IT case studies offer an in-depth analysis of a successful IT project, with expert comment from a panel. BuyIT was launched in 1995 by the DTI and an alliance of top industry bodies. BuyIT has selected best practice examples on a range of projects. Each case study is scrutinised by the BuyIT team of experts who make their recommendations and comments. The BuyIT Computer Weekly Best Practice Series is endorsed by Fit for the Future, a CBI-led, government-backed campaign to get business learning from business.
What the BuyIT experts say
It has been reported that over 75% of all business transformation projects fail.
So when Guinness embarked on its Integrated Business Programme to consolidate its regional businesses and adopt more global systems and processes, it had to work hard to achieve success. Two of the biggest problems seem to be lack of communication with staff, and the failure to recognise the impact that a change project will have on the business as a whole.
We were impressed by the way Roy Jakes and his team carried out this three-year change programme, achieving the two success parameters:
- Access to more accurate information more quickly, leading to better and faster decisions
- A streamlined and integrated set of core business processes and systems, binding together what were traditionally separate regional operations.
The real key to its success? Some of the best people within Guinness were drawn from all parts of the global business for the project. Although it was painful for the organisation at the time, it demonstrated the company's commitment to the project and enabled important decisions on the programme to be taken quickly.
Director of professional practice, the Chartered Institute of Purchasing and Supply, and chairman of the BuyIT e-Procurement Best Practice Network Steering Group
Guinness has certainly begun to realise the benefits of modern purchase order processing systems integrated with ERP systems. Such an approach is especially useful in large organisations as not only do they inject discipline and order into what can often be chaotic business processes, they also strip out transaction costs, making processes much more efficient and therefore less costly.
Enthusiastic buyers need training and support from purchasing professionals and the basis of this is effective contact and communication. The IT systems and cultural change introduced at Guinness will act as an effective infrastructure to provide this support.
This case study demonstrates how IT can often be used as a driver for such improvement and, as Guinness has found, when coupled with new, streamlined ways of working, real quantifiable business benefits can be derived.
Guinness can now manage its supply chains with more enthusiasm borne out of a greater commitment to fewer suppliers. Suppliers can be cultivated to help drive down costs, stimulate innovation and enhance mutual benefits. The buyers and their managers will enjoy increasingly useful management information that can then be used to further improve business processes and the management of supply chains.
Director, marketing communications, MRO.com
Careful scrutiny of supply chain processes and an acceptance of cultural change is vital for UK businesses to remain competitive in today's global economy. The strategic business benefits are clear. Guinness has shown that by streamlining its existing logistics procedures and systems it can significantly reduce operational costs, deliver value-added service to customers and take the competitive advantage.
It is interesting to see that Guinness has identified the significant cost savings that can be achieved through centralised inventory management. A recent report published by MRO.com revealed that traditional procurement processes were costing European companies more than $1bn (£670m) in lost productivity each year.
Visibility of stock held at multiple locations decreases the need to hold such vast quantities, resulting in tighter control over operations. A solid work and materials management system can act as the demand engine to drive the procurement process so that only those materials and spare parts that are needed to keep the production line running are purchased, saving companies millions on their bottom line.
A key to the success of this project is the integration of Guinness' supply chain planning solutions with its enterprise business systems. This avoids duplication of data and lowers training and support costs.
It is also important to ensure that the technology supports an open architecture that enables buyers to connect to suppliers in multiple marketplaces - an area where many technology providers fail!
Chief executive officer, National Computing Centre
I will leave my fellow commentators to focus on the e-business benefits that emerge out of this case study. I was struck by two significant success factors that come up time and time again in looking at why projects succeed.
Communication. It is essential to get buy-in from everyone across the organisation from the beginning - and that starts at the top. People will only accept major changes with the right leadership, as we have seen here and by working with the right partner. Guinness found a partner which:
- Had a style and culture that fitted with its own. This enabled the partner to work as an integral part of the Guinness team
- Was already a tried and tested partner for IT projects
- Brought a pragmatic approach to change management, which demonstrated an understanding of the issues and barriers that Guinness would face
- Was skilled in the use of a methodology that breaks down the project into manageable phases that are centred on key business processes
- Demonstrated strengths in the key aspects relevant to this project - organisation design, cultural issues, business processes and systems integration.
Working closely and openly with partners is no longer an option - as the recently published report (News, 20 July) from leading IT analyst Richard Holway identifies. It is now a necessary part of managing a successful project. Many projects fail because these "soft" issues are neglected.