InformationWeek
Defining The Business Value Of Technology
By Mary Ryan Garcia
Issue date: Sept. 9, 1996
echnology managers in the metals and natural resources industries need nerves of steel. As these managers' budgets get crunched, their companies are demanding that they provide extensive IT innovation. The goal: super-fast responses to changes in commodities markets worldwide.
"The half-life of a good idea is getting shorter," says Kent Dolby, managin g partner of Andersen Consulting's natural resources practice in Chicago.
The Internet and corporate intranets beckon metals and natural resources companies, just as they do companies in many other industries. Inland Steel Industries Inc., for example, has run an intranet for more than a year. The Chicago company's intranet offers departmental home pages as well as data on safety, quality, performance, and productivity. For sharing information over the intranet, Inland Steel uses Lotus Notes. "You don't need arcane commands," says Bill Howard, the company's VP of technology, explaining the choice.
Inland Steel's home page on the World Wide Web also lets people outside the company access product information and annual reports. The home page gets some 6,500 hits a week from all over the world, Howard says.
Yet metals companies aren't exactly rushing onto the Net. "Some companies are starting to see the Internet as an opportunity for access to market on a lower-cost basis," says Dolby of Andersen Consulting--with an emphasis on "starting." Several companies say they're worried that opening their networks to the outside world is an invitation to security problems. Many of them believe that intranets are a good way to get started without worrying too much about security. "Intranets get people used to and comfortable with using new technologies," Dolby says.
Take Georgia-Pacific Corp. This supplier of building products, paper, and pulp has been cautious about venturing onto the Net. There's a firewall in place, and all 14,000 of the Atlanta company's Microsoft Mail users have an Internet gateway for E-mail. But not everyone can connect to the Web, and an intranet to share human resources information, safety data, and other documents companywide is still under construction. "We've developed an acceptable-use policy," says Chuck Williams, director of network and systems operations. "It's been a collaborative effort with the security and legal departments. The p olicy defines appropriate business uses of the Internet, including conduct and normal security precautions."
Similarly, Carl Moore, CIO of International Paper Co., isn't anxious to provide Internet connectivity. "We have selected a firewall, but we're moving very slowly on that," he says. Moore is still concerned about the security and management aspects of Internet commerce--including who will have access to the Internet. "It's kind of like giving kids a box of matches," he says. "It's an up-and-coming thing, but if you don't do it in some structured environment, you're going to have a mess."
Stodgy?
In their backroom operations, metals and natural resources companies tend to be somewhat stodgy. Inland Steel, for example, runs its manufacturing side with two IBM mainframes and a DB2 database. Some 160 Novell LANs link about 5,000 PCs and 60 Digital VAX midrange systems. Everything's connected on a fiber backbone network running TCP/IP.
Yet Inland Steel's manufacturing side is aggressi vely pursuing data warehousing. It's taking DB2 transaction systems on mainframes and replicating that data on Unix systems. The warehouse contains order information, billing, invoicing, production recording, quality information, order entry, and shipping data. Howard expects the warehouse to be fully functional by November, with complete access provided to all of the organization's 5,000 users. "We're starting to link much more with our suppliers and customers," he says.
Still, Inland Steel isn't ready to retire its mainframe systems. "The death of the mainframe is prematurely reported," Howard says. In the United States, the company runs an IBM mainframe connected to 2,200 terminals and scores of PCs cooperatively processing with the mainframe. Inland Steel also uses an IBM AS/400 system to track its inventory levels.
For many companies in this industry, the big challenge is standardizing disparate systems gained through acquisition. Georgia-Pacific is in that situation: The company grew through acq uisitions, and its IT environment is changing with astonishing rapidity. "We had 14 hardware platforms and all sorts of network protocols," says Carl Wilson, Georgia-Pacific's VP of information resources. "It became a blocker to going to market the way we wanted." The legacy mix--serving some 10,000 users companywide--included Digital Equipment systems, IBM AS/400s, and a mix of LANs. "It evolved," Wilson admits. "It never was designed."
