M EADWESTVACO CO RPO RATI O N

24
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CASEEXAMPLE
M EADWESTVACO
CORPORATION
www.meadwestvactr.com
M o a d W e s t v a c o ,w i t h h e a d q u a r t e r s i n
Stamford, Connecticut,is a g7-billion
global company that produces speciahy
and coated paper, packagesspecialty
chemicalsa
, n d m a n u f ' a c t u r e sc o n s u m e r
and office products.It owns and managcs
s o m e 3 m i l l i o n a c r e so l ' f o r e s t u s i n g s u s tainable forestry practices.The con.rpany
operates in more than 29 countries, has
about 24,000 employees around the
worlcl, and serves customers in approxim a t e l y 1 0 0n a t i o n s .
CHAPTER 1
Information SystemsManagementin the Global Economy
Mead Corporation and Westvaco,
two comparablysized forest products
companies,
mergedin early 2002to form
MeadWestvacoCorporation. This case
studybeginsin 1985and followsthe evolution of Mead'sIT function up to the
presenttime,in its mergedform. In 2001,
InformationWee
k magazinelisted Mead
No.193in its top 500of the most innovativeusersof informationtechnology.The
IT organizationhasremainedin Dayton,
Ohio,the former headquartersof Mead
Corporation.
The 1960sand 1970s:Reorganization
of Information Services
tse
lu.en
In the 1960s,Mead's corporateinformation services(CIS) department providedall divisions with data processing
services.
By 1967,the department'sbudget had grown so large that management decided to spin off some of the
functions to the divisions. Divisions
couldestablishtheir own data processing and processengineeringgroups or
theycould continue to purchasedataprocessing
servicesfrom CIS. Many of
the divisionsdid establishtheir own IS
departments,
but all continued to use
the corporate data center for their corporateapplications.In the late 1970s,
the CIS departmenthad six groups.The
directorreported to the vice president
of operationsservices.The six groups
underthe director were:
. ComputerOperationsto manage
the corporatedata center
t Telecommunications
to designthe
telecommunicationsnetwork and
establishstandards
. TechnicalServicesto provide and
maintain systemssoftware
t DevelopmentalSystemsto handle
traditional systemdevelopment
25
. OperationalSystemsto maintain
systemsafter they become
operational
. OperationsResearchto perform
managementscienceanalysis
The 1980s:Focus on End-User
Computing
In 1980,managementrealned that its CIS
organizationalstructure would not serve
the needsof the rapidly growing end-user
community.Furthermore,to becomean
"electronic-based"organization,Mead
neededa corporate-widenetwork.Therefore, the departmentreorganizedso that
the director of corporate information
resources(CIR) reported directly to the
companypresident.This changesignaled
the increasedimportance of information
resourcesto Mead.
CIR was responsible for creating
hardware,software,and communication
standardsfor the entire corporation; it
ran the corporate data center; and it
operated the network. All the divisions
used the network and corporate data
center,and they followed the corporate
standards;some operated their own
small,distributedsystemsas well, which
linked into the corporate network. The
three departmentswithin the new group
were asfollows.
Information ResourcesPlanning and
Connol was responsiblefor planning
future information systemsand technology.This departmentgrew out of the
company'sstrongplanningculture.The
decentralizationin the 1970shighlighted the need for a coordinatingIT
body.Although it wassmall,it had two
important roles.First,it took the corporate perspectivefor IT planningto
ensurethat Mead'sIT plansmeshed
with its businessplans.Second,it acted
26
CHAPl-ER
I
ln-lctrmuliort SvstentsManugetnent itt tlte Gleltul L,..rt.,tv
(Case Continued)
as planning coordinator, helping vari_
ous groups and divisions coordinate
t h e i r p l a n s w i t h c o r p o r a t ea n d
CIR plans.
I nfo rmat io n Serv ices was responsible
lor most of the traditional IS functions
I'rom the old information services
department - company-wide telecommunications support, data center operations, development ol corporate-wide
systems,clatabaseadministration. svs_
t c m s o l t w a r cs u p p o r t .a n d t c c h n i c a l
support for end-user computing.
Most divisionsdevelopedtheir
own applications,tollowing the guide_
lincs createdby this department.The IS
steeringcommittee-composed of the
presidentand group vice presidents_
establisheda policy that applications
should be transportable among the vari_
ous computing centersand accessible
fiont any Mead terminal.The companv's
telecomntunicationsnetwork established
thc guidclineslbr making this intercon_
nection possible.
Decision Support Applicutions (DSA)
provided all end-usercomputing support
for the company.At the time of the reor_
ganization,DSA had no users,no prod_
ucts,no common applicationsamong
m u l t i p l el o c a t i o n sa. n d o n l y f i v e s t a f i
members in operations researchancl two
in otlicc systemssupport. By 19g5,they
were serving 1,-500usersin some 30 Mead
locationswith 10 staff members.DSA
ofl'ered 14 products and {3corporate-wide
applications through the tbllowing
4 groups:
c Interttctive help center provicled
hotline support and evaluatednew
end-user computing products.
.
OJlice systemssupported the dedi_
cal.edword-processingsystemsand
IBM's ProfessionalOffice System
(PROFS), which Mead used as rhe
gateway to end-usercomputing.
Divisions were tiee to select any
office system,but most followed
the recommendationsof this
group to ensure corporate_wide
interconnection.
o Decision unalysisbuilt a number
of company-wide decisi0n support
systems,such as a corporate bud_
geting model and a graphics soft_
ware system.It also used operations researchtools to develoo
l i n e a r p r o g r a m m i n gm o d e l sa n d
simulations for usersneedins such
s o p h i s t i c a t e da n a l y s i st o o l s .
o Financiul modeling cctorrlinatiort
antl EIS was in charge of Mead's
integrated financial system.It also
supported executivecomputing
through IBM pCs used by corporate executivesand an executive
information system(EIS) accessed
through PROFS.
