Mittal finds 'middle way' to savings

News analysis: Mittal Steel's decision to revise its ambitious plans for global standardisation on SAP offers lessons for other companies striving to improve business performance

The merger boom of recent years and the trend towards globalisation of business has been driven in part by the efficiencies that can be gained from standardising IT and business processes across worldwide operations.

However, in the same week that Computer Weekly reported that the retail operation of oil company BP expects to save up to £600m by standardising processes at petrol stations around the world, news emerged that one of the world's most ambitious enterprise resource planning (ERP) standardisation programmes had been dropped.

The £45bn steel company Arcelor Mittal, created out of the merger of Mittal Steel and Arcelor last year, has decided that plans to create global standards in ERP and business processes are too complex to deliver savings and enable growth.

Before the merger, Mittal had been attempting to standardise hundreds of ERP iterations onto a single instance of MySAP.

In Poland alone, the group inherited 50 different ERP systems when it bought the state steel producer, and with similar acquisitions in locations including Kazakhstan, South America and the US, the company faced a mammoth task.

Arcelor Mittal group CIO Patrick Vandenberghe, told Computer Weekly, "The strategy was, 'let's build one unique template and every­where we acquire a company, whether in Mexico or in India, we will deploy, top-down, our standard set of processes'."

Business segmentation

However, after the merger with Arcelor, which had well established SAP systems of its own, the business decided that a global ERP approach would pose too many problems.

Instead, the company aims to standardise processes and ERP in 10 business segments defined by regional and market alignment - each one a multi-billion pound business.

Arcelor Mittal's experience offers lessons for other organisations trying to reap the benefits of standardisation, whether on a global or national level.

Although the project, codenamed Garuda, was approved by high-level managers, it struggled to find sponsorship and ownership across the business, said Vandenberghe.

"The day you standardise above business ownership you have a problem, because you do not find sponsors any more and standardisation becomes a burden, not a business enabler," he said.

"It becomes a blocking factor for business progress and performance improvement, because you kill innovation and entrepreneurship.

"What we want to do is standardise at segment level because there we have business ownership of budgets and business processes, and these businesses need to be sure that they can define the speed of process standardisation and SAP system deployment."

Vandenberghe said it was best to drive process and ERP standardisation at the level at which the business managed profit and loss. "The segment level is the level where we drive profit and loss: sales and marketing processes, supply chain processes and so on," he said.

Gartner research director Andrew Hughes said most large businesses that have grown by acquisition choose to tolerate more than one set of ERP and business processes. "A single instance of ERP is a bit of a rarity. It is not that Oracle and SAP are not capable of building one, it is the variety of business processes that are a stumbling block," he said.

More pressing needs

Jane Barrett, research director at AMR Research, said that because any attempt at business process and ERP standardisation in a multinational would inevitably be a long-term project, it was often overtaken by a more pressing need to improve the supply chain.

"When you globalise, you need horizontal and vertical integration. It would be wonderful to get SAP to do all of that, but companies need to look at points of pain, and look at where they can get the most bang for the buck spent on core business processes," she said.

Barrett said large firms were using business intelligence systems and service oriented architectures to work around their use of different ERP systems in situations where the pain of standardisation was not worth the reward. Another approach to standardising processes was to use business metrics, she said.

Barrett also pointed out that some sectors, such as finance, find it easier than others to standardise their processes. "It is easier if you have not got a physical supply chain do deal with. If you have to deal with the ocean freight system, it can be very complex," she said.

Divided IT organisation

Within each segment of Arcelor Mittal there will be a huge effort to standardise processes and supporting ERP. The group has divided its £355m IT organisation into demand and supply divisions.

The demand slide is governed by CIOs within business segments. Here, processes are defined and supported by IT according to business need.

Alongside this, the supply side of IT is being managed at a group level. The company is striving to standardise its IT infrastructure, with projects to create a global wide area network, PC-build and server policy, in a bid to control support costs.

It is also standardising its e-mail systems onto a single Microsoft Active Directory from 260 mail hubs on a variety of IBM, Microsoft and Lotus technology.

Although the steel company is allowing different ERP systems to be used according to the requirements of demand-side business processes, it is developing seven SAP competency centres.

The approach will not only allow the group to make the best of its SAP skills, but means the business could clone large chunks of its SAP configuration, allowing different segments to use some of the same processes.

Arcelor Mittal's approach amounts to finding a "middle way" in creating global process and technology standards, said Vandenberghe. "Each of the 10 segments is quite big and complex. But we think we have found the right level," he said.

Mittal scraps global standardisation plan >> 

Tony Collins' IT projects blog >>

Comment on this article: e-mail computer.weekly@rbi.co.uk

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