Georgia-Pacific's IT team quickly recognized the need to simplify its computing environment--including reducing the number of technology architectures. Today, the company's primary system comprises SAP America's R/3 suite of high-end, client-server apps running on Hewlett-Packard Unix workstations. All custom development is done under Microsoft operating systems, including Windows NT, mostly on Pentium PCs from Compaq Computer.
Less Overhead
This information reengineering is paramount now because Georgia-Pacific wants to add $400 million to its bottom line over the next three years. That could be a tough haul: In July the company reported a 98% drop in quarterly earnings. "We are aggressively taking out our overhead, and we're applying IT to take it down," Wilson says.
He says Georgia-Pacific adopted SAP R/3 because even though a commodities business isn't complex, numerous complexities can easily arise when such companies interact with their customers and suppliers. "We found that SAP R/3 had the richest functionality," says Wilson. "They reinvest a significant portion of their profit back into the product. Also, we had at least a 90% 'functional fit' with SAP R/3 when we looked at the areas we wanted to automate. We've brought our different businesses together using this product, and we're driving waste out of the organization."
Preventing Overlap
In fact, Wilson says that with information technology available now as never before--and with many products offering overlapping features--it's essential to continually monitor IT investment
s so as to prevent unnecessary overlap and financial drain. "You need to have a strategic technology plan," says Wilson. "The role of IT in this company isn'ta direct component of what I sell to the customer. Rather, the role of information technology is to enable the effective decision mak-ing of our businesses in executing their strategic plans."
Georgia-Pacific employs a two-pronged approach to accomplish its IT goals. First, the company's Technology Acquisition Center of Expertise works closely with procurement staff to effectively leverage IT purchases. Second, users are taught to assimilate and apply IT as it's introduced. "You need to effectively match the organization's culture for change and learning with IT as it's introduced," says Wilson.
International Paper in Memphis, Tenn., is taking a similar approach. Since 1986, the $20 billion company has made more than 40 acquisitions. Several of these have been outside the paper business, in industries such as imaging, chemicals, film, even buildi ng materials. To get those disparate businesses in sync, CIO Moore standardized all financial processes, including accounts payable, human resources, and fixed assets, on R/3. "The product provides a framework that you can adapt to your processes," he says. "We wanted an integrated system."
Yet Moore believes R/3 is not robust enough for International Paper's manufacturing operations. In manufacturing, the company takes more of a homegrown approach for its real-time, decision-support systems. For example, one standard cost system runs on an IBM 9000 model 920 with 750 Gbytes of storage.
On the hardware side, Inter-national Paper standardized on a com- mercial parallel pro- cessing platform, IBM's RS/6000 SP2, running an Oracle database. "Parallelism offers us the growth capability to perform all types of transactions," says Moore.
International Paper is migrating its MCI data network to asynchronous transfer mode. In addition, with token-ring and Ethernet LANs at more than 300 locations, Internati onal Paper is revamping its networks to take better advantage of client-server computing. For starters, the company has standardized on Lotus Notes across its networks. Moore looks forward to expanding his client-server applications.
No Rush
Other organizations are also taking a wait-and-see approach before committing to certain technologies--including client-server. "There have been a lot of horror stories with client-server," says Cam Henderson, manager of corporate IS at Willamette Industries in Portland, Ore. Willamette's initial foray into client-server involves a combined application for the company's manufacturing arena.
"Moving to client-server from an AS/400 shop--the skills necessary are different from where we've been," says Henderson. "We're not in a hurry. Our challenge is to make sure that there are business applications to justify the use of information technology."
Certainly, you won't find much cutting-edge technology at Willamette's 96 facilities. The company is still
in the testing stages of providing Internet access to employees and deploying a corporate intranet. Legacy transaction systems
for administrative work are handled on an IBM AS/400 system. Manufacturing uses IBM RS/6000 systems. Some 70 Novell LANs are connected to Willamette's frame relay WAN; each LAN serves up to 200 users.
Next on Willamette's agenda: establishing standards for electronic commerce, including electronic data interchange transactions for sending and receiving information. "The focus," concludes Andersen Consulting's Dolby, "is on improvements." Join the club.
To view the IW 500 Metals/Natural Resources chart in PDF format click here
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