Lafe 1980s:
StructureAdjustment
The 1980reorganization
separatecl
the
more people-oriented activities uncler
DSA from the more technical activi_
ties under the information services
department. The technology was better
managed, and relations with users
improved. However, this split causedtwo
p r o b l e m s .T h e l ' i r s t w a s t i r a t t r a d i t i o n a l
programmers and systems analysts felt
t h a t D S A r e c e i v e da l l t h e n e w a n d e x c i t ing development work.The secondproblem
was coordinating the two departments. A
m a t r i x a r r a n g e m e n te v o l v e d l o h a n d l e
both problems, with both information
CHAPTER I
Information SystemsManagementin the Global Econonty 27
(CaseContinued)
tiind
m
he
)f
ort
ttI
rch
I
S
lso
)?
sed
Cthe
nder
ctivivices
etter
Ners
Itwo
ional
; felt
rxcitblem
ts.A
.ndle
ltion
servicesand DSA people staffing most
projects.
The departmentalstructure implementedin 1980 remained essentially
intactthroughoutthe 1980swith only
two major changes.In early 1988,the
vicepresidentof information resources
beganreporting to Mead's chairman
and CEO. Second,the DSA group was
reorganized.
As usersbecamemore sophisticated
andlessgeneric,the departmentcreated
smallgroups with expertise in specific
areas.
By the end of the 1980s,they were
supportingmore than 5,000 users in
threeways:
place.By the end of the decade,Mead was
concentratingon harvestingits investment in IT by usingit as a lever to change
the way it wasdoing business.
1990: Leverage the IT Infrastructure
r Theservicecentercontinuedto
introducenew usersto technology
and provide telephonehotline
assistance
to experiencedusers.
r The application developmentconsultqntshelped usersdevelop
more sophisticatedapplications
and guidedmaintenanceof userwritten applications,which had
becomea noticeableproblem.
They also updated traditional
applicationsto permit end-user
systemsto accessthe data.
r The local area expertsworked in
the functional departmentssupporting usersin their area.They
reported directly to their area
managerand indirectly to CIR.
Due to the growing number of
user-writtenapplications,they,too,
helpeduserskeep their applications up to date.
In 1990,CIR underwent another reorganizationto bring it in line with a new
strategy.We first discussthe reorganization, then the strategy.
Managementrealizedthat the enduser systemsand large-scalebusinesssystemsneededto cross-pollinateeachother.
Users neededone place to go for help;
therefore,applicationdevelopmentwas
placedin one group,which was renamed
information services.
The emphasisof the reorganization
was to strengthen Mead's mainframebasedinfrastructurethat the corporatewide network dependedon.Although the
network had been created in 1983.its
value in connectingMead to vendorsand
customershad not been recognizeduntil
the late 1980s.Therefore,in 1990,CIR
createda new group-network servicesto handle computer operations,technical
services,and telecommunications.The
L990 reorganization also consolidated
administrativefunctions (such as chargeback) into the technologyplanning and
control group.
Although the 1990reorganization
did not add any new functions,it shifted
emphasis from end-user computing
to building an infrastructure and integrating development of all sizes of
applications.
During the 1980s,Mead found its
end-usercomputing focus shifting from
introducing new technology to making
moreeffectiveuse of the technologyin
1990 Strategy In the early 1"980s,
Mead
installed its first information resources
businessplan, which emphasizednetworking and end-usercomputing.By the late
28
CHAPTER 1 Information SystemsManasementin the Global Economv
(CaseContinued)
1980s,the objectives had been accomplished.In hindsight,managementrealized
the L980plan had been a technologyplan,
not a businessplan, becauseits goal had
been to get control of IT. Having accomplishedthis goal,Mead decidedto createa
true businessplan, one that addressedits
employingIT resources.
Using the two-by-two matrix management realized that Mead had only
been building systemsthat fit into the
lower-right quadrant-systemsto support
traditional productsand internal business
processes.
Rather than focus on company
operations,managementdecidedto shift
emphasisin two directions:(1) toward
reengineeringcompany operationsand
(2) toward using IT to work better with
suppliersand customers.
Businessprocessreengineering- that
is, significantly restructuring the internal
a major
operationsin a business*became
strategic direction, with the companywide network playing a key role. Because
IT removesmany time and distancebarriers associatedwith businessprocesses,
Mead decided to use IT to build new
processesrather than simply accelerate
existingones.
One of the major processescarved
out to be recentralized and reengineeredwas purchasing.The reengineering group discovered,for example,that
240 people handled accountspayable,
mainly reconciling mismatchesbetween
goodsreceivedand purchaseorders'By
ieengineering purchasing,the need for
such reconciliations was eliminated'
Mead outsourced the function while
developing the new purchasingsystem'
Putting in the corporate purchasing
systemwas Mead's first big venture into
reengineering.The companylearneda lot
from that experience.Italsoaccomplished
somethingfew othershad achieved:standard part numbers for all 800,000MRO
(maintenance,repair, and operations)
parts. This excruciating data-cleansing
exercisewas done so that Mead could
automatically consolidate parts orders
from all 1.0divisions and reap larger discounts due to the higher volumes.The
result waslarge savings.
The secondemphasisinvolveddoing
businesselectronicallyby extending current businessprocessesand products to
suppliersand customers.The motto was:
'olt is easyto do businesswith us,"meaning that customers could specify the
transactionformat they wished to use,
from electronicdata interchange(EDI)
for application-to-applicationtransactions acrosscompany boundaries to terminals at customersiteslinked to Mead's
computersto the telephoneusing voice
In essence,
Mead installedvariresponse.
ous front-ends on its mainframe applications. For the purchasing system,
Mead went to major parts suppliers and
required them to use EDI as a condition
of selling to Mead. The system was
fully automatic.If a part was in stock,
it was supplied; if not, an order was
generated.
Thus, the basic strategY set forth
in 1"980remained in force in 1990-to
retain central control of the lT infrastructure and distribute responsibilityfor
building and maintaining applications
in the operating divisions.As the usesof
IT changed,CIR reorganizedto focus on
those new uses:end-usercomputing in
the 1980sand businessreengineeringand
customer-orientedsystemsin 1990.
