Global CIO: LG Transforms Global Operations With New Oracle ERP
After mapping and standardizing 440 critical business processes across 83 global subsidiaries, the CIO of $44 billion LG Electronics is making his company the first ever to implement Oracle's newest ERP platform.
For CIO Kim, who was named to the InformationWeek Global CIO 50 list three months ago because of his leadership of the massive Oracle implementation, the project has both internal and external implications. On the inside, the dynamic forces of today's global economy no longer allow the company to operate as a loosely confederated collection of 83 subsidiaries running siloed processes feeding into siloed systems producing incompatible and often inconsistent data. Kim was quite blunt about the toll that such varied versions of the truth would have had on the company.
"All global companies are facing the problem of the recession and all the problems that brings due to the global downturn," Kim said in a recent telephone interview from LG headquarters in Seoul. "So the biggest problem I have as CIO is what every executive in every other company is facing right now and that is survival—to die or not die.
"So the challenge to me from management has been, how do we optimize IT spending? We chose to reduce the IT budget by 20% in 2009," Kim said, emphasizing that he and his team are become big fans of virtualization as well as enhanced governance rigor on ROI for IT projects.
"With the global ERP project, the biggest technical issue is how are we going to support this with 80+ subsidiaries? We currently have about 25 rolled in, and when all 83 are up to speed, we need a global support system that is truly 24/7 with various languages for all the countries we operate in. It will be difficult for our people here in Korea to support all of those subsidiaries and languages, so we're looking into another overseas center tht will take over when it's nighttime here in Korea."
As significant as those internal challenges are—20% IT budget cuts, an entirely new and mostly untested global applications platform, ruthless competitive pressures, recessionary impacts on consumer spending, overhauling mission-critical business processes around the world, and more—the company's ultimate success depends on its ability to transcend all those internal issues and turn the 5-year R12 implementation into a competitive asset.
That means faster product development to keep pace with rapidly changing consumer requirements, better and faster information flow around the world to execute highly precise marketing and sales programs, and the creation of real-time and high-value inventory and replenishment information for major retailers around the globe that are expecting huge suppliers like LG to optimize supply and demand chains.
For Kim, that means above all else that he and his team mast become masters of all the business processes end-to-end across LG, which last year posted record annual revenue of $44.72 billion.
"At LG, we have great focus on on process innovation," Kim said, and "business-process innovation is a constant flow, a constant effort. With the global ERP project, of the the 1,400 business processes across the whole company, we selected the 440 that are covered with what the global ERP project will handle, and began the process to standardize those across all 83 LG subsidiaries as we implemented the new Oracle ERP platform."
The up-front mapping, optimization, and standardization of those 440 processes took 18 months, Kim said, but was well worth the effort because without it LG would simply not have been able to remake itself to meet the needs of today's global, fluid, consumer-driven, rapid-cycle, and price-sensitive marketplace.
"It is extremely important that we do standardize these processes because it will affect everything we do with customers, with volume discounts, with sales, procurement, manufacturing, and everything we do—but, each subsidiary has its own sales programs and its own schedules and its own approaches for doing those," Kim said. "But as LG continues to expand globally, we need to have a global plan so we can work consistently around the world and optimize our opportunities."
Kim and his colleagues established four major goals for the Oracle project: real-time visibility into global sales and inventory; much shorter new-product cycles; shorter closing times for financial reporting; and lowering total ERP maintenance costs by 50%. And while all of those are vital to the company's success, the one that really jumps out at me is the need for ever-faster development of new products, along with perfectly coordinated product-distribution plans, marketing plans, and sales strategies.
"It is definitely true that in the mobile-phone market in particular but also LG's other businesses, we need to move very very fast," Kim said. "With mobile phones, the life cycles have become extremely short and the prices are very cut-throat. Not so long ago, we could have a new product on the market for almost two years before we needed to replace it. But today, we are turning our new products with more features and more capabilities every six months or less."
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