CHAPTER I
InfornrutiortSystemsManagementin the Global Economy
29
(CaseContinued)
The2000s:Technology Integration and
Creationof a Global, Process-Based,
Business-DrivenOrganization
t
n
i:
l-
e
r)
rr's
le
ii-
lin,
ild
cn
'as
)k,
ras
ruh
-to
rafor
)ns
;of
on
!in
nnd
In 1993,CIR managementrecognized
that client-servercomputing was a paradigm shift in computing. In their new
vision,applicationswould be of three
types: enterprise-wide, division, and
local;andthey would use a global networkthat reachedout beyond Mead.
CIR continued to focus on shared
services(providing the infrastructure
andsupporting enterprise applications),
whereasdivisions would tailor systems
to their customersand business.Users
would not need to worry about where
processingoccurred, where data was
housed,or how the mechanicsof information processingwere handled; CIR
wouldhandle all of these details.Data
were to be viewed as a resource and
managedaccordingly,balancing access
with integrity and security.Users would
havegreater geographicindependence
thanin the past.
This vision is based on a demanding
partnershipin which the divisions buy
into the infrastructure and its standards
whileCIR providesa flexible and responsiveinfrastructure.
New Organizational Structure Mead
soughtto absorb the new client-server
paradigminto CIR's organizationalstructure.The core was the technology layer
of the CIR organization-the four core
technologiesthat provided the IT infrastructureon which Mead operated.Data
Servicesprovided data and information.
ServerTechnologyServiceshandled all
serverson the network, from mainframes
on down. Client Services handled all
devices that customers touched, which
included desktop workstations, fax
machines,and telephones.CIR defined
their customersas Mead employeesas
well as otherswho interfacedwith Mead.
Network Services handled everything
that tied theseother piecestogether,both
voice and data communications,aswell as
the Internet, intranet, gateways,firewalls,
and interactionswith their ISP.
On the outsidelayer of the organization chart, closer to the customer,were
the application groups.Division Support
supportedthe applicationsdevelopedby
Mead's 10 operating divisions.Reengineering Support was concerned with a
few company-wide businessprocesses
that had been recentrulized and reengineered to improve efficiencyand lower
costs.These processesincluded Mead's
financial systemsand purchasingsystem,
which did not touch customers.Enterprise
Tools and Applications provided a common desktop toolkit to all Mead staff,
which consistedof hardwareand a suiteof
softwareproductq suchas spreadsheet,
email, word processing,graphics,browser,
EDI, and knowledgetools (suchas Lotus
Notes). Corporate Center Solutionshandled application developmentand maintenance of corporate applications.
TechnicalStandardsand Planning was a
one-personthinktank devoted to future
scenariogwhereaseveryoneelse worked
on the day-to-day issues.Finally, CIR
Administration,shownbeneaththe circle,
handledcontractingand financials.
Like other companies, Mead
encounteredthe typical staff problemsof
getting the mainframe staff to move into
the client-serverenvironment and getting new client-servertalent to follow the
30
cHAprER
1 InJbrmation systemsManagement
in the G*tbar Economv
(Case Continued)
needed to develop enterprise_
::t.]p*,"
wlde
systems.
The Intetnet had a large impact on
Vision 2000in that more and morl of the
vision was beingservedby it. For exam_
ple, the vision foresawstoring lots of data
on servers,so that CIR, not users"could
handlebackup.However,with so much
informationon the Internet,CIR did not
need to acquire,install,or maintainas
much public information as was orisinally planned. For instance,CIR h;d
planned to install the U.S. telephone
directory on a CD-ROM server.After it
becameavailable on the Internet, CIR
simply added an icon to the standard
desktopfor quick accessto the directory.
Meadlearnedthat client-server
computing was not cheaperthan mainframe
computing, as was touted in the early
1"990s.
In 1993,Mead placedthe costof a
Soarce.'Courtesy of the Mead Corporation.
PC^at$9,024a year ($Z,StZhard
costs,
Do.)u/ soft costs)-With the new shn_
dards,Mead believedthe soft costshad
beencur to $3,005a year.
The vision was conceived in 1993.
implementationbegan at the end oi
1994,and by 2000.right on schedule,
rhe
companyrolled out 9.000workstations.
During that time,only one changewas
made to the organization structure:
addingVision SupportServicesto handle
operations(Figure1-7).
Into the 2000s:Leverage
Centralization
By 2003,Mead would have spent g124
million dollars on the endeavor.The first
divisionwent live in late 1999,the second
in 2000,and so on. Thus,from the 1960s
to 2000,Mead's Information Resources
CHAPTER 7 InJbrmationSystemsManagementin the Global Economy
31
(CaseContinued)
divisionwouldhavemoved from significantdecentralization
to sisnificantcentralaationof systems.
4
it
d
}S
]S
ImplementingERP In the early 1990s,
Meadlookedat SAB the leadingERP system,but decidedthat the softwarewasnot
appropriate
for the forest productsindustry. In 1995,Mead looked again, and
althoughthe softwarewasbetter,managementfelt the companydid not have the
necessary
companywidestandards,so it
declined
to moveforward on ERP again.
In 1997,though,managementforced
theissue.The companyhad increasingly
beenusinga shared-services
vision,where
functionswere taken out of divisionsand
centralized,
making them best-of-breed.
purchasing,finance, and inforLogistics,
mation resources were provided via
sharedservices.
This collaborationleft the
divisionswith the customer-facingwork.
Management
saw a train wreck coming
oncethe first divisionwantedto install an
ERP system.The company would then
haveto decide,"Do we want to be good at
satisfying
customersor have good shared
services?"Management decided, "We
haveto do both."To do so,they had to put
in the sameERP systemcompanywideto
leverage
back-endsharedservicesand be
numberone in customersatisfaction.
Mead spent L998 determining the
designof the enterprise-widesystemand
beganimplementationin the first division
in 1999.From the reengineeringwork on
thepurchasingsystemin the 1990s,Mead
learnedthat significant company change
requiredbusinessleadership,thus the
SAPeffort was led by a businessexecutive,and70 of the 100team membersalso
camefrom the business;only 30 came
from CIR. In addition, some 80 IBM
consultantswere involved. Mead chose
IBM as its SAP implementation partner becauseIBM had helped Monsanto
implement SAP and had created the
IBM/Monsanto Solution Center. Mead
was able to draw on that center and
Monsanto'sexperienceand even reuse
80 percentof Monsanto'sbusinessdesign,
down to the generalledger,giving Mead
a running start. ERP implementations
are huge and expensive,and many have
failed. Mead avoided those pitfalls by
learningfrom others.
Mead used the entire suite of SAP
modules except human resources,which
washandledby PeopleSoft;it wasinstalled
in the mid-1990sand has worked well.
Mead wasone of the first to installa recent
module,AdvancedOptimizationPlanning
(AOP), which handlesall planning and
scheduling.SAP wasoriginallydesignedto
supportbuild-to-inventorymanufacturing,
which is 60 percent of Mead's business.
AOP is for the other 40 percent,which is
build-to-ordermanufacturing.
Lotus Notes, a sophisticateddatabaseiexecutiveinformation systemfrom
IBM, was invaluable in providing the
building blocksfor defining the new ways
of working under SAP. SAP required
Mead to define 800 roles and describe
the workflows and security flows among
theseroles.This task was not handled by
SAP,so Mead usedLotus Notesfor it and
other SAP supportwork.
SAP unified the company,but it is a
large and complexsystem.Inaddition,it
requiresstrict adherenceto its ruleg which
is its downside.A divisioncan no longer
tailor its own systemsto meet its market's
changingneeds;in someinstances,
changes
easily,but for major
canbe accommodated
changesit must get concurrencefrom the
32
CHAPTER
I
In.t'ltrnrutionSr',r'lelrrMtrnagt'nrentitt tlta (]lobul Econonv
(Cuse Corttinued)
other scvendivisionsto changeSAP.This
c o u l d m a k c M e a d l e s sn i m h l e :i t r e m a i n s
to be seen.
As SAP was turned on, old systems
w c r c t u r n c c l o l ' f .I n f a c t , S A P r c p l a c c d
the last gcnerationof systemsMcad built
itsell. Now. all software work is integrati n g p r c k u g e s .( ) r s y s t c m s i n t c g r a t i o n .
Nothing is codcd from scratch.Once
S A P w a s i m p l e r n e n t e dt,h e d e v e l o p r n c n t
wclrk done by thc divisionswent away
t h r o u g h n a t u r a l a t t r i t i o n .H o w e v e r ,e a c h
clivisionhas an executive information
olficer, whcl mentors the division and
coachcs it on how to use IT. They focus
o r r r e e n g i n e e r i n gt o l e v e r a g cS A P .T h e y
a r e b u s i n e s s p e o p lwei t h I T c x p o s u r ea n d
lT pcople with busincsscxposurc.
E-Commerce Thc glcatcst cl'fcct of thc
n e w i m p l c m e n t a t i o nh a s b c c n i n t c r n a l .
Mead's intranet has becornethc way thc
processes.
company conductsits br.rsirress
Thc homepage is empklyces' gateway to
m c l s to f w h a t t h c y n c c d t o c l o a t M c a d .
S A P i s b r o w s e rb a s c d .
M c a d w < l u l d h a v e p r el ' c r r ed t o
implernent c-comn-tcrccorr SAP bccausc
e - c o m m e r c ee x p o s c sa l l o t ' a c o m p a n y ' s
l c g a c y - s y s t e mi n c l f i c i c n c i e s . H o w e v e r ,
the company could ncltwait until 2003,
ancl becauseits legacysystemsstill funcl'ront
tioned in 2000,it put browser-basecl
e n d s o n i t s l c g a c y s y s t e m s .O n c c S A P
w a s i n p l a c e .o n l y t h e s y s t e m i n t c r f a c c s
needed to change.
In some sense, Mcad sces B2B
c - c o m m o r c ca s o l d w i n e i n n e w b o t t l e s .
I n 1 9 t 3 6M
. ead built a cluster terminal
systemfrlr its paper business.'l'hesystem
was proprietary; it rau on Mead's network. and Mcad gavc propliclary tcrmin a l s t o c u s t o m e r st o o r d e r p a p e r . E v e n
though the terminalswere only character
based,with no graphics,customerscould
s c e M e a d ' s s t o c k l e v e l s ,d e l i v e r y t i m c s ,
and prices.One-third of its businesscame
through this system.In 2000, the systenr
b c c a r n c I n t e r n e t b a s e d .A l l a c u s t o m e r
neccleclwas a browscr to log into Mead's
extranet to place orders.
However. Meacl discovered that
althoughit broke down its own internal
silos in installing SAP. it cncountered
silosin customers'operations.Tiueend-toend e-commercewill not occur until thesc
partnersimprove their internaloperaticlns.
Peering into the h'uture in 2000: Merger
and IT Alignment In 2(XX),Mcad's indust r y . l i k c r n o s l o t h e r s .w a s e x p c r i c n c i n g
r - r n p r e c e c l c n t egcllo b a l c o m p e t i t i o n . ' l b
s u r v i v e .a c o m p a n y n e e d e d t o b e c o m c
largcr or bccomc a nichc player.Meacl
cxpcctcd to be one of the survivors,and
m a n a g e m e nst a w S A P a i d i n gi n a c h i e v i n g
thzrtgoal. If, for cxanrple.Mead acquirecl
a n o t h e r c o m p a n y ,i t w o u l d b c a b l e t o
merge operationswithin 90 days becausc
of SAP.That capability made SAP a valuable acquisitiontool.
" T h e C I O j o b h a s d e f i n i t c l yc h a n g e d
s i n c e 1 9 t 3 5 .s" a y s L a n g e n b a h n ." l n t h e
1 9 9 0 sw
. c alwaystalkcd about IT bcing
s t r a t e g i c ,b u t i t w a s r e a l l y a w i s h . l n
2000,it is reality.The role of the CIO has
become more strategic and the role has
grown, but at the end of thc day, information technologyis inherently vnlucless.Value is created by businesschange
a n d t r u e b u s i n e s sc h a n g c c a n n o t b e l e d
by the IT side;it must spring from the
businessside.The major role of the CIO
is to bridge the gap between the business
ancltechnology,and to have the enabling
t e c h n o l o g yi n p l a c c t o d e l i v e r w h a t t h e
businessrequires, although the business
might not as yet realize what it requires."
CHAPTER I
Information SystemsManagementin the Globat Economy 33
(CaseContinued)
could
imes,
came
/stem
omer
lead's
that
ternal
Ltered
nd-tothese
ltions.
Ierger
indusrncing
rn. To
)come
Mead
:s,and
Lieving
quired
ble to
gcaUSe
l valuanged
ln the
being
sh. In
O has
le has
infor'aluelange
re led
n the
cIo
iiness
bling
t the
iness
ires."
To be a leader in this fragmented
market,Mead had to grow One route
wouldbe to grow internally,but with too
muchcapacityalreadyin the market, this
optionmadelittle sense.A secondroute
wouldbeto acquirecompaniesand consolidate.Managementdeclinedthis option
because
of its unfavorableeconomics,
saying,"You alwaysoverpay when you buy
anothercompany."The
third choicewasto
mergewith a competitor of comparable
size.Thatwasthe route chosen;Mead and
Westvaco
combinedtheir assetswithout
takingon anydebt n2002.
John Langenbahnsaw the merger
throughand then retired,turning over the
CIO job to Jim McGrane.Langenbahn
wantedto ensurethat it was viewed as a
business
investment,not an IT investment.
Therefore,the project lead, McGrane,
workedfor the businessexecutivewho
chairedthe SAP steeringcommittee.Both
McGraneand Langenbahnwere on that
committee.
Their goal was to create a
process-centered
IT organization,because
with the implementation of SAP and
its focuson processes,CIR's new role
wouldbe working on businessprocess
designenabledby IT. CIR was renamed
Enterprise
Information Solutions(EIS) to
reflectits scopeand its mission:process
solutions,
ratherthan systems.
Evolving to a New Process.Centered
Structure Balancingcentralization (and
standardization)with local autonomy
caused
an age-oldtension.McGrane dealt
with this tensionthrough a o'strategic
conversationbetween the corporation and
EIS" to decidehow MeadWestvacowould
addressit. The issue was governance:
Who would be making which decisions?
"RestructuringEIS is very akin to what the
framersof the U.S.Congitution struggled
with," noted McGrane,"instituting a federal
governmentwhile preservingstates'rights.
IT has moved from a mysterioug technical
backroom activity into the mainstream,so
we now need to hold this business-ElS
conversationto do the same."
As an interim step,McGrane put in
placethe outlines of a new EIS organizar
tional structure,one that would facilitate
the creation of a process-based,
businessdriven organization.He viewed the former Vision 2000 structure as taking a
techno-centeredview of the world-with
a workstation in the center,surrounded
by services,and then an applicationlayer.
The new structuretook a processview.
The interim organization,as shown
in Figure1"-8,
included:
t Planning and Administration,
which included an information
standardsand policy quarterback
. TechnicalServices,whichwasin
chargeof application designand
stagingprocesses
o Chief TechnologyOfficer,who was
in chargeof architecture
. Operations,which was in chargeof
the deploymentprocess
t ManufacturingSolutions,
which built and maintainedmill
and manufacturingsupport
systems
o BusinessSolutions,whichincluded
ERP,emergingsolutions,and other
businesssystems.Members of this
group also handled sunrise/sunset
systems,which meansthey were in
chargeof managingdown ("sunsetting") legacysystemsas SAP
was implernentedin plants and
replacedthosesystemsand
explored emerging("sunrising")
technologies.
34
CHAPTER I
Information SystemsManagementin the Global Economy
(Case Continued)
FinancialModeling
Coordinationand EIS
Source:Courtesyof Mead Corporation.
McGrane's goal was eventuallyto evolve
EIS along three major areasof focus:
and Applications
l. BusinessProcesses
so that EIS wasviewedasa business
enabler
2. Infrastructureso that by designing
and developingthe right kind of
infrastructure,businessprocesses
could be automatedusingadvanced
softwareapplications
3. Administration ta ensurereturn on
investments,end-usereducation
and support,assetmanagement,
information security,and business
continuity,to namejust a few
CHAPTER 1 InJbrmation Systerns
Managementin the Global Economy
55
(CaseContinued)
Within these three areas, a series
of processes
neededto be defined.For
example,one administrativeprocesswas
security.
Creatingthis processstartedwith
definingit, statingpolicies and procedures
(thatis,what was to be protected),and
thencreatingtasksto ensureexecution.
peoplewho do securitywork reside
Today,
in different functions throughout the
company.The question McGrane asked
was,"Dowe organizethem around a security processor usea matrix,with a security
quarterback?"The
businessgoal wasendto-endsecurity and protection of vital
information.Toachievethat, the company
hadto move from viewing security as an
activityto viewingit asa process.This was
theorganizationalchallenge.
This three-areafocus had actually
beenin use since preplanning for the
merger.The
integrationteamswereorganized around these three areas.Each
team'sobjectiveswere to find synergies
andadopt standards.Adopting Mead's
SAPmodel,for exampleoshavedmillions
ofdollarsoff future expenses.
During the first four months following
themerger,the new EIS teamcloseddown
Westvaco's
data center and migrated the
systems
to Dayton. Desktops,networks,
and e-mail systems were migrated to
onestandardeach.In integratingthe two
IS organizations,EIS saved additional
millionsof dollars and freed resourcesto
focuson more strategicinvestments.
led
on
Creating a Governance Structare A
majorissuewas investment.How could
thecompanyensurethat the EIS portfolio wasalignedwith the businessstrategy?
And how could EIS engagethe business
unitsin constructiveconversationsabout
whatto do next? How would the companydecidebetween,saf, an investment
in infrastructure and an investment in a
Web-basedapplication?Should they be
measuredthe sameway?What shouldthe
measurements
be?
Basedon researchoutside the organization, McGrane estimatedthat perhaps
only 50 percent of an IT organization's
investmentswere aligned with the business'sgoalsbecausethere have been few
mechanisms for holding conversations
with the business.MeadWestvacoknew it
could not afford that level of misalignment.
Now that EIS spending was more than
3 percentof sales(rather than 0.5 percent
in the 1970s)and embodiedhow the businessoperated (such as how orders were
filled), business-ITconversationshad to
becomethe norm. From the mechanisms
used to hold these conversations,
EIS's
organizationalstructurewould emerge.
Thus,EIS experimentedwith some
governancestructures.To govern overall
IT investments,for example,an executive
steeringcommittee was formed. It consistedof the executivevice presidentsof
the businessunits, the CFO, CIO, and
head of manufacturing research and
development. These seven executives
meet monthly to review and approve
new investmentsand resolve conflicts.
MeadWestvacomoved toward an IT
investmentportfolio with four "buckets":
t. Infrastructure: Yalue is measured
by tolal cost of ownership(TCO)
benchmarkedagainstthe world.
2. afility applications: These
included payroll, compliancesoftware,and such;value is measured
by benchmarkedTCO.
3. Businessapplications: Value is
measuredby return on investment
(ROI).The total costof the
36
CHAPTER 1
Inforn'tationSvstemsManapementin the Global Economy
(CaseContinued)
applicationwill be madevisible.
Thus,if it requiresmodifying or
expandingthe infrastructure,that
costwill be madevisible.
4. Emerging and experimental
applications: No expectationsare
which
madeof theseinvestments,
dealwith technologiesthat might
transformthe businessbut have
associated
technologyrisks.ERP
wasexperimentalin 1995;reverse
auctionsandWeb applications
were experimentalin 2002.This
categoryis no more than 5 to
10 percentof EIS's budget.
Extending Standqrdizqtioz Administration of most of the developmentresources
was centralized.Formerly,businessunits
managedtheir own IT developers."We
are findingthat aswe engagein conversations that make total costvisible,and we
provide alternatives that deliver equal
value at lower cost,we have arrived at a
point where the businessunits are willing
to give centralizationof developmenta
driactuaily
SAP.has
Mg0rane
tty,"says
ven this move;its developmentwas centralized and its configuration is centrally
controlled.As SAP replacesthe legacy
the businessunits'need for local
systems,
developershas gone away.EIS extended
that central model to Web technology;
most developmentwascentral.
To balancethe tensionbetweencentralization and local needs,EIS worked
with businessleadershipto creategoverning councils,which include businessleadcouncils"own" specificprocesses
ers.These
and direct the technotogy enhancements
Th.e
- required
to improvethoseproceses
is
benefit of thesecouncils,notesMcGrane'
ihu, orr"" a council approves an enhanceacross
ment, that enhancementhappens
the corporation at one time. Thus, an
improvementin plant maintenanceoccurs
decidethe
at all the plants;the businesses
prioritieq and they occurcompany-wide.
Implementing ERP drove MeadWestvacoto leverageresourcesto solve
problemsas a joint entity.The company
came to see that a problem for one is
generallya problem for all. Thus,central
designis leveraged.The result is that a
businessunit that wantsto make a change
needsto have conversationswith the others, and those conversations revolve
aroundwhat is good for the whole.
"The answer might not be reached
as quickly, but it is a more effective
answer,"statesMcGrane,"Our business
doesnot changeat Web speed.So need-'
ing to make a decisionquickly is often a
red-herringargument.Standardization
has forced real businessdiscussionsto
occur.And it is forcingour businessleaders to become more technology literate,
and those of us in EIS to becomemore
literate about the businessissueswe are
trying to solve.That's all for the good."
McGrane was elected vice president
in2002.
20042Cr eating the Process-Based,
Business-Driven EIS Organization
In mid-2004,McGrane wastwo yearsinto
his five-year plan to turn EIS into a
organiprocess-based
and business-driven
I
expected,"
tougher
than
a
bit
zation."It's
he admits.Accordingto McGrane:
It's essentiallyreengineeringthe organizationfrom beingfunctionally oriented to being processoriented' We
are movingfrom managingwork to
managingoutcomes
WecharacteriTeour future stateas
"nimble," where IT is embeddedin
CHAPTER 1 InJbrmationSystemsManagementin the Global Economy
31
(CaseContinued)
,s,an
rccurs
le the
ide.
vleadsolve
npany
oneis
cpntral
that a
change
theothrfevolve
F
reached
:ffective
business
Soneeds often a
:dization
ssionsto
ressleady literate,
rmemofe
eswe are
hegood."
president
sed,
ation
yearsinto
IS into a
'enorganiexpected,"
ne:
he orgawlly ori
nted.We
work to
'estateas
eddedin
strategiesand we in EIS
our business
cansupportchangewithout disrupting
our operation,which is global,mobile,
andalways-open-for-business.
If you look at what it will take
to survive,CIOs have to figure out
(1) how to achieve better stategic
alignmentacrossthe corporation, the
businessunits, and IT investments;
(2) how to deliverhigh-qualityservice
whiledriving out costs;and (3) what
theright organizationalmodel for IS
shouldbe.Wedon't yet know theright
organizationalmodel for EIS,but we
do know we must transitionour skill
setfrom managingsubordinatesto
and deliveringservices.
negotiating
During their due diligence on how
to put the theory of processorientation
intopractice,McGrane'steam discovered
ITIL (InformationTechnologyInfrastrucframework
tureLibrary),a process-based
for managingIT servicedelivery.Rather
than start from scratch on defining IT
processeg
ITIL hasbeenadopted.
"We choseITIL becauseit supports
our strategy. It focuses on service
management-aligning services with
futureneeds,improving servicequality,
andimprovinglong-termcosts-just the
issues
we needto solve,"saysMcGrane.
ITIL ITIL was developed by the U.K.
Officeof GovemmentCommerce(OGC)
in the late 1980sto improve IT service
deliveryby the U.K. central government.
Theresultwasa set of books that describes
bestpracticesin IT servicedelivery.The
books,edited by OGC, were written by
numerousorganizationsand verified by
An entire industry has grown up
others.6
aroundITIL, providing training,consulting,
certification,and eventrade associations.
The main tenet of ITIL is that the IT
infrastructure*which includes not only
hardware and software but also skills,
communications,and documentationsupports the delivery of IT servicesand
thus needsto be managedprofessionally.
lTlL calls this managementIT service
management,and it has two main setsof
IT managementprocesses:servicedelivery and servicesupport.The two ITIL
books on these subjectsdescribe the key
componentsof theseprocessesand provide guidance on how to create and
operatethem.
Servicedelivery is composedof five
tacticalprocesses,
all aimed at the longterm planning and improvement of IT
services:
o Availability managementis the
processof optimizing the capacity
of the IT infrastructure.
t Capacitymanagemenlis the
processof managingresourcesat a
time of high demand (suchas a
crisis) and predicting the need for
extra capacityin advance.
t IT servicecontinuity rnanqgement
is the processof managingthe
organization'sability to continue
providing an IT serviceafter a
businessinterruption.
o Service-levelmanagementis the
processof continually improving
the quality of an IT service,
t Financinlmanagement
for IT services
is the processof beinga good steward of the organization'smoney.
Service support is composedof one
operationalfunction and five operational
processes.All aim to ensure that customers have accessto the servicesthey
need to support their business. The
l
38
Managementin the Global Economy
CHAPTER 1 Information Systems
:
I
t
(CaseContinued)
processesdiffer from the function in that
they are measuredbYtheir outcome:
t Servicedesk(a function,not a
process)providesone Point of
contactfor users.
o Incidentmanagement
is the process
of restoringa disruPtedservice.
t Probtemmanagement
is the
processof diagnosingthe causesof
incidentsand preventingthem'
. Changemanagemenris the process
of handling changesefficientlY.
. Releasemanagementis the processof
managingnew versionsof a service.
. Configurationmanagementis the
processof managingall the
componentsof a serviceor the
infrastructure.
The five other ITIL books deal with
the processesof security management;
infrastructuremanagement(suchasmanaging network services);applicationmanagement;planningto implementservice
management;and three books for busi
nessmanagerson integratingIT into the
businessin times of change,dealingwith
transitions in the IT infrastructure, and
understandingthe role of managersin
improvingIT servicedelivery.
ImplementingITIL at MeadWestvaco The
EIS structureMcGrane implementedin
2002has not changed.Four major steps
toward the transformationof EIS have
been to (1) put IT governancein place,
(2) assignthe first businessrelationship
manager,(3) begin creating the service
catalog,and (4) pilot test three ITILbasedprocesses.
IT GovernanceIs in place. ,.In our
industry,the economicsdictate that we
centralizeIT to cut costs.Wecannotafford
decentralization.To achieve business
alignment,we are using IT governance
structures,"notesMcGrane.
The overall model is one of stewardship;that is, actively managingthe assets
that have been entrusted to us for the
good of the organization.Thethreebodies
handleIT governance:7
I
. The EIS SteeringCommitteeactsas
an internalboardof directorsfor
IT.It is chairedby the business,
approvesIT's strategicdirection,
and
overseesIT investments,
resolvesdisputes.
. The IT Councilrepresentsthe
interestsof the businessunits and
the corporation.It is chairedby the
CIO and includesinformation
officers from the units.On the one
hand,the membersadvocateProjects that drive unique value for a
particularbusiness.
On the other
hand,they presentdecisionsto
their respectiveareasto ensure
alignment.Thecouncilalsodrives
overseesservicelevel
standards,
and approvesthe
management,
IT infrastructure.
o BusinessPerformanceTeams
representthe interestsof business
processteams.They are chaired bY
processownersor businessleaders,
they drive initiatives aimed at
improving businessperformance,
and they ensurethat standardsare
beingfollowed.
The First BusinessRelationshipManager
Has BeenAssigned. So far, one business
relationshipmanagerhas been assigned
to a MeadWestvacobusinessunit. This
senior IT executive acts as both coach
CHAPTER 1 Information SystemsManagementin the Global Economy
39
(CaseContinued)
IESS
.nce
ardsets
the
lies
AS
I
he
;s
ry
)fS,
te
aqer
NESS
;ned
This
:ach
andaccountexecutivefor that unit-a
steptoward improving "the interface
point" between EIS and the unit.
Together,McGrane and the business
unit'shead(who wasvery open to having
suchan intermediary) decided on the
newappointment.
He waschosenfor his
business*ITacumen. Others will be
chosenfor the samecapability.
"The benefit of this new position is
thatthe businessunit gets a singlepoint
of contact,"saysMcGrane.o'Later,these
managers
will becometheir unit's advocatewithin EIS.The benefit to us in EIS
is that we will get better information
comingback to us from the business
units.The goal is more efficient and
effectiverelationships."
McGrane is spendingabout 50 percentof
his time on this internal reorganization,
40 percent of his time on corporate
and businessunit issues,and 10 percent
with MeadWbstvacocustomers.He says,
"That's not enoughtime outsidethe company.Once the internal reorganizationis
accomplished,I hope to be working more
externally with our larger customers,to
exploit supply-chaintechnologies.At the
moment, that work is happening at a
lower level."
The EIS Service Catalog Was Developed. The service catalog essentially
documents
the ElS*businessconversation
aboutwhat servicesEIS provides and
whatusersand customersexpect.It is a
majorpart of the transformation,so EIS is
goingthroughformal planning stagesto
createit.
It containsa high-level listing of
productivity tools, conEIS'sservices,
nectivity options, applications, consulting,and application development
[,ach servicehas a service-level
services.
agreement
that tells usersand customers
whatto expect,and the cost.To support
theseservices,EIS puts in place the
formal ITIL support processesnoted
earlier.
ITIL is actuallyvery complex.Each
process
(activitiesand
hassubprocesses
tasks).Tasks become roles. Roles are
aggregatedinto jobs. Once defined,
McGranefacesthe challengeof introducing this process-based
organizationinto
hiscurrentfunction-basedoreanization.
In essence,
they needto know asmuch
about usingIT to run their businessas
they already know about finance.
They must be able to judge the value
of an IT investmentand balancethat
value againstthe operationalchanges
they will need to make (in processes,
people,investments).
IT investmentdecisionsare cornplex, and IT vendors' commercials
do not portray this complexity.I wish
they would stop promising simple
silver bullets-like "fust outsource
everythingto us and we'll handle it for
you" -because theyare creatinga hostile environment betweenIT and the
business.
In reality,wecould not afford
to outsourceall IT to a vendor-nor
wouldwe.
The Role of the Business "For business
executivesto be truly involved in guiding IT, they must havea fairly high level
of IT maturity," notes McGrane. He
continues:
The IT governance structure, the
businessrelationshipmanagers,and the
processteams are creating the context
for the in-depth lT-businessconversations
that need to take place for the business
CHAPTER 1
40
Managementin the Global Economy
Information Systems
(CaseContinued)
executives to understand the IT issues
and become truly involved in guiding
lT. They are a start to MeadWestvaco's
emergingITIL model'
Thanks to the new IT infrastructure'
MeadWestvaco has reinvented its cul-
ture, businesspractices,and innovation'
Its abilitv to effectivelymanagecustomer
,etution.ttips has led to new solutions'
The global companyhasbeen recognrzeo
;- ;h" power uetrina the consumer
package.I
AND EXERCISES
OUESTIONS
ReviewQuestions
in the chapter, allowing the reader
Review questions are based directly on the material
topics' and ideas'
to assesscomprehension of the chapter's key principles'
1. What changes are taking place in the external business environment?
environment?
2. What changes ur" o""rrriing in the internal organizational
environment?
work
new
the
goals
of
the
are
3. What
software'
4. Give two or tiree characteristicsof the technology trends in hardware,
data, and communications.
How
5. What is the mission for the IS organization recommended by the authors?
informaof
does it differ from earlier perceptions of the purpose and objectives
tion systems?
6. Summarizethe four main componentsof the model of the IS function (Figure 1-6)'
information
and knowledge-based
7. List severalattributesof procedure-based
Why?
you
important?
think are most
activities.Which do
8. How did Mead focuson end-usercomputingin the 1980s?
9. What was Mead's 1990 strategy?
10. Why did Mead choose to implement ERp?
11. Give an example of a MeadWestvaco governance structure to govern overall
IT
investments
12.What four "buckets"is MeadWestvaco
movingtoward to defineits IT investment
portfolio?
13.what hasbeenthe effectof ERp on Meadwestvaco'sdecisionmakins?
14.As of mid-2004,what four stepshad McGranetaken to transformEIS-intoan
ITIL-like, process-driven
organization?Briefly describeeachstep.
,
15' Describethe three IT governancebodiesat MeadWestvaco
and what eachdoes.
Discussion
Ouestions
-
are basedon a few topicsin the chapterthat offer a legiti
,"]::."rsion,questions
basistor a differenceof opinion.Thesequestionsfocusdiscussionon these
,
issu-es
the book is usedin a seminaror classroomsettins.
CHAPTER1 InformationSystems
Management
in theGlobalEconomy 41
'ation.
tomer
ltions.
gnized
sumer
:
powerout of the IS organi1.Eventhoughthe PC dispersed
controlof processing
zation,theInternet is returningcontrol to the department.Do you agreeor
Discuss.
disagree?
2.Do we reallyneeda majorchangein the waythe lS functionis structured?
Are
thenecessary
changesjust minor modificationsto accommodatenormal growth
in computeruses?Discuss.
3. Theprocedure-knowledge
dichotomydoesnot add muchbeyondthe clerical-managerial
distinction.Do you agreeor disagree?
Give reasonsfbr your opinion.
4. Thelnternet-based
economyis goingto end up just like the old economywith the
hugeconglomerates
controllingeverything.Do you agreeor disagree?Is this
situationdesirableor not?
5. Discuss
the limitsand boundaries
of the lnternet.How pervasive
is it in our lives,
asworkersand consumers?
How it will affectthe businesslandscapein the next
10years?
Exercises
hereader
oftware,
s?How
nformaigure1-6).
ation
rerallIT
rvestment
1toan
rchdoes.
providean opportunitytbr the readerto put someof the conceptsand ideas
Exercises
intopracticeon a smallscale.In particular,oneexercisein eachchapterrequiresa student,
or a teamof students,
to visit a localcompanyand discoverhow the ideasin the chapter
arebeingimplementedin that company.
1.Showhow MeadWestvaco's
2002interim organizationalstructurecompareswith
themodelin Figurel-6 by enteringits functionson the figure.
2. Contacta companyin your communityand preparea diagramand narrativeto
describethe structureof its IS function.Compareit with FigureI -6 and with
MeadWestvaco's
currentstructure.
3. Findan articleabouthow companies
are meldingthe lnternetwith their traditionalwaysof working.Presentthoseideasto your peers.
R EF ER E N C E S
'[he
t. Cairncross,
Frances, Companyof the
Future:How the CommunicationsRevctlution
Is Changing
Management,
HarvardBusiness
SchoolPress,
Boston,2002.
2. Trachtenberg,
Jeffrey,"Borders SetsOut
to Makethe Book Business
Businesslike,"
TheWallStreetJournal,May20,2002,
pp.Bl,86.
3. Drucker,PeterF.,"The Comingof the New
Organization,"
HarvardBusinessReview,
January/February
I 988.
Manville.
Brook,and NathanielF-oote,
"Strategy
as if KnowledgeMattered,"^Fasl
Company,7996.
legitimate
isueswhen
"The ComingTelecosm,"
Gilder,George,
(speech,
Aspenlnstitute.Aspen,CO,July 18,
1ee6).
6. Pink Elephantwasone of the organizations
involvedin the initial ITIL effort and is now
a leadingITIL consulting
and trainingfirm.
It providesa goodoverviewof ITIL on its
Website.For instance,seeThe ITIL Story,
Pink Elephant,
Version3.1,April 2004.
Availableat wwwpinkelephant.com.
AccessedJune2004.
7 . For more discussion
of MeadWestvaco's
IT governancestructure,seePeterWeill
and JeanneRoss,17'Governance:
How Top
PerformersManageIT DecisionRightsfor
HarvardBusinessSchool
SuperiorResults,
pp.94-96:and CIO Magazine,
Press,2004,
"From Chaos,Agility," CI O M agazine,
J u n e1 . 2 0 0 